News Analysis
BusinessWeek.com
January 29, 2007
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An Automatic Boost for Your Nest Egg

More and more retirement plans have been adding automated features. Now big providers are launching new ways to boost savings by default

by Marc Hogan

The next revolution in retirement savings may be taking place without your even knowing about it. With the "automatic" features increasingly cropping up in workplace retirement plans, the point is that you don't have to.

Over the past few years, employers have turned to new 401(k) programs that aim to make smart savings habits the default option. More recently, retirement plan vendors have started introducing what could be a new generation of automatic savings options.

So-called "autopilot" 401(k)s make certain decisions for employees by default. For a while now, some employers have embraced automatic enrollment, which means they sign new employees up for the company retirement plans unless the worker opts out (see BusinessWeek.com, 4/25/05, "A Nest Egg That's a No-Brainer"). In 2005, 16.9% of companies sponsoring 401(k) plans offered automatic enrollment, including 34.3% of companies with more than 5,000 employees, according to a survey by the Profit Sharing/401(k) Council of America.

Other hands-free features, like automatic contribution increases and even automatic investing, have also arrived in the 401(k) market (see BusinessWeek.com, 10/8/04, "Putting Your 401(k) on Autopilot"). Such programs are based on behavioral research showing that workers typically take the path of least resistance when it comes to retirement—even when it's against their best interest.

"Auto-Everything" Plans

Now, a new set of automatic functions could be making its way into your company's retirement plan. T. Rowe Price (TROW) recently introduced a feature, dubbed "auto-boost," that would raise all employees' contribution rates up to the maximum employer match. Meanwhile, Fidelity is exploring a feature that would go even further, lifting contribution rates for employees age 50 and older to the Internal Revenue Service limit for "catch-up" contributions.

These new features are the latest phase of a trend toward giving 401(k)s some of the "do-it-for-me" advantages of pension plans. "It's auto-everything at this point," explains Ron Bush, managing principal of West Hartford (Conn.) research and consulting firm Retirement Resources. "Now we're talking about getting people to the point where they're contributing at least up to the company match, and hopefully beyond."

A catalyst behind the most recent changes is the Pension Protection Act, passed by Congress in 2006 (see BusinessWeek.com, 8/18/06, "Deciphering the New Retirement Law"). The law made automatic enrollment and automatic contribution increases more attractive for employers. It also made the higher 401(k) and IRA contribution maximums passed in 2001 permanent.

Full Company Match, Pronto

"Congress explicitly placed a priority on helping employers use the path of least resistance to get more workers to participate in 401(k)-type retirement plans, where one is offered," says Jodi DiCenzo, founder of Evanston (Ill.)-based Behavioral Research Associates, in a Jan. 16 report for the nonpartisan Employee Benefit Research Institute.

T. Rowe Price's new auto-boost option puts a more dramatic spin on existing automatic features. The program, due to go fully live at the end of the first quarter, allows employers to bump up their workers' contribution rates so they qualify for the full company matching contribution, says Rachel Weker, vice-president for product development at T. Rowe. Workers receive information about the change beforehand and may opt out.

Automatic contribution increases have been available for some time from Fidelity, T. Rowe, Principal (PFG), Vanguard, and other 401(k) providers. T. Rowe's new feature differs by boosting participants' contribution rates to the company match in one fell swoop, rather than raising them gradually over time.

Catch-Up Made Simple

"Automatic enrollment was getting people in at the minimum, and in a lot of cases that wasn't enough to maximize employees getting their company match," Weker says. "We think auto-boost is going to get people to where they should more likely be."

Fidelity's new 401(k) feature stems directly from a provision that was made permanent in last year's legislation. Under IRS rules, workers may contribute up to $15,500 to a 401(k) in 2007. Workers 50 and older are also entitled to make catch-up contributions of up to $5,000. However, this favorable treatment of catch-up contributions was previously set to expire in 2010. The Pension Protection Act changed that.

In light of the new law, Fidelity is testing a feature that lets employers automatically increase older workers' contribution rates until they reach the maximum catch-up amount. "This is an evolution of the auto increase program, to make sure all participants are taking full advantage of this new savings feature that became permanent as a result of the PPA," says James Cornell, senior vice-president for employer marketing at Fidelity.

Win-Win for Providers and Employees

The new feature could have widespread implications. As of 2005 more than 90% of qualified retirement plans administered by Fidelity offered the catch-up provision, according to the firm. However, just 9.8% of employees eligible to make catch-up contributions were doing so.

Automatic contribution increases could be a smart way to improve workers' chances of saving enough for retirement, financial advisers say. "I am strongly in favor of automatic everything when it comes to financial planning and investment management for employees in the workplace," says John Vyge, senior financial planner at Dulles (Va.)-based Hillebrand Financial Planning. "Otherwise people don't or won't do it, usually due to either procrastination or lack of knowledge."

Of course, higher contribution rates also benefit companies like Fidelity and T. Rowe, which charge fees based on assets. Still, retirement plan automation may be an instance where business interests and the public interest converge, industry experts say. "It's not altruistic, but in the end it's absolutely the right thing to do," says Fred Barstein, president and CEO of Greenacres (Fla.) marketing research company 401kExchange.

Autopilot 401(k)s may lack sex appeal, but their rise might increase the odds of a secure retirement for people who lack the time or inclination to become expert investors. If your retirement can't be guaranteed, at least it could be automatic.

News Article
BusinessWeek.com
January 29, 2007
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Stocks End Mixed Ahead of Fed Meeting

Merrill Lynch and Citigroup each announced $1 billion-plus deals, while Intel buoyed the Dow and Nasdaq. Investors awaited Wednesday's Fed statement

by Marc Hogan

 

Major stock indexes finished narrowly mixed Monday, as investors sifted through M&A news and earnings reports ahead of this week's Federal Reserve policy meeting. With central bankers expected to keep interest rates unchanged, traders want to see what the Fed's statement will say about future policy, particularly amid speculation of possible rate hikes, says Standard & Poor's Equity Research.

On Monday, the Dow Jones industrial average nudged higher 3.76 points, or 0.03%, to 12,490.78. The broader Standard & Poor's 500 index slipped 1.56 points, or 0.11%, to 1,420.62. The tech-heavy Nasdaq composite rose 5.6 points, or 0.23%, to 2,441.09.

NYSE breadth was positive, with 18 issues advancing for every 15 declining. Nasdaq breadth was 18-13 positive.

The Fed could point to recent stronger economic data in its Wednesday policy statement, some economists say. "It is possible the Fed will acknowledge the improved outlook for growth by removing the wording that 'economic growth has slowed' and simply stating that 'although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters,'" says John Ryding, chief U.S. economist at Bear Stearns, in a note to clients.

Intel (INTC) and IBM (IBM) helped lift the Dow on Monday. Both stocks were higher after the companies each separately announced a transistor breakthrough that could lead to smaller, more energy-efficient chips.

Deal activity was also in focus. Merrill Lynch (MER) agreed to buy First Republic Bank (FRC) for $1.8 billion in cash and stock.

Citigroup (C) said it will buy British insurer Prudential's Egg Banking for $1.13 billion in cash.

US Airways (LCC) reportedly may raise its hostile takeover bid for Delta Airlines (DALRQ.PK) by $1 billion.

Meanwhile, drugmakers Bristol-Myers Squibb (BMY) and Sanofi-Aventis (SNY) were reportedly nearing a friendly merger deal.

Canada-based paper and forest products company Abitibi-Consolidated (ABY) and U.S. peer Bowater (BOW) agreed to merge in an all-stock deal.

Biosolid recycling services provider Synagro Technologies (SYGR) said it will be acquired by the Carlyle Group in a deal valued at $772 million, including debt assumption, or $5.76 per share in cash.
Norton security software maker Symantec (SYMC) agreed to acquire software maker Altiris (ATRS) for $830 million in cash, or about $33 per share.

In earnings news, Verizon (VZ) was modestly higher after the telecommunications company reported a drop in fourth-quarter profits but topped analyst estimates.

Tyson Foods (TSN) was higher as the meat producer posted a 46% increase in fiscal first-quarter earnings.

Toymaker Mattel (MAT) edged up on stronger-than-expected fourth-quarter results, helped by improved margins and better sales of its Barbie and Fisher-Price products.

Copper producer Phelps Dodge (PD) was lower despite a sharp gain in fourth-quarter earnings.
A 75% jump in fourth-quarter net income, in line with expectations, wasn't enough to keep shares of drugmaker Schering-Plough (SGP) from falling.

Looking ahead, companies set to announce quarterly results Tuesday include 3M (MMM), Pepsi Bottling Group (PBG), Procter & Gamble (PG), and Wyeth (WYE).

On the analyst front, Kroger (KR) was higher after Bank of America upgraded the supermarket operator from sell to buy, citing less impact than expected from Wal-Mart (WMT).

In economic news, the U.S. calendar was light Monday. The Fed opens its policy meeting Tuesday and is slated to release its policy statement Wednesday.

Also on Tuesday's docket, the release of January consumer confidence is seen rising to 110.0 from December's unexpectedly strong 109.0, says Action Economics.

In the energy markets Monday, March West Texas Intermediate crude oil futures fell $1.41 to $54.01 a barrel amid speculation of ample supplies and a report Saudi Arabia may intend to keep prices around $50 a barrel.

European markets finished higher. The FTSE-100 index in London rose 11.9 points, or 0.19%, to 6,239.9. Germany's DAX index added 35.67 points, or 0.53%, to 6,726.01. In Paris, the CAC 40 index was up 37.4 points, or 0.67%, to 5,619.7.

Asian markets ended mixed. In Japan, the Nikkei 225 index gained 48.53 points, or 0.28%, to 17,470.46. In Hong Kong, the Hang Seng index lost 44.45 points, or 0.22%, to 20,236.68. Korea's Kospi index shed 8.23 points, or 0.6%, to 1,363.1.

Treasury Market
 
Treasury yields drifted higher amid speculation the Fed's policy statement Wednesday will be more hawkish. The 10-year note fell in price to 97-30/32 for a yield of 4.89%, while the 30-year bond dropped to 92-17/32 for a yield of 4.99%.

News Article
BusinessWeek.com
January 26, 2007
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Stocks End Mixed as Investors Weigh Data

New home sales and durable goods orders rose in December, beating expectations. Microsoft and Caterpillar issued upbeat 2007 earnings guidance

by Marc Hogan

 

Stocks finished mixed Friday, helped by late short-covering, as investors digested a pair of solid economic reports and another batch of earnings releases. Recent stronger-than-expected economic data fanned fears the Federal Reserve won't cut rates anytime soon, and may even have to hike, says Standard & Poor's Equity Research.

On Friday, the Dow Jones industrial average slipped 15.54 points, or 0.12%, to 12,487.02. The broader Standard & Poor's 500 index shed 1.71 points, or 0.12%, to 1,420.55. The tech-heavy Nasdaq composite edged up 1.25 points, or 0.05%, to 2,435.49.

NYSE breadth was positive, with 19 issues advancing for every 14 declining. Nasdaq breadth was 18-12 positive.

In economic news Friday, U.S. new home sales climbed 4.8% to a 1.120 million rate in December, from an upwardly revised November rate of 1.069 million. The report was much stronger than expected, says Action Economics.

U.S. durable goods orders rose 3.1% in December, stronger than expected, after an upwardly revised 2.2% increase in November.

Next week's calendar holds the Fed's policy meeting, with an announcement due Wednesday. Central bankers are expected to keep interest rates unchanged, but sentiment is growing that the Fed will raise its federal funds rate target sometime in the coming months, says S&P.

Other economic releases due next week include data on January employment, fouth-quarter economic growth, and December consumer spending.

Among stocks in the news, Microsoft (MSFT) was higher as the software giant raised its 2007 profit forecast and reported fiscal second-quarter earnings that topped analyst estimates.

Fellow Dow component Caterpillar (CAT) was higher on a strong 2007 profit outlook and a 4% rise in fourth-quarter earnings.

Semiconductor stocks helped support the Nasdaq. Shares of MEMC Electronic Materials (WFR) hit a 52-week high after the silicon wafer maker said its fourth-quarter earnings more than doubled on 39% higher sales.

On the downside, Amgen (AMGN) was lower after the biotech company reported fourth-quarter earnings that missed analyst estimates.

Shares of Honeywell (HON) slipped after the high-tech manufacturer logged a 14% rise in quarterly earnings but issued a 2007 forecast that suggested full-year profits could miss analyst expectations.

Halliburton (HAL) was lower after the oil industry services provider posted a 40% drop in fourth-quarter profit.

General Motors (GM) was lower after the automaker postponed reporting its 2006 financial results, citing accounting errors.

Next week brings another torrent of earnings reports. Companies set to announce quarterly results include 3M (MMM), Merck (MRK), Exxon Mobil (XOM), and Chevron (CVX).

In analyst calls, Citigroup cut its recommendation on Cisco (CSCO) from buy to hold, but shares of the networking equipment maker gained. Citigroup also upgraded Juniper Networks (JNPR) from hold to buy, and shares of the company rose.

Elsewhere, KB Homes (KBH) was lower after the homebuilder said the SEC has begun a formal investigation into its stock-options practices.

In the energy markets, March West Texas Intermediate crude oil futures rose $1.19 to $55.42 a barrel amid cold weather forecasts.

European markets finished lower. The FTSE-100 index in London fell 41.3 points, or 0.66%, to 6,228. Germany's DAX index dropped 29.24 points, or 0.44%, to 6,690.34. In Paris, the CAC 40 index was down 26.9 points, or 0.48%, to 5,582.3.

Asian markets ended lower. In Japan, the Nikkei 225 index lost 36.37 points, or 0.21%, to 17,421.93. In Hong Kong, the Hang Seng index slid 388.7 points, or 1.88%, to 20,281.13. Korea's Kospi index shed 11.03 points, or 0.8%, to 1,371.33.

Treasury Market
 
Treasury yields ticked higher after the strong durables and housing reports added to other data this week pointing to unexpectedly strong economic growth. The 10-year note was little changed at 98-01/32 for a yield of 4.88%, while the 30-year bond fell to 92-22/32 for a yield of 4.98%.

News Analysis
BusinessWeek.com
January 25, 2007
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Smart Tax Strategies for Younger Workers

Still new to the ways of the IRS? Here are a few smart tips to help you get through tax day as painlessly as possible

by Marc Hogan

 

Taxes are a headache by almost anyone's estimation. Despite occasional talk about simplifying the code, Americans' yearly encounter with the Internal Revenue Service probably won't get less complicated any time soon. For example, President Bush included a proposal in his State of the Union address Jan. 23 that would change the tax treatment of health-insurance benefits (see BusinessWeek.com, 1/24/07, "Salesman in Chief").

Heady stuff when you're setting up your own financial house. Every year, a new batch of young workers dives into this tangled maze of credits and deductions without the benefit of experience. According to IRS demographic data, nearly a quarter of all individual income tax returns processed in 2004 were filed by taxpayers under 30. Many members of this age group face their own unique tax situations, whether it's not having a mortgage to pay or not receiving benefits at work (see BusinessWeek.com, 2/16/06, "Life Without a 401(k)").

Unfortunately, even the enthusiasm of youth probably won't keep taxes from being a chore. To make that job easier, this week's Five for the Money shares five basic tax tips for young professionals still getting the hang of dealing with the taxman.

1. Get It Together.
 
First, make sure your financial house is in order. The longer it takes you to gather up your various tax-related documents, the more it will cost to prepare your return, whether in time or money. "There's one major rule when preparing to file your taxes," explains John Deyeso, principal of New York financial planning firm Financial Filosophy. "Be organized and detailed."

What papers do taxpayers need? The list starts with the W-2 or 1099 form from your employer, or at a minimum your individual pay stubs. Homeowners will require 1098 forms from their mortgage lenders. Also locate any mutual fund 1099 forms or bank-dividend statements. Student-loan payments and receipts for continuing education, charitable donations, or moving expenses may come in handy as well (more on those later).

2. Decide Your Plan of Action.
 
Novice taxpayers face the question of whether they should do their taxes themselves or seek professional help. Even some financial pros say many young professionals should start out doing their taxes themselves using popular tax software like Intuit's (INTU) TurboTax or H&R Block's (HRB) TaxCut. "There's no better education than seeing where the numbers end up on the return," says Sammy Grant, president of SG Financial Advisors in Sandy Springs, Ga. "It's fine to hire a professional one day, but I recommend trying it on your own first."

On the other hand, professional tax advisers can help young workers get their tax lives on the right track at an early age, other experts say. "Correctly addressing tax implications early in one's career can also help establish habits that reinforce a savings ethic over a working lifetime for retirement needs," says Barbara Steinmetz, founder of Steinmetz Financial Planning in Burlingame, Calif.

Taxpayers who settle on a plan early will likely find themselves in better shape on Apr. 16, this year's tax deadline in most states. "Don't wait until the last moment," says Donald Duncan, principal of D3 Financial Counselors, based in Downers Grove, Ill. Duncan likes TurboTax, but young workers should ultimately pick whichever option makes the most sense for their particular circumstances.


3. Jump-Start Your Golden Years.
 
Now that it's 2007, there's little that taxpayers old or young can do to ease their tax bite for the previous year. However, contributions to an IRA can help trim your tax bill right up until tax day. The IRA contribution limit this year is $4,000 (see BusinessWeek.com, 1/11/07, "Retirement Savings: Five Tips to Catch Up").

Young workers can deduct these contributions from their taxes if they have annual income below $50,000, or if they don't receive a retirement plan at work. It may seem early to start saving for retirement, but IRA contributions can both trim your tax bill today and put you on a path for a better tomorrow. "I always recommend that you contribute the most you can afford, up to the maximum," says Susan Serota, chair of the American Bar Assn.'s tax section.

Regular contributions to a 401(k) or other workplace retirement plan throughout the year can also help shelter your earnings from the tax collector. In 2007, workers under 50 may contribute up to $15,500 to their 401(k). (Employees 50 years and older are allowed extra "catch-up" contributions of up to $5,000.)

4. Take Some Credits.

Young people who don't have a mortgage probably won't be able to itemize their tax deductions, financial planners advise. Still, that doesn't mean well-prepared taxpayers can't find ways to shield a little more money from the tax man.

For starters, those student-loan bills might finally pay off. Taxpayers with student loans may deduct up to $2,500 in interest related to a student loan, depending on their annual income. Your lender should send a form 1098-E statement listing the amount of interest paid.

Going back to school can help you save, too. Taxpayers enrolled in graduate school may qualify for the Lifetime Learning tax credit, again depending on income. The credit applies to tuition and related costs, but not books or room and board, and is worth 20% of up to $10,000 in college expenses.

Don't forget to claim your one-time telephone excise tax refund. The IRS expects more than 160 million taxpayers to request this payment, which aims to refund long-distance phone taxes collected under a recently scrapped, century-old law. For the 2006 tax year, taxpayers can either take a standard refund between $30 and $60 (depending on other deductions) or dig up their old phone bills and use the exact amount instead.

Young people who do itemize their deductions could possibly enjoy some additional tax benefits. Moving expenses, home-office expenses, non-reimbursed business travel expenses, and some other costs may be eligible for deductions. A tax adviser or some good tax software should be able to help you figure out whether you qualify.

5. Don't Get Excited About a Big Refund.
 
Nobody likes to end up owing money on their taxes. Still, young workers shouldn't let the lure of a fat check from the IRS sway them from a savvy, sensible tax strategy. "The best situation is when you get no refund, because otherwise you're giving the government an interest-free loan," says Chad Smith, a 28-year-old financial planner with Raleigh (N.C.)-based Financial Symmetry.

Be aware of the amount you're withholding from your paychecks. If you end up getting a big loan this year, adjust your W-4 form with your employer with an eye to coming out even next year. Workers who are self-employed or who don't get taxes withheld from their paychecks should make estimated tax payments each quarter—or else face a penalty at the end of the year.

When it comes to paying Uncle Sam, some of the best advice crosses the generational divide: Be prepared, contribute to a retirement savings plan, and try to make the right payments throughout the year. It won't make paying taxes any more fun, but it could improve your financial health. And it could give you some welcome peace of mind when April 16 rolls around.

News Article
BusinessWeek.com
January 23, 2007
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Stocks Gain amid Earnings, Rising Oil

Crude futures rebounded above $55, while Texas Instruments, Johnson & Johnson and others reported fourth-quarter results

by Marc Hogan

 

Stocks finished higher Tuesday, but below their best levels of the session, as rising oil prices lifted the energy sector. Investors were digesting downbeat guidance from the tech sector and a mixed batch of earnings reports. Some traders were positioning themselves ahead of tonight's State of the Union address, says Standard & Poor's Equity Research.

On Tuesday, the Dow Jones industrial average rose 56.64 points, or 0.45%, to 12,533.8. The broader Standard & Poor's 500 index added 5.04 points, or 0.35%, to 1,427.99. The tech-heavy Nasdaq composite edged up 0.34 points, or 0.01%, to 2,431.41.

NYSE breadth was decidedly positive, with 22 issues advancing for every 11 issues declining. Nasdaq breadth was 18-12 positive.

Coming off some lackluster news last week, corporate earnings could remain a source of worry for the market, some analysts say. "High investor expectations should continue to pressure stocks as we work our way through earnings season," says Chris Johnson, CEO and chief investment strategist of Johnson Research Group.

Morgan Stanley moved from overweight to neutral on stocks. "We are changing our asset allocation by selling equities and raising cash, which becomes the largest overweight in our asset allocation," says Henry McVey, chief U.S. investment strategist at Morgan.

The energy sector was leading the market higher Tuesday amid a rebound in oil prices. In the energy markets, March West Texas Intermediate crude oil futures climbed $2.48 to $55.04 a barrel ahead of Wednesday's weekly inventory report, expected to show a decline in supplies.

Among stocks in the news, Alcatel-Lucent (ALU) was sharply lower after the telecommunications company warned that full-year 2006 revenue would come in at levels similar to 2005's results.

On the upside in tech, Texas Instruments (TXN) was higher after the chipmaker reported fourth-quarter earnings that topped analyst expectations. Also, Merrill Lynch upgraded shares of the company from neutral to buy.

In other earnings news, Johnson & Johnson (JNJ) was lower after the consumer-products maker posted a 3.5% uptick in fourth-quarter profit, missing analyst estimates.

Fellow Dow component DuPont (DD) was lower despite announcing sharply higher fourth-quarter profits.

Also among the blue-chips, United Technologies (UTX) said its fourth-quarter earnings jumped 38%. Shares rose following the news.

Meanwhile, D.R. Horton (DHI) was higher after the homebuilder said first-quarter earnings skidded 64%. Separately, Goldman Sachs raised its recommendation on U.S. homebuilders from sell to neutral.
Bank of America (BAC) was lower after the financial company posted a 47% increase in fourth-quarter net income.

Xerox (XRX) was lower after the copier and printer maker logged a 24% drop in fourth-quarter profit.
Gap (GPS) was lower after the retailer announced the departure of CEO Paul Pressler following a weak holiday shopping season.

After the closing bell, Yahoo! (YHOO) was expected to announce earnings of 13 cents per share on $1.2 billion in revenue, according to Reuters Estimates. Advanced Micro Devices (AMD) was seen reporting earnings of 8 cents per share on $1.7 billion in revenue.

Companies due to post quarterly results Wednesday include McDonald's (MCD). The fast-food chain operator is expected to post earnings of 61 cents per share on nearly $5.7 billion in revenue, according to Reuters Estimates.

Outside of earnings news, American Airlines parent AMR (AMR) was sharply lower after the company said it plans to sell 13 million new shares of common stock.

Apple (AAPL) was lower amid reports CEO Steve Jobs was questioned by government investigators as part of a probe into backdated stock options grants at the company.

On the economic docket Tuesday, U.S. leading indicators rose 0.3% in December, in line with expectations, after an unrevised 0.1% increase in November, for a fourth straight monthly increase.

Bush was set to give his State of the Union address at 10 p.m. Eastern. "We expect him to focus on three key issues-- Iraq, energy and climate change, and health care-- as well as a few secondary ones," Goldman Sachs economists Alec Phillips and Chuck Berwick say in a note to clients. About 30 million Americans could face tax hikes as a result of Bush's expected proposal to make health insurance premiums taxable income, according to S&P.

Wednesday's economic calendar is relatively quiet, highlighted by weekly Mortgage Bankers Assn. data on mortgage applications.

European markets finished mixed Tuesday. The FTSE-100 index in London rose 9.2 points, or 0.15%, to 6,227.6. Germany's DAX index fell 8.38 points, or 0.13%, to 6,678.93. In Paris, the CAC 40 index was down 4.71 points, or 0.08%, to 5,575.07.

Asian markets ended slightly lower. In Japan, the Nikkei 225 index slipped 15.61 points, or 0.09%, to 17,408.57. In Hong Kong, the Hang Seng index edged down 2.52 points, or 0.01%, to 20,769.7. Korea's Kospi index inched lower 0.32 points, or 0.02%, to 1,363.09.

Treasury Market
 
Treasury yields ticked higher following the rise in December leading indicators. The 10-year note fell in price to 98-19/32 for a yield of 4.8%, while the 30-year bond dropped to 93-26/32 for a yield of 4.9%.

News Analysis
BusinessWeek.com
January 22, 2007
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2007's Top Picks: Financial Services

Top Wall Street pros offer their thoughts and predictions on companies in the financial-services industry

by Marc Hogan

 

Neither an inverted yield curve, rising interest rates, nor a weakening U.S. dollar could keep financial services stocks from solid gains in 2006. The industry also weathered security concerns and outsourcing talk, and still share prices emerged undaunted (see BusinessWeek.com, 12/19/06, "Financial Services '06: Dash of the Unusual"). In fact, the financial services sector rose 15.8% last year, according to Standard & Poor's (MHP), compared with a 13.6% advance for the broader S&P 500 index.

There's no guarantee the good times will continue, however. Slowing economic growth, the yield curve's ongoing inversion, and deteriorating credit quality could put a damper on earnings growth in 2007, some analysts say. In 2006, S&P estimates the financial sector logged a 16.6% uptick in earnings, while the S&P 500 posted an average 14.6% increase. This year, however, S&P expects the sector's profit growth to slow to 6.4%, vs. 9.9% for the broader benchmark.

Greener Pastures

Despite this gloomier backdrop, Wall Street's soothsayers still see pockets of green in the money business. From banks to brokerages and beyond, BusinessWeek.com asked top analysts for their picks in the financial sector as the year gets underway.

Deal activity could be a boon for one regional bank, according to David George, a senior analyst at A.G. Edwards (AGE). Bank of New York (BK) should get a boost from the recent swap of its retail banking unit with JPMorgan Chase (JPM) and its pending $16.5 billion merger with Mellon Financial (MEL). "The combined company has a platform capable of generating double-digit growth for the next three to five years," George says. The banks expect to cut pre-tax costs by roughly $700 million annually as a result of the deal (see BusinessWeek.com, 12/4/06, "The Man Behind the Mellon Merger").

In the traditional banking sector, George also likes Wells Fargo (WFC) and U.S. Bancorp (USB). He expects 10% earnings growth from these companies in 2007, about twice the anticipated rate for their peers. Wells Fargo should continue to generate strong profits despite a challenging macro-environment, George says. He adds that a high percentage of revenue from fees out of nonbank businesses such as payment services, payment processing, and corporate trusts will likely insulate U.S. Bancorp's earnings from the inverted yield curve. (A.G. Edwards has had business relationships with Bank of New York, Wells Fargo, and U.S. Bancorp.)

UBS analyst Matt O'Connor's top pick among large-cap banks, Wachovia (WB), might be another stock poised to gain after recent M&A action. The company's $25.5 billion purchase of Golden West Financial may have sparked some concerns on Wall Street about the mortgage lender's earnings prospects in a slowing housing market, but overall results should come in line with expectations, O'Connor says. "Combine that with an attractive valuation and what I would view as an attractive franchise," he says, citing the company's southeastern U.S. geographic base and diverse business mix. "I think it could be a very good place to make some money."

Meanwhile, SunTrust Banks (STI) might be a smart play for two different reasons. On one hand, a new cost-savings plan could help the company get expenses under control, paving the way for above-average earnings growth against the industry, O'Connor says. If costs don't come down, he sees an increasing probability that the company will be sold, likely at a premium.

In a somewhat contrarian call, O'Connor expects improved earnings growth from BB&T (BBT). The analyst says the bank is just beginning to see the benefits of its investment in organic growth—such as opening new branches and hiring sales staff— and may enjoy improved operating leverage going forward. The company has also made changes to its balance sheet that could improve its position for a prolonged flat yield curve, he says. (UBS has had business relationships with Wachovia, SunTrust Banks, and BB&T.)

Elsewhere, Bank of America (BAC) analyst Michael Hecht favors Lazard (LAZ). Hecht says the boutique advisory group, his top small- and mid-cap pick in the sector, stands to gain from booming M&A activity and a growing asset-management practice. The company's valuation of 16 times its estimated 2007 earnings is also cheap compared with its peers, he writes in a recent research report. (Bank of America beneficially owns at least 1% of securities of Lazard and has received investment banking fees from the company.)

Within large-cap stocks, discount stockbroker Charles Schwab (SCHW) may be a bargain. Hecht says the stock looks undervalued based on the 23% compound annual growth rate he projects for earnings over the next five years. Ongoing cost discipline and decreased reliance on transaction-based revenue could also bode well for Schwab, Hecht notes in the report. (Bank of America makes a market in the securities of Schwab and has received investment banking fees from the company.)

Schwab is a favorite of Citigroup (C) analyst Prashant Bhatia as well. "We continue to see significant upside for [Schwab]," Bhatia writes in a recent research report, citing faster organic growth and per-share earnings increases of 20% or more over the next two to three years. "In our view, the marketplace continues to underappreciate the long-term earnings power and the growth prospects of the Schwab franchise."

In life insurance, Citigroup analysts' top picks are Aon (AOC) and Lincoln National (LNC). Aon may be positioned to grow revenues, margins, and earnings at the same time, analyst Keith Walsh notes in the Citigroup report. As for Lincoln, fellow Citigroup analyst Colin Devine says the Street has yet to fully recognize the stock's attractive valuation and above-average dividend yield. (Citigroup makes a market in the securities of Schwab, Aon, and Lincoln National, and had business relationships with the companies.)

As the financial sector faces a tougher environment, analysts believe a few well-positioned financial companies could still be poised for growth in 2007.

News Article
BusinessWeek.com
January 18, 2007
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Stocks Fall as Apple Weighs on Tech

The iPod maker's second-quarter guidance disappointed the Street. Also in focus: solid economic data, Bernanke's Senate testimony, and tumbling oil prices

by Marc Hogan

 

Major stock indexes finished lower for a second straight session Thursday, led down by the tech sector after disappointing guidance from Apple (AAPL). Reports on consumer prices, housing starts, and Philadelphia-area manufacturing pointed toward a solid economy, but Federal Reserve Chairman Ben Bernanke's Senate testimony raised concerns about fiscal policy, says Standard & Poor's Equity Research.

On Thursday, the Dow Jones industrial average edged down 9.22 points, or 0.07%, to 12,567.93. The broader Standard & Poor's 500 index fell 4.25 points, or 0.3%, to 1,426.37. The tech-heavy Nasdaq composite slid 36.21 points, or 1.46%, to 2,443.21.

NYSE breadth was negative, with 20 issues declining for every 13 advancing. Nasdaq breadth was 22-9 negative on the exchange's heaviest volume so far this year.

Investors were sifting through a barrage of firm economic data Thursday. The U.S. consumer price index, or CPI, rose 0.5% in December, while the core CPI rose 0.2%. The headline gain was larger than expected, says Action Economics.

The Philadelphia Fed's index of regional manufacturing activity added to the solid economic news. The Philly Fed index rebounded to 8.3 in January, much better than expected, from a revised -2.3 in December.

Meanwhile, U.S. housing starts climbed 4.5% to a 1.642 million rate in December, from a downwardly revised 1.572 million in November. In addition, U.S. jobless claims fell 8,000 to 290,000 in the week ended Jan. 13, from a downwardly revised 298,000 a week earlier.

The numbers may keep the Fed on hold with a bias toward further interest-rate hikes, some analysts say. "Interest rates will continue to be pressured higher, but the process should be slow," says Tom Sowanik, chief investment officer at Clearbrook Research, a part of Clearbrook Financial. "Stocks will respond to earnings, and the earnings appear to be coming in strong once again."

In Washington, Bernanke's prepared remarks to the Senate Banking Committee focused on fiscal policy, saying the nation faces huge problems with entitlements for the elderly. The Fed chief avoided discussion of the economic outlook or monetary policy.

Looking ahead, Friday's economic docket holds a preliminary reading for the University of Michigan's consumer sentiment index.

The tech sector paced the stock market's losses Thursday. Shares of Apple (AAPL) fell after the tech bellwether said second-quarter sales will be as much as $4.9 billion, less than analysts forecast. J.P. Morgan downgraded the stock from overweight to neutral.

Oil prices tumbled, weighing on corresponding shares. In the energy markets, February West Texas Intermediate crude oil futures skidded $1.76 to $50.48 a barrel, briefly dipping below $50, after an inventory report showing an unexpectedly large increase in supplies.

In earnings news, Merrill Lynch (MER) was lower despite pulling near a 52-week high in intraday trading after the company reported fourth-quarter profit that topped Wall Street expectations.

IBM (IBM) was among companies set to announce quarterly results after the bell. Companies reporting earnings Friday include Citigroup (C), General Electric (GE) and Motorola (MOT).
On the M&A front, GE reportedly plans to buy part of Abbott Laboratories' (ABT) diagnostic-equipment unit for about $8 billion.

Rite Aid (RAD) shareholders approved the drugstore chain's acquisition of 1,850 Brooks and Eckerd stores from the Jean Coutu Group.

Among Thursday's other stocks in the news, Electronic Arts (ERTS) was higher after Citigroup raised its recommendation on the stock from hold to buy.

Shares of Intuit (INTU) rose after Citigroup upgraded the software maker from hold to buy.

European markets finished mixed, paring early gains. The FTSE-100 index in London rose 5.8 points, or 0.09%, to 6,210.3. Germany's DAX index fell 12.08 points, or 0.18%, to 6,689.62. In Paris, the CAC 40 index was down 6.74 points, or 0.12%, to 5,555.04.

Asian markets ended higher. In Japan, the Nikkei 225 index gained 109.58 points, or 0.63%, to 17,370.93. In Hong Kong, the Hang Seng index climbed 212.94 points, or 1.06%, to 20,277.51. Korea's Kospi index advanced 3.73 points, or 0.27%, to 1,383.21.

Treasury Market 
 
Treasury yields ticked lower after a round of solid economic data. The 10-year note rose in price to 99-01/32 for a yield of 4.75%, while the 30-year bond advanced to 94-22/32 for a yield of 4.84%. A late rally in prices possibly reflected short covering after recent losses, says S&P.

News Analysis
BusinessWeek.com
January 18, 2007
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Going Global with ETFs

Here are some choice exchange-traded funds that can boost your international exposure—without hefty costs

by Marc Hogan

International stocks are widely expected to outperform their U.S. counterparts for a sixth straight year in 2007 (see BusinessWeek.com, 11/17/06, "World Won't Sniffle if U.S. Sneezes"). Even after such a lengthy winning streak, now might be as good a time as any to follow the experts' advice and make sure your portfolio has proper international exposure, pegged by some analysts at 20% of total holdings. Exchange-traded funds, or ETFs, can be a smart, low-cost route to a globally diversified portfolio.

International stocks might seem like one area where market expertise should give the pros an upper hand, but the numbers tend to disagree. The S&P/Citigroup (C) PMI World index outperformed 58% of actively managed global funds last year, while the S&P/Citigroup PMI World ex U.S. index outpaced 50.5% of international funds. The S&P/IFCI composite also led 75% of actively managed emerging-markets funds.

Like index funds, ETFs are baskets of securities that seek to track a benchmark, but they also trade intraday, like stocks. Many pros like them for their low prices and typical tax-efficiency (see BusinessWeek.com, 6/22/06, "Spread Your Bets in ETFs").

Still, it's important to remember to use international ETFs with caution. The markets they invest in can be volatile. Also, unlike mutual funds, ETFs incur brokerage fees with each trade, so they're probably not a good fit for investors planning to make frequent trades or monthly deposits.

Caveats aside, ETFs might be a convenient way to get exposure to foreign stocks. This Five for the Money offers tips to help investors find international ETFs that could be a solid addition to their portfolios.

1. Cover the basics.

Globally minded ETF investors might want to make their first stop the iShares MSCI EAFE Index (EFA), some financial advisers say. This fund tracks a widely used benchmark for foreign developed-market stocks, with exposure to companies in Europe, Australia, and Asia. The $37.1 billion portfolio counts the likes of BP (BP), HSBC (HBC), and Toyota (TM) among its more than 800 holdings.

The iShares MSCI EAFE Index ETF's broad diversification can make it a quick, one-stop way to up your overseas exposure. "I consider it to be the S&P 500 equivalent of international markets," says Georgia Bruggeman, founder of Holliston (Mass.)-based Meridian Financial Advisors. "This is the first place to invest, and should be part of the foundation for everyone's portfolio," she adds.

The fund boasts an average annualized return of 14.38% over the five years ended Dec. 29, slightly ahead of its style peers, according to Standard & Poor's. Paul Winter, principal at Salt Lake City-based Five Seasons Financial Planning, also likes the ETF's low 0.35% expense ratio and its tax-efficient track record. "It has never paid a capital-gains distribution," Winter notes, and that's a fact investors are bound to appreciate, come Apr. 15.

2. Tap into emerging markets.

After a strong multiyear run, stocks in emerging markets have hit a few roadblocks so far in 2007. Thai stocks fell after the new coup-installed government announced it would limit foreign investment, and Venezuela's move to nationalize some privately held industries raised a fresh set of worries. While it's tough to get the timing right, emerging-market exposure can still be a smart addition to a portfolio over the long run.

The $10.8 billion Vanguard Emerging Markets Stocks Vipers (VWO) ETF posted a 29.53% return last year, slightly below its peer average, according to S&P. The fund is cheap compared to its peers, with an expense ratio of just 0.3%. The iShares MSCI Emerging Markets Index (EEM), which tracks the same benchmark, carries expenses of 0.77%.


Either ETF can look cheap compared to a number of their traditional counterparts. "Some actively managed emerging market funds have extremely high expense ratios," says Eve Kaplan, a Berkeley Heights (N.J.)-based financial planner. "The ETFs are a good cost-effective alternative for some investors."

Particularly after emerging markets' recent strength, investors should remember that these stocks can be highly volatile. "People tend to buy them when they're hot, like right now, and then dump them the moment they start disappointing," says Morningstar (MORN) ETF analyst Dan Culloton.

3. Take a regional view.

Still, some investors have reservations about how the major international indexes are composed. Whether your quibble is with MSCI Emerging Markets index's inclusion of Russia or the MSCI EAFE index's weighting to Europe, ETF providers also offer region-specific funds for more neatly calibrated exposure. Be careful, though, because simplicity is probably a better bet for most typical investors.

The $25.9 billion Vanguard European Stock ETF (VGK) and $12.3 billion Vanguard Pacific Stock ETF (VPL) provide low-cost ways to fine-tune exposure to Europe, Asia, and Pacific nations such as Australia and Japan. "I really love Vanguard's offerings because they allow me to slice and dice the international markets better than the EAFE index," says Michael Dubis, president of Michael A. Dubis Financial Planning in Madison,Wisc. Both Vanguard portfolios carry low expense ratios of 0.18%.

4. Head to the country.

Nevertheless, certain investors might not want to limit their asset-allocation strategy to the regional level. With ETFs, they don't have to. A growing number of country-specific ETFs allow investors tweak their stock exposure on a country-by-country basis.

David John Marotta, president of Charlottesville (Va.)-based Marotta Asset Management, says he invests in ETFs for the 10 countries recognized each by the Heritage Foundation for having the most economic freedom. These include iShares Hong Kong (EWH), iShares Singapore (EWS), and iShares United Kingdom (EWU), among others. Each of these funds carries an expense ratio of 0.54%.

However, analysts and financial advisers frequently caution against average investors trying to beat the pros by dabbling in country-specific ETFs. "The right way to use ETFs for international exposure in a portfolio is to shun the single country funds," says James Sonneborn, wealth manager at RegentAtlantic Capital in Chatham, N.J. Instead, Sonneborn recommends a simple international portfolio component based on the more broadly diversified foreign ETFs.

5. Consider real estate.

As ETFs continue to proliferate, one emerging segment is international real estate. State Street Global Advisors recently rolled out its SPDR Dow Jones Wilshire International Real Estate (RWX) ETF. Just introduced last month, the fund tracks the Dow Jones Wilshire ex-U.S. Real Estate Securities index.

While investors should probably wait for it to build up a track record, some financial planners say the fund could be a savvy play for additional overseas diversification. RWX carries a 0.6% expense ratio, and its underlying benchmark boasts five-year average annualized returns of 29.19%. "I'm not putting it in any client portfolios yet," says Dubis, who likes the product but is taking a wait-and-see approach. "People have to be very careful."

As the world of ETFs keeps getting bigger, these funds remain an inexpensive choice for investors trying to keep up with the fast-changing global economy. With luck and some careful decisions, the added foreign flavor could lead to some appetizing returns for investors.

News Article
BusinessWeek.com
January 16, 2007
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From Rock Star to Entrepreneur

Dave Allen plays bass for rock group Gang of Four. Now he's also aiming at online audiences with a record label that has an unusual business model

by Marc Hogan

 

For a brainy British rock group, Gang of Four was remarkably influential. In the late 1970s and early '80s, this foursome's blend of punk, funk, and politics foreshadowed later mega-selling acts Red Hot Chili Peppers and Rage Against the Machine. In more recent years, the bands Franz Ferdinand, Bloc Party, and the Rapture have brought a full-fledged dance-punk revival out of Brooklyn lofts and into Nike (NKE) commercials.

Gang of Four bassist Dave Allen has managed to stay current, too. In the late '90s, Allen was a general manager at the first pay-for-download music service, eMusic.com. In 2000, he joined Intel (INTC) as part of a group focusing on MP3 players and other Internet-connected consumer products. The move brought Allen to Portland, Ore., where he and business partner Ned Failing started their own online music company, Pampelmoose, in 2004, aiming to outfox the ailing record industry.

The industry's problems are well-documented (see BusinessWeek, 5/22/06, "Facing the Digital Music"). Total album sales fell 4.9%, to 588.2 million units, in 2006, according to Nielsen SoundScan data.

By comparison, physical album sales through the Internet rose 19%, while digital album sales surged 101%. If the old system is broken, Pampelmoose sees the Web as the solution.

The Long Tail Strikes Again

Like a conventional record label, Pampelmoose offers studio production, distribution, PR, promotion, and business consulting. It also runs an online store where bands can hawk their wares.

Unlike typical labels, though, Pampelmoose doesn't require artists to sign away their publishing and recording rights for a shot at the big time. "We are trying to keep the artist completely in control whilst helping them market heavily through the Internet," Allen says.

Pampelmoose's biggest success story so far is local rock group Dirty Martini. The band sold about 7,000 copies of its self-titled 2005 debut CD, no small feat for an independent release. A second album, Tea and Revenge, began shipping last fall, and Allen looks for sales of 10,000 to 15,000 copies by the end of 2007.

Late last year, Wired magazine Editor in Chief Chris Anderson mentioned Pampelmoose on his blog calling the business, "well, pretty Long Tailish." Anderson's concept of "The Long Tail," coined in 2004 and expanded last year as a book, describes how products with low demand can collectively outsell the few blockbusters, given unlimited storage space (see BusinessWeek, 7/17/06, "Who Needs Blockbusters?").

Allen fully subscribes to Anderson's theory as it applies to his business model. "We're at the far end of the tail, actually," Allen explains. "We've carved out our niche, and we just take incremental payments from these artists for a little piece of something from everything they do."

Blog as Barker

One tool Allen credits for boosting business is his blog. Pampelmoose's Web site underwent a revamp in December, 2005, when it was getting about 30,000 visitors a month. Allen replaced the site's ordinary e-business home page with a blog, where he posts several times a day on topics related to Portland or pop culture.

As of December, 2006, monthly visitors were up to 142,000, accounting for roughly 500,000 page clicks. Some were clicking through to buy merchandise (see BusinessWeek.com, 5/15/06, "Does Your Small Business Need a Blog?").

While 2006 found the mainstream press finally embracing user-driven content, Allen suggests most would-be bloggers probably shouldn't quit their day jobs. "Nobody on Earth can really just run a blog and get paid," Allen says. "A blog is a useful vehicle for pointing people at your product. It's the retail store window, if you will."

Internet technology and declining major-label sales have provided an opening for some other smaller labels (see BusinessWeek.com, 6/28/06, "They Signed Gnarls Barkley"). Pampelmoose's nonexclusive arrangement and aggressive online push make it unique, some industry insiders say. "It's the sort of model that pushes conventional labels closer to the edge of the cliff," says Seth Riddle, A&R executive at venerable British indie label Rough Trade.

Patience Required

For the time being, revenues remain Pampelmoose's biggest challenge, according to Allen. The company pulled in gross revenue of $372,000 in 2005, and Allen expects final numbers for 2006 to show a 30% increase. Pampelmoose co-founder Failing draws a stipend from the company, but the Gang of Four bassist doesn't. They've recently added one other full-time employee.

"We're just basically reinvesting everything we get into it, in pure startup mode," Allen says. "The problem with having a company like ours, which is amassing content, is that it's a little slow-going. So it's not the sort of thing where investors suddenly come knocking, wanting to jump on board. If they want 10 times returns in five years, they may have to wait a little longer."

As a member of a highly regarded rock band, Allen can afford to be patient with Pampelmoose's growth. In 2005, Gang of Four reunited for a series of U.S. and British concert dates. That year the band also released a new album, Return the Gift. Allen clearly has the advantage of his post-punk past, but the future—for Pampelmoose and startups like it—will likely arrive on the Web.

News Analysis
BusinessWeek.com
January 11, 2007
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Retirement Savings: Five Tips to Catch Up

Worried that your nest egg is undernourished? Here are some smart and sensible ways to get that golden-years savings plan back on track

by Marc Hogan

 

Haven't saved enough for retirement? You're not alone (see BusinessWeek.com, 7/24/06, "Retirement Guide"). More than two-thirds of U.S. workers say they and their spouses have saved less than $50,000 toward retirement, according to an annual survey by the Employee Benefit Research Institute.

Sure, you'll always find reasons why now might not be the best time to worry about your golden years. Bills, family responsibilities, and busy schedules can make it easy to rationalize falling behind in building your retirement nest egg. But the sooner you start saving more, the better off you're likely to be, thanks to the power of compounding.

No matter how far you are from retirement, it's probably a good time to take a quick reality-check. A financial adviser or one of the many investment Web sites can help you determine where you stand on your road to retirement. "Find out, once and for all, what you have now, what you'll need then, and what steps must be taken now to make it happen then," says Philip Watson, a financial planner in Franklin, Tenn.

This Five for the Money looks at smart strategies for catching up on your retirement savings. One hint you will not find here: striking it rich thanks to your unparalleled stock-picking genius. It may not sound sexy, but careful planning and a broadly diversified investment portfolio can help you make up for lost time.

1. Boost your savings to the max
 
For once, the taxman is willing to give you a big break. You'd be foolish not to take advantage of that, right? Retirement savings accounts such as 401(k)s and IRAs allow workers to sock their hard-earned money away on a tax-deferred basis. In a 401(k), employers will typically match your contribution, too.

Make sure to contribute as much as you can to these accounts—at least up to the company match in your 401(k). "Take all the free money you can get," says Marjorie Bennett, principal at Emeryville (Calif.)-based Aegis Capital Management. For 2007, the maximum most investors can contribute to a 401(k) is $15,500. The limit for contribution to an IRA this year is $4,000. Depending on annual income, IRA contributions may be tax deductible. You can still contribute through Apr. 15 to take deductions for the 2006 tax year.

Better still, investors 50 and over are allowed to make "catch-up" contributions to their tax-advantaged retirement accounts. These investors can add another $5,000 to their 401(k) in 2007, and an extra $1,000 to their IRA. Many investors may also want to consider a Roth 401(k) or IRA instead. Contributions to Roth accounts aren't tax-free, but withdrawals are.

2. Get your assets into alignment
 
A well-diversified portfolio can increase the chances your assets will participate in market booms and help insulate your savings against the inevitable busts. Check your asset allocation and make sure it's right for you. A smart portfolio might have exposure to a variety of asset classes, including domestic stocks, international stocks, bonds, and more (see BusinessWeek.com, 4/6/06, "Winning the Game of Risk").

For instance, many baby boomers' portfolios are too heavily allocated to fixed-income investments, some financial planners say. "Sure, equities will result in a rougher ride during some periods, but the long-term benefit is better returns that will make the retirement savings stretch longer," says Sherman Doll, president of wealth-management firm Capital Performance Advisors in Walnut Creek, Calif.

At the same time, resist the temptation to bet big on individual names. If you're trying to get caught up, risking huge losses probably won't help. "The inclination for many would be to take on more risk hoping to make up ground with a big score on their investments," says Daniel Sexton, chief executive officer of Newport Beach (Calif.) financial planning firm RS Crum. "Nothing can be further from the truth."


3. Cut costs on investments, too
 
Just as proper diet and exercise are good for your health, reducing expenses is one obvious way to save more for retirement. People looking for bargains can find them in all sorts of places—even within their own investment portfolios.

Chip Simon, president of Poughkeepsie (N.Y.) financial planning firm Taconic Advisors, suggests investors should think of their portfolio as a business. "Keep it low-cost like any other business," Simon says. "Stay away from high-commission products and inappropriate products that don't necessarily fit into a plan for you."

Consider swapping out high-cost mutual funds for low-cost, no-load funds, such as index funds. Also watch out for commissions if you trade individual stocks. Making frequent stock trades could end up costing more than it's worth.

4. Embrace automation
 
Now that you've got your retirement plan back on the right track, make it last. Your employer probably already makes 401(k) deductions automatically. You can also sign up with your financial institution to have money transferred electronically each month from your checking account into an IRA or taxable account.

When savings pile up without any action from you, it's very hard to "forget" to save, financial planners say. "If it happens automatically you are more likely to keep up with the savings habit, rather than waiting to see if you have the money at the end of the month," says Lauren Gadkowski, a financial planner with Personal Financial Advisors in Covington, La.

5. Rethink your mortgage
 
Your house could help you save a little extra for retirement, too. If you have substantial home equity, you might want to look into refinancing your house and investing the difference in stocks and bonds, recommends Ed Fulbright, a Durham (N.C.) financial planner. Over a 15-year time frame, investors would have a good chance of boosting their investment returns, Fulbright says.

In fact, paying off your mortgage before retirement might be an outmoded ideal, as long as you get a fixed interest rate. Keeping a mortgage into retirement can help protect against inflation, says John Scherer, principal of Trinity Financial Planning in Madison, Wis. "If you're 50 years old and get locked in, and inflation goes up over time, you're paying off that mortgage with cheaper and cheaper dollars," Scherer explains.

There's no magic solution for workers who have fallen behind in their retirement savings, experts say. But the sooner you can start the "catch-up" game, the better off you'll be.

News Article
BusinessWeek.com
January 11, 2007
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Dow Hits Record as Oil Slides

Crude futures tumbled below $52, while Genentech posted solid fourth-quarter earnings. Apple's new iPhone sparked a trademark dispute with Cisco

by Marc Hogan

 

Stocks finished broadly higher Thursday, as the Dow hit a new all-time closing high amid a plunge in oil prices and solid earnings news. Tech stocks led the market higher despite a trademark dispute between two sector heavyweights. The Nasdaq's breakout from a two-month trading range added to bullish sentiment, says Standard & Poor's Equity Research.

On Thursday, the Dow Jones Industrial average rose 72.82 points, or 0.59%, to 12,514.98, above its previous closing record of 12,510.57, set Dec. 27. The broader Standard & Poor's 500 index added 8.97 points, or 0.63%, to 1,423.82. The tech-heavy Nasdaq composite climbed 25.52 points, or 1.04%, to 2,484.85.

NYSE breadth was decidedly positive, with 24 issues advancing for every 10 declining. Nasdaq breadth was 20-10 positive.

Oil prices sank in a volatile session. In the energy markets, February West Texas Intermediate crude oil futures fell $2.14 to $51.88, their lowest level since May 27, 2005, despite a U.S. attack on an Iranian consulate in iraq.

The recent decline in crude, along with upcoming equity options expirations, likely gave stocks a boost, some analysts say. "Oil could be giving investors confidence that the consumer is going to live another day," says Todd Salamone, senior vice president at Schaeffer's Investment Research.

Some upbeat quarterly results fueled investor optimism about earnings season. Genentech (DNA) was higher after the drugmaker reported a 75% jump in fourth-quarter profit.

Looking ahead, Friday's calendar is relatively quiet for earning releases. The schedule picks up next week with quarterly results from Intel (INTC), Apple (AAPL), and Citigroup (C), among others.

On the economic docket Friday, the release of December retail sales is expected to rise 0.7%, or 0.5% excluding automobiles, says Action Economics. Investors will also be sifting through data on November, December import and export prices, and the December U.S. Treasury Budget.

Among Thursday's other stocks in the news, Apple was lower following two days of big gains, as Cisco (CSCO) sued the tech company for alleged trademark infringement over the use of the name "iPhone" for the iPod maker's new product.
Shares of ConocoPhillips (COP) dipped after the energy company reported disappointing preliminary proved reserve additions for 2006.
In analyst calls, MetLife (MET) was higher after UBS reportedly upgraded the insurer from neutral to buy.
M&A activity continued to percolate. AirTran Holdings (AAI) raised its bid for Midwest Air Group (MEH) to $345 million.
Real estate group Equity Office Properties (EOP) was higher on a report a bidding war might break out for the company in response to private-equity firm Blackstone's $20 billion buyout offer.

Amusement park operator Six Flags (SIX) agreed to sell three of its water parks and four of its theme parks for $312 million to Jacksonville (Fla.)-based PARC 7F-Operations.

In economic news, U.S. jobless claims tumbled 26,000 to 299,000 in the week ended Jan. 6, a bigger drop than expected, from a downwardly revised 325,000 in the previous week.

Meanwhile, the Bank of England raised a key interest rate by 25 basis points to 5.25% in an unexpected move. Separately, the European Central Bank held its benchmark rate steady at 3.5%.

European markets finished higher on Thursday after the European Central Bank indicated it might not raise interest rates anytime soon. The FTSE-100 index in London rose 69.4 points, or 1.13%, to 6,230.1. Germany's DAX index rose 120.74 points, or 1.84%, to 6,687.3. In Paris, the CAC 40 index was up 107.85 points, or 1.96%, to 5,609.8.

Asian markets ended mostly lower. In Japan, the Nikkei 225 index lost 104.23 points, or 0.62%, to 16,838.17. In Hong Kong, the Hang Seng index slid 182.97 points, or 0.94%, to 19,385.37. Korea's Kospi index gained 9.52 points, or 0.7%, to 1,365.31.

Treasury Market
 
Treasury yields extended recent gains following a disappointing TIPS auction, the sharp drop in weekly jobless claims, and the surprise Bank of England rate hike. The 10-year note fell in price to 99-03/32 for a yield of 4.74%. Some traders were getting set for expected strength in Friday's retail sales report, says Action Economics.

News Article
BusinessWeek.com
January 9, 2007
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Stocks End Mixed amid Oil, Apple News

Crude futures tumbled below $56. Apple unveiled its long-awaited iPhone product, while Alcoa kicked off earnings season after the closing bell

by Marc Hogan

 

Stocks finished mixed in choppy trading Tuesday, recovering from early lows as Apple (AAPL) unveiled a new product and falling oil prices weighed on energy stocks. Investors were apparently nervous ahead of earnings season, which kicked off after the close with Alcoa (AA), says Standard & Poor's Equity Research.

On Tuesday, the Dow Jones Industrial average slipped 6.89 points, or 0.06%, to 12,416.6. The broader Standard & Poor's 500 index edged down 0.73 points, or 0.05%, to 1,412.11. The tech-heavy Nasdaq composite rose 5.63 points, or 0.23%, to 2,443.83.

NYSE breadth was positive, with 19 issues advancing for every 14 declining. Nasdaq breadth was 16-15 negative.

Oil prices extended their slide in a volatile session, as warmer weather across the Northern Hemisphere reduced demand. In the energy markets, February West Texas Intermediate crude oil futures fell 45 cents to $55.64, after dropping below $54 to their lowest levels in 18 months.

Earnings season got started after the closing bell with quarterly results from Alcoa, which reported 60% higher fourth-quarter profits. Earnings growth for the S&P 500 is expected to slow to a 9% pace in the fourth quarter, according to S&P, snapping a streak of 18 straight quarters with double-digit gains.

Looking ahead, Wednesday's release of November wholesale sales is seen rising 0.2%, says Action Economics. The November trade deficit is expected to rise $0.8 billion to $59.7 billion.
Companies slated to report earnings Wednesday include Genenentech (DNA).

Among Tuesday's stocks in the news, Apple was sharply higher after the computer and iPod maker introduced its long-anticipated iPhone mobile phone at the MacWorld Conference. Shares of BlackBerry maker Research in Motion (RIMM) sank on the news.

Meanwhile, Sprint Nextel (S) was sharply lower after the phone maker's 2007 sales outlook fell short of analyst expectations. Deutsche Bank downgraded the stock from hold to sell.

In earnings news, Cheesecake Factory (CAKE) was higher after the restaurant operator reported fourth-quarter revenue that beat Street estimates.

Supervalu (SVU) was lower after the supermarket chain said its third-quarter earnings climbed 51%, less than analysts expected.

D.R. Horton (DHI) was modestly higher after the homebuilder posted a 28% drop in fiscal first-quarter sales orders.

On the M&A front, Stifel Financial (SF) agreed to acquire BankAtlantic Bancorp (BBX) unit Ryan Beck Holdings for $91.1 million in stock.

The economic calendar was quiet Tuesday. U.S. ICSC-UBS chain store sales index rose a solid 0.7% in the week ended Jan. 6, following a 0.3% uptick the previous week.

European markets finished modestly higher. The FTSE-100 index in London nudged higher 1.9 points, or 0.03%, to 6,196.1. Germany's DAX index added 6.78 points, or 0.1%, to 6,614.37. In Paris, the CAC 40 index was up 14.44 points, or 0.26%, to 5,553.03.

Asian markets ended mixed. In Japan, the Nikkei 225 index gained 146.18 points, or 0.86%, to 17,237.77. In Hong Kong, the Hang Seng index lost 131.58 points, or 0.66%, to 19,898.08. Korea's Kospi index advanced 3.53 points, or 0.26%, to 1,374.34.

Treasury Market
 
Treasury prices drifted in a light session for economic data. The 10-year note nudged higher in price to 99-26/32 for a yield of 4.65%, while the 30-year bond edged down to 96-09/32 for a yield of 4.74%. Traders were awaiting the trade deficit data due Wednesday morning.

News Article
BusinessWeek.com
January 4, 2007
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Falling Oil Lifts Stocks

Crude futures slid below $56 after a bearish inventory report. But retailers' December sales results disappointed the Street

by Marc Hogan

 

Major stock indexes finished higher Thursday, bouncing back from early lows as 2007 continued to get off to a roller coaster start. Crude oil prices tumbled for a second straight day, offsetting lackluster retail sales and a round of economic data that was slightly weaker than expected.

On Thursday, the Dow Jones Industrial average nudged higher 6.17 points, or 0.05%, to 12,480.69. The broader Standard & Poor's 500 index rose 1.74 points, or 0.12%, to 1,418.34. The tech-heavy Nasdaq composite climbed 30.27 points, or 1.25%, to 2,453.43, boosted by Intel (INTC) and Qualcomm (QCOM).

NYSE breadth was flat, with as many stocks advancing as declining. Nasdaq breadth was 17-13 positive.

Oil prices extended their recent descent, weighing on corresponding shares but apparently cheering traders. In the energy markets, February West Texas Intermediate crude oil futures fell $2.73 to $55.59 a barrel, after a weekly inventory report showed an unexpectedly large decline in crude supplies alongside larger-than-expected supply increases for gasoline and distillates.

In economic news, the Institute for Supply Management's non-manufacturing index fell to 57.1 in December, from 58 in November. Separately, U.S. factory orders rose 0.9% in November, slightly below expectations, after October's positively revised 4.5% decline.

Investors were also considering disappointing data on the housing market. The National Association of Realtors' pending home sales index inched lower to 107.0, from 107.2 in October.

U.S. jobless claims rose 10,000 to 329,000 in the week ended Dec. 30, from an upwardly revised 319,000 a week earlier. The increase was larger than expected but small compared to typical holiday-week volatility, says Action Economics.

Looking ahead, Friday's report on nonfarm payrolls may give indications of where the economy and the Federal Reserve are headed, says Standard & Poor's Equity Research. Fed Chairman Ben Bernanke is set to speak at a conference in Chicago.

Among stocks in the news, retailers reported tepid sales gains for December. Companies posting disappointing results included Gap (GPS), Limited Brands (LTD), Pacific Sunwear (PSUN), Pier 1 Imports (PIR), and Zale (ZLC).

On the upside, Wal-Mart (WMT), Target (TGT), and Costco (COST) were among retailers reporting December same-store sales that topped Wall Street forecasts.

In earnings news, Monsanto (MON) was lower after the agricultural products maker reported a 53% rise in fiscal first-quarter profit but issued full-year guidance below analyst expectations.

On the M&A front, Cisco (CSCO) agreed to buy closely held network-security company IronPort Systems for $830 million in cash and stock.

Beer maker Redhook Ale Brewery (HOOK) said it has entered into preliminary talks with peer Widmer Brothers Brewing over a possible combination of the two companies.

Elsewhere, Eli Lilly (LLY) agreed to settle additional liability lawsuits over its anti-psychotic drug Zyprexa for less than $500 million.

European markets finished lower. The FTSE-100 index in London fell 34.9 points, or 0.55%, to 6,284.1. Germany's DAX index dropped 16.92 points, or 0.25%, to 6,674.4. In Paris, the CAC 40 index was down 36.36 points, or 0.65%, to 5,574.56.

Asian markets ended mixed. In Japan, the Nikkei 225 index gained 127.84 points, or 0.74%, to 17,353.67. In Hong Kong, the Hang Seng index tumbled 387.81 points, or 1.9%, to 20,025.58. Korea's Kospi index slid 12.06 points, or 0.86%, to 1,397.29.

Treasury Market 
 
Treasury yields ticked lower following the weaker batch of economic data. The 10-year note rose in price to 100-03/32 for a yield of 4.62%, while the 30-year bond climbed to 96-16/32 for a yield of 4.73%. The latest economic reports did not look strong enough to make the Fed shift its policy stance, and some traders were apparently betting that Friday's payrolls report will show a modest increase, says S&P.