Wednesday, April 23, 2014

A Hill of Beans

If you’re a serious coffee drinker, you may have heard about the alarming rise in the price of coffee bean futures as a result of a horrible drought that has been affecting Brazil throughout most of the year. The cost of Arabica beans – the type used most often in gourmet coffees – has risen 95 percent this year.
But if you’re a serious coffee drinker, you may also have noticed that your morning cup hasn’t risen in price at all. During the four weeks that ended March 23, the average price of ground coffee in the U.S. actually fell by 30 cents from a year ago to $6.26, according to IRI, a Chicago-based market research firm.
The reason: Big coffee wholesalers generally have bought their beans long before they make it to your local Starbucks or grocery store. So there’s typically at least a month’s lag between the rise in the wholesale cost of beans and an increase for the end user. And even then, experts say it won’t be that 95 percent jump tacked on to the retail price – but don’t surprised if the cost of a cuppa joe goes up by 25 to 30 percent in the coming months.

Tuesday, April 22, 2014

The Long Recovery

The National Bureau of Economic Research recently noted that our current recovery is in its 58th month. That ties it with the expansion that lasted from 1975 to 1980 for the fourth-longest economic recovery since World War II. The longest recovery was the high-tech boom that lasted from 1991 to 2001; it ran for 120 months, or exactly 10 years.

Following that one, we had:
  • The expansion from 1961 to 1969, lasting 106 months
  • The Reagan-era expansion from 1982 to 1990, lasting 92 months
  • The Bush II-era expansion from 2001 to 2007, lasting 73 months

This recovery has been unusually sluggish in terms of growth, but that slow pace could bode well for its continued existence. The Fed forecasts the current expansion to go on for a total of 90 months, while the Congressional Budget Office forecasts it to go on for 102 months.

Monday, April 21, 2014

Shades of 2000?

With the stock market stumbling a bit early in 2014, some investors are wondering if we're in for a repeat of 2000, when after years of growth, the markets flamed out spectacularly. After rising by nearly 30 percent last year, the S&P 500 has barely poked its head above water this year, increasing by just 0.89 percent.

Like that year, the tech-heavy Nasdaq index has been suffering the worst of all the major indexes, down 6 percent since peaking in early March. In 2000, the Nasdaq dropped 15 percent in a single week.

But there are some key differences as well. The market doesn't appear to be as overheated as it was in the 1990s. So far during the Obama administration, the S&P 500 is up 95 percent; at a similar time during the Clinton administration, it was up almost twice as much, at 180 percent. History might repeat itself in some measure, but it will never repeat itself exactly.

Friday, April 18, 2014

IPOs Hit a Snag

It's been a good week generally for public companies - despite the fact that there were only four trading days, the S&P 500 just posted its best week since last July. But companies just coming to the market are having a tough time of it. The IPO market, which appeared to be heating up, took a real beating last week.

In the initial months of the year, we've seen roughly twice as many initial public offerings as at the comparable period in 2013. Ten more companies had their initial public offerings last week. All ten of them either sold fewer shares than expected or traded at a lower price than expected - or both.

Part of the problem is that more and more companies are coming to the market without showing a profit. According to Sundial Capital Research, 83 percent of the IPOs this year have been for unprofitable businesses. That's frighteningly reminiscent of the latter stages of dotcom-mania; in the first quarter of 2000, some 84 percent of all IPOs were for companies that hadn't shown a profit.

Thursday, April 17, 2014

The Beige Book Is Back

The Federal Reserve’s eight-times-a-year Beige Book was issued earlier this week, with its on-the-ground look at economic activity in the various areas of the country. New Jersey, as always, is divided between the reports from the New York office and the Philadelphia office, so the differences between the two are always interesting to see.

That unusually harsh winter weather was a hindrance to New York’s tourism activity, but it helped in Philadelphia’s, which covers ski resorts and other winter tourist destinations in the Poconos. But one common denominator in both areas was that economic activity has started to bounce back after the bad weather. A key difference: Lending activity appears to be stronger in the New York area, where it is reported improved, while it is just up slightly in the Philadelphia area.

The biggest bounceback in that southern region was that auto sales were up “robustly.” Meanwhile, in the northern region, manufacturing and service-sector firms showed the most improvement over the past couple of months. All told, both areas reported that the economy continues to improve steadily but moderately.

Wednesday, April 16, 2014

Retail Sales Fueling Stronger Growth

We often hear that consumer spending constitutes 70 percent of the American economy, so any rise in retail sales ought to be considered good news indeed. The Commerce Department announced on Monday that retail spending increased by 1.1 percent in March - the biggest such monthly increase in a year and a half.

On top of that, Commerce also revised February's retail figures upward. Add all that up, and economists now think the U.S. economy will grow at around 3 percent in the second quarter of 2014 in a survey conducted by the Wall Street Journal. That would be double the 1.5 percent we had in the first quarter,

Over the course of the recovery, now about five years old, GDP growth has averaged of 2.5 percent per quarter, so this quarter has the potential to exceed that. The same economists also predicted that 3 percent growth rate to prevail through the second half of 2014.

Tuesday, April 15, 2014

A Little Good News for Tax Day

Did you send your tax return in today? There might be less reason to be nervous about it than there has been in recent years. Because of budget cuts, the IRS says it has the capacity to conduct the fewest audits than at any time since the 1980s.

The number of audits being conducted was already pretty low. The IRS says it audited less than 1 percent of all returns it received last year. That was the lowest audit rate since 2005.

But don't think that gives you carte blanche to put whatever you want on your 1040. If you report much less income on your personal return than your employer has reported to the bureau, the IRS's computers will pick that up - without any personal intervention from an auditor.