Jumping In as Others Are Bailing Out

WSJ 2
SUNDAY, NOVEMBER 9, 2014
THE AGGREGATOR
Job Market Improves, But Wage Growth Remains Flat
U.S. payrolls grew modestly
while the unemployment rate fell
in October, readings that mark
the longest stretch of consistent
job creation since World War II.
Nonfarm payrolls grew a seasonally adjusted 214,000 last
month, the Labor Department
said. The economy has added
better than 200,000 jobs each
month since February, the best
such streak since 1995. It marked
the 49th straight month of positive job growth, the best stretch
on record back to 1939.
The unemployment rate, obtained from a separate survey of
households, fell to 5.8% last
month, the lowest level since
2008.
Health-Enrollment Woes
Short-Timers
The unemployment rates for those
out of work 27 weeks or more and
those out for 26 weeks or fewer.
7%
6
Short term
5
4
3
2
1
0
growth in wages. That’s because
demand for people recently out
of work could better represent
the labor market facing employers.
The short-term jobless rate
held steady in October at 4%, almost a percentage point below
its average since 1948. The longterm rate held steady, too, at
1.9%.
But there are other signs
wage pressures are building. U.S.
employers’ overall labor costs,
including pay and benefits, have
risen strongly for two straight
quarters after years of sluggish
gains.
—Eric Morath
The Wall Street Journal
Long term
‘96 ‘98 ‘00 ‘02 ‘04 ‘06 ‘08 ‘10 ‘12 ‘14
Source: Labor Department | WSJ.com
October’s reading continued a
streak of steady, but not accelerating, hiring. Revisions showed
the economy added 31,000 more
jobs the prior two months than
previously estimated. Employers
added 256,000 jobs in September and 203,000 in August.
One
missing
ingredient
needed for stronger economic
gains: wage growth. Average
hourly earnings for private-sector workers were up 2% in October from a year earlier, in line
with the pace recorded for most
of the year and barely above the
mild pace of inflation. Consumer
prices rose 1.7% in September
from a year earlier.
Economists say a continued
decline in the short-term unemployment rate—those out of
work six months or less—could
finally prompt meaningful
Technology gaps in HealthCare.gov are expected to cause
consumers and insurers a fresh
batch of complications after the
site reopens for health-plan enrollment this month, insuranceindustry officials say.
Millions of Americans are expected to buy or change plans
using the federal portal when
the second year of enrollment
under the Affordable Care Act
begins Nov. 15. But some backend parts of the system have had
problems and others haven’t
been built, triggering difficulties
that could affect tens of thousands of people when new plans
kick in next year.
Consumers who bought policies on the exchange for 2014
and switch to a different insurer
for 2015 could end up enrolled in
two plans, with bills for both, in
January, according to two industry officials. Others who stopped
paying premiums for their plans
this year could find themselves
automatically re-enrolled in
those plans for 2015 regardless
of whether they want them.
Meanwhile,
low-income
Americans who receive federal
tax credits to offset the cost of
their coverage might not get a
form they need to file their 2014
taxes because the federal government has an incorrect address for them, these officials
say.
The problems, while expected
to cause headaches for shoppers,
insurance companies and the
Obama administration, aren’t
likely to result in the disastrous
complications that crippled the
first year of health-law enrollment. They won’t fully surface
until next year, when bills and
tax information begin rolling in
for exchange enrollees.
— Louise Radnofsky
The Wall Street Journal
A Problem From Pimco
For millions of employees
putting aside money in their
companies’ 401(k) plans, the recent management upheaval at
the country’s biggest bond mutual fund has created a quandary.
In many of those plans, Pimco
Total Return Fund is the principal—and in some cases the
only—option for bond investing.
While other investors, such as
those using standard brokerage
accounts, could simply shift their
money to a different yet comparable fund, these employees
can’t.
Many plan sponsors began reassessing Pimco Total Return
following September’s departure
of Bill Gross, Pacific Investment
Management Co.’s founder and
manager of the fund. In addition,
for some, the fund’s underperformance and heavy short-term
outflows may have undermined
faith in the fund.
Investors, ranging from individuals to large institutions, such
as pensions and advisory firms,
pulled $23.5 billion from the
fund in September and $27.5 billion in October. The largest redemptions came on the day Mr.
Gross resigned.
Conversations about whether
to replace the now $170.9 billion
Pimco Total Return Fund entirely, add another bond-fund
option or put the fund on watch
are now taking place at definedcontribution plans, defined-benefit plans, foundations, endowments and other plans all over
the world, says Timothy Barron,
chief investment officer of Segal
Rogerscasey, a consultant on defined-contribution plans. The full
effect of those discussions may
not be felt until next year.
If defined-contribution plans
do pull Pimco Total Return or
significantly trim their allocations, it could put a big dent in
the fund’s assets, a move some
BARRON’S INSIGHT
A Problem for Home Sales
Just 33% of primary residences
sold this year were purchased by
first-time buyers, down from 38%
last year to the lowest level since
1987, the National Association of
Realtors said.
The NAR says that the firsttime-buyer share of home sales
has typically hovered around
40% since 1981.
The headwinds facing young
buyers are well known: higher
student debt, rising rents and a
weaker job market have made it
harder for would-be buyers to
save for a down payment and
qualify for a mortgage, particularly in a lending environment
where banks are much less willing to overlook credit blemishes
or spotty incomes.
Separate surveys, including
one by the New York Fed this year,
showed that insufficient savings or
incomes were the biggest headwinds keeping renters from buying
homes. Many households may also
be less able to get help from their
parents than in the past, because
their parents’ home values have
fallen.
In addition, home prices have
been rising in the past two years,
making houses less affordable, especially for the marginal buyer,
which in many cases is also the
first-time buyer.
The typical first-time buyer last
year was 31 years old, while the
typical repeat buyer was 53.
Advocates of looser lending
standards could point to the
NAR’s latest survey to highlight
problems on the mortgage mar-
Entry-Level Weakness
Share of first-time home buyers (primary residence buyers only)
60%
50
40
42% 40
40
40
36
39
41
47
50
37
39
‘11
‘12 ‘13
38
30
33
20
10
0
‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10
‘14
Source: National Association of Realtors | WSJ.com
financial advisers fear may harm
its performance. U.S.-based defined-contribution plans held
about $101 billion in the fund as
of June 30, according to Pensions & Investments.
—Daisy Maxey
WSJ.com
Home Depot Hack Detailed
The hackers behind April’s
massive credit-card breach at
Home Depot got into the retailer’s systems by using a username and password they had
stolen from a vendor, say people
briefed on the investigation.
The finding—which comes after more than two months of investigations by the company,
law-enforcement agents and
hundreds of security personnel—
shows the retailer fell victim to
the same type of infiltration tactics as Target, where hackers
gained access through a refrigeration contractor’s electronic billing account and then made their
way across Target’s networks to
its payment terminals.
Home Depot, which has said
56 million credit card accounts
were compromised in the attack,
now says the damage was wider
than it thought, with 53 million
email addresses exposed as well.
—Shelly Banjo
The Wall Street Journal
A Manufacturing Revival
While foreign manufacturers
hunker down, U.S. factories are
revving up.
The Institute for Supply Man-
Getty Images
ket. But it’s worth noting that
the share of first-time buyers
didn’t increase during the housing bubble, when it was too
easy to get a mortgage. That’s
because home prices were rising. The share of first-time buyers fell to 36% in 2006, at the
peak of the bubble, from 40% in
the prior three years.
Though credit was much
tighter in 2009 and 2010, the
share of first-time buyers
jumped. Lower home prices
helped, as did an $8,000 federal
tax credit for first-time buyers,
which expired in June 2010.
The NAR also found that
the median period a typical
homeowner stays in one house
rose to 10 years in the most
recent survey, from six years in
2007.
—Nick Timiraos
agement said that its main gauge
of the factory sector climbed to
59.0 in October from 56.6 in September. The improvement sent
the index back to its August
level, the highest since March
2011. A reading above 50 indicates expanding activity.
American manufacturers reported an acceleration in new
orders last month, while production edged up to its highest level
since May 2004. The numbers
suggest the U.S. economy is
growing at above a 3% annualized rate at the start of the
fourth quarter after a 3.5% gain
in the third quarter.
—Kathleen Madigan
The Wall Street Journal
Email: chris.gay@wsj.com
INVESTING BASICS
Jumping In as Others Are Bailing Out Estate Planning for Childless Couples
BY ANDREW BARY
Commodities are an outlier
at a time of record or near-record prices for other major asset classes like stocks, bonds
and real estate.
With commodities so out of
favor, it may be a good time for
investors to allocate a portion
of their portfolios to the sector.
Investors can get direct exposure through exchange-traded
products (ETPs) tied to single
commodities like SPDR Gold
Trust (GLD), iShares Gold Trust
(IAU) and iShares Silver Trust
(SLV), or broader indexes such
as PowerShares DB Commodity
Index fund (DBC) or iPath
Bloomberg Commodity Total
Return note (DJP). The diversified ETPs have different exposure to various commodities
and sectors, notably energy.
Most investors get commodity exposure through the shares
of producers, such as Exxon
Mobil or Newmont Mining. But
there’s also a place for commodity ETPs that give pure
commodity exposure and eliminate company-specific risks.
Oil and gold, two key commodities, dropped to new 2014
lows last week with oil finishing
around $78 a barrel, down 20%
this year. Gold, at about $1,150
an ounce, is about 40% below
its 2011 high.
“Commodity investing is a
little like buying insurance,”
says Paul Christopher, the chief
international strategist at Wells
Fargo Advisors, the brokerage
arm of the bank. “What will you
do if inflation comes back?
Higher inflation has tended to
be accompanied by higher rawmaterials costs. If inflation hits
equity prices, you’ll own something that is going up. ” His rec-
BY CAROLYN T. GEER
Commodity Plays
Here are 12 ways to invest in the beaten-down commodities markets. Most of these
exchange-traded products are down this year
Exchange-Traded Product/ Ticker
Thursday Comment
Price
SPDR Gold Trust / GLD
$109.88
iShares Gold Trust / IAU
11.07
iShares Silver Trust / SLV
14.82
PowerShares DB Commodity
Index / DBC
iPath Bloomberg Commodity
Index / DJP
PowerShares DB Agriculture
Fund / DBA
ETFS Physical Swiss Gold
Shares/ SGOL
iShares S&P GSCI CommodityIndexed Trust / GSG
United States Commodity
Index Fund / USCI
ELEMENTS Rogers Intl
Commodity Index / RJI
ETFS Physical Platinum
Shares / PPLT
United States Natural Gas
Fund / UNG
21.88
33.84
25.30
112.05
27.25
54.30
7.28
116.10
23.16
Largest commodity ETP but
below its peak of $75 billion.
No. 2 gold ETP, has lower
expenses than SPDR Gold Trust.
Big silver ETP. Price is one-third
its high from 2011.
Tracks an index of futures. Has
50% weighting to oil.
Tracks a more-diversified index:
energy 25%, ag, 29%
Largest weightings are corn,
cattle, soybeans, and sugar.
Trust holds gold in Zurich vaults.
Expense ratio is 0.4%.
Offers a play on energy, which
is 71% of underlying index.
Tracks SummerHaven index
of 14 commodities.
Tracks Rogers International index,
about 40% in energy.
Platinum down 10% in 2014.
Expense ratio is 0.6%.
This ETP rose 10% last week as gas
moved above $4 per million BTUs.
Source: WSJ.com
ommended commodity allocation of 3% to 4% of a portfolio
admittedly is low, but even that
exposure is above that of many
investors.
The bear case on commodities is well advertised. The
commodity-hungry
Chinese
economy is slowing and Europe
is on the brink of recession. Japan continues to struggle. The
new story line is that deflation,
not inflation, is the bigger
global risk. Yet the massive
monetary stimulus provided by
world-wide central banks in recent years ultimately could
prove inflationary. And commodity prices often are self-cor-
recting because lower prices
tend to boost demand.
Many institutional investors
who piled into commodities
during 2006 and 2007 have
been getting out. Fidelity Investments last year scaled back
the commodity allocation in its
Freedom target-date mutual
funds that are popular in retirement plans. The largest ETP, the
SPDR Gold Trust, is down to
about $27 billion of assets from
a peak of $75 billion in 2012,
Morningstar data show.
Andrew Bary is a senior editor for
Barron’s. For more stories, see
barrons.com.
Credit Cards for Service Members
BY LINDSAY GELLMAN
Veterans deserve plenty of
bang for their buck. So to mark
Veterans Day,
CardHub.com
TIP OF THE surveyed creditWEEK
card options tailored to active
military personnel and veterans.
The best everyday rewards
cards came in three flavors, according to the site. The justlaunched PenFed Defender
American Express card offers
1.5% cash back on all purchases,
with no annual fee, so it’s great
for all-round use, says CardHub.com spokeswoman Jill Gonzalez. The PenFed Platinum Rewards Visa Signature card
offers rewards focusing on gasoline and groceries. And the
Navy Federal Credit Union Flagship Rewards card, available to
current and former members of
most military branches, offers
rewards geared toward travel.
CardHub.com says the PenFed Premium Travel Rewards
American Express card offers
the best airline rewards. The
PenFed Defender American Express card has the lowest rates:
a 6.99% introductory APR on
purchases for the first 60
months, a 4.99% introductory
APR on balance transfers for 12
months, a 9.99% regular APR,
and no annual fee or balancetransfer fee. The Navy Federal
Credit Union nRewards Secured
card, with a $500 minimum deposit, is optimal for building
credit, Ms. Gonzalez says.
Recently I
outlined a basic estate plan
for a couple
with children.
Now, a
reader in California asks:
“What about marrieds without
kids?”
“My husband and I own our
house, are retired, with a high
six-figure nest egg. And no will
or trust,” she wrote. “What is
the minimum we need to do?”
You have two main tasks.
One is to decide what will happen to your property after you
die. The other, arguably more
important—and trickier—task
is to specify who will handle
your medical and financial affairs if you’re incapacitated.
Without wills or trusts,
state law dictates who inherits
your assets—generally, your
spouse if you have no children,
then your spouse’s relatives after he or she dies (or the state
if there are no living relatives).
“This leaves the family of
the first spouse to die disinherited and out of luck,” says
Sharon L. Klein, managing director of family office services
and wealth strategies at Wilmington Trust in New York.
“The side that inherits depends on the random order of
who dies last.”
If you don’t want to risk
disinheriting your relatives, or
if you’d like to leave something
to friends or charity, you need
a plan. The simplest and most
common approach is for you
and your spouse to execute
“sweetheart” wills, leaving everything to each other and
outlining who gets what after
you both die, says New Haven,
Conn., estate-planning lawyer
Lisa Nachmias Davis of Davis,
O’Sullivan & Priest.
Another approach is to
transfer your assets, during life
or at death, to a joint revocable
living trust, which would spell
out how the assets are to be
distributed. This helps avoid
probate, which in some states,
such as California, is expensive
and time-consuming, says
Louis A. Mezzullo, an estateplanning attorney at Withers
Bergman in Encinitas, Calif.
Still, the surviving spouse
can change his or her will (or
the couple’s joint revocable living trust), so the estate’s ultimate disposition is really de-
Rob Shepperson
termined by whoever lives
longer, says Ms. Davis.
If you want more control
over where your assets end up,
you can create irrevocable
trusts, either in your wills or
in separate trust documents.
On the first spouse’s death,
that person’s share can be
used for the surviving spouse’s
benefit, but the document can
“lock in” the beneficiaries who
will inherit at the second
death, she says.
You also should sign general
powers-of-attorney and healthcare documents empowering
someone to make financial and
medical decisions—including
end-of-life decisions—on your
behalf if you become incapacitated. (These include advance
health-care directives and authorizations under the federal
Health Insurance Portability
and Accountability Act, or
HIPAA, that allow your doctor,
hospital and insurance company to speak with the people
you designate.) “That’s where
things become complicated,”
says Mr. Mezzullo.
Parents can appoint adult
children, but “oftentimes people without children struggle
to find someone they trust,”
says Ms. Klein.
Spouses can appoint each
other, but Ms. Davis usually
recommends having a “Plan
B,” which involves naming another (preferably younger)
person to serve simultaneously
or in succession. “We have
seen terrible results from people only naming their
spouses,” Ms. Davis says.
She cites the case of an elderly Connecticut woman who
died caring for her incapacitated husband. Since she was
the only one named on the
husband’s power of attorney,
the family had to go to probate
court to get a successor appointed, which even with Connecticut’s relatively userfriendly court system cost
several thousand dollars.
In California there are professional fiduciaries that can
be hired as agents under powers of attorney. Some geriatric
care managers will agree to
serve as health-care agents.
Other possible candidates are
trusted nieces, nephews,
friends, neighbors, clergy, siblings and cousins.
“Sometimes people are honored to be asked,” says Ms.
Davis. Even so, she typically
recommends paying them for
their time up front so they
don’t start feeling resentful
and helping themselves to
your money or possessions.
She has clients, a childless
couple, in the process of lining
up people to serve as their financial and health-care agents,
who plan to leave each one of
them a small percentage of
their estate “just for having
been on call,” she says.
Just think twice about revealing your intentions. “I’ve
had cases where I was a little
concerned the beneficiary
might choose to accelerate the
demise of the benefactor,” Ms.
Davis says.
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