Investment Factoids
Advice, Analysis, and Lessons for the Do-It-Yourself Investor

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Q4-09 Factoids Update
In Fund Flows, a Caution for Stocks
Mark Hulbert, NY Times 11-07-09
    Mutual fund investors have remained skeptical about the stock market rally over the last eight months, holding back on their purchases of domestic equity funds. That isn’t a promising sign for the stock market. If the money flow isn’t reversed soon, it would suggest that we are witnessing a so-called cyclical rally within a long-term bear market in stocks, not the start of a major bull market.
    Investors’ recent behavior has been unusual. They typically add money to stock mutual funds as the market rises and withdraw money as it declines. During the bull market of 2002 to 2007, for example, there was a net inflow of more than $250 billion into domestic equity funds, according to the Investment Company Institute, the mutual fund industry trade group. When stocks fell from October 2007 to March 2009 in a bear market, there was a net outflow of nearly $200 billion.
    Over the last eight months, however, investors have veered sharply from this historical pattern. From the market’s March 9 low through the 2009 high on Oct. 19 — while the broad market averages rose by nearly 70% — there was a net inflow of just $7.8 billion into domestic equity funds, according to TrimTabs Investment Research. Conrad Gann, the firm’s president and chief operating officer, said, “If this had been a normal market environment, we would have expected a net inflow of at least $150 billion.” In fact, as the rally proceeded, investors pulled money out, reducing their holdings of domestic equity funds by $11 billion in September, and an additional $3 billion from Oct. 1 through Oct. 19.
    Could this skepticism be a bullish omen, under the contrarian theory that a rising market climbs a so-called wall of worry? In this view, the more negative investors become, the more positive the market’s prospects. But a close look at these particular numbers shows that they aren’t a good contrarian indicator: a study by the Hulbert Financial Digest shows that the stock market generally has performed better following net inflows.
    For short-term market prediction, other sentiment measures — like the level of bullishness among investment advisory newsletters, the put-call ratio for equity options and surveys of the views of individual investors — have a better track record.
    Right now, these indicators generally show that while the market’s wall of worry has deteriorated in recent months, it is still strong enough to support somewhat higher prices. But it’s crucial to note that this contrarian-based optimism is strictly for the short term. Sentiment indicators have their greatest explanatory power at the three-month horizon; they tell us nothing about the longer term.
    Might the flow data shed some light on stocks’ longer-term prospects? Ned Davis, president and senior investment strategist at Ned Davis Research, a quantitative research firm that caters to institutional investors, believes that it can. In fact, he said, fund investors’ current skepticism suggests that the stock market faces, at best, several years of backing and filling, and possibly even a prolonged bear market. Why? He believes that the recent financial shock has given investors such a bad taste for stocks that it will take much lower valuations to whet their appetites again.
    One possibility is that the market will enter into a several-year trading range that would provide time for corporate earnings to improve and for price-to-earnings ratios to decline. This happened after the bear market of 1973-74. The institute’s figures show that fund investors behaved just as they have over the last couple of months — withdrawing assets, on balance, from stock mutual funds. A more ominous possibility is a major decline in stock prices, as occurred in Japan during the 1990s, Mr. Davis said. Over the short term, at least, contrarian analysis suggests that the market outlook is much brighter than this. But the prospects over the next several years would be much more attractive if fund investors returned to stocks in a big way.
Time Heals Everything in Quarterly Statements
Paul Lim, NY Times 11-01-09
     Though stocks have soared more than 50% since the market hit bottom in March, the sentiment of individual investors is hardly euphoric. In fact, the percentage who say they are “bullish” today is only slightly higher than it was in the summer, when the market was much lower, according to a survey by the American Association of Individual Investors. Yet these attitudes could change soon, but not because anything has changed fundamentally in the market. It’s simply that time is passing, and the quarterly performance reports sent to investors will soon no longer highlight the worst of last year’s losses.
    At the moment, the quarterly brokerage and 401(k) plan statements still reflect an important time lag. Open a recent statement and you’re likely to find that despite their gains of late, most of your stock investments still lost money for the 12 months through the third quarter. The Standard & Poor’s 500-stock index, for example, was off nearly 7% in the 12 months ended Sept. 30.
    Fast-forward to current figures, which won’t be reflected in most printed investment reports for some weeks. Even after Friday’s losses, many numbers look much better. That’s mainly because the market plunge of September 2008 is no longer included in them. Right now, the S&P500 is up nearly 12% from its level 12 months ago. Through Thursday, domestic stock funds were doing even better, with gains of more than 23%, on average, according to Morningstar.
    Investors may think that the market has improved tremendously over just the last few weeks. It hasn’t. It’s just that by the end of October, the market was more than a year beyond the stock market swoon that followed the collapse of Lehman Brothers. During the worst of the 2008 panic, from the start of last September through Oct. 10, the market lost nearly a third of its value.
    People are often told that they should invest for the long run, but Greg Schultz, a principal at Asset Allocation Advisors, a financial planning firm, said that “shorter time frames actually impact investor psychology more.” “Investors aren’t looking at 10 years,” he said. “They’re looking at how they’ve been doing over 6 months, 9 months, 12 months.”
    In the last few weeks, there have been signs that small investors starting to view this rally as real, said Mike Scarborough, president of Scarborough Capital Management, a 401(k) advisory firm. But most of the bandwagon followers — market timers who fled stocks after last year’s tumble but who now want to make a quick buck after equities have already soared — have yet to re-enter the market in droves, he said.
    Mr. Scarborough believes that this kind of market timing is ill-advised. “The pigs haven’t shown up yet,” he said. “But when they do, you’ll know the market is nearing a top.” At that point, he said, he is likely to start ratcheting down his clients’ exposure to equities by around 5 to 10 percentage points. He guesses that this will take place in January and February, when investors are likely to open brokerage statements showing double-digit gains for 2009. Those statements are also likely to show modestly positive gains for most types of stock funds over the last five years.
    Barring another market swoon, investor confidence is also likely to get a big boost in March 2010. That’s when the year-over-year performance figures for stocks will move beyond the sell-off that occurred in Q1-09. If the market treads water between now and March, the one-year performance figures on March 9 will show a climb of more than 53%. Without further gains, of course, people may focus on the 51% gain that would still be needed to attain the levels of the market’s last peak, which was reached in October 2007.
    “Psychologically, a lot of people measure themselves off of the highs,” said Ronald W. Rogé, a financial planner in Bohemia, N.Y. For now, though, the danger is that the market may be entering a period of rising optimism just as the fundamentals sour. For example, when the rally began in March, the price-to-earnings ratio for the S&P500 stood at a modest 14, based on the trailing four quarters of operating profits. Today, that P/E is about 27.
    Even if you use a more conservative profit gauge — 10-year averaged earnings, a measure that smoothes out wild swings — you find that valuations have begun to soar. In March, the price-to-earnings ratio for the broad market using these “normalized” earnings was 13.3, well below the market’s historical average of around 16. This P/E has since climbed to 19.5.
    A surge in investor confidence could be a shot of adrenaline for a rally that’s maturing. But if fundamental stock values are weakening, and investors pour money in anyway, the bears are likely to see this as a sign of a market top.
In This 10-Year Race, Bonds Win by a Mile
Jeff Sommer, NY Times 10-24-09
    When the Dow Jones industrial average climbed back to 10,000 this month, the achievement was widely noted but barely celebrated, and for good reason. “Haven’t we done this several times before?” asked Edward Yardeni, the economist and investment strategist. In fact, we had. The Dow had crossed 10,000 on more than 20 occasions, starting in late March 1999, when the market was so hot that stock-picking seemed to have become the national pastime. In that year, the book “Dow 36,000” confidently declared that stocks were “actually less risky than bonds” and that the Dow would more than triple in value within a few short years. As investors know all too well, the financial history of the last decade turned out a bit differently. Stocks proved to be extremely risky. Despite the recent rally, in the 10 years through September, most stock investors lost money.
    What may be less widely understood is that over that same 10 years, while the stock market’s overall returns were disappointing, the bond market produced handsome gains. Bond rallies have not generated the hoopla that the stock market customarily receives, but over the last 10 years, investors have had more reason to celebrate if they held bonds, not stocks, in their portfolios.
    Calculations performed for Sunday Business by Morningstar, using data from its Ibbotson Associates subsidiary, show that the stock market underperformed important bond categories over the 10 years through September — with an annualized loss of 0.2% for the S&P500 stock index, versus annualized gains of 8.1% for long-term government bonds and of 7.8% for long-term corporate bonds.
    What’s more, the S&P500 underperformed long-term government and long-term corporate bonds over the last 20 years as well. Over longer periods — 30 years, 40 years, and in an 83-year stretch from 1926 to 2009 — the Ibbotson numbers indicate that stocks did outperform bonds, sometimes by more than three percentage points, annualized. But bonds were far less volatile throughout. And the further back in history you go, the less directly comparable is the data.     Writing in the May-June issue of the “Journal of Indexes,” Robert Arnott, chief executive of the investment firm Research Affiliates, declared that bonds had been neglected by the financial press and by many investors. He reviewed market returns going back 207 years, and found that stocks outperformed bonds by only 2.5 percentage points, annualized. This “2.5 percentage point advantage over two centuries compounds mightily over time,” he said. But for very long stretches, bonds have done better than stocks.
    The wild ride of the last decade or so does not mean that stocks will underperform bonds in the months or years ahead. If only it were that simple. For one thing, past returns never provide a clear guide for the future — especially when technology, innovation and government policies are changing the structure of financial markets and transforming the global economy as rapidly as they are right now.
    For another, it can be argued that the recent stretch of relative stock market weakness and bond market strength is precisely why stocks are likely to do better than bonds. Jeremy J. Siegel, a finance professor at the Wharton School of the University of Pennsylvania and the author of “Stocks for the Long Run,” advocates stock holdings for people with long horizons but acknowledges that some periods have been painful for equities.
    He says that the environment is auspicious again. “Historically, whenever you’ve had long periods when bonds outperform stocks, that sets up an excellent time to invest in stocks,” he said. “So looking forward, things look very favorable for stocks and not favorable for bonds, certainly not Treasury bonds.”
    In part because of market intervention by the Federal Reserve, yields on long-term Treasury bonds remain extremely low, and prices, which move in the opposite direction, are high. When and if the economy recovers, bond yields are likely to rise and prices are likely to fall. Low yields, meanwhile, make it cheaper for many companies to finance their operations, which could help generate outsize profits.
    Laszlo Birinyi, president of Birinyi Associates, who says he believes that we are in the middle of a vigorous bull market for stocks, has studied the long-term returns of many asset classes. He has found that from 1970 to 2008, emerging-market stocks outperformed the S&P500, the bond market and alternative assets like oil, gold, real estate and diamonds. But Mr. Birinyi recommends sticking mainly with domestic stocks and bonds, perhaps adding a sprinkling of foreign stocks that “don’t replicate your domestic stock holdings.” “My issue with diversification beyond that,” Mr. Birinyi said, “is that an incremental or arithmetic increase in the number of decisions you make leads to a geometric increase in the degree of difficulty.”
    The logic for treating domestic stocks and bonds as the two central asset classes was outlined in the 1930s by Benjamin Graham and David Dodd, the fathers of value investing. In their classic work, “Security Analysis,” they emphasized safety — favoring bonds, and only those of the highest quality, as far more suitable for small investors than stocks, which attracted “speculators.” Because shares of common stock are much riskier than bonds, they need to have the potential for a much higher return to induce investors to hold them, Mr. Graham and Mr. Dodd said. But they wouldn’t have been surprised by long stretches of bond market outperformance.
The Proof Will Be in the Profits
Paul Lim, NY Times 10-17-09
    When the economy appears on the verge of rebounding — as it does today — investors tend to gravitate toward economically sensitive stocks, which stand to benefit from improving financial conditions. Often, this leads them to traditional growth sectors, like technology, materials and consumer discretionary stocks, which include retailers. Economically cyclical companies in areas like financial services and manufacturing may also seem appealing. True to form, these five sectors have been among the best-performers in the S&P500 so far this year. And, since March, each of these categories has surged more than 70%. That’s roughly double what many of these sectors have averaged in gains in the first 12 months of new bull markets since 1949, according to S&P.
    “Certainly, we’ve seen a tremendous run-up in the most economically sensitive stocks,” said Jeffrey N. Kleintop, chief market strategist at LPL Financial in Boston. Now, some market strategists are beginning to wonder whether these stocks have already had their day.
    At the very least, prices of the most economically sensitive groups already reflect expectations of a robust recovery. For example, the price-to-earnings ratio for the materials sector of the S&P500 (which includes companies like Dow Chemical and International Paper) has more than doubled over the past year, to 36 from 17, according to S&P. This figure is based on 2009 operating earnings. But Wall Street analysts are forecasting a 99% rise in earnings for that category in 2010. Based on these projections, the so-called forward P/E of the materials sector is a much more palatable 18. Analysts are similarly betting on huge earnings recoveries in 2010 for several other economically sensitive groups, like financials.
    Mr. Kleintop says these earnings expectations aren’t necessarily unreasonable. “But you do need to see some follow-through here,” he said. “You can’t just see higher and higher valuations on the hope for more growth. At some point, you have to see companies, particularly in those sectors that have risen the most — like consumer discretionary, technology and industrials — deliver on those earnings expectations, or the market will be disappointed.” That test is beginning, with the start of the third-quarter earnings season.
    Christian Anderson, an associate portfolio manager at Russell Investments, said the rally that started in early March might be entering a second phase. In the first stage, the stocks that fared best were economically cyclical shares and those that had been beaten up in the bear market. Now, with valuations starting to come into question, investors may want to turn their attention to what Mr. Anderson calls “organic growth” stocks — shares of companies that don’t rely entirely on a robust recovery to expand their business and profits.
    He said technology might be an area to consider. Many tech companies don’t have any debt on their balance sheets, and tend to enjoy healthy cash flows. And unlike, say, retailing, this sector doesn’t require a quick consumer recovery, he said. What’s more, technology is a growth sector in which valuations still look reasonable.
    Jack A. Ablin, chief investment officer at Harris Private Bank, says that growth stocks in general have been outperforming the rest of the market for the past couple of years. “The group is beginning to look expensive and tired,” he said. Still, tech stocks have generally not seen their valuations rise, he added. Indeed, the average P/E ratio for tech companies in the S&P500 is now 22.2, based on 2009 operating earnings. That’s lower than it was in the second quarter this year — and well below the sector’s median P/E of 30.5 since 1995.
    Tech is the sector most favored by investment managers now, according to a survey by Russell Investments. Health care comes in second. While health care stocks don’t depend on a strong recovery, they are still traditionally considered growth investments. And they’re currently cheap. The P/E for health care stocks in the S&P500 is 12.8 — about where it was a year ago.
    The consumer discretionary sector, another traditional growth area, may be worth a look, although it is dependent on a rebound not just in the economy but also in consumer spending. But earnings here have already started to improve — up 64% this year. As in the technology sector, valuations for these stocks have already started to fall even as stock prices have soared. So if the overall market were to plunge, these stocks’ more modest prices might cushion their fall.
Vanguard Cautions Investors on Rally
Sam Mamudi, WSJ 10-07-09
    While many mutual funds celebrate stellar returns this year, one fund firm is going out of its way to warn investors not to get too giddy. Vanguard Group on Tuesday issued a note, cautioning investors that outsize third-quarter returns don't mean it is time to go all-in to certain areas of the market. "While it may be gratifying to see these robust gains lift the balances of your funds, the markets have 'come a long way in a hurry,' as the saying goes. At this point, it may be wise to ensure that your asset allocation is in line with your long-term goals," said Vanguard, in the note titled "Strong 2009 performance warrants yellow flag. "Maintaining a balanced, well-diversified portfolio is a sensible way to prepare for the uncertainties and volatility that accompany investing in the stock and bond markets," it added.
    The note named four funds: Vanguard Capital Value Fund (ticker symbol: VCVLX), which is up 68.5% this year, Vanguard Emerging Markets Stock Index Fund (VEIEX), up 62.6%, Vanguard Precious Metals and Mining Fund (VGPMX), up 59.9%, and Vanguard High-Yield Corporate Fund (VWEHX), up 32.4%. The funds are the firm's three best-performing stock funds and its top-performing bond fund in 2009. The note highlights concerns that Vanguard has about investors being sucked into, and subsequently let down by, hot funds.
    "We have short memories, I'm afraid," said Chris McIsaac, head of the portfolio review department at Vanguard. "We've been at this for a long time, and any time there's a sharp decline or rise, its prompts people to take actions that aren't in their best interest." Mr. McIsaac said the note's timing was due to the attention third-quarter returns have been receiving from both the media and investors, and Vanguard wanted to temper expectations.
    The three stock funds were up more than 20% in the third quarter; High-Yield Corporate Fund was up 10.5%. "We worry we could see [undue] interest in these funds," said Mr. McIsaac. A Vanguard spokesman said the firm has cautioned investors in the past, such as in 2004, when it warned about the impact of rising interest rates on bond funds.
    Mr. McIsaac pointed to recent research from Crandall Pierce & Co. to illustrate how extreme this year's gains have been. He said the data showed the median bull market since 1949 has lasted 23.7 months and seen annualized returns of 26.7%. From March 9 to the end of September, this year's bull market was on pace for an annualized return of 102%. "It would be a shame to see investors pick a fund with a big run-up only to see a regression to the mean," added Mr. McIsaac.
    Flows into mutual funds suggest investors have in the past few weeks started to feel more comfortable heading back into the market. In mid-September, riskier -- and better-performing -- categories such as global and emerging-markets bond funds, as well as global stock funds and sector funds, saw year-to-date high inflows, according to Boston-based fund tracker EPFR Global.
Will “Cash-on-the-Sidelines” Really Drive Stocks?
Matt Phillips, WSJ 10-06-09
    The “cash-on-the-sidelines” argument many market-watchers make to explain why stocks should move still higher shows no signs of losing traction. We recently spotted a piece by James Bianco, president of Bianco Research, that suggested he was fairly skeptical of this theme. So we figured we'd call him up and get him yakking a bit about why he thinks cash-on-the-sidelines argument is bunk. He obliged, here are some edited excerpts from our conversation on Monday.
    MarketBeat: You recently wrote a research piece saying the assets in money-market mutual funds will not be moving into stocks anytime soon. How come? Bianco: If you look at the mutual-fund flows there is a record amount going into bond funds. Forty-two billion dollars went into bond funds in August, which is an all-time monthly record. In fact, the all-time monthly record, I believe, for stock funds was $55 billion back in February of 2000. So it's pretty close to the stock-fund record. But when you break it down, what you'll find is that short-term muni funds, and short-term corporate funds, those are the funds that are getting huge, huge inflows.
    The short-term corporate funds are up 12% this year. And as we talk right now, the S&P 500 is up around 16% this year and the Dow is up about 11% this year. That’s including dividends. So my conclusion was, "Yes, there's a lot of money that's built up in the cash on the sidelines. Yes, it is going to come out of that zero interest rate funds. And its going into short-term bond funds, which by the way are performing pretty much in line with the stock market. So don't hold your breath. You’re going to be waiting a long time before you see that money ever matriculate into the stock market."
    MarketBeat: What about the cash-on-the-sidelines argument more broadly. Do you have problems with the fundamental logic of it? Bianco: Now a couple things about that. The first one is I hate when they say, "There's $3.5 trillion on the sidelines and that is a whole lot of money." It implies that all of that money should be put in investments like the stock market. That is not true. The vast, vast majority is in transactional balances.
    MarketBeat: What does that mean exactly? Bianco: It is money that is going to be needed in a very short period of time, like, within a year. It's going to be spent on something. They're almost like checking accounts, if you want to think of it that way. It is like somebody saying, "You have got $10,000 dollars in your checking account, why don’t you $10,000 worth of stocks?" And the answer is, "Well because I’ve got to pay my credit card bill and my rent." Maybe $1,500, $2,000 or $1,000 of it, I might be able to peel out and put into an investment. But I can not put the whole $10,000 into it.
    MarketBeat: So who owns all this money in money-market funds? Bianco: The way people say “$3.5 trillion in money-market funds,” they make it sound like $3.5 trillion of widows and orphans are out there irrationally taking a zero-percent return and not recognizing that they should be plowing their money into the stock market. Well, first of all 65-70% of the money is institutional money, and the majority of it is transactional balances. So once you stripped all of that out, how much retail money is hiding away from the stock market? The answer is, it’s not very much. It’s probably in the range of a couple of hundred billion dollars.
    So there’s a few hundred billion dollars — not $3.5 trillion — that could potentially move back into a longer term investment. My argument is that most of it is already moving. It is moving into short-term bond funds. And those short term bond funds have performed in line with the stock market. So, what you would need is a massive divergence of those short-term bond funds underperforming — with the stock market not going down — in order to start pushing people out the risk curve even more and into stocks.
    So when people say, "Look at all this money. it's an all-time high in money market funds. And these people are stupid for being in money funds." Well, money funds have outperformed the stock market for the last 12 years. So shouldn’t money funds have a lot of assets relative to stocks right now? Because we all know that everybody chases performance. So the fact of the matter is there should be a lot of money there because stocks have not performed well. The high-falutin' technical term for that is "stocks have sucked." "Well, they’ve been outperforming cash since March," would be the argument. Yes, but not over the last two years. People do remember what the stock market did to them last year.
    MarketBeat: So, in short you don’t buy the cash-on-the-sidelines argument. Bianco: No. You know I started in this business in 1986 and there was a ton of cash on the sidelines. And every single day since 1986 everybody has told me that there’s large amounts of cash on the sidelines. That hass been a constant argument that has never gone away. There has never been a point where anybody has argued that there has been too little cash on the sidelines.
What the Bottom Line Hides
Paul Lim, NY Times 10-03-09
    Investors are always told to focus on a company’s profit, or bottom line. And sure enough, a big reason for the recent stock market surge is a spate of better-than-expected earnings reports. Nearly three-quarters of the companies in the Standard & Poor’s 500 that have already announced quarterly results have beaten analysts’ forecasts. That comes on the heels of a first quarter in which nearly two-thirds of the index companies surpassed expectations.
    But on their own, profit upgrades may not paint an accurate portrait of the economy’s health. Sometimes, the way a company generated its profit is at least as important as the earnings themselves. And on that score, the recent record isn’t as impressive. So far this year, nearly all of the earnings improvements have been achieved through major cost-cutting efforts. Overall selling and administrative costs among S&P500 companies fell 5.7% in Q2-09 versus the period a year earlier, according to a recent report by David J. Kostin, the chief United States equity strategist at Goldman Sachs. This represents far more drastic cuts than were undertaken in the recessions of 1991 and 2001.
    Still, “you can only cut so much,” said Howard Silverblatt, senior index analyst at S&P. “At some point, you need to start seeing the business actually grow. You need to see increased sales” — sometimes called “top line” growth. That’s why Mr. Silverblatt says that revenue — not earnings — “will be the most important number for investors to watch.”
    Thus far, sales have been slow to rebound. While overall S&P500 earnings are still falling on a year-over-year basis, for example, the rate of decline has begun to slow, according to figures compiled by Thomson Reuters. By contrast, declines in S&P500 sales are picking up speed, according to S. & P. After slumping 14% in Q4-08 and nearly 17% in Q1-09, corporate revenue tumbled nearly 20% in Q2-09. The revenue declines are even more staggering on a dollar basis. From June 2008 to June 2009, revenue of the 500 companies tumbled by a total of $1.15 trillion. “That’s more than the entire fiscal stimulus,” Mr. Silverblatt said.
    To be sure, aggressive cutting of expenses will ultimately improve corporate profitability when revenue recovers. “Once sales kick in, this will have a leveraged effect on earnings,” says Jack A. Ablin, chief investment officer at Harris Private Bank. But Mr. Ablin does not expect a turnaround in corporate sales until at least Q4-09 or Q1-10. And it could easily take more time than that. Historically, revenue is one of the last indicators to recover after an economic downturn.
     A recent analysis by Ned Davis Research found that sales typically hit a trough three months after earnings do — or nine months after a recession ends. There is a reason for that: It is the cost-cutting that actually helps stem the slide in earnings within a recession. “Eventually, as the economy recovers, sales take the baton and earnings growth moves more in lock step with revenue growth,” says Ed Clissold, a senior global analyst at Ned Davis. Assuming that the recession has just ended, this means S&P500 sales might not start to recover until next July. Keep in mind that revenue doesn’t always heal exactly nine months after the economy does. A full year after the 2001 recession ended, sales among companies in the S&P500 — minus the financial sector — were still shrinking by around 6%. Moreover, in the last big downturn, at the start of this decade, revenue declined for seven consecutive quarters. If the market were in store for a similar sales drought, revenue might not start expanding again until the start of Q3-10.
    Of course, not all economic sectors will be affected equally. Goldman Sachs analysts are forecasting that three segments of the economy are likely to see a quick recovery and significant sales growth in 2010. These are energy, where sales are expected to grow 17%; technology, 7%; and materials, 6%. Those sectors also happen to be the three areas of the market that derive the highest percentage of sales overseas. In fact, all three generate at least half their revenue from foreign markets.
    Besides looking abroad, companies are also scrambling to find other creative ways to build sales. This could be a reason for the recent uptick in merger-and-acquisition activity. “You can try to increase your sales organically, which can take some time,” Mr. Silverblatt says. “Or you can buy sales growth.” That seems to be the path that many companies are taking.
Inflation Protection: No Guarantees
Jeff Opdyke, WSJ 10-01-09
    The threat of inflation is drifting through the collective consciousness of investors these days. But will the inflation-protection investments so many are turning to work as advertised? Though the widely watched consumer-price index was down 1.5% in the 12 months through August, in blogs, newsletters, online chat rooms and elsewhere, institutional investors, economists and others are wringing their hands. They're warning that the vats of stimulus money and credit that governments are pouring into economies world-wide will, at some point, result in rising prices for goods and services. Warren Buffett of Berkshire Hathaway wrote in an August editorial that the unchecked dumping of dollars into the U.S. economy "will certainly cause the purchasing power of the currency to melt." That means inflation.
    Worried investors have been looking for inflation insurance in the form of assets such as mutual funds and ETFs focused on gold, commodities and Treasury inflation-protected securities, or TIPS. In the past year, interest in TIPS funds in particular has been running at record levels, with some weeks recording more than $400 million in sales. But many of these investments have never been tested during a bout of meaningful inflation. The last time inflation ramped up significantly was three decades ago. Yet TIPS have been around only since the late 1990s, and commodity funds are of even more recent vintage, as are the gold funds that invest in bullion or track the metal's market price. So investors are taking it on faith that these investments will perform as expected. "There's no guarantee with any of them," says Christian Hviid, director of asset allocation at Genworth Financial Asset Management. Indeed, there are reasons to believe that some investors are likely to be disappointed. To understand the pros and cons and potential risks of popular inflation-protection strategies, consider how each works:
    TIPS and TIPS Funds are designed to track changes in the monthly CPI, as reported by the Bureau of Labor Statistics. If the CPI rises, the securities' principal, or face value, increases. That increases interest income for the holder—because the interest is set as a percentage of the principal — helping investors keep pace with rising prices. Plus, when the securities mature, investors get back the CPI-adjusted principal. For many investors, TIPS appear to be the purest form of inflation protection, since they are the only asset explicitly tied to an inflation benchmark. But that raises a key question: Does the CPI accurately reflect inflation? "No," says Paul Brodsky, a partner at QB Asset Management. "The CPI is deeply flawed. It is not an accurate indication of how much purchasing power a dollar loses."
    The index, for instance, doesn't reflect borrowing costs. When the Federal Reserve raises interest rates, rates on credit-card balances and other adjustable-rate loans rise, and consumers must spend more to pay off their debt or support a lifestyle funded with credit cards. And there are other quirks: When airlines lower prices, that is captured by the CPI, yet when they impose a $25 surcharge for luggage, that is not. Your own mix of expenses could also be very different from the one the benchmark uses.
    So, in terms of both the interest payments and the principal returned, TIPS could disappoint investors expecting these securities to help them preserve their purchasing power. Moreover, the market value of TIPS won't necessarily perform as expected. That could lead to losses for investors who own TIPS directly and sell them before maturity, or for investors in TIPS funds.
    Amid nascent inflation, TIPS prices would likely perform better than those of regular Treasurys, as investors rush to own inflation protection. Once the Fed responds by raising interest rates, however, TIPS already in the market would begin to lose some luster, just like regular Treasurys. After all, if a new TIPS offers a yield of, say, 5%, investors would have little interest in older securities yielding 3%. The market price of those older TIPS would fall, which could result in losses for investors who own them and decide to sell.
    Of greater concern is what happens to TIPS if the market or the Fed is particularly aggressive in pushing up interest rates. That's a scenario reminiscent of the late 1970s and early 1980s, when the Fed quickly shoved interest rates as high as 20% at a time when inflation as measured by the CPI was running in the low teens. A similarly aggressive move wouldn't be good for Treasurys in general, but it would be particularly bad for TIPS, say bond-market pros, because it would mute inflation expectations, leaving investors less willing to pay for the inflation protection offered by TIPS.
    The Case Against Gold:    Though long heralded as a hedge against inflation, gold hasn't always gone along for the ride when U.S. consumer prices are rising. Consider data from Morningstar's Ibbotson Associates research and consulting unit: The correlation of spot gold prices to an Ibbotson-tracked inflation benchmark is just 0.096. (Correlation is perfect at 1; the closer to 0, the less the correlation.)
    Certainly, gold has done well in some inflationary periods, like the late 1970s, when the metal spiked above $800 an ounce. Still, investors would do better to view gold as an international currency that hedges against weakening paper currencies, particularly the dollar. For instance, the U.S. dollar index, tracking the greenback's performance against a basket of currencies, has slipped more than 13% since March, when the index hit its peak so far for this year. Gold prices, meanwhile, are up more about 14% so far this year.
    The current rally in gold prices is driven in part by growing worries about a weakening dollar tied to the expanding U.S. budget deficit and the outsize obligations the U.S. has in its Social Security and Medicare systems. But that sentiment could reverse, particularly if investors perceive that political leaders and economic policy makers have a grasp on the problem. In that situation, the dollar could strengthen and push down the price of gold, even if inflation is heating up.
    Moreover, many economists expect the Fed to react slowly to rising prices, to ensure the economy doesn't tip over again, and then play catch-up by aggressively pushing interest rates higher. Depending on what central bankers are doing globally, rising rates in the U.S. typically make the dollar more attractive to overseas investors and currency traders. In that scenario, buying pushes up the dollar and "gold will get knocked down," says Chuck Butler, president of online financial-services firm EverBank World Markets. And because bullion generates no income, gold also would become less attractive as interest rates rise.
    But there's another issue: What does your gold fund own? Exchange-traded funds such as SPDR Gold Shares and related trust products such as Canada's Central GoldTrust own physical bullion, held in secure bank vaults and regularly audited. Others don't own physical gold and instead seek gold exposure through derivatives. PowerShares DB Gold, for instance, tracks an index of gold-futures contracts. The risk there is that the fund faces possible counterparty woes. In a major market dislocation, not unlike the credit crisis, if investors on the opposite side of a trade fail to make good on their obligations, "there is risk that the expected price change in some commodity-proxy funds won't be delivered," says QB Partners' Mr. Brodsky. Invesco Ltd.'s Invesco PowerShares unit referred questions about the fund to Deutsche Bank AG, which declined to comment.
    Investors also frequently choose funds that own shares of gold-mining companies for inflation protection. Shares of the gold miners do generally rise alongside gold prices; in the past year, the Dow Jones U.S. Gold Mining Total Stock Market Index is up 26%. But, besides the fact that gold prices don't always track inflation, there's another reason for investors to beware of these funds. Though gold miners own vast sums of gold in the ground, their share prices are affected by events ranging from governmental actions to earnings forecasts to various corporate troubles, meaning the companies could underperform even as gold prices rise.
    Commodities include food staples such as wheat, corn, sugar and soybeans; industrial metals such as nickel and copper; and energy resources such as coal, oil and gas. These products account for about 40% of the CPI, so they track the movement of the index well.
    Investors can speculate on commodities using futures contracts, but that can be a challenge for individual investors. Commodity-focused mutual funds and exchange-traded products have sprung up in recent years, and for the most part they've done a good job of reflecting the ups and downs in the commodity markets. However, investors need to be careful about exactly what they're buying. "The word 'commodity' in a fund's name should not be the end of your research," says Scott Burns, director of ETF analysis at research firm Morningstar.
    One potential problem: Unlike a gold fund that can easily own and store bars of metal in a vault, commodity funds can't easily own commodities—agricultural commodities are perishable, and industrial commodities would consume far too much space. Instead, the funds use derivative investments such as futures contracts, which the funds roll over from month to month—continually selling contracts as they near expiration and buying new ones.
    While commodity funds generally make money when commodity prices are rising, in certain situations that isn't the case because of a phenomenon known as contango. That's when futures prices are higher than the spot price for a commodity. In a contango market, a fund ends up selling expiring contracts at a lower price and then reinvesting the money in higher-priced contracts — only to watch prices of the new contracts slide in value as the next expiration approaches. "Effectively, the fund is always selling low and buying high," says Bradley Kay, an ETF analyst at Morningstar. So even though the underlying commodity is rising in price, "the fund could be losing money every time the contract rolls over."
    Many commodity-based securities are exchange-traded notes, or ETNs, which pose a different risk. Unlike ETFs, which generally own a pool of hard assets or securities, ETNs own nothing. They are promissory notes issued by a bank, meaning they're unsecured debt; the return you earn is calculated based on the movement of an underlying commodity index.
    "You're loaning money to a bank, and the bank pays you the return of the underlying index," Morningstar's Mr. Burns says. So long as the bank is healthy, no worries. But if it fails, you're in the pool of creditors hoping to recoup your money. Lehman Brothers, Mr. Burns notes, "had a few ETNs when it went under," two of which tracked commodities. Those ETNs were delisted and their holders became Lehman creditors.
The indicators are bullish
Robert Maltbie, CFA, Millennium Asset Management, MarketWatch 10-01-09
    While some might get spooked by an often-volatile October, signs are that the markets are in strong shape. Just the facts: My indicators are as bullish as they have been since March 2003, preceding a 26% upside surge in equity averages that year. Four out of five of our market indicators are bullish and one is neutral.
    Let's start with the bear case: The market is fully valued at 17 times earnings and it is too late to get in the market. But price-to-earnings is a backward-looking measure. If we use projected forward estimates, a different picture emerges. If we value the S&P 500 using 2010 estimates, which call for a 20% or greater increase in earnings, we find a more reasonable P/E ratio of 14, far below 19 where the market topped in 2007.
    As for our neutral indicators, they are "sentiment" indicators showing that volatility and possibly fear have greatly diminished. This is evidenced by the CBOE volatility index which has retreated to 23 from a high of more than 80 a year ago when we were in free fall. Offsetting this is a bullish AAII pundit survey showing investment advisors are bearish, perhaps bracing for "seasonal harshness," by 39% bulls to 45% bears.
    Our remaining indicators are all currently solidly bullish -- technical indicators, monetary data, liquidity measures and valuations. Our Ouiji board swigglies and charts show positive, lead by a strong breadth and upside volume that is recently supported by expanding new 52-week high-to-low ratio.
    A final anchor of positive support is that the Dow, the S&P and Nasdaq all have broken decisively above 200-day moving averages and held their ground. These are characteristics of a market with healthy internals, good days are better and exceed bad days and more stocks are starting to participate.
    Monetary Indicators: This is our most powerful market force, also called "Don't fight the Fed." Money stock is expanding at near 8% annual rate. The real rate is higher considered against the backdrop of a deflating economy which is what we have had for nearly two years now.
    The yield curve is also very steep and positive in its slope. This is a powerful 1-2 punch for the market, the fed is pumping money into the markets and economy and rates are staying low. These two factors have been important catalysts of every major bull market since 1920.
    Liquidity or the directionality of money flows is another bullish sign that is just getting started. After freezing up with the cataclysmic events hitting markets over the last year, corporate M&A is rebounding, stock buybacks are returning, and money is starting to flow back into equity funds, including exchange-traded and hedge funds. Big-time mergers by Walt Disney, Abbott Labsand Dell are starting up again, as these and buybacks have pulsed to nearly $50 billion in September. Meanwhile, money markets have experienced a $54 billion outflow lately. These add up to more than $100 billion in possible additional demand for equities. Offsets of insider selling and IPO issuance although increasing, are still at non-threatening or neutral levels.
    Last but not least, we must not forget valuations. This is also bullish both on absolute and relative levels. While we are at the onset of a new recovery in earnings, more stable indicators such as market capitalization-to-GDP and price-to-sales provide evidence of reasonably cheap valuations. The market is at a 20% discount to GDP and relative parity to sales. In 2000, the market traded at 1.8 times GDP and the price-to-sales ratio was 2.3. It seems we've worked off a lot of excess over the last 10 years.
    Our relative valuation measures are positive lead by an earnings yield to quality corporate bond yield ratio of 1.2, a spread last see in 1982. Stockowners are getting paid or reinvesting back in the company more than high-grade bond owners, and stockowners should see this earnings stream significantly grow over the course of he next two years or so. Also, cash dividends on the S&P at a 2.1% tax-favored yield far exceed treasury yields out to 10 years. Cap this off with the fact that the Leading Economic Indicators index is now at 104 following four successive monthly increases. With easy earnings comparisons and no inflation on the near term horizon we expect the Dow Industrials to break 10,000 in October -- barring geopolitical events.
Credit Scores: Can You Get Them Free?
Jane Kim, WSJ 10-08-09
     If you are curious about your credit scores, you may have tried one of the plethora of Web sites and services that offer some free credit information, then lure you into paying for your scores, usually as part of a credit-monitoring package. Consumers are entitled by law to a free credit report—which is simply a record of your borrowing and repayment history—but the numerical scores derived from these reports will cost you, in part because credit-reporting agencies aren't required by law to provide them for free to consumers along with the reports. Now, a handful of companies are launching services that give consumers at least a glimpse at their credit scores free of charge. The sites—Credit.com Inc., Credit Karma Inc.'s CreditKarma.com and Quizzle.com—also offer a window into the key factors that go into calculating your score, what you can do to improve them and how your credit stacks up against others. Last week, for example, Credit.com launched a free Credit Report Card that shows consumers how they're likely to rate across five credit-scoring models. All three sites, which have ties to the credit industry, aim to make money through advertising or fees if users sign up for products their partners offer on the site, such as credit-monitoring services, credit cards or mortgages. As banks clamp down on lending, it's become more critical than ever to know your credit score. Financial institutions use them to determine the granting and pricing of everything from credit and insurance, to cellphone usage and, in some cases, employment. For years, the best way consumers could get their scores was to buy them from one of the three major credit-reporting bureaus—Equifax Inc., Experian Group Ltd. and TransUnion LLC—or from Fair Isaac Corp., the maker of the widely used FICO credit score. Consumers can also get a free credit report at AnnualCreditReport.com once every 12 months from each of the three bureaus, but the site, which was created by the bureaus, sells scores separately, usually for about $8 each. The reports can span pages of detailed account history, and can be hard for most people to decipher. And even if you pay for a numerical score—which financial-services companies use as a quick way to assess your creditworthiness—the information can be confusing. There is variation among credit scores, depending on which scoring model is being used and which credit bureau the data are pulled from. Lenders can choose from FICO, the VantageScore—a score developed by the three credit bureaus—or from any one of the credit bureaus' own scores. Adding to the confusion, lenders can choose from multiple versions of the same scoring model. FICO, for example, recently rolled out its latest version, FICO 08. To gauge how easy-to-use and accurate the three new sites are, we pulled our credit scores—which may or may not be the actual scores lenders see—and compared the data with information in the credit reports and scores we obtained from AnnualCreditReport.com. (All three sites do a "soft pull" on your credit file, which they pay for, and which doesn't hurt your score, according to the companies. In other cases, applying for new credit is considered a "hard" query, and can hurt your credit score.) Getting the scores from the sites was relatively quick and painless. To get started, you have to set up an account and answer several "identity verification" questions. While you don't have to sign up for any services or provide a credit-card number, you do have to provide your Social Security number at Credit.com and CreditKarma.com. Quizzle.com, by contrast, uses information you provide when setting up your account to locate your credit report at Experian. Then it tries to verify your identity using information in your credit report. But if those questions are based on incorrect information—or if you can't remember the answer—you might be prompted to enter your Social Security number. Encrypted Data All the sites say they encrypt any data that are stored in their files. CreditKarma, for example, strips out any personal account information from users' data and immediately deletes the Social Security number once it is used to pull a credit report. The information the free sites provided matched closely with what was in our actual reports. But the scores varied from the ones we bought through AnnualCreditReport.com, since they relied on different scoring models. Despite the variations, the free scores were in the same credit tier as the scores we bought, giving us a good sense of how lenders would view our credit. All the free sites provided a top-line summary of our credit by highlighting the pieces of data that they thought we were most likely to be interested in, such as how many open and closed accounts we have, our total balances and whether there were any red flags that we should be concerned about. Credit.com's Credit Report Card boiled down our 20-plus-page TransUnion credit report into an easy-to-digest format. The report graded us on a scale of A to F across key factors that went into calculating our score, and showed us how important each factor was to our score. While we scored a C-minus on "inquiries" (in part because we recently refinanced our mortgage), that category made up only 10% of our score. By contrast, we scored an A-plus on our payment history, which made up 35% of our score. Credit.com doesn't yet provide an exact credit score, but estimates where your score will likely fall across the credit-risk spectrum as defined by five major credit-scoring models, including FICO, VantageScore and other consumer credit scores. The site allows users to get updated scores monthly for free. Report Cards CreditKarma.com, which also relies on TransUnion data, gives you one of the same credit scores that TransUnion sells directly to consumers. In addition, it provides a report card grading consumers from A to F across seven key components affecting their scores and ranks the importance of each factor on a scale of high, medium or low. Users can also play around with a credit-simulator tool to see how their scores might change if, say, they applied for a new credit card with a $10,000 credit limit, or foreclosed on their home. The site allows you to check your score every day. One thing Quizzle.com offers that the others don't is a free credit report—and the ability to dispute errors on your Experian credit report on the site. In addition to the free score and report, Quizzle.com also offers a number of mortgage-related tools, so you can see how much the value of your house has changed. The site limits users to a new score and report every six months. All of the sites have been retooling their models to make their scores more consistent with the scores most lenders are likely to use. On Wednesday, for example, Quizzle.com—which is owned by Rock Holdings Inc. and is in the same family of companies as mortgage lender Quicken Loans—replaced the Experian score it had previously offered. The new score is still based on users' Experian credit files, but is designed to more closely track FICO scores, which range from 300 to 850, the higher the better. The free sites also offered some helpful tips on how to improve our credit. To keep our overall debt usage low, for example, Credit.com warned us not to close any of our credit-card accounts, since that could cause our "utilization rate"—the amount of available credit that we're using—to go up and our credit score to go down. Instead, it advised us to cut up the cards to prevent them from being used fraudulently. Quizzle.com also launched on Wednesday a fee-based service ($75 for four months) that gives users personalized, specific advice on what they can do to improve their scores. None of the free sites share or sell your personal information with other third parties, although they do aggregate users' demographic data to help other people see how their credit compares to others. Pitching Products There is some product pitching on the new Web sites. Given its ties to the mortgage-lending industry, Quizzle.com's advice seemed more tilted toward mortgage-related solutions. The site recommended that we consolidate revolving credit-card debt into a mortgage as a way to improve our credit score. CreditKarma.com pitched offers based on our credit profile, while Credit.com offered us the chance to buy our credit report and credit-monitoring services from its TransUnion partner. We still aren't convinced these sites are an adequate substitute for getting your own credit report. The actual reports from AnnualCreditReport.com provided many more specifics about our payment history, previous employers and addresses. They also included account numbers—making it easier in some cases to track down certain accounts—and showed us which lenders had recently inquired about our credit.

How Fund Categories Fared      WSJ 10-02-2008
Funds by Type
Fund                 Annualized Return                 
ObjectiveQ3-09YTD1 Yr3 Yrs5 Yrs10 Yrs
Large-Cap Core Funds16.304.83-25.91-8.13-2.21-1.82
Large-Cap Core Funds15.0520.41-5.89-5.071.130.20
Large-Cap Growth Funds14.0926.75-2.72-3.111.42-1.34
Large-Cap Value Funds16.2617.60-7.92-6.950.652.04
Mid-Cap Core Funds18.8629.81-3.73-3.872.785.65
Mid-Cap Growth Funds17.5133.29-2.74-2.743.162.68
Mid-Cap Value Funds21.0430.62-2.45-4.392.987.11
Small-Cap Core Funds18.6426.17-6.42-4.632.226.79
Small-Cap Growth Funds16.3929.70-5.01-4.001.882.30
Small-Cap Value Funds21.3927.02-6.28-4.922.318.13
Multi-Cap Core Funds16.3325.00-3.38-4.461.772.41
Multi-Cap Growth Funds15.2228.35-2.72-3.502.310.23
Multi-Cap Value Funds18.0323.50-4.90-6.880.713.78
Equity Income Funds14.9216.20-6.42-5.121.762.67
S&P 500 Funds15.4218.86-7.30-5.900.52-0.63
Specialty Div Equity11.0314.371.04-0.331.182.02
Balanced Funds11.9418.941.76-1.152.592.65
Stock/Bond Blend Funds12.6820.681.70-1.182.913.17
All USDE Funds16.6625.23-4.71-4.521.782.36
Sector Funds
Fund                 Annualized Return                 
ObjectiveQ3-09YTD1 Yr3 Yrs5 Yrs10 Yrs
Science & Tech Funds16.4943.077.65-2.033.03-3.89
Telecommunication Funds11.0227.440.24-9.45-0.86-5.11
Health/Biotech Funds11.4815.37-2.350.193.467.01
Utility Funds9.6410.09-4.84-1.396.703.73
Natural Resources Funds16.3132.58-14.071.3910.039.74
Gold Oriented Funds19.1040.7132.8011.4615.3816.23
Sector Funds23.2217.71-17.13-12.99-1.076.50
Real Estate Funds32.5319.66-26.43-13.440.408.85
Financial Serv Funds23.0118.16-14.95-16.40-6.952.14
Funds by Region
Fund                 Annualized Return                 
ObjectiveQ2-09YTD1 Yr3 Yrs5 Yrs10 Yrs
Global Stock Funds17.0127.960.29-3.533.762.34
International Stk Funds18.8929.251.86-3.675.823.23
European Region Funds22.5133.571.93-3.996.715.08
Emerging Markets Funds21.2062.8913.505.0115.0211.89
Latin American Funds28.1184.688.9311.0625.4817.66
Pacific Region Funds13.5842.7017.563.6410.606.83
Bond Funds
Fund                 Annualized Return                 
ObjectiveQ3-09YTD1 Yr3 Yrs5 Yrs10 Yrs
Short-Term Bond Funds3.438.456.262.952.824.10
Long-Term Bond Funds7.7516.2414.394.133.705.57
Intermediate Bond Funds5.9411.6911.654.633.875.37
Intermediate U.S. Funds3.156.645.694.754.275.49
Short-Term U.S. Funds1.423.085.244.813.704.33
Long-Term U.S. Funds3.411.078.375.714.335.41
Gen U.S. Taxable Funds5.9610.018.633.763.906.47
Hi Yield Taxable Funds13.0538.5913.112.584.154.54
Mortgage Funds3.367.578.465.194.225.21
World Bond Funds8.7417.7214.496.396.087.88
All Taxable Bond Funds6.4715.8610.043.933.794.99
Short-Term Muni Funds2.416.115.653.192.843.56
Intermediate Muni Funds5.5110.7811.214.193.524.51
General Muni Funds8.6518.4613.293.103.434.56
Single-State Muni Funds7.7416.7712.823.463.614.64
Hi Yld Municipal Funds14.0732.207.76-0.902.273.62
Insured Muni Funds7.7315.8314.503.143.384.62
Fund Yardsticks
Fund                 Annualized Return                 
ObjectiveQ3-09YTD1 Yr3 Yrs5 Yrs10 Yrs
Dow Jones Ind Dly Reinv15.8213.49-7.38-3.331.851.62
S & P 500 Daily Reinv15.6119.26-6.91-5.431.02-0.15
S & P Midcap 400 IX Tr19.9830.14-3.11-1.404.537.48
Russell 2000 IX Tr19.2822.43-9.55-4.572.414.88
DJ U.S. Total Stk Mkt16.3221.52-6.25-4.771.800.87
Russell 3000 IX Tr16.3121.19-6.42-5.061.560.73
DJ U.S. TSM Growth16.2028.93-1.71-1.942.67-1.50
DJ U.S. TSM Value16.3513.85-10.87-7.540.872.95
Barclay Agg. Bond3.745.7210.566.415.136.30
Barclays Muni. Bond7.1214.0014.855.134.785.77
MSCI EAFE IX ID18.8025.49-0.02-6.263.330.29
D J World Ex US19.9136.086.66-1.388.014.23
S&P Sm Cap 600 TR IX18.6619.46-10.61-3.982.837.07
T-Bill 3 Month Index Tr0.040.130.212.372.822.83
Dow Jones Corp Bd Tr Ix7.8716.7625.848.246.027.55
Prior Mutual Fund Updates:        Q2-09    Q1-09    Q4-08   

Quick Facts, Stats & Opinions

    Standard & Poor's this month slashed its estimate of the percentage of "junk"-rated firms that are likely to default on their debt in the next 12 months, to 6.9% from a prior estimate of 13.9%. (Tom Petruno, LA Times 10-31)

    Industrial firms in the S&P 500 index (that's a subset that includes most of the index's companies, excluding financial-services firms) had a record $773 billion in cash on their balance sheets as of June 30, up from $648 billion a year earlier, S&P estimates. "They're still hoarding money," said Howard Silverblatt, a senior analyst at S&P. (Tom Petruno, LA Times 10-31)

    Twenty million Americans – one in five people 50 and older – say they've prepaid for funeral or burial services, according to an AARP survey. In Texas, about 30 percent of funerals involve a prepaid contract, says the state's Funeral Service Commission. The most common reasons to prepay are to give yourself some peace of mind and to make sure a spouse or children don't get saddled with the financial burden. A funeral typically costs about $6,000 and can often top $10,000, according to the Federal Trade Commission. (Bob Moos, The Dallas Morning News, 10-15)

    When you move from a traditional IRA to a Roth IRA, you pay income tax on the amount converted. But for 2010 only, you can spread the income over two years. James Smith, certified public accountant, says to ask yourself: "How many years from today until I start to get the money out? "The more years I have, the more years there are for that money to build up even more money, which may overcome the tax difference," said Smith. (Pamela Yip, The Dallas Morning News 10-12)

    So far this year, investors have poured a record $220 billion into bond mutual funds, according to the Investment Company Institute. That compares to a paltry $12 billion into domestic stock funds. The previous record for money flows into bond funds was $140.6 billion in 2002 after another blistering bear market. So barring a dramatic shift in investor sentiment over the next three months, this year will surpass the old record by at least $100 billion. (Will Deener, Ballas Morning News 9-28)

    If we all threw our problems in a pile and saw everyone else's, we'd grab ours back. (Regina Brett, a columnist at The Plain Dealer, Cleveland, Ohio 2006)

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