As all of you know we have partnered up with the LA Healthcare Federal Credit Union. Credit Union will be a valuable source of partnership in Tax and Financial Planning. This will also include the fixed products of Life Insurance and Annuities. If you would like to work in the Credit Union offices you must email me with a set schedule and obtain approval from me before participating in this program. You must realize that some production limits are needed for this participation.

The demonization of “B Shares” continues as even more mutual fund families drop this share class from the roster.

From the Wall Street Journal:

Lately, Goldman Sachs Group Inc., Allianz SE’s Pacific Investment Management Co. and American Century announced they would exit B shares. This accelerates a trend that has been gathering force since mid-decade. The fund industry says B shares are shrinking due to lower customer demand. In fact, the number of B shares offered and the class’s sales volume have gone down because the fund companies and brokers no longer want to peddle the Bs.

Over the years, fund houses ranging from Dreyfus to Franklin Templeton have dumped these back-end load funds. The number of B shares offered peaked in 2002 and has slid 20% to 2,283 as of October, says Morningstar. B shares’ assets were 7% of the fund industry’s total in 2000, 4.9% in 2002 and just 1% this year, according to figures from Morningstar and the Investment Company Institute.

The article argues that B shares are declining in popularity for regulatory reasons, but I think the ETF factor, which is not really mentioned, has every bit as much to do with it.  I believe the B share class will cease to exist within the next 3 to 5 years, especially if the new Investor Protection Act extends the Fiduciary Standard to broker/dealers as well as investment advisors.

Sources:

“B” Shares Shunned (WSJ)

Full Disclosure:  Nothing on this site should ever be construed as research, advice or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Just a year after the global downturn  derailed  Dubai’s explosive growth, the  city is now  so  swamped  in  debt that  it’s  asking  for a  six-month  reprieve  on  paying  its bills.

Dubai Debt Fears Grip World Markets

This has cast a shadow on a world only just emerging from the worst economic crisis since the 1930s,  knocking markets  from Sydney to Sao Paulo and raising questions about Dubai’s reputation  as a magnet for international investment.

For India, which has tens of thousands of its citizens living  and working in the emirate,  the concerns are more direct:  thousands of its expats staring at job losses and  the economy, sharply reduced trade.

India, which gets nearly a quarter of the remittances from the United Arab Emirates and  has lakhs of laborers working in the region, could be worse off than most other nations  if the crisis escalates into a full-blown one  like the Russian or Argentinean crises of the past.

India’s exports to the UAE stood at $23.92 billion in FY09.

It is very likely that we may see one more leg of job losses in Dubai.

The only consolation for the region is that Abu Dhabi is booming.

Indian shares and the rupee fell in sync with other global markets where investors are fleeing for safety after Dubai debt trap concerns.

The Bombay Stock Exchange benchmark Sensex on Friday tumbled over 451.63 points to 16,403.30 points in the first ten minutes of trading on hectic selling by funds in line with weak global cues and concerns over Dubai’s debt.

Similarly, the wide-based National Stock Exchange index Nifty dropped by 140.50 points to 4865.05 points.

Brokers said the selling focus was more on banking and realty stocks after Dubai’s debt problems revived concerns about the global financial system and rattled markets across Europe and Asia.

Indian rupee fell 24 paisa to 46.55 against the dollar.  The MSCI Emerging Markets Index lost 1.4%.

Most European indices were about 2% lower after Asia tumbled.

The Shanghai Composite Index slumped 3.6%, its biggest drop since August, and Brazil’s Bovespa Index slipped 1.1%. U.S. markets were closed for the Thanksgiving holiday.

Credit-default swaps tied to debt sold by Dubai rose as much as 131 basis points to 571.

“Dubai isn’t doing risk appetite any favours at all and the markets remain in a vulnerable state of mind,” said Market analysts.

“We’re still in an environment where we’re vulnerable to financial shocks of any sort and this is one of those.”

Global Slowdown Caused Slump in Growth Rate of the Demat Accounts

Despite the blistering pace kept by the equities market in the past 10 months, the rise in the number of new retail investors has slowed down.

According to the data from National Securities and Depositories Limited, the growth rate of demat accounts has declined to 6 per cent, compared with 13 per cent last year.

Experts attribute this to the overall slowdown in the economy.

As per experts a prolonged, dull phase in 2008 made investors jittery about investing in the equities market.

Also, as many individuals were scared of losing their jobs, so they did not intend to invest more.

There has been an average growth of 14.75 per cent in investors opening demat accounts till 2008.

Financial intermediaries such as broking companies, whose fortunes are directly linked to the markets, have witnessed subdued sentiments in the equity space from retail investors.

Experts cited 2008 market crash and the global financial meltdown as the reason for this negative development.

Moreover recession of last year had demotivated and scared the retail investors good enough to drive them away from the further investing.

This caused enormous loss for Financial intermediaries and most of the brokerage houses had to shut shop and retrench many staff too.

“The confidence of the retail investors is yet to be restored. Even in the case of new initial public offerings, only the institutional part is getting oversubscribed,” said Jagannadham Thunuguntla, head of research at SMC Capitals.

    The banter about Wall Street is about the market consolidation and why it is holding.  Even “The Economist” magazine has an article about the two possible outcomes; either inflation or a corporate earnings disappointing and a resulting market pullback.  Check out www.economist.com Buttonwood – Something’s gotta give.  Banks are no longer taking on debt.  They are buying short term and intermediate term government bonds which is maintaining demand and keeping rates very low.   Gold is almost at $1,200/ounce and looks to continue to increase in value.  Copper and Silver are also increasing as a diversification asset class out of dollars.  It’s just a matter of time.  More data will be coming in that will reinforce that the economic recovery is not what has been hoped for.  It will probably be after the end of the year when we see the market dip.  But, who knows…  Happy Thanksgiving.

New Home Sales Expected to Have Increased 2% in October.  Report at 10 a.m.

The Commerce Department’s report on October new home sales, to be released Wednesday at 10 a.m. EST, is forecast to show a 2 percent increase to a seasonally adjusted annual rate of 410,000, from 402,000 in September, according to economists polled by Thomson Reuters.

This number is just written contracts, no completed sales, so the rush to get the contracts written happened during the time when the tax credit was set to expire on Nov. 30th.  It has, obviously, since been extended.

This number corresponds with the news Monday that home resales rose 10% from September to October, the biggest monthly increase in a decade.  Lower rates and government “intervention”, have helped juice these numbers. 

UPDATED!

Unemployment numbers have been released.  The weekly claims have fallen to 466,000, the lowest level in over a year.  The number was expected to be above 500,000, so this is much better than they had expected.  The number of workers receiving benefits also fell sharply, dropping 190,000, to 5.42 million (gross!), the lowest level for continuing claims since February.

Here’s a Turkey Leg to you hoping these numbers don’t disappear in the spring months!

More Later today!

Home Prices Have Increased Once Again for the Fifth Straight Month.

The increase in October, in the 20 metropolitan areas surveyed, grew by 0.3%.  That is down from the 1.2% increase in September, but still an increase.  However, the increase was less than forecast, so bonds are trending lower (from the mortgage rates view). 

Year-to-Date, the price decline, after two quarters of 3.1% gain, is only -8.9%, which is better than the 14.7% decline one year ago. 

The overall negative is that the increases in home prices were low during the usual seasonal best months (spring through summer). 

The Consumer Confidence Index was 49.5 which was better than the expected 47.5 which was forecast.  This along with the adjusted GDP earlier has begun the stock slide.  Even though the CCI numbers were better than expected, sluggish Holiday spending is expected across the board.  The November CCI at 49.5 was better than October’s number of 48.7, but isn’t giving any investors the “confidence” they need going into the busiest shopping day of the year (normally).

Stay tuned for more!

The market may have recovered partially from its illness over the last two years, but investors are still queasy when it comes to equities. The market is up by more than +60% since the March 2009 lows despite the unemployment rate continuing to tick higher, reaching 10.2% in October. Even though equity markets have rebounded, recovering investors have flocked to the drug store with their prescriptions for bonds. Mark Dodson, CFA, from Hays Advisory published a telling chart that highlights the extreme aversion savers have shown towards stocks.

Source: Hays Advisory LLC (Thomson Reuters Datastream)

Dodson adds:

“Net new fund mutual fund flows favor bonds over stocks dramatically, so much so that flows are on the cusp of breaking into record territory, with the previous record occurring back in the doldrums of the 2002 bear market. Given nothing but the chart (above), we would never in a million years guess that the stock market has rallied 50-60% off the March lows. It looks more like what you would see right in the throes of a nasty stock market decline.”

Checking and savings data from the Federal Reserve Bank of Saint Louis further corroborates the mood of the general public as the nausea of the last two years has yet to wear off. The mountains of cash on the sidelines have the potential of fueling further gains under the right conditions (see also Dry Powder Piled High story).

As Dodson notes in the Hays Advisory note, not everything is doom and gloom when it comes to stocks. For one, insider purchases according to the Emergent Financial Gambill Ratio is the highest since the recent bear market came to a halt. This trend is important, because as Peter Lynch emphasizes, “There are many reasons insiders sell shares but only one reason they buy, they feel the price is going up.”

What’s more, the yield curve is the steepest it has been in the last 25 years. This opposing signal should provide comfort to those blue investors that cried through inverted yield curves (T-Bill yields higher than 10-Year Notes) that preceded the recessions of 2000 and 2008.

Equity investors are still feeling ill, but time will tell if a dose of bond selling and a prescription for “cash-into-stocks” will make the queasy patient feel better?

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

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Vanguard has just launched seven new bond exchange traded funds today.  We are seeing very thin trading volume, and that will be the single biggest benchmark used for whether or not these become a success or whether they become just another slate of ‘me-too’ ETF offerings.

Vanguard Short-Term Government Bond Index Fund (NASDAQ: VGSH) tracks the U.S. 1–3 Year Government Float Adjusted Index

Vanguard Intermediate-Term Government Bond Index Fund (NASDAQ: VGIT) tracks the U.S. 3-10 Year Government Float Adjusted Index

Vanguard Long-Term Government Bond Index Fund (NASDAQ: VGLT) tracks the U.S. Long Government Float Adjusted Index

Vanguard Short-Term Corporate Bond Index Fund (NASDAQ: VCSH) tracks the U.S. 1–5 Year Corporate Index

Vanguard Intermediate-Term Corporate Bond Index Fund (NASDAQ: VCIT) tracks the U.S. 5–10 Year Corporate Index.

Vanguard Long-Term Corporate Bond Index Fund (NASDAQ: VCLT) tracks the U.S.Long Corporate Index.

Vanguard Mortgage-Backed Securities Index Fund (NASDAQ: VMBS) tracks the U.S. MBS Float Adjusted Index.

We’d offer more insight here, except that Vanguard has been very late to the ETF party.  This probably also wasn’t exactly the best week to try launching new bond funds as investors and traders are in the office on Monday and Tuesday, but their feet will mostly be out the door on both sides of Thanksgiving this Wednesday and Friday.

JON C. OGG

When it comes to tax minimization, the use of Corporate Class mutual fund structures is a strategy that has significant benefits to individuals and to corporations.

Switching from one mutual fund to another triggers capital gains taxes in traditional mutual funds. However, the same switch done between the Corporate Class versions of the same mutual funds will not trigger any taxes. In addition, the gains of one corporate class mutual funds can be offset with the losses from another fund in that class. Therefore, these types of mutual funds have the key benefits of tax-deferred switches and accelerated compounded growth (because of reduced or eliminated distributions). Plus, the benefits of Corporate Class mutual funds to corporations go beyond those available to individuals. In general, the benefits are as follows:

Benefits for Individuals and Corporations

- Converting interest income to capital gains – The corporate class structure minimizes the potential for distributions from fixed income vehicles allowing investors to ‘convert’ income to capital gains. For example, money market and bond funds would benefit from capital gains tax rates rather than interest income allowing you to keep more of your investments. If you are in the highest tax bracket in Ontario this means that you can convert a 46.4% tax rate on interest income to a 23.2% tax rate on capital gains income.
- Controlling when you trigger tax – In general tax is payable when interest income is received. However, with Corporate Class funds you have the ability to defer tax indefinitely, giving you control over when taxes are triggered and paid.

Benefits for Corporations

- Withdrawing trapped money from the corporation tax free – Using the Capital Dividend Account (CDA) it is possible to minimize the taxes payable by the business owner by withdrawing from the CDA, the non-taxable portion of capital gains – money that would otherwise be trapped in the corporation.
- Avoiding Provincial Capital Tax – Although capital tax has been removed at the federal level, provincial capital tax may still apply. Since it is a tax on assets rather than on income, the tax impact can be substantial. Corporate Class funds qualify your corporation to be exempt from the provincial Capital Tax.

As Canadian investors remain among the most heavily taxed investors in the world, Corporate Class structures provide an efficiency that should not be overlooked.

The U.S. Dollar Index  is now at $75.66, compared to its 52-week low of $74.68 on November 16, 2009. The 50DMA for the index is $76.   The dollar index stood on 11-22-2009 at $75.66 after touching the intra day high of $76.5.

The index is at a very crucial point.  Next week this index however needs to record a close above the 50-day moving average at 76 to signal a shift in the downtrend .

The index includes European euros, Japanese yen, British pounds, Canadian dollars, Swedish kronas and Swiss francs.(U.S. Dollar Index Analysis and Forecast: The Market Oracle: U.S. Dollar Index Chart- Chart the Performance of DXY:IND)

A friend of mine wrote to me the other day that he would be quitting the stock markets.

I wondered why he was telling like that.

I know that in stock market investments there is no expiry date. Expiry date for your profits and losses of your investments is set by you only and definitely market does not decide.

 I asked him the reasons for his decision to do so. He said that at any rate and at any point of time, one cannot dream of even predicting near ideal conditions in stock price movements and market conditions.

 He further added that no logic, no analysis and no indicators or techniques really guide your investments and it is all only luck factor. This is the case with millions of investors who enter the market thinking that they could make big fortunes with small investments in short period of time.

One thing I remember that your trend starts from the day one of your investment and no amount of market data, reports will help you to fit your investments into the profit curve.

While this market continue to be under pressure it is wiser to be on the side of caution rather than try to be a stock market hero.

One simple guide to succeed in the market is always remember to cut your losses and you never allow losses to take out your trading capital. “The point is not so much to buy as cheap as possible or go short at top price, but to buy or sell at the right time.” - Jesse Livermore

Before venturing out for stock market investments I always remember that nothing is steady about this market. I read somewhere that if you are not making some money you are not cutting your losses fast enough. Therefore just don’t quit the market.

SEBI Allows Auctions for QIBs in FPOs

Market regulator, SEBI has introduced a significant change in the way institutional bidders invest in follow-on public offers by allowing allotments through auctions.

The Securities and Exchange Board of India (Sebi) has amended the Issue of Capital and Disclosure Requirements Regulations (ICDR) to allow pure auctions for qualified institutional investors (QIBs) in follow-on public offerings to begin with.

The method may be later extended to initial public offerings.

Under the new method, bidders will be free to bid at any price above the floor price.

At present, allotments are made at the floor price.

Retail investors, however , will be allotted shares at the floor price.

The board also decided that the issuer is free to place a cap either in terms of the number of shares or percentage to issued capital of the company so that a single bidder does not garner all the shares on offer, ensuring a wider distribution of shareholding.

Jagannadham Thunuguntla, Equity Head,  SMC Capitals, said this means an institutional investor can continue to bid above the floor price and the QIB allotment will be made to the highest bidder.

“The intent is to enable companies to mop up more funds. Earlier, even when there were huge subscriptions and huge demand for an issue, the company could not get more money. This becomes more relevant in the context of the recently announced divestment plans and FPOs by the government for public sector units,” he said.

Auction for QIBs is welcome as it would allow risk-taking entities and not just the promoters to be a part of the price discovery process, other analyst said.

A SEBI release issued after the board meeting also said the minimum market capitalisation required by listed firms to sell shares in follow-on offerings has been halved to Rs.5,000 crores  from Rs 10,000 crore.

Moreover, the market regulator has also made it a mandatory that all listed companies would have to furnish audited or un-audited balance sheets on a half-yearly basis within 45 days from the end of the quarter instead of the current yearly basis.

This would imply that Indian companies will be required to disclose balance sheet items.

Shareholders would be able to access the statement of assets and liabilities of the company and its solvency position on a half-yearly basis.

Shareholders would receive immense help in making informed investment decisions now and would be in better position to assess the financial health of the companies, with the implementation of this SEBI regulation of mandating frequent disclosure of the asset-liability position of companies by companies.

Not Much New, but Here is the Day at This Point.

An article was release on Yahoo! Finance that has some interesting points of FHA loans and their effectiveness in high-priced areas.  Here’s a taste of the article:

The F.H.A. commissioner, David H. Stevens, said recently that its loans were relatively safe because the buyer was required to live in the property. They “are for shelter. They aren’t speculative-type investments,” Mr. Stevens said.

Across the Nation, FHA loans are being originated at about a 57% clip.  It’s being used well.

• Markets are trending lower again, including bonds, and that will show in interest rates for mortgages.  Already this week, there has been a decrease in the 30 year bond from 4.41 early in the week to 4.27 at the time of this post.
• Natural Gas prices are down 15%.  I was wondering why my utilities were lower!  Oil is following the same trend. It is now falling below $77 per barrel.
• It’s still amazing that the Dollar is strengthening, but stocks do not like it!  This is the third straight day that the Dollar is up (guess what, Gold is down!), and it’s three days in a row of declining markets.

That’s all for now (see I told you it wasn’t significant), see you “At the End of the Day”.

 

Gold buying cools off after new records

Gold demand declined as prices struck a fresh high, after a slight pick-up seen in off take in the previous session.

However, the most-traded December gold contract hit a fresh record high at 17,284 rupees per 10 grams, before trading 0.12% higher at 17,251 rupees tracking overseas leads.

Meanwhile, it is said that traders were stationed on the sidelines seeking lower prices to stock for the ongoing wedding season while the business of dealers declined by about 50% on year as high prices dented demand.

On the other hand, jewelery demand in India decreased 42% to 111.6 tonnes in Q3 to September, while total demand, which comprises jewellery and retail investment demand, fell 49% to 137.6 tonnes.

Govt Not to Impose Restrictions on Foreign Borrowings

The government ruled out limiting companies from borrowing money from overseas market stating that the rise in foreign money is not a matter of concern at present and there is no such proposal.

However, companies are permitted to raise $500 million annually under the automatic route while infrastructure firms under the approval route can remit up to $100 million for rupee expenditure and for other companies the cap on approval route remittance is set at $50 million.

Meanwhile, capital inflows reached record levels as investors borrow cheap from advanced countries and invest in high-yielding assets in developing countries while this led to speculations that government may put in place a system of auctioning ECBs.

In India, foreign inflows through foreign institutional investors (FIIs), ECBs and foreign currency convertible bonds (FCCBs) have been on the rise, while FDI is not picking up as fast.

On the other hand, on a quarterly basis, the funds raised through ECBs and FCCBs increased by 70% in the September quarter to $4.61 billion while FIIs have put in a record over Rs 71,900 crore in the equities market.

By: D. Bruce Johnston, President & CEO, DBJ Associates

Numerous articles have been written lately on the massive rebound of stocks beginning on March 9, 2009.  Most mutual funds have enjoyed a nice performance rebound as well.  If your mutual fund is one of those enjoying this rebound in performance “How do you get “Discovered” in 2010?”

For that answer I turned to Dan Sondhelm, SunStar Strategic.  Dan specializes in preparing and getting asset managers in front of the appropriate media outlets to tell their story and go from “undiscovered” to discovery.

Dan was quick to point out that most mutual funds with significant assets grew as a result of proactive selling activities – an individual fund is rarely “discovered” on its own. With more than 10,000 funds available to investors and their advisors, competition for share of wallet is fierce with 80-90% of fund flows going to the top 20 firms.

Dan’s 6 Comprehensive Suggestions to Getting “Discovered” in 2010:

1. Have a written strategy. Dan’s first suggestion is you start by developing a written strategy. Most mutual fund companies fail to get discovered because they haven’t reduced to writing their strategy to capitalize on their good fortune.
2. Have management buy-in. Ensure you have buy-in from management and a commitment to the resources it will take to implement your strategy. Lack of buy-in, ample resources and accountability will make or break your program.  Predetermine an “owner” for every initiative, how the initiative will be tracked and how will success be measured.
3. Continue your commitment to excellent performance. Review your pricing model.  Ideally your product should be priced below 1%.  Also, evaluate the channels you are selling your products in to make sure you are maximizing your efforts and capital commitment.  No need to try to be all things to all people.  Focus, Focus, Focus.
4. Make sure your products are on the major platforms. Being on the Schwab, TD Ameritrade, Fidelity and Pershing platforms are important but not enough.  Establish relationships with the “gatekeepers” (e.g. research, key accounts, marketing, event planning, etc.) and make sure that you understand how each of these groups functions and although they separate in title, how are they interrelated. These platforms, at a cost to you, provide marketing opportunities throughout the year.  A strong relationship with your account manager will assure that you are alerted to the opportunities for proprietary mailings, sponsorship opportunities at local and national events in advance allowing you to make the most out of the opportunity. Leverage daily and weekly sales data provided by the platforms to communicate market, investment, performance and business building approaches to those RIAs that are supporting your sales effort.
5. What’s your story? Value shop, growth shop, GARP, disciplined or highly disciplined are not sellable stories.  Bring it to life. What makes your strategy different than your competition? How do you select stocks? What are interesting themes in your portfolios? What good decisions did you make?
6. Telling your story. Provide timely information on your Web site. Regularly post themes about your fund and the good decisions you made. If your site doesn’t allow you to add timely information, upgrade it. Advisors won’t come back if there is nothing new. Engage the media. Let the financial press sell you. Then leverage the third-party endorsed reprints in your other sales and marketing efforts, in print and on your Web site. Be accessible. Advisors want to be able to communicate with the portfolio manager directly. Quickly respond to RIA calls. Showcase portfolio managers in quarterly Webinars, than post the event to your Web site. Drive RIAs to your Web site with a monthly Email marketing program to tell your story. Strategy and performance are just two key areas for content. Others include news media reprints, promotion of upcoming Webinars, attendance at an advisor conference, etc.

Thanks Dan for your time and insights.  As me, Dan would appreciate any comments you might have regarding his suggestions and would welcome any additions.

To read the full context of Dan’s blog “New Year’s Resolution: Get “Discovered” in 2010” please visit: http://www.fundfactor.net.