When Do Money Managers Like to Buy Stocks?

Do money managers pile into the stocks at the end of the month in anticipation of 401k and savings money coming in? Well it looks like they do…big time!
In 1999, Kevin Haggerty wrote about this phenomenon on the TradingMarkets site. Kevin had just retired as the head of trading for Fidelity Capital Markets, and he discussed the “end-of-the month” phenomena. Up until that time, I had not heard about it nor had seen anyone else write about this.
Since Kevin first mentioned it, I and others have observed it time after time, especially when a stock was rising (meaning above its 200-day moving average).

Recently we decided to look further into this. We decided to see if we could quantify and potentially profit from the behavior. The findings were a bit eye-opening, and I’ll share them with you today.

7 Stocks You Need to Know for Wednesday

Here are seven stocks for Wednesday from TradingMarkets.com.

Abercrombie & Fitch (NYSE:ANF – News), the hip retailer is scheduled to report before the open on Wednesday. Analysts are expecting third quarter EPS of 1.28. ANF’s PowerRating (for Traders) is 5.

7 Trading Ideas for Wednesday

Here are 7 trading ideas for today. This list comes directly from the TradingMarkets Stock Indicators page and is based upon our latest quantitative research.

Bullish

Laps Down 5% or More: These are stocks that lap down by 5% or more and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving average that lap down by more than 5% have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

Gamestop

Wanna retire rich? Don’t spend like Britney

Whether you’re worth $100 million like Ms. Spears or $100, the same simple strategies can help ensure a comfortable retirement.

In case you missed it, some bombshell news came out of the personal finance arena last week. No, I’m not referring to the Federal Reserve’s rate cut or the record-breaking price of oil.

I’m talking about Britney Spears: She isn’t saving for retirement.

Though the 25-year old pop star is hauling in some $737,000 a month (yes, per month), the Associated Press reported last Thursday that according to court documents, she’s not saving or investing a penny of it.

More than $100,000 each month is going to entertainment, gifts and vacations alone.

While most of us may be shocked by this excess, Ms. Spears’ saving habits are actually pretty normal.

The truth is, the overwhelming majority of American 20-somethings aren’t saving anything for retirement, either. Research from Vanguard shows that two-thirds of all 25-year-olds who have access to a 401(k) plan aren’t contributing.

And the worst part is, they aren’t taking advantage of their biggest asset: time.

Let’s go back to Ms. Spears’ retirement plan for a minute. Now I know that she’s richer than you and I, worth in the neighborhood of $100 million from her previous sales and touring (she didn’t always spend it all). But let’s say she was forced to start from scratch, like any other 25-year-old. She could still maintain her lavish lifestyle in retirement.

Assuming she could scrape by on 70% to 80% of her pre-retirement income in retirement – or about $590,000 a month in today’s dollars – Ms. Spears would have to accumulate a nest egg of just over $300 million by age 65.

Sound daunting? Nah. All she has to do is keep working and put away 8% or so of her monthly $737,000 income until she retires and she’ll hit that goal.

So what’s the point of this exercise? Well, the very same strategy can work for you too.

Being sure to set aside just a little each month can help you maintain your lifestyle in perpetuity.

A 25-yr old making $30,000 a year, for instance, and putting away the same 8% of his pay into a 401(k) plan annually for the rest of his career is virtually guaranteed a comfortable retirement by time he hits his 60s.

Assuming average historic rates of inflation and investment returns, and a typical company matching contribution in his 401(k), he would wind up with a nest egg of nearly $2 million by age 65, enough to replace more than 90% of his working income.

I realize that, unlike Ms. Spears, you may also have student loans to pay back at this point in your life. But unless it’s a private loan, don’t sacrifice your 401(k) contribution to make extra payments on the loan. If it’s a federal loan, and you’ve consolidated it, you likely have a fixed after-tax rate of 5% or less. Over the longer haul, you will handily beat that return in your 401(k); if you get a company matching contribution, you’ll trounce it.

And you don’t need to hire a team of people to handle your investments. Just put your 8% in a so-called target-date retirement fund – every major fund company offers them, including Fidelity, Vanguard, and T. Rowe Price.

Here, you make your fund choice based on the expected year of your retirement. For instance, if you were planning to retire in 40 years’ time, you might pick the T. Rowe Price Retirement 2050 fund. Right now, it has an 88% allocation to stocks, 10% to bonds and the rest in cash.

As time passes, and you get closer to retirement, the fund will automatically adjust that mix of stocks and bonds to more conservative levels. The best part with these funds is that you do nothing.

And that means you’ll never have to say, ‘Oops! I did it again’ when it comes to your retirement.

Retire without pinching pennies

Question:
I’m 59 years old, earn $125,000 a year and plan on working until I am eligible for full Social Security benefits. I have about $1.6 million that’s invested in a number of retirement accounts (mostly tax-deferred, but I have a Roth IRA too) and I own an investment property worth about $390,000. In addition to contributing to my company’s retirement savings plan, I also save another $30,000 a year. I would like to retire with the same income I have now without going over a 4 percent withdrawal rate. Is this possible, assuming I invest in a conservative equity portfolio that earns a below average return? – Jim, Saute Ste. Marie, Mich.

Answer: I never like to say that something is a totally done deal. After all, we are going through a shaky period in the economy and the markets, and a lot can happen between now and the time you retire.

Based on the information you’ve given me, however, it seems you’ve got a very good shot at achieving your goal, although I do wonder whether you’ll need the same income you have now in order to enjoy retirement.

But more on that point later. Let’s do a few off-the-cuff calculations to see where you stand.

You say you invest in a conservative equity portfolio that earns a below-average return. Well, I don’t know what you consider below average. But since you strike me as a pretty conservative guy, let’s assume you earn a 6 percent annual return over the next eight years. That means your $1.6 million would grow to just under $2.6 million. Let’s call it $2.5 million.

You don’t mention how much you contribute to your company plan, so I’ll leave that out for the time being. But if you earn the same 6 percent annual return on the $30,000 a year you invest in other accounts, that would give you another $300,000 or so, bringing your retirement stash to roughly $2.8 million. Limiting yourself to an initial draw of 4 percent on that amount, would give you income of about $112,000.

That’s before Social Security, though. You can get a more accurate estimate of your benefit by using one of the calculators on the Social Security site. But just for argument’s sake, let’s assume that when you retire in 2015 or 2016 that you get $3,000 a month. (Yes, this sounds high, but you’re a relatively high earner, plus this is your benefit in future dollars, not today’s dollars.)

Add that $36,000 to the $112,000 from your investments, and you’ve got retirement income of about $148,000 a year. That’s more than your $125,000, but, remember, you’re earning $125,000 in today’s dollars. If we figure you’ll get raises of, say, 3 percent a year, you would have income of about $158,000 by the time you retire.

That would leave you about $10,000 short of your goal, except that we haven’t factored in the additional savings you’ll be pumping into your company savings plan over the next eight years. Nor have we included the $390,000 investment property. Throw in those two things, and I think you could very easily reach or exceed your pre-retirement salary.

I hasten to add that I would not make retirement plans on the basis of little exercise alone. There are a lot of details I’ve left out – taxes on your investments being one – and for simplicity’s sake I’ve assumed you’ll earn the same rate of return year after year. Just take a look at stock and bond returns since the beginning of this decade, and you know that won’t happen.

So at the very least, I think you should take a more meticulous look at where you stand by plugging your info into an online calculator like Fidelity’s Retirement Income Planner tool, which is free even if you’re not a Fidelity customer (although you do have to register at the site). Or you might consult a financial planner or other adviser who can run the numbers for you. (For advice on getting help, click here.)

But based on this cursory look, you appear to be in very good shape. The big lesson to be drawn from your situation, however, is just how much leeway you have for planning your retirement when you’ve got a nice pile of savings tucked away. Even if things don’t go swimmingly over the next few years, you appear to have enough of a margin so that you would still be able to retire comfortably.

That’s not to say that a big setback in the markets couldn’t force you to scale back your plans or make other adjustments. But the bigger the cushion of savings you have heading into retirement, the more choices and options you have.

One final note. I questioned earlier on whether you really need to replace your current salary in retirement. Why? Well, you’re saving more than $30,000 a year on a salary of $125,000, which means you’re actually living on less than $95,000 a year.

Maybe you plan on kicking your lifestyle up a notch or two in retirement, which is fine. But when you do that more detailed analysis that I recommended (either on your own or with an adviser), I recommend you think long and hard about how you actually plan to live in retirement and then put some numbers to that retirement vision. (Or, to put it another way, do some “lifestyle planning.”)

This will give you a much better sense of how much retirement income you’ll actually need, and help you better plan in the years you still have before calling it a career.

Oil Futures Jump on Dollar, Fed Forecast

Crude Oil Prices Jump, Approach $100 After Dollar Hits New Low, Fed Cuts Inflation Forecast
Oil prices resumed their march toward $100 Tuesday, rising to a record over $98 a barrel as futures drew strength from a declining dollar, news of refinery problems and speculation that the Federal Reserve will again cut interest rates. Heating oil futures also rose to new records.

Gasoline prices, meanwhile, extended their decline at the pump.

Oil futures, which offer a hedge against a weak dollar, picked up momentum as the dollar fell to a new low against the euro, and added to their gains after the Fed forecast slowing growth and tame inflation next year.

Light, sweet crude for January delivery surged $3.39 to settle at a record $98.03 a barrel on the New York Mercantile Exchange after rising as high as $98.30 earlier.

Crude prices are within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

Gas prices fell 0.5 cent overnight, retreating further from their most recent spike above $3. At a national average of $3.09 a gallon, according to AAA and the Oil Price Information Service, gas prices have fallen 2.2 cents in a little less than a week. Last week, many analysts predicted prices would instead rise another 10 to 15 cents a gallon to catch up with surging oil prices.

“More than likely, (prices will) probably hold steady through the end of the year,” said Fred Rozell, retail pricing director at the Oil Price Information Service. “But that doesn’t mean you’re going to see relief in terms of lower prices.”

Because gas prices are closely tied to the price of crude, pump prices could start rising again if crude does reach $100 a barrel, or higher. Oil peaked last week at $98.62 a barrel before pulling back to the low to mid $90s.

Many analysts cite speculative investing fueled by the weak dollar as a key reason for oil’s fall rally.

“Expectations of interest rate cuts by the Federal Reserve are sending the dollar lower and this is once again drawing buyers … into the crude oil market,” said Addison Armstrong, an analyst at TFS Energy Futures LLC in Stamford, Conn., in a research note.

The Fed said it thinks business growth will slow next year, with gross domestic product growing between 1.8 percent and 2.5 percent. That’s less than the Fed’s previous projections. Meanwhile, overall inflation should fall next year to between a 1.8 percent and 2.1 percent increase, the Fed said.

“They just opened the door for the possibility of more rate cuts,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

However, the rising cost of energy could also persuade the Fed to either leave rates stable or raise them — the latter would likely lend support for the dollar and could pull oil prices back down.

Energy futures received an additional lift from word of problems at two oil facilities Tuesday. A Valero Energy Corp. refinery in Memphis, Tenn., that processes 180,000 barrels of crude a day has shut down for 10 days of unplanned maintenance and a Royal Dutch Shell PLC plant that converts bitumen from Alberta’s oil sands region into 155,000 barrels a day of synthetic crude oil was temporarily shut down due to fire.

Oil product futures surged on the news. December heating oil futures climbed 8.59 cents to settle at a record $2.6901 a gallon while gasoline futures for December delivery rose 6.99 cents to settle at $2.4515 a gallon.

“When you get this kind of problem in this kind of environment, prices will rise,” Flynn said.

Natural gas futures fell 31 cents to settle at $7.477 per 1,000 cubic feet on the Nymex. Natural gas inventories are at record levels, and several recent forecasts have predicted a warmer than normal winter.

Traders were also anticipating Wednesday’s petroleum inventory report from the Energy Department’s Energy Information Administration. Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week, while refinery use grew by 0.4 percentage point to 88.1 percent of capacity.

Gasoline inventories likely grew by 700,000 barrels, the analysts predicted, while inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels.

While oil supplies likely rose last week, prices were being supported Tuesday by concerns there would be a bullish surprise in the EIA report, such as an unexpected decline in inventories.

Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

Fed Forecasts Unemployment Bump in 2008

Federal Reserve Forecasts Slower Growth and Higher Unemployment Rates in 2008

The Federal Reserve reported Tuesday that it expects slower economic growth and a slight bump up in unemployment next year due to the housing slump and a credit crunch. The board also said, however, that it thinks inflation will remain moderate.

The fresh assessment of the country’s future economic performance was issued by the Fed in the first of its quarterly reports to the nation.

On the growth side, the Fed said it believes that business growth will slow next year, with the gross domestic product (GDP) coming in between 1.8 percent and 2.5 percent. That would be weaker than how the Fed expects the economy to perform this year and would mark a downgrade to a previous projection released in the summer.

The downgrade was due to a number of factors, including “the tightened terms and reduced availability of subprime and jumbo mortgages, weaker-than-expected housing data and rising oil prices,” the Fed explained.

The credit crunch has both made it more costly and more difficult for people and companies to borrow money. The worst carnage has taken place in the market for “subprime” home loans — those made to people with spotty credit histories. Credit problems started there and have spread to more creditworthy borrowers including those that are looking for home loans of more than $417,000, so-called jumbo loans.

The overriding worry is that these housing and credit problems will make people less inclined to spend, putting a damper on economic growth.

That concern is on the Fed’s radar, too.

“Partly in response to declining housing wealth, the personal savings rate was expected to rise over the next few years, contributing to restraint” on the growth of consumer spending, the Fed said as it provided more details about its projection for slower GDP growth in 2008.

GDP is the value of all goods and services produced within the United States and is the best barometer of the country’s economic fitness.

The unemployment rate would rise to between 4.8 percent and 4.9 percent next year — still low by historical standards. A previous forecast estimated the unemployment rate next year would be about 4.75 percent. The unemployment rate currently stands at 4.7 percent. For all of last year, it dipped to 4.6 percent, a six-year low.

With economic growth slowing, “the unemployment rate would increase modestly” in 2008, stabilize in 2009 and then decline slightly in 2010, the Fed said.

Overall inflation should ebb next year to between a 1.8 percent and 2.1 percent increase. Inflation should moderate further in 2009 and 2010, the Fed said.

“Overall inflation was expected to edge down over the next few years, fostered by an assumed flattening of energy prices,” the Fed said.

So far, surging energy prices this year haven’t touched off a major inflation problem.

Oil prices last week hit a record high of $98.62 a barrel. They have ebbed a bit and are hovering over $96 a barrel. Gasoline prices have topped $3 a gallon.

The Fed’s forecasts are based on estimates of activity in the final quarter of one year compared with the same period of a previous year.

Tuesday’s forecast was a fulfillment of Federal Reserve Chairman Ben Bernanke’s pledge to bring more openness to an institution that historically has been enshrouded in secrecy.

It marked the biggest move yet by Bernanke to put his imprint on the Fed, which he has been running since February 2006.

Alan Greenspan, Bernanke’s predecessor — made progress on that front in his 18 1/2 years, but Bernanke has sought to pry the door open even further, providing investors, businesses and individuals with more insights into the thinking of Fed policymakers.

Doing that helps the Fed do its job — keeping the economy and inflation on an even keel.

Improving the public’s understanding of the Fed’s objectives and strategies reduces uncertainty, allowing businesses and people to make more informed financial decisions. If investors have a better understanding of how Fed policy is likely to respond to incoming information, stock prices and bond yields will tend to respond to economic data in ways that further the central bank’s objectives.

A research paper released Tuesday by Fed drove home the point that forecasting is as much an art as it is a science.

“If past performance is a reasonable guide to the accuracy of future forecasts, considerable uncertainty surrounds all macroeconomic projections” — including those of Fed policymakers — the paper said.

Bernanke last week announced steps to bring greater openness to the institution that historically has substantially operated behind closed doors. With Tuesday’s report, the Fed is now releasing quarterly economic forecasts, versus twice-a-year projections. The Fed is also saying what it thinks the business environment will be for the following three years– not two. The Fed also is giving unprecedented detail into what the thinking of the policymakers is about how they expect the economy to perform and the risks facing it.