Investments

The Conference Board Employment Trends Index declined slightly in July to 100.6, down 0.3 percentage points from June’s 100.9. However, from a year ago, the July index is up 4%.

S&P Downgrades DTCC SubsidiariesPrinter Friendly Email Reprints Reader Comments Share | August 8, 2011Chris Kentouris Just hours after it said that Standard & Poor's downgrade on the triple A rating of U.S. government debt would not impact its valuations on collateral, Depository Trust & Clearing Corp was hit with its own downgrade.Like what you see? Click here to sign up for Securities Technology Monitor's weekly newsletter to get the latest news and analysis that matters to the effective operation of capital markets.S&P downgraded its triple-A rating on DTCC's subsidiaries Depository Trust Company, Fixed Income Clearing Corp and National Securities Clearing Corp to double A+, the same as U.S. government debt.The three organizations are critical to the U.S. financial market: DTC is the U.S. central depository system which settles U.S. equity and fixed income transactions while FICC and NSCC clear those transactions. In 2010 alone, DTC settled nearly $1.66 quadrillion worth of trades.S&P's decision to downgrade DTCC and its subsidiaries was pretty much expected based on the rating agency's announcement on Friday evening. S&P made it clear that its move to downgrade U.S. government debt could affect insurers, mortgage agencies and securities clearinghouses. At the time S&P characterized the target organizations as "entities with direct links to, or reliance on, the federal government."In a statement issued on Monday morning DTCC downplayed the impact of S&P's downgrade. "We do not anticipate any changes in our operations as a result of this revision of our credit rating," said DTCC. The market-owned utility also cited comments made by S&P that the ratings downgrade of its depository and clearinghouses did not reflect a change in S&P's view of the "fundamental soundness" of DTC or the clearinghouses but incorporate "potential incremental shifts in the macroeconomic and long term stability of the U.S. capital markets as a consequence of the decline in the creditworthiness of the federal government."Prior to the downgrade today, DTC and NSCC had received S&P's Triple A rating for nine consecutive years and FICC for siJust hours after it said that Standard & Poor's downgrade on the triple A rating of U.S. government debt would not impact its valuations on collateral, Depository Trust & Clearing Corp. was hit with its own downgrade.S&P downgraded its triple-A rating on DTCC's subsidiaries Depository Trust Company, Fixed Income Clearing Corp. and National Securities Clearing Corp. to double A+, the same as U.S. government debt.

Maybe the Standard & Poor's downgrade of the U.S. sovereign debt rating is roiling markets and causing China to double down on efforts to diversify its massive cash hoard away from U.S. dollar holdings, but last week's resolution of the debt-ceiling crisis has been good news for the money market fund industry.

Hold on to your hat. We may be headed for a double-dip recession. In fact, when more current economic data arrives a few months from now, it may turn out that we're already in one, according to a pair of economists at Moody's Capital Markets Research Group.

A majority, 63%, of middle-class Americans thinks that the U.S. is in a doubledip recession, the First Command Financial Behaviors Index shows, up from 50% who thought the U.S. had reverted back into recession last summer.

Taking Stock: Northern Trust, BlackRock Say Little ChangedPrinter Friendly Email Reprints Reader Comments Share | August 8, 2011Tom Steinert-ThrelkeldAs securities markets in the United States prepare to open widely lower Monday morning, Northern Trust and BlackRock each said that the decision by the Standard & Poor’s bond ratings agency to downgrade U.S. Treasury debt for the first time would not affect their views of the U.S. bond market or the solvency of the U.S. government.Like what you see? Click here to sign up for Securities Technology Monitor's weekly newsletter to get the latest news and analysis that matters to the effective operation of capital markets.Chief Investment Officer Bob Browne said Northern Trust has no plans to sell U.S. Treasuries as a result of the downgrade.“Northern Trust does not see any fundamentally new information in the downgrade about the state of the U.S. economy and the country’s capacity to pay its debt,” said Browne.Using credit default swaps as a guide, U.S. beats Wal-Mart.Underscoring Mr. Browne’s position, Northern Trust’s Chief Investment Strategist, Jim McDonald, last week released a research commentary in which he analyzed the deal to raise the government debt ceiling and the political environment that created it. McDonald noted that U.S. fiscal problems, if left unaddressed, were likely to manifest themselves through a weaker dollar rather than higher bond yields. The U.S. government’s financial strength still remained higher than that of almost any other nation and of major corporations, including Wal-Mart (see chart).Northern Trust investment experts believe that growth and inflation expectations will determine U.S. bond yields over the next few years much more than the level of deficits.“Looking globally, S&P downgraded Japan to AA- in January of this year; that country's bond yields have declined since then and remain substantially below those of the United States," Browne said.With regard to money market funds, Browne noted that short-term ratings of the U.S. remain unchanged by S&P, remaining at A1+, the highest level. A Northern Trust report can be found here.BlackRock, in a statement, said the downgrade of U.S. sovereign credit by S&P“reflects facts that have been well known to the market for some time. So, it does not imply a fundamental increase in risk, and we don’t believe that investors should change their behavior based solely on the downgrade. However, in combination with continued economic weakness and regulatory uncertainty, this may provide a signal to some investors to reassess their risk appetite.”BlackRock said it had been preparing for the possibility of downgrade over the past month, and, the firm has no need to execute any “forced selling of securities” in response to the S&P downgrade.BlackRock said it also is prepared for “continued downgrades into next week of the many other issuers and issues that derive their rating from the U.S. government rating – including governmental entities and corporate issues.Weakness in labor markets, when combined with only modest levels of growth, argues for a high likelihood that the Federal Reserve will maintain its Fed Funds policy range at historically accommodative levels for at least another year and perhaps through 2012, BlackRock said.BlackRock said:Nonetheless, we think it is vital to underscore the fact that the U.S. Treasury sector remains the largest and most liquid fixed income market in the world with the greatest degree of price transparency and few genuine alternatives.As securities markets in the United States prepare to open widely lower Monday morning, Northern Trust and BlackRock each said that the decision by the Standard & Poor’s bond ratings agency to downgrade U.S. Treasury debt for the first time would not affect their views of the U.S. bond market or the solvency of the U.S. government.

Consumer confidence, as measured by the Discover U.S. Spending Monitor, fell for the second straight month in July, to its lowest level in two years. Since January, the monitor, based on a daily poll of 8,200 consumers, has dropped 11 points, to 82.7.

Even though the government reached an agreement to raise the debt ceiling, 54% of Americans surveyed said the debate over the debt ceiling has made them feel less confident in the economy, the RBC Consumer Outlook Index for August found.

Keating Capital, a pre-IPO fund, concluded its public offering, raising $86.8 million. Next, the fund plans to list its stock on Nasdaq by the end of the year.

Exchange-traded-fund assets are on the rise, and price appreciation has little to do with it, according to an analysis by Standard & Poor’s.

International Funds Set to Outpace Domestic Counterparts: S&PBy Dave LindorffAugust 4, 20112011 has not been a great year for international equity mutual funds, especially compared to domestic U.S. fund counterparts. But this situation could very well change and investors in the near future, according to analysts at Standard & Poor's Equity Research.Like what you see? Click here to sign up for Financial Planning's daily newsletter to get the latest on advisor market trends, investment management, retirement planning, practice management, technology, compliance and new product development.First the numbers.After having two great years, in the first half of 2011 through the end of June, the average gain for international equity funds was a paltry 1.7%. This compared to an average gain of 3.4% for funds invested exclusively in U.S. domestic stocks.But Alec Young, an S&P international equity strategist, and colleague Todd Rosenbluth, an S&P mutual fund analyst, said that a slowing U.S. economy going forward could make it hard for domestic-invested funds to continue outperforming international funds -- especially if the dollar continues its slide against the Euro and other currencies (it’s down 7% so far this year).As Young explains, international funds that invest in companies that denominate their overseas returns in local currencies see their returns rise when those overseas earnings in foreign currencies get converted to dollars.Even so, he said that for international stocks and international mutual funds to really take off in the second half would require a convergence of a number of factors, not all of which are looking particularly likely.These factors, he said, would include an easing of sovereign debt “stress,” greater momentum in international manufacturing, commodity price stabilization, and a more robust U.S. recovery. With both the U.S. and global economies looking weaker, Young told On Wall Street that there were “still two things that could happen that would help international equities funds: a QE3 program by the Federal Reserve, or an expansion of the European Economic Stability Fund.” The Fed at the end of June ended its latest quantitative easing program, called QE2, of buying Treasuries and, at that time, Fed Chairman Ben Bernanke said he did not anticipate having the Fed engage in a third such program.But some economists and Fed watchers think that the dramatic change in the outlook of the U.S. economy evident in recent days may make him rethink that view. Also, there are many experts in Europe who think that the economic stability fund established to prop up the economies of Greece, Portugal and other weaker Euro Zone states is too small and may need to augmented. Looking at the universe of international funds available to investors, S&P’s analysts are recommending three which they say are both top performers and which are invested in companies with strong credit profiles and/or a history of earnings and dividend stability. They include:-- Lazard International Equity Portfolio fund (LZIOX), a relatively small fund with only $38 million in assets that has returned 5.8% so far in 2011 with below average volatility.-- Templeton Foreign Fund (TEMFX), up 5.3% this year, and a fund with relatively low turnover.-- MFS Research International Fund (MRSAX), up 5.1% this year, and a fund that has outperformed its peers for the past five calendar years.

2011 has not been a great year for international equity mutual funds, especially compared to domestic U.S. fund counterparts. But this situation could very well change and investors in the near future, according to analysts at Standard & Poor's Equity Research.

Keating Capital, a pre-IPO fund, concluded its public offering, raising $86.8 million. Next, the fund plans to list its stock on Nasdaq by the end of the year.

PIMCO's Gates: Even After Debt Deal, Bigger Issues Still Haunt U.S. EconomyBy Dave LindorffAugust 3, 2011Don’t count Bill Gross, managing director of the giant investment management firm PIMCO, among those expressing relief at the government’s recent debt ceiling compromise or any subsequent package of budget cuts that may materialize over the next 10 years.Like what you see? Click here to sign up for Financial Planning's daily newsletter to get the latest on advisor market trends, investment management, retirement planning, practice management, technology, compliance and new product development.Gross, whose company manages more than $1 trillion in assets, said the deal -- which he characterized as a display of “dysfunctional government -- scarcely touches the current year’s $1.5 trillion deficit.Worse yet, he said that even if the scheme to have 12 members of a “super committee” of six House and Senate Republicans and six House and Senate Democrats does manage to come up by with another $1.5 trillion worth of budget cuts over the next decade, it would only reduce future deficits “at most by 0.5%”The cuts made in the debt deal are predicted by the Congressional Office of Management and Budget to bring down the country’s “official” total debt/GDP ratio from a current level of 100% to around 90%, with the deficits in 2012 and 2013 averaging 7% to 8% of GDP each year.But that drop in the debt/GDP ratio, Gross warns, is premised on an assumption that the U.S. economy will grow in 2012 and 2013 at a rate in excess of 3% per year.But as Gross said, “Recent trends give pause to these estimates, as does PIMCO’s New Normal, which believes 2%, not 3%, is closer to reality.”The bad news: If growth is closer to 2% per year instead of 3%, “deficits move right back up to near double-digit percentages of GDP.”And there’s another catch.The rosier scenario for the debt/GDP ratio assumes interest rates hold at current 2% levels. If rates were to rise, either because of inflation or to defend a falling dollar, for example, Gross said every 100 basis point increase “raises the deficit by 1% and erases any hoped for gains.”The government’s action on the deficit this week pales almost to insignificance, Gross warns, when one looks at the net present cost of future liabilities in the Medicare, Social Security and Medicaid programs, which he puts at a staggering $66 trillion.These enormous future debts can be addressed, he said, but not without taking steps to improve the efficiency of our healthcare system, reduce benefits, raise retirement ages, and, yes, increase tax rates, “or a combination of all of the above.” Gross said the government also has the option of depreciating the currency and/or maintaining artificially low or even negative real interest rates.Not a pretty picture to be sure.Gross’s advice to investors: favor countries with higher real interest rates like Canada, Mexico, Brazil and Germany. Diversify equity and fixed income investments out of the dollar and into developing nations “with stronger growth prospects. He also advocates investors buy commodity-based real assets “before reserve surplus nations do,” and “above all, don’t be lulled to sleep by congressional law makers that promise a change in Washington.” Don’t count Bill Gross, managing director of the giant investment management firm PIMCO, among those expressing relief at the government’s recent debt ceiling compromise or any subsequent package of budget cuts that may materialize over the next 10 years.

Long-term mutual funds were hit with -$10.381 billion in redemptions the week ended July 27, the Investment Company Institute said. This came on the heels of -$4.58 billion in redemptions the previous week.

Companies that pay dividends, and in many cases are raising them, are attracting strong attention amid an otherwise unappetizing market. But a healthy dividend doesn’t necessarily mean the company issuing it is in the best shape, says Standard & Poor’s equity analyst Todd Rosenbluth.

American Century has launched the American Century Global Real Estate Fund, managed by Steven Brown. He will be supported by analysts Steven Rodriguez and Vishal Govil.

Approximately $13.2 billion flowed into exchange-traded products in July, according to statistics compiled electronically by National Stock Exchange.

With markets reacting negatively to concerns about a weakening U.S. economy, investors might do well to look at the consumer staples sector, according to Standard & Poor's equity analyst Thomas Graves in a new report released Tuesday.

It’s a good time to be an emerging markets bond ETF. Powered by investor demand for exposure to debt from places like Brazil and China, funds from Van Eck Global, Wisdom Tree and elsewhere have gathered assets at a crisp pace.