The Priciest Towns in New Jersey

Coldwell Banker real estate just came out with its annual list of the most expensive U.S. cities in which to buy homes. California dominates the list, with the six cities in the top ten, including the single most expensive town, Newport Beach.

But New Jersey is well represented: Coming in third overall is Stone Harbor, with an average listing price for a four-bedroom, two-bath home at $1.34 million. Looking only at New Jersey locales, these towns round out the top ten:


Wyckoff Township, $826,841 for a four-bedroom, two bath
Chatham, $787,809
Madison, $780,453
Tenafly, $772,271
Oakland, $730,599
Montville, $727,992
Westfield, $722,871
Bernardsville, $722,170
Warren Township, $719,890

Good News on Housing?

Are we finally seeing some good news from the housing market? For the first time in nine months, nationwide home prices rose in April. The increase, according to the Case-Shiller home index, was just 0.7 percent, but that was welcome news after eight straight down months.

That's pretty much the extent of the good news, though. In the year-over-year figures, home values were still down 3.1 percent from April 2010. The New York metropolitan area, which covers our area as well, tracked the national figures: We were up 0.8 percent from the March numbers, but still down 2.8 percent from April 2010.

April is just a prelude to the summer house-buying season. We'll really know if the housing market has turned a corner if the June and July figures are headed in the right direction as well.

Back and Forth on the Economy

There was an interesting article on Bloomberg News yesterday contrasting the forecasts given by two well-respected economists, Mark Zandi of Moody's Analytics and David Rosenberg of Gluskin Sheff and Associates. They take very different views on the direction this economy is headed: Zandi is bullish and Rosenberg is bearish.

Zandi points out that 2 million private-sector jobs have been created in the past year. He thinks that the two years of GDP growth we've had and the continued rise in corporate profits mean the economy is poised for even more growth.

Rosenberg points to the end of the stimulus program, which will force state and local governments to slash their budgets and exacerbate unemployment. Problems in Europe and Japan will continue to be a drain on our economy, and Rosenberg doesn't expect corporation to use those soaring profits to hire more workers.

Who's right? There's probably a fair amount of sense in the opinions of both men. It remains to be seen which trends will take precedence in the future.

The End of QE2

The Federal Reserve's program of quantitative easing, or QE2, comes to an end this week. Since November, the Fed has been buying up around $75 billion worth of Treasurys each month, but June will be the last month in which they do so. One of the goals of this was to bring down the yield of Treasurys, pushing investors into riskier vehicles and keeping the government's borrowing costs low. To that end, it worked very well: the 10-year Treasury is now yielding below 3 percent.

But what will be the effects of the end of QE2? The stock market probably won't react at all, since the timing of this has been much-anticipated, and the effects have already priced into current market trends. But the bond market could see some increased volatility, as other purchasers step in - or don't step in - to buy up what the Fed is no longer buying.

Perhaps more significant will be the effect on the larger economy. Many people feared that pumping all those extra dollars into the American economy would lead to inflation, so we may see prices ease back a little now. Many experts also feel that the dollar could rise, since its value will no longer be diluted with so many extra dollars flooding the market.

The Fiduciary Standard

We've talked a lot this year about the importance of a fiduciary relationship, which wealth managers such as myself are bound to. Washington has been taking steps to make stockbrokers also take on the fiduciary duty, which means they would always be required to put the interests of their clients first. There's a full article about this topic posted on the Echelon Wealth web site.

Stockbrokers have resisted that responsibility, but now there's a new pocket of resistance coming as well from the insurance industry. A representative for an insurance lobbying industry claims that the fiduciary duty could limit the avenues for mid-tier customers to receive quality financial advice.

But clearly, anyone who is giving you financial advice without acting in your best interests is not giving you the best possible advice. Whether it's a financial advisor, a stockbroker or an insurance agent, the people you rely on for financial guidance must keep your needs first and foremost. If one of your financial experts chooses not to adhere to a fiduciary standard, you have to ask yourself: Why not?

The Fed's New Number

More big-picture bad news from the Fed on Wednesday: Officials now project that GDP will grow at 2.7 to 2.9 percent over the course of the year, down from an earlier estimate of 3.1 to 3.3 percent. GDP came in at a disappointing 1.8 percent in the first quarter, so although the forecast as down, it's still a bit up from what we've seen recently.

But 2.7 to 2.9 percent is still less than optimal. From 1947 to 2010, the average annual GDP growth for the U.S. came in at 3.3 percent. And obviously, to burst until full recovery, we'll need better than average growth. Studies show that growth needs to be at least 2.5 percent to make a dent in the unemployment rate, so we're projected now to be just barely above that.

The Bureau of Economic Analysis releases its first estimate of second-quarter GDP growth on July 29. That will be an important indicator.

Getting Away From It All

Are you going away on vacation this summer? If so, you're hardly alone: Americans continue to spend more and more on their summer getaways. According to a survey by Mondial Assistance, a travel insurance company, 45 percent of all Americans plan to take summer vacation in 2011, up from 40 percent last year and 35 percent in 2009. People plan to spend an average of $1,704 per family on their vacations this year. That's up 9 percent from last year, when they spent $1,567.

If you add it all up, you realize that the vacation industry is a huge business in America. Collectively, Americans will spend about $86.4 billion on their summer vacations this year. That's up $16 billion over 2010.

And if you're like a 12 percent of all Americans, you'll have to turn back home out of fear you've left the oven on or something. And whose fault will it be? More than 50 percent more men blame their wives for turning back home than women blame their husbands.

Stocks on Sale

Yesterday, we described the slow downhill trend that stocks have been on for the past month and a half or so. We've also been talking lately about the surge in corporate profits. You add those two things together, and what do you get? Stock valuations have now fallen to their cheapest level in 26 years.

The average stock price of the S&P 500 sits now at 14.5 times the past year's earnings. The historical average for that number, dating back to 1991, is 20.1. The price-to-earnings ratio is now lower than its been for 96 percent of all trading days in the past 20 years.

And earnings may not be done rising. According to a survey of 9,000 economist done by Bloomberg News, the companies on the S&P 500 are expected to increase their earnings by an average of 18 percent this year over 2010.

Six Weeks of Slumping

Last week the stock market caught a bit of a breather, as the S&P 500 gained ground after having lost value in each of the six previous weeks. Perhaps we've seen the end of that correction, and if it really is over, this one will have turned out to be prett mild. No one wants to see the market drop for six straight weeks, but it could have been a lot worse.

Consider that after all those declines, the S&P lost roughly 7 percent of its value. That's a little more than 1 percent each week. In contrast, the previous time the S&P 500 had had a six-week losing streak, it was in 2002, and that time the total losses were more than double what we've seen this time around, at just under 15 percent.

In fact, what we've just come through isn't even technically a correction. In Wall Street terms, a correction is a 10 percent loss of value in the market. That's little consolation, of course, if you've watched your portfolio slowly slide downhill for the past month and a half.

The Cautious Millionaires

Here's a funny little disconnect in the world of investing: Financial advisors and stockbrokers are largely bullish on the economy and the markets, while their clients in the millionaire class remain much more cautious. That's according to a new study from Fidelity Investing. The individual investors aren't just more careful about stocks; they have a similar lack of confidence in real estate, consumer spending and business spending.

The study found that the wealthy are much more interested in fixed-income investing than their advisors are. And while 44 percent of all the advisors were seeking to boost their clients' presence in international and emerging markets, only 26 percent of the millionaires reported the same.

Still, 81 percent of those millionaires report using at least one financial advisor, and many of them have more than one on call. So it's clear that they're soliciting expert advice on their finances; it's not clear whether they're using it.

Understanding Inflation

The inflation figures for May came out yesterday, and they weren't much of a surprise: Prices continued on a slow upward trajectory. The consumer price index now sits at 3.6 percent over the past 12 months, up from April's figure of 3.2 percent. One item that is no longer causing the inflation rate to jump is the price of gasoline: Nationwide, gas prices fell by 2 percent in May.

But food prices continued to rise, and they're now up 3.5 percent over a year ago. Core CPI, which strips out gas and food prices, was also up 1.5 percent in year-over-year figures, after being up 1.2 percent in April. It was the highest one-month rise in that figure since July 2008.

Even though the inflation rate is growing, it still seems somewhat small next to the everyday price increases we've been seeing. For instance, despite the fact that it's been dropping back to earth lately, gasoline is up around 40 percent from its price this time last year. So how is the overall inflation rate still just 3.6 percent? We'll explain all of that in a special report on inflation that will be posted to the Echelon Wealth Strategies Web site in the next couple of days.

Upside-Down Times in Retail

Here's some more evidence of how topsy-turvy this economy has gotten: The retail sales figures for May were released by the Department of Commerce yesterday. They number was below par, as retail sales fell by 0.2 percent. That was the first time in almost a year the number had dropped.

Yet the New York Times reported that stocks surged by more than 1 percent on that news. Why is that? Because the Wall Street consensus was that the retail picture would be even worse than that, that the overall numbers would drop by 0.5 percent.

As we mentioned yesterday, Best Buy released its earnings report yesterday. It reported earning of 35 cents per share, almost exactly the same as its report from the same quarter in 2010, when it earned 36 cents per share. That was enough to boost its stock by 4 percent. In this retail landscape, treading water is good news.

Earnings Looking Strong

We talked last week about solid movement in the trade deficit and in consumer confidence, and today we have good news in an area that's potentially far more important than either: corporate profits. Earnings have been growing at an annual pace of 29.9 percent over the eight quarters that ended in December 2010. That's the strongest such period we've seen in more than 50 years.

And earnings are expected to continue to show strength for a while now. A new report from JPMorgan Chase projects that corporate earnings will average more than 10 percent a year through 2013, or more than three times the projected growth in the economy. One source of strength: Overseas earnings, which have grown at 12 percent annually over the past decade. That's one upside to the weakened dollar.

Four big retailers report their earnings this week: Best Buy does so today, and Kroger, Pier I and Smithfield all do so on Thursday. That should give us a good read on how realistic these earnings projections are, as well as the lay of the land for consumer spending.

Little Movement in the Market

Despite the fact that the stock market has fallen for six straight weeks now, there still seems to be remarkably little skittishness, at least according to one gauge. If you look at the number of days the S&P 500 has moved - up or down - by more than one percent in a day, we're on track to produce only 25 such days in 2011.

That's a really low number. We had 76 days where the S&P moved by more than one percent last year. In 2009, there were 117 such days, and in 2008, there were 134 -more than half the trading days of the year. By those standards, 2011 is shaping up as inordinately calm.

On the other hand, those calm days don't necessarily portend smooth sailing ahead. Days with little movement don't predict the future so much as they embody the present. The final three months of a bull market tend to have an average of 5.7 days where the S&P falls by one percent, but the first three months of a bear market have 11 such days. If we are headed for a bear, those big swings will come soon enough.

Two Thumbs Up for the Economy

Finally, the beleaguered economy got a little bit of good news on Thursday - two pieces of good news, actually, from widely disparate areas. First of all, the U.S. trade deficit closed in April, far more than expected. We imported less oil and fewer automobiles than in previous months, but more than that, American' exports reached an all-time record high. Bloomberg's survey of economists had predicted that the trade gap would reach an 10-month high, but instead, it dropped to its lowest level since December.

Meanwhile, consumers reported increasing confidence, probably because gas prices have begun to recede. Even though unemployment rose again in May, and consumers report that they feel the overall state of the economy has worsened, a national 26-cent drop in the cost of a gallon of gas was enough to move the "personal finances" gauge up significantly. In the end, the Consumer Comfort Index rose for the third straight week.

Bad Air Days

If your portfolio has had some rough days lately, it might just be the weather. Seriously: Two researchers in Israel have found that days with bad air quality correlate to a significant basis with poor air quality. The researchers took air samples from Wall Street as well as in Brooklyn, and found that bad air days reduced the Dow Jones average, the Nasdaq, the S&P 500, and even the Philadelphia Stock Exchange Index.

The differences, measured over the course of ten years, were small but persistent. Stocks tended to rise by 0.o4 percent to 0.06 percent on days with normal air quality. But on days when the air quality was listed as unhealthy, stocks tended to lose between 0.26 percent and 0.45 percent.

The researchers don't have a definitive answer as to why this happened, but they propose that poor air quality leads to downbeat moods. Mood has long been liked to various aspects of decision-making and economic choices; it's possible that a gloomy day may simply lead to pessimism.

Disciplined Investing

Do you struggle with your self-discipline when it comes to managing your investments? If you do, you're not alone. A new study from Barclays Wealth Insights found that 41 percent of the high-net-worth individuals surveyed reported that they'd like to have more control over their finances. Within the U.S., the strongest desire for more discipline was reported by investors here in the Northeast.

One example of that lack of discipline: 32 percent of investors think they need to make frequent trades to properly manage their wealth, yet those same investors also recognize by a wide margin that they trade too much.

It's critical to have the self-knowledge to recognize when you've exceeded your limits. The same survey estimated how effective it was to use such tactics as investing deadlines and cooling-off periods as a way to impose self-discipline. The people who use such things report a 13 percent increase in financial satisfaction over the least-disciplined investors - and a 12 percent increase in wealth.

Lunch With Buffett: It'll Cost You

How much would you pay to have lunch with Warren Buffett? It had better be more than $1.5 million, because the bidding for you and seven of your friends to sit down with Buffett at Smith & Wollensky's over in New York City has already reached that level.

Buffett has been auctioning off these luncheons on eBay for over a decade now, to benefit a San Francisco organization called the Glide Foundation, which provides meals, health care, housing and job training to the needy. In the beginning, the lunches went for around $25,000, but they really took off in 2003, when David Einhorn - the new part-owner of the Mets - bid it up to $250,100. Here's how the winning bids have gone since then:

2004: $202,100
2005: $351,100
2006: $620,100
2007: $650,100
2008: $2,110,100
2009: $1,680,300
2010: $2,626,311

This year's auction ends on Friday. Get your bids in now!

The Unemployment Rate Takes a Hit

As you have undoubtedly heard, the unemployment figures that came in on Friday were very disappointing, finishing off a week of tough news for the economy. All told, the economy created 54,000 jobs in May; the private sector created more, at 83,000, but that was still the smallest such figure since last September.

Despite the fact that the economy added jobs, the unemployment rate rose anyway, to 9.1 percent. There are roughly 90,000 people entering the work force every month, so we need to add at least that many jobs just to break even.

What's it going to take to get us back to normal? According to one estimate, if we add 250,000 jobs per month for the next five years, we'll be back to where we were in December 2007, when the recession hit. Prior to May, over the previous three months the economy had added an average of 220,000 jobs per month. It remains to be seen whether May is an aberration, and we're still largely on the right track, or whether this is a serious slowdown.

China's Commodities Crisis

People who are getting concerned about the prospects of inflation may find some good news coming from an unlikely source: China. Unlike our own, China's economy has been growing like gangbusters the past couple of years, putting up 10.3 percent GDP growth last year. But inflation there is also over 5 percent, and the Chinese government would like to put the brakes on its economy. China's central bank has raised interest rates four times in the past year.

Now, a new report from Standard & Poor's suggests that China's moves may result in drastically lowered commodities prices. China is the world's biggest consumer of industrial commodities, and if they stop purchasing, the effects could be felt around the world. One hedge fund manager predicted that commodities prices could "easily" drop 25 to 40 percent in the next year.

The end result could be bad news for investors in commodities. But a drop in prices of things such as copper and coal - China is a major purchaser of both - could bring good news in other parts of the economy.

Troubling Signs for the Economy

There are some ominous signs this week that the economic recovery is slowing down. One thing that makes it so troubling is that the signals are coming from very different parts of the economy. For example:

* The manufacturing index calculated by the Institute for Supply Management dropped from 60.4 in April to 53.5 in May. That's the largest one-month drop in the index since 1984, and sent the index to the lowest it's been since September 2009.

* The latest drop in home prices have left them at their 2002 levels, and a full one-third below the 2006 market peak. Home prices have dropped more in this downturn than they did during the Great Depression.

* The Dow Jones index finished the month of May off 1.9 percent, its first monthly drop this year.

* ADP's private-sector jobs report for May was very disappointing, at just 38,000 new jobs added. This report has diverged widely from the official figure in recent months, though; we'll know more on Friday, when the Labor Department releases its figures.

Treasurys Hit a Low

The yield on the benchmark 10-year Treasury bill reached a new low for the year yesterday, falling three basis points to 3.04 percent. Since yields move in the opposite direction of prices, this is not necessarily a bad sign for Treasurys, whose prices are rising as more people want to buy them. What it means, though, is that trouble signs in the economy have sent more investors to the safe haven of the Treasury bond.

But there was another milestone reached by the Treasury bond. It's possible to figure the true return of the Treasury bond by subtracting out the inflation rate; the resulting figure will give you the actual, inflation-adjusted growth of your assets. The way Reuters financial reporter Scotty Barber does it, he rate doesn't even subtract out the overall inflation rate, but simply the core inflation rate, which omits volatile gas and food prices.

Even using that, the lowest possible inflation rate, Reuters estimates that the 10-year Treasury is now returning exactly zero. If you buy a 10-year Treasury bond today, in other words, and inflation stays right where it is, in 10 years your purchasing power won't have grown an inch.