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Your Money: An Adage Adjustment for Investors at Retirement

September 13, 2013 by

Traditionally, retirees have been told to keep a significant slice — about 50 to 60 percent of their portfolio — in these risky assets, and that’s what many people tend to do. Then they hope and pray the stock market doesn’t plummet as it did in 2008 and 2009.

That’s why the results of a new study are so intriguing. It found that holding as little as 20 percent in stocks upon retirement, with the remainder in bonds, would result in a smoother ride during turbulent markets, and the money would last a few years longer.

There is a small catch. Retirees need to gradually buy more stocks over time, but they don’t necessarily end up owning much more than most retirees start out with.

“There are a lot of retirees in serious trouble because they bailed entirely in late 2008 or early 2009 because they couldn’t get comfortable with the volatility of a traditional portfolio,” said Michael Kitces, director of research at the Pinnacle Advisory Group, who wrote the study with Wade Pfau, a professor of retirement income at The American College of Financial Services.

Even though it usually pays to do nothing at all when the stock market dives, it is hard to blame retirees who cannot withstand that sort of gut-wrenching volatility. So they dump their stocks at the worst possible time — either because they’re afraid or because they need the money to live on — and lock in their losses. If a smaller slice of their retirement savings were bouncing around, it might have been easier to remain invested.

The approach outlined in the study is essentially the opposite of the traditional advice, which suggests keeping a steady mix of stock and bond funds throughout retirement or slowly lowering the amount of stocks. In fact, more than half of target-date funds for people nearing or in retirement continue to reduce stock positions over time, according to Morningstar.

Portfolios that started with about 20 to 40 percent in stocks at retirement, and then gradually increased to about 50 or 60 percent, lasted longer than those with static mixes or those that shed stocks over time, according to the study. (The average target-date retirement fund for people in and near retirement holds about 48.3 percent in stocks, according to Morningstar.)

This sort of approach makes logical sense because retirees are most vulnerable in the early years of their retirement. Why? If you experience a bear market shortly after you stop working, you need to make withdrawals when the portfolio is down. You’re selling at the worst possible time.

But if the market performs poorly later, say in the second half of retirement, the damage to the portfolio is far less severe because the money had several decent years first. In other words, the sequence of your returns matters, especially in retirement. “If you have a bad sequence of returns early in retirement, you would have a lower stock allocation when you are most vulnerable to losses,” Mr. Pfau said, referring to their approach.

The second piece of this strategy involves slowly increasing your exposure to stocks. The thinking here goes something like this: If a big crash occurs in the early years after you retired, you will essentially be buying stocks when they’re cheap. So by the time the market recovers, you’ll have a bigger slice of your money in stocks again. “It becomes a ‘heads you win, tails you don’t lose,’ situation,” explained Mr. Kitces.

More specifically, the study looked at how different mixes of stocks and bonds would affect how long a retiree’s money would last if that person initially withdrew 4 percent of total assets each year (and adjusted that amount each year thereafter for inflation). So, for a person with $1 million in retirement assets, that would translate to a $40,000 withdrawal the first year; for someone with $500,000 in savings, the withdrawal would be $20,000, and so forth.

They tested the different stock and bond allocations using a Monte Carlo analysis, which simulates thousands of situations to determine the odds of possible outcomes; they also analyzed how the different mixes would perform with three different sets of market returns after inflation. (They included average historical returns and today’s nonexistent bond yields and a 3.1 percent return for stocks, on average. The third set of returns assumed bonds generated 1.5 percent while stocks produced 3.4 percent.)

Even in a worst case, they found that new retirees who start with 30 percent in stocks and slowly increase that allocation by 1 percentage point a year to 60 or 70 percent in stocks would be able to withdraw 4 percent of their portfolio for about 30 years. Someone who held 60 percent in stocks and 40 percent in bonds over 30 years would run out of money two years earlier, but would also have to endure a bumpier ride, the researchers said. (These results assumes stocks will grow about 6.5 percent a year, on average and after inflation, while bonds will increase 2.4 percent).

Article source: http://www.nytimes.com/2013/09/14/your-money/turning-the-conventional-stock-buying-wisdom-for-retirees-on-its-head.html?partner=rss&emc=rss

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Dow Hits 3rd New High, Helped by Jobless Report

March 8, 2013 by Leave a Comment

The stock market rose slightly on Thursday, pushing the Dow Jones industrial average to a new nominal high after it surpassed its previous peak two days ago. The gains came after a new report provided evidence that hiring was picking up.

The Labor Department reported that the number of Americans seeking unemployment benefits fell by 7,000 last week, driving the four-week average to its lowest point in five years. The drop in new jobless claims is a positive sign ahead of Friday’s employment report.

The Dow industrials rose 33.25 points, or 0.2 percent, to 14,329.49. The Standard Poor’s 500-stock index gained 2.80 points, or 0.2 percent, to 1,544.26. Both indexes rose for the fifth consecutive day.

The S. P. 500 is closing in on its own high close of 1,565.15, which was reached on Oct. 9, 2007, the same day as the Dow’s previous peak. The S. P. 500 would need to rise 20.89 points, or 1.4 percent, to set a nominal record, though both indexes are still far below their peaks if inflation is taken into account.

Investors have been buying stocks on optimism that employers are slowly starting to hire again and that the housing market is recovering. Growing company earnings are also encouraging investors to enter the market. The Dow is 9.4 percent higher so far this year and the S. P. 500 is up 8.3 percent.

“If you have a multiyear time horizon, equities are an attractive asset, but don’t be surprised to see some volatility, especially after the big run we’ve had,” said Michael Sheldon, chief market strategist at the RDM Financial Group.

The Nasdaq composite index advanced 9.72 points, or 0.3 percent, to 3,232.09. It is up 7 percent this year, but it is well below its high of more than 5,000, reached during the dot-com boom in 2000.

Boeing helped lead the Dow higher on Thursday, advancing $1.97, or 2.5 percent, to $81.05 after reports that American regulators were poised to approve a plan within days to permit the company to begin test flights of its 787 Dreamliner jet. The 787 fleet has been grounded since Jan. 16 because of safety concerns about the plane’s batteries.

Jeffrey Saut, chief investment strategist at Raymond James, predicted that any sell-off in stocks might be short-lived as investors who have missed out on the rally since the start of the year jump into the market.

“The rally is going to go higher than most people think,” Mr. Saut said. “This thing has caught most money managers flat-footed.”

The stock market’s rally this year has been helped in no small part by continuing economic stimulus from the Federal Reserve, which is buying $85 billion each month in Treasury bonds and mortgage-backed securities. That has kept interest rates near historical lows, reducing borrowing costs and encouraging investors to move money out of conservative investments like bonds and into stocks.

On Thursday, however, interest rates moved higher in the bond market. The price of the 10-year Treasury note fell 16/32, to 100 2/32, while its yield rose to 2 percent from 1.94 percent late on Wednesday.

Among the stocks making big moves, PetSmart fell $4.37, or 6.6 percent, to $62.18 after the company reported its fiscal fourth-quarter earnings. Profits for the pet store chain rose, but its forecast for this year disappointed investors.

Pier 1 Imports fell 96 cents to $22.28 after the company issued an earnings forecast that was below Wall Street analysts’ estimates.

The supermarket chain Kroger rose 89 cents, or 3 percent, to $30.25 after the company’s fourth-quarter profit handily beat Wall Street expectations.

Gap rose $1.41, or 4.1 percent, to $35.87 after it said a crucial revenue measure rose more than expected in February, helped by sales at its Gap and Old Navy stores.

Article source: http://www.nytimes.com/2013/03/08/business/economy/daily-stock-market-activity.html?partner=rss&emc=rss

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DealBook: Detail by Detail, Gupta’s Lawyer Deconstructs Goldman Testimony

June 9, 2012 by Leave a Comment

It had to have been among the least productive weeks of Lloyd C. Blankfein’s six-year tenure as the chief executive of Goldman Sachs.

For the better part of three days this week, Mr. Blankfein testified at the trial of Rajat K. Gupta, the former Goldman director who is facing charges that he leaked the bank’s secret boardroom discussions to the hedge fund manager Raj Rajaratnam from 2007 to 2009.

Though Mr. Blankfein appeared at ease in the courtroom, he had to clear his busy calendar. He could not monitor the volatility in the financial markets. He could not even check his BlackBerry, to which he has acknowledged something of an addiction. In short, he could not do his job.

Instead, Mr. Blankfein, who has spent most of his career in the fast-paced environment of a trading floor, had to sit still on the witness stand and respond to hours of often-monotonous questions. Lawyers on both sides had him discuss Goldman’s inner workings, from the contents of board meetings to his relationship with his lieutenants.

Goldman has played a starring role in the trial of Mr. Gupta, which wrapped up its third week in Federal District Court in Manhattan before Judge Jed S. Rakoff. The prosecution rested its case on Friday, and the defense began to put on its own witnesses.

Late Friday, after the jury had gone home for the weekend, Gary P. Naftalis, a lawyer for Mr. Gupta, said it was “highly likely” that Mr. Gupta would testify in his own defense next week.

Mr. Naftalis spent much of Friday cross-examining Mr. Blankfein to try to show that some of the information Mr. Gupta is accused of leaking was known by the market and thus not “material nonpublic information” under the insider trading laws.

The line between public and private information is critical in the case, and Mr. Naftalis worked hard to try to erase that line. He showed Mr. Blankfein two reports from analysts who followed Goldman during the 2008 financial crisis. The reports, written by analysts at Merrill Lynch and Oppenheimer, raise the prospect of Goldman buying a retail bank. Both reports came after meetings with top Goldman officials.

“GS Bank Trust?” pondered one report. “Don’t rule it out.”

A rationale for putting the reports before the jury was to minimize damage from the only phone conversation between the two recorded by a Federal Bureau of Investigation wiretap. During that call, in July 2008, Mr. Gupta tells Mr. Rajaratnam that Goldman’s board is considering buying a bank.

A jury convicted Mr. Rajaratnam, who ran the now-defunct Galleon Group hedge fund, of orchestrating an extensive insider trading conspiracy last year.

At times, Mr. Naftalis and Mr. Blankfein often seemed to fight for the jury’s affection. While Mr. Blankfein was being presented with a batch of news pieces about Goldman’s possible purchase of a bank, an article flashed on the overhead screen with a photograph of Mr. Blankfein resting his face on his left hand. This prompted laughter from the jury and spectators.

Mr. Blankfein, seizing the moment, mimicked the pose from the witness stand, leading to more cackling in the courtroom.

Comparing Mr. Blankfein’s pose against the photograph, Mr. Naftalis instructed the chief executive to move his hand “down and a little to the left.”

As he left the courtroom, Mr. Blankfein acknowledged the jury with a nod and a smile.

Before resting their case on Friday, prosecutors played several secretly recorded short voice mail messages left by Mr. Gupta on Mr. Rajaratnam’s cellphone. During one on Oct. 10, 2008, a time of market turmoil during the financial crisis, Mr. Gupta says: “Hey Raj, Rajat here. Just calling to catch up. I know it must be an awful and busy week. I hope you are holding up well. Uh, and I’ll try to give you a call over the weekend just to catch up. All the best to you, talk to you soon. Bye bye.”

Mr. Gupta’s lawyers have said that by October 2008, Mr. Gupta had lost his entire $10 million in a Galleon fund and had a falling-out with Mr. Rajaratnam and thus had no interest in passing along insider tips. The friendly tone of the voice mail message was the prosecution’s effort to debunk that theory. Reed Brodsky, a prosecutor, rested the government’s case after playing the recordings.

For the last 45 minutes of the day, the jury watched the defense’s videotaped deposition of Ajit Jain, a top lieutenant at Berkshire Hathaway and a top contender to succeed Warren E. Buffett, Berkshire’s chief executive.

Mr. Jain, a friend of Mr. Gupta’s, testified about the acrimony that had developed between Mr. Gupta and Mr. Rajaratnam. He said that during a lunch in January 2009 at an Italian restaurant in Stamford, Conn., Mr. Gupta told him about the bad blood.

“He told me that he had $10 million invested and he had been gypped, swindled and cheated by Raj and had lost his $10 million.”

Article source: http://dealbook.nytimes.com/2012/06/08/detail-by-detail-guptas-lawyer-decontructs-goldman-testimony/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook Column: Volatility, Thy Name Is E.T.F.

October 11, 2011 by Leave a Comment

Douglas A. Kass, founder and president of Seabreeze Partners Management.Douglas A. Kass, founder and president of Seabreeze Partners Management.

Did you watch the markets on Monday? In the last 18 minutes of trading, the Standard Poor’s 500-stock index jumped more than 10 points with no news to account for the rally. If you were left scratching your head, you were not alone.

Almost every day there is an article in the newspaper trying to explain the stock market’s wild swings, or volatility, and often the explanation is inconclusive, involving everything from Europe’s banking problems to new fears of recessions.

Through the summer and into the fall, I, too, have been pondering the gyrations in trading, especially the late-day sell-offs and rallies that seem always timed perfectly to coincide with the closing bell. Rarely do the rallies or sell-offs, which invariably start after 3 p.m., justify 3 to 4 percent moves in the indexes. The swings have a deleterious effect on the markets because they undermine confidence and investors start sitting on the sidelines.

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And then I started talking with investors like Douglas A. Kass, a longtime Wall Street denizen who is the founder and president of Seabreeze Partners Management.

He says he knows the culprit behind the late-day market swings: leveraged exchange-traded funds or E.T.F.’s.

These funds, which allow investors to bet on a certain basket of stocks, commodities or an index, are perhaps the hottest rage in investing, with some $1 trillion invested. E.T.F.’s are particularly attractive to some investors because you can bet long or short — and you can leverage your bet. And you can hop in and out within the trading day to lock in gains, just as with stocks.

If you bet $100 that the ProShares Ultra SP500 would rise by 1 percent on a given day, and it did so, say by 3 p.m., you could settle the bet and receive double the return — in this case 2 percent (excluding fees). Of course, if the market goes in the opposite direction, you could lose 2 percent. There are also what are called inverse leveraged E.T.F.’s that go up when the price of the basket of goods goes down, and vice versa.

To Mr. Kass, these E.T.F.’s are the “new weapons of mass destruction.” (His description is an homage to Warren Buffett’s widely quoted line that derivatives are “weapons of mass destruction.”)

“They’ve have turned the market into a casino on steroids,” Mr. Kass said. “They accentuate the moves in every direction — the upside and the downside.”

Mr. Kass, who has written about this topic for TheStreet.com, may be right: at the end of every day, leveraged E.T.F.’s have to rebalance themselves by buying and selling millions of shares within minutes to remain properly weighted. If the E.T.F. made money that day, to remain balanced it has to reinvest the proceeds and leverage them again. In many cases, leveraged E.T.F.’s use options, swaps and index futures to keep themselves in balance.

You might consider the E.T.F. the new derivative.

“It is these derivatives and not the phenomenon known as high-frequency trading (H.F.T.) — commonly critiqued as contributing to the ‘flash crash’ of May 6, 2010 — that pose serious threats to market stability in the future,” Harold Bradley and Robert E. Litan of the Kauffman Foundation wrote in a controversial white paper last year. “The S.E.C., the Fed and other members of the new Financial Stability Oversight Council, other policy makers, investors and the media should pay far more attention to the proliferation of E.T.F.’s and derivatives of E.T.F.’s.”

Mr. Bradley and Mr. Litan contend that it is the “rebalancing risk” of E.T.F.’s that makes them particularly dangerous.

Back in 2009, Barclays Global’s research department studied the growing leveraged E.T.F. market — before the flash crash — and concluded that the funds created systemic risk because they “amplify the market impact of all flows, irrespective of source.”

The view that leveraged E.T.F.’s are responsible for the market’s volatility has not gone unchallenged.

William J. Trainor Jr., a professor at East Tennessee State University, conducted an extensive study of market volatility at the beginning and the end of the market day and concluded that E.T.F. rebalancing had nothing to do with it.

“Intra-daily volatility in time periods not associated with rebalancing saw the same spikes in volatility as the last 30 minutes did,” he said in his report.

Mr. Kass, who has been trading since the 1970s, scoffs at this notion.

“Ask any hedge fund manager what their gut says,” he protested.

I took an informal poll of a half dozen brand-name fund managers and virtually all of them agreed with Mr. Kass. But some of them said that high-frequency traders, which themselves trade E.T.F.’s, could be magnifying the problem.

“We know E.T.F.’s are the dominant factor in the marketplace,” Mr. Kass said. “In the ’70s and ’80s it was the mutual funds, in early 2000s it was the hedge funds. Now it’s the algorithms running the E.T.F.’s.”

Article source: http://feeds.nytimes.com/click.phdo?i=d61fefbd0c33a589522194f409e5e2f8

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High-Frequency Stock Trading Catches Regulators’ Eyes

October 9, 2011 by Leave a Comment

Regulators in the United States and overseas are cracking down on computerized high-speed trading that crowds today’s stock exchanges, worried that as it spreads around the globe it is making market swings worse.

The cost of these high-frequency traders, critics say, is the confidence of ordinary investors in the markets, and ultimately their belief in the fairness of the financial system.

“There is something unholy about them,” said Guy P. Wyser-Pratte, a prominent longtime Wall Street trader and investor. “That is what caused this tremendous volatility. They make a fortune whereas the public gets so whipsawed by this trading.”

Regulators are playing catch-up. In the United States and Europe, they have recently fined traders for using computers to gain advantage over slower investors by illegally manipulating prices, and they suspect other market abuse could be going on. Regulators are also weighing new rules for high-speed trading, with an international regulatory body to make recommendations in coming weeks.

In addition, officials in Europe, Canada and the United States are considering imposing fees aimed at limiting trading volume or paying for the cost of greater oversight.

Perhaps regulators’ biggest worry is over the unknown dynamics of the computerized stock market world that the firms are part of — and the risk that at any moment it could spin out of control. Some regulators fear that the sudden market dive on May 6, 2010, when prices dropped by 700 points in minutes and recovered just as abruptly, was a warning of the potential problems to come. Just last week, the broader market fell throughout Tuesday’s session before shooting up 4 percent in the last hour, raising questions on what was really behind it.

“The flash crash was a wake-up call for the market,” said Andrew Haldane, executive director of the Bank of England responsible for financial stability. “There are many questions begging.”

The industry and others say that the vast majority of trading is legitimate and that its presence means many extra buyers and sellers in the markets, drastically reducing trading costs for ordinary investors.

James Overdahl, an adviser to the firms’ trade group, said that they favor policing the market to stamp out manipulation and that they support efforts to improve market stability. The traders, he said, “are as much interested in improving the quality of markets as anyone else.”

Some academic studies show that high-frequency trading tends to reduce price volatility on normal trading days.

And while a recent analysis by The New York Times of price changes in the Standard Poor’s 500-stock index over the past five decades showed that big price swings are more common than they used to be, analysts ascribe this to a variety of causes — including high-speed electronic trading but also high anxiety about the European crisis and the United States economy.

“We are just beginning to catch up to the reality of, ‘Hey, we are in an electronic market, what does that mean?’ ” said Adam Sussman, director of research at the Tabb Group, a markets specialist.

High-frequency trading took off in the middle of the last decade when regulatory reforms encouraged exchanges to switch from floor-based trading to electronic. As computers took over, daily turnover of stocks rose to 8 billion shares in the United States from about 6 billion in 2007, according to BATS Global Markets.

The trading, done by independent firms or on special desks inside big Wall Street banks, now accounts for two of every three stock market trades in America.

Such trading has expanded into other markets, including futures markets in the United States. It has also spread to stock markets around the world where for-profit exchanges are taking steps to attract their business.

When British regulators noticed strange price movements in a range of shares on the London Stock Exchange, they tracked them to a Canadian firm issuing thousands of computerized orders allegedly designed to mislead other investors.

In August, regulators fined the firm, Swift Trade, £8 million, or $13.1 million, for a technique called layering, which involves issuing and then canceling orders they never meant to carry out. The action was challenged by Swift Trade, which was dissolved last year.

Susanne Bergsträsser, a German regulator leading a review of high-speed trading for the International Organization of Securities Commissions, said authorities have to be alert for “market abuse that may arise as a result of technological development.”

The organization will present its recommendations to G-20 finance ministers this month.

In the United States, the Financial Industry Regulatory Authority last year fined Trillium Brokerage Services, a New York firm, and some of its employees $2.3 million for layering.

Article source: http://feeds.nytimes.com/click.phdo?i=2c8701a39f7c9a90eec26204d3394394

Filed Under: Business News Tagged With: , ,

Stocks Decline a Day After Fed Announced Stimulus Measure

September 23, 2011 by Leave a Comment

Several factors contributed to the heightened gloom, including new signs of political paralysis in Washington, Europe’s continued failure to resolve its debt crisis and indications of economic stress in developing countries that had been strong.

While the Fed’s measures to lower interest rates could increase growth a bit, some economists worry that the scale of the problems call for more stimulus efforts globally, but other countries are not cooperating.

With investors so nervous, the markets may rebound over the next few days, as volatility and big swings of 3 and 4 percent have become more common. On Thursday a downcast mood appeared across the board.  Stocks plunged about 5 percent across Europe and in Hong Kong, and more than 3 percent in the United States.

“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.”

Financial markets beyond stocks also reflected growing anxiety. Commodities like oil fell, and even gold dropped sharply in price. As investors continued to seek havens, United States bond prices soared for a fifth consecutive trading session, pushing the 10-year benchmark yield to a new low of 1.72 percent.

The cost of insuring the government bonds of Western European nations against default rose to a record high. The extra yield investors demand to hold Italian government debt also rose, pointing to lingering worries about debt levels in the euro currency region. Despite steps taken last week by central banks to help banks in Europe borrow dollars, there were signs of rising borrowing costs for these institutions.

It is not only economies in the United States and Europe that are faltering. Financial markets in developing countries are showing levels of stress last seen during the financial crisis, a senior World Bank official said Thursday.

The official said that problems in the developed world increasingly were shaking the economies of developing nations, not because of a drop in trade flows or capital investment, but because a sense of gloom was spreading around the world, shaking the confidence of domestic investors.

“We are increasingly worried about the possibility of global contagion,” said the official, who shared the World Bank’s assessment of the global situation on condition of anonymity.

“At some point the global mood changes. Just like the realization that even big banks are vulnerable” shook world markets in 2008, the official said, “the idea that even the U.S. is vulnerable means that many investors have lost an anchor.”

The market downturn was set in motion on Wednesday after the Fed announced that a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.”

The Fed also announced it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.

Some analysts were disappointed the Fed did not act more forcefully and they had little faith that policy tools like lower interest rates were encouraging consumers and businesses to spend more or to start creating jobs.

“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to ‘ride it out’ over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company. The policy conundrum is illustrated by the fact that despite lower rates people are not taking up new mortgages or refinancing existing ones. Rates on 30-year fixed mortgages dropped after the Fed’s announcement, falling to 4.05 percent from 4.21 percent on Wednesday, according to HSH.com, which publishes mortgage and consumer loan information.

But the number of new mortgage applications is running at the lowest level since August 1995, according to the Mortgage Bankers Association. Guy Cecala of Inside Mortgage Finance, which monitors mortgage activity, said the volume of new mortgages this year would probably be about $1 trillion, down from $1.5 trillion in 2011, which was already anemic.

Companies, too, are holding back on spending even though they have built cash reserves to 6 percent of their total assets, the highest level since at least 1952, according to Credit Suisse.

The proportion of United States companies’ cash flow being spent on new equipment and other investments has not rebounded since the financial crisis and is stuck at the lowest level since the late 1950s, said Doug Cliggott, an analyst at Credit Suisse. A survey by the bank of 60 large American companies published Thursday found that two-fifths actually planned to cut spending in the next six months.

In what may be a bellwether trend, FedEx, the logistics company, on Thursday cut its expectations for earnings for the entire fiscal year, citing a slowdown in global growth and sending its stock down 8 percent.

The markets on Thursday homed in on a darkening economic outlook in the euro zone and concerns that China’s growth rate would start to slow. A closely watched gauge of private sector activity from the euro zone — the composite purchasing managers’ index — fell to 49.2 points in September from 50.7 in August, according to Markit, a financial data provider.

Analysts said the fall in the euro area index reflected a combination of slowing global growth, significant belt-tightening in the euro area and growing concern about the escalating sovereign debt crisis.

A review on Thursday by Standard Poor’s showed that the market capitalization of publicly traded equities around the world had fallen by more than 17 percent, or $9.2 trillion, since July 1.

In the United States, without greater stimulus, the dollar headed sharply higher on Thursday, catching investors off guard and causing rapid selling of investment positions, like gold, that had relied on a cheaper currency.

“I think that the market had performed so bullishly across all the precious metals that a correction was probably in the offing,” said James Steel, an analyst at HSBC. “And it may have been used as a convenient place for some profit-taking.”

When the price of gold moved so quickly below $1,800, he added, it encouraged further selling. With sustained losses in stocks, investors could be using gold as it was meant to be used — to raise cash.

“This might sound perverse but gold is actually fulfilling its traditional role allowing you to raise cash in uncertain times,” Mr. Steel said.

Reporting was contributed by Matthew Saltmarsh and Binyamin Appelbaum.

Article source: http://feeds.nytimes.com/click.phdo?i=0097ecf6f2e80310a6a7698d4b4b385a

Filed Under: Business News Tagged With: , ,

DealBook: Groupon May Delay Its Plans to Go Public

September 7, 2011 by Leave a Comment

Groupon headquarters in Chicago.Tim Boyle/Bloomberg NewsGroupon headquarters in Chicago.

9:14 p.m. | Updated

Groupon is considering a delay to its long-awaited initial public offering amid turmoil in the stock market.

While the online coupon giant had been hoping to go public by the end of this month, it is studying the market conditions and may push back the timing of the offering, said two people briefed on the matter who were not authorized to speak publicly about internal discussions.

Earlier this summer, Groupon was aiming for an I.P.O. at a valuation near $30 billion and had been considering a roadshow for potential investors next week. The roadshow now appears to be off the table.

The hesitation by Groupon underscores how the continued volatility in the market is rattling even those with the most reason to be confident. Groupon is one of the most anticipated offerings of the year, and offerings of social media companies, like that of LinkedIn, had appeared to be immune to the vicissitudes of the broader market. What Groupon ultimately decides to do could affect the plans of other technology darlings, like Zynga, the online gaming giant; LivingSocial, a big competitor to Groupon; and the biggest of them all, Facebook.

Groupon, however, is also wrestling with other potential issues. The company has been in discussions with the Securities and Exchange Commission over its I.P.O. prospectus. A recent memo from the company’s chief executive, Andrew Mason, may complicate that process.

The memo to employees promoted the company’s growth and strength against rivals. But the memo quickly found its way in the public sphere, raising concerns about whether the company had violated the mandatory “quiet period” that applies to companies waiting to go public.

One possible outcome is that Groupon will need to again amend its I.P.O. filing to include the memo from Mr. Mason and provide additional data to back up his assertions.

Behind the S.E.C.’s rule is an effort to clamp down on possible stock promoting. All relevant financial information about a business is meant to be included in a company’s prospectus.

Groupon would not be the first company to run afoul of quiet-period rules. Google’s co-founders, Larry Page and Sergei Brin, notoriously gave an interview to Playboy magazine conducted shortly before the search giant filed for its I.P.O. The company did not delay its offering, but was forced to amend its prospectus to include the interview.

This would not be the first time Mr. Mason’s team has tangled with regulators either. In August, the daily deal site dropped a controversial accounting metric, called “adjusted consolidated segment operating income,” or A.C.S.O.I., after pushback from the Securities and Exchange Commission.

Representatives for Groupon and the S.E.C. declined to comment.

Started less than three years ago, Groupon has emerged as one of the fastest rising start-ups in the technology sector. The company’s valuation has soared in the past year, turbo-charged by increasing sales and early takeover interest from technology giants, like Google and Yahoo. It recorded $878 million in net revenue for the second quarter — a 36 percent increase from the previous quarter.

But the site, the largest of its kind, has drawn sharp criticism from retailers and analysts who question its ability to reduce its marketing expenses and sustain its growth rate. It has also confronted some setbacks abroad, most notably in China, where it is facing stiff competition from a swarm of domestic players.

In the internal memo, Mr. Mason argued that the company had been outstripping its rivals, including services from Google and Amazon. Facebook recently folded its own offering.

News of Groupon’s deliberations was reported earlier by The Wall Street Journal online.

Evelyn M. Rusli contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=46d836f4c48ed56a51bdb830a7f21c59

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Wall Street Posts Gains Early

August 31, 2011 by Leave a Comment

On the last day of one of the most tumultuous months for equities this year, the only dip in stocks came from the telecommunications sector, which was dragged down nearly 3 percent by shares of ATT after the news broke that the United States Justice Department would seek to block its proposed acquisition of T-Mobile USA.

Otherwise, new data on factory orders and jobs set investors up for a higher trading session that carried over gains from markets in Asia and Europe. The markets finished higher on Tuesday, despite reports on consumer confidence and housing that showed a mixed economic recovery.

On Wednesday, the three main indexes were more than 1 percent higher in the first hour of trading, although their gains were soon tempered by the news of government efforts to block ATT’s $39 billion acquisition of T-Mobile, which would create the largest carrier in the country.

In early afternoon trading, ATT shares dipped more than 4 percent, dragging down the overall telecom sector by about 1.5 percent. A rival, Sprint Nextel, was up by more than 7 percent and was the most widely traded share in that sector.

The news about ATT came at the end of a month characterized by high volatility, as choppy economic data renewed discussions about whether the economy was headed for another recession. Concerns about euro zone debt problems and fiscal uncertainty in the United States were among the factors adding to the rough trading.

Wild swings of hundreds of points have set back the three main indexes 3 to 5 percent in the month to date. But on Wednesday, the Dow gained enough ground to turn positive for the year, and in the early afternoon was up 86.96 points, or 0.8 percent, to 11,646.91. The Standard Poor’s 500-stock index, up almost 0.9 percent, and the Nasdaq composite index, up 0.5 percent, were still negative for the year through August, however.

The gains were played out in a market that has been oversold in the past month, said Anthony G. Valeri, a senior vice president and market strategist for LPL Financial.

“It was due for a bounce,” he said of Wednesday’s trading. Whether the gains can be sustained, though, “depends on data and events out of Europe,” Mr. Valeri said.

On Wednesday, a report from the United States Commerce Department showed that factory orders for July rose sharply, at 2.4 percent the largest increase since March. Demand for automobiles and commercial airplane orders propelled the orders.

A report on jobs on Wednesday, this one from ADP Employer Services, showed new jobs on private payrolls totaled 91,000 for August, below forecasts.

Those reports were released ahead of one of the most closely watched data releases the Labor Department’s national report on the job situation on Friday. Analysts were forecasting 70,000 in new nonfarm payroll jobs for August, compared with 117,000 the previous month, while the unemployment rate of 9.1 percent was not expected to change, according to a survey by Bloomberg News. “We are still not seeing job losses, which is what you would see in a recession,” Mr. Valeri said.

Goldman Sachs economists said in a research report that the A.D.P. report, which is used to help estimate the outcome of the national report, could mean lower forecasts for Friday’s numbers.A Federal Reserve report this week that said policy makers earlier this month considered changing the size or composition of the Fed’s balance sheet and reducing the interest rate paid on banks’ excess reserve balances has refocused investors’ attention on the Fed’s next meeting in September. Fed policy makers have agreed to consider other options at that meeting. But some analysts said the Fed might need more information before deciding on further stimulus.

“I think the Fed will want to see more data to prove inflation is stabilizing and the economy might be weaker than expected,” said Mr. Valeri.

The yield on the Treasury’s benchmark 10-year note was little changed at 2.195 percent.

Crude futures for October traded in New York were up 46 cents, or 0.5 percent, to $89.36 a barrel. Gold on the Comex was up 0.4 percent at $1,834 an ounce.

In Europe, Britain’s FTSE 100 and Germany’s DAX each gained 2.4 percent. In Paris, the CAC 40 rose 3.1 percent. Asia closed broadly higher.

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BUCKS BLOG: Gyrating Markets Are What You Signed Up For

August 23, 2011 by Leave a Comment

Carl Richards

During the last few weeks, I’ve heard a lot of chatter about volatility. I knew something was going on when I overheard people at the grocery store talking about their investments, saying things like,”This volatility is killing me.”

I used to joke that volatility was a word that people in the investment industry used and the rest of us nodded our heads at in agreement, pretending to know what it meant. Volatility has long been used as a proxy for risk, but in all the conversations I’ve had over the years, no one has admitted to laying awake at night over concern about their volatility.

Volatility is a measure of the variation of the price of an investment over time, but over the years I’ve referred to volatility as the amount something wiggles. Stocks wiggle more than bonds. Bonds (intermediate term bonds) wiggle more than cash. And, of course, cash wiggles the least of all.

So if you believe that risk and return are related, then volatility represents the risk of investing in a diversified basket of stock-based mutual funds and in turn it is the reason we get paid more to own stocks over the long haul than we do sitting in bonds or cash.

In the last few weeks, we’ve lived through a historic seesaw, including a period when the S.P. 500 either rose or fell over 4 percent for each of four consecutive days. While these dramatic days have us all talking, it’s important to realize that volatility and investing go hand in hand. They always have, and chances are they always will.

So if you’ve discovered that you can’t stomach the wild swings, now might be a good time take note of how much you didn’t like it so that when the time is right you can reduce your exposure to the stock market and add more bonds. The entire idea behind including bonds and cash in a longer-term investment portfolio is to smooth out the ride a little. Bonds act as ballast to the portfolio so that the swings aren’t as dramatic.

Please note that I’m not saying you should sell or buy stocks now. That is a entirely different discussion. I am just trying to point out the role volatility plays in an investment plan and one of the ways of dealing with it.

No one really knows if this type of volatility is here to say, but in the end it really doesn’t matter much. After all, volatility has always been part of the deal when you invest in the stock market. If you still believe that stocks will be a better investment over time than bonds, then you will simply have to deal with the volatility.

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Stocks Give Up Early Gains

August 17, 2011 by Leave a Comment

The stock market rose in early trading on Wednesday as investors absorbed new data and corporate results, but gave up its gains by midday as the technology sector lagged.

While key sectors like energy and financial stocks recovered on Wednesday, after leading the overall market decline on Tuesday, technology shares were weighed down as Dell dropped more than 9 percent. The company said Tuesday that a weaker economy had lowered demand, flattening its sales in the quarter ended July 29, and it said it had pared low-margin sales. Its net income rose 63 percent in the quarter, but it lowered its revenue forecast for the rest of the year.

The declines in the equities market were slight — less than 1 percent in each of the three main indexes — but a reversal from the trend in early trading.

The market is recovering from a bout of volatility last week, and fell on Tuesday in the aftermath of a meeting between leaders of the euro zone’s two largest economies, France and Germany.

While many believe that the equities markets will remain unsteady for some time, bargain-hunters are benefitting from the recent lows.

“I think that the market is still reacting to a pretty oversold condition technically,” said Tom Samuels, managing partner for Palantir Capital Management, on Wednesday.

Mr. Samuels said that in the short term, meaning through Labor Day in early September, the market might continue to be “a little bullish,” but for now the respite was a time to reposition portfolios. Still, the balance was so tenuous that the financial markets were “one fundamental announcement” away, he added, from additional problems coming out of the euro zone or from economic statistics.

“There could be some more rough sailing ahead once we get out of August,” he said.

In early afternoon trading, the Standard Poor’s 500-stock index was down half a point. The Dow Jones industrial average was down 0.25 percent and the Nasdaq was slightly lower at 0.71 percent. The yield on the 10-year Treasury note was 2.17 percent, compared with 2.22 percent late Tuesday.

After the previous week’s extreme volatility and swings of hundreds of points, Wall Street tacked on gains over three consecutive trading days that had helped shares recover by Monday from losses in the wake of the Aug. 5 downgrade of America’s long-term credit rating. But then the markets declined on Tuesday after talks in Paris between Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France that analysts said fell short of easing concerns over how the euro zone’s finances would be handled.

On Wednesday, there appeared to be an early rally leading the riskier side of the market, and some strength in the commodity sector after a relatively benign reading in a key indicator on producer prices, Mr. Samuels noted.

The broadest indicator of wholesale prices edged up 0.2 percent in July, according to the Labor Department. Not counting food and energy, the indicator, the Producer Price Index, was up 0.4 percent, the most rapid rise in six months.

“The Treasury market is trading slightly lower this morning as investors renew their on-again, off-again love affair with riskier assets,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

“Favorable earnings reports appear to be boosting the appeal of stocks this morning, but the stronger than expected results from the P.P.I. are probably playing a role as well,” he added in a market commentary.

A range of stocks gained on Wednesday, with a rise of more than 1 percent in the utilities and telecommunications sectors. Consumer staples also rose as the markets responded to signals about the business sector and economy extracted from the latest corporate results.

Seasonal factors appeared to help Target, for example, which reported a higher quarterly profit helped by school related sales toward the end of the period. Its shares rose more than 4 percent. Staples rose 2.25 percent after it raised its outlook and after its earnings exceeded expectations.

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