Bob’s Journal for 8/8
A Global Market Readjustment Began in Japan
Investors don’t like to be surprised, and they were hit with several surprises in the last week or so. Substantial changes in asset prices followed.
The major surprise was a new policy by the Bank of Japan. The Asian country had the top-performing stock market in 2023. Plus, the yen declined against major currencies in 2023 and continued that fall in 2024.
We benefited from this combination of rising stocks and a falling yen in 2023 through Franklin FTSE Japan Hedged (FLJH) ETF. It profited when Japanese stock prices increased and also gained when the yen declined against the dollar.
I recommended switching to an unhedged fund, Franklin FTSE Japan (FLJP), in late 2023, because Japan’s policymakers seemed to be preparing to shore up the yen.
We were early on that move. But the Bank of Japan recently increased interest rates and announced it would take other actions to support the yen.
A number of global investors were surprised. They were profiting by borrowing at very low interest rates in yen and investing the loan proceeds in Japanese stocks and other assets.
Some investors reversed those positions quickly after the BOJ’s policy change, moving global markets.
Last week’s Employment Situation reports in the United States were well below expectations, and that intensified the changes.
In addition, disappointing earnings reports recently were issued by some of the major growth companies that dominated global markets in the last few years.
Investors had been optimistic inflation would decline without causing a recession and the stock market leaders would continue their rapid earnings growth. Suddenly, they were talking about the potential for a recession and declining earnings.
Those events made it seem likely the yen would rise further against the dollar, causing more investors to unwind their positions. Japanese stocks, in particular, tumbled.
The optimism that prevailed before last week was excessive, but the sell-off also was excessive.
Japan already has had several strong bounce-back days. Its stocks are likely to recover more from the recent decline.
The weakness in the U.S. labor market is a long way from a recession. I anticipate the economy will continue growing, though the growth rate will decline.
Recent events enhance the case for expecting a broader rally in U.S. stock markets.
I’ve been encouraging readers to reduce exposure to major indexes such as the S&P 500. They’re too concentrated in a small number of very large growth stocks, mostly technology stocks, that have high valuations and depend on rapid earnings growth.
Instead, I’ve recommended an equal-weighted version of the S&P 500 (Invesco S&P 500 Equal Weight (RSP)) and smaller company stocks (iShares Russell 2000 (IWM)). Both did better than the S&P 500 just before the recent turmoil and are recovering well. I expect that to continue.
The rally in treasury bonds also looks excessive and panic driven. Interest rates should rise closer to where they were before the big move.
Markets could bounce back quickly. While they’re at lower levels, consider a couple of actions.
You could convert part of a traditional IRA to a Roth IRA. As long as prices are down, you can convert the same number of shares of a stock or mutual fund at a lower tax cost than you could have a week or so ago.
In taxable accounts, consider selling some investments that now have paper losses. The losses can offset capital gains or perhaps other types of income on your tax return. After more than 30 days pass, you can repurchase the same asset. Or you can immediately put the sale proceeds in a different investment that isn’t substantially identical.
The Stock with the Highest Compounded Return Ever
Few people can name the stock in the U.S. markets with the highest compounded total return of all time.
It’s not the stock of a technology company or an industrial giant. I learned this bit of trivia from Hank Bessembinder through his appearance on the Meb Faber podcast.
Bessembinder is an academic best known for his paper, “Do Stocks Outperform Treasury Bills?” The short answer is that most stocks don’t.
According to Bessembinder’s research, only 4% of listed stocks are responsible for the net long-term gain in U.S. stock indexes. Most stocks lose value or earn returns that don’t beat treasury bills.
The top-returning stock is Altria (MO), once known as Phillip Morris. The cigarette maker has a lifetime return (dating back to 1925) of 265,528,901%, according to Bessembinder’s research. That’s a 16.28% annualized return.
Other top long-term performers were Vulcan Materials, Kansas City Southern, General Dynamics and Boeing. The data go through the end of 2023, so they don’t include Boeing’s sharp decline in 2024.
Bessembinder said 80 stocks have lifetime compounded returns of 500,000% or more.
Of the top 100 stocks, only six had annualized returns above 20%. Those stocks don’t have higher compounded long-term returns than MO because their returns haven’t had as many years to compound.
Are Those “Missing Money” Ads Real?
Many of the ads for missing money are real, and you don’t have to pay anyone to find or claim the money for you.
When a check or other payment is returned to a business, the payer usually turns the money over to the state of the payee’s last address. The money goes into the state’s unclaimed, or escheated, property fund, which the state treasurer usually runs.
Financial firms also will turn an account over to the state when they haven’t had contact with the account holder for a period of time.
The state holds the money until it is claimed by the rightful owner, or a period of time has passed. Sometimes the state holds particular assets, such as shares in a stock or mutual fund. But it might convert assets to cash.
The state generally keeps any interest or other income earned on the money or assets.
States make it fairly easy to find and then claim the missing money. Each state has a website you can search for property in the name of an individual or business.
Some even try to make it entertaining. Florida, for instance, uses the website address www.fltreasurehunt.gov.
The National Association of State Treasurers has a website of unclaimed property in all the states at www.missingmoney.com. I found the website to be cumbersome and recommend searching on the website of each state in which the person lived.
I learned about claiming missing money after taking over my parents’ finances as they aged. They were receiving letters from attorneys and accountants saying my parents had unclaimed money with the state, and these professionals could help recover it.
I checked the unclaimed property websites of each state in which my parents resided and found they did indeed have a meaningful amount of unclaimed property.
Most of the money became “lost” when my parents moved and didn’t notify a business in time. Some businesses try to find a customer or client who moved, while others turn money over to the state as soon as a check or mailing is returned.
Most of the money was refunds of deposits or final interest or dividend payments. But there were a few cases when they lost track of financial accounts or stock held through direct deposit plans.
You don’t need to hire someone to help claim the money. You can keep all the money by following the instructions on the state’s website.
The key in most states is not to throw away all your old mail or tax returns. Part of the proof required by most states is a utility bill or official government document that has the name of the person and the address associated with the missing money.
The Data
The ISM Services Index rose to 51.4 in July from 48.8 in June. The June level was the lowest since April 2020.
The PMI Services Index was 55.0 in July, down from 55.3 in June.
The PMI Composite Index dropped to 54.3 in July from 54.8 in June.
Productivity increased 2.3% in the second quarter, up from 0.4% in the first quarter. Output rose 3.3% while hours worked were 1.0% higher.
That caused unit labor costs to rise only 0.9% in the second quarter after jumping 3.8% in the first quarter.
The ISM Manufacturing Index fell to 46.8 in July from 48.5 in June. That’s the largest one-month decline since November 2023 and the 20th time in the last 21 months the index has been below 50.0, indicating the sector contracted.
The PMI Manufacturing Index was 49.6 at the end of July, down from 51.6 at the end of June but higher than the 49.5 level at mid-month.
Factory orders tumbled 3.3% in June compared to a 0.5% decline in May. But most of the decline was due to transportation. After excluding transportation, factory orders increased 0.1% in June after decreasing 0.7% in May.
Only 114,000 new jobs were created in July, according to last week’s Employment Situation reports, the lowest in three months and down from 179,000 in June.
The monthly average of new jobs created in the last 12 months is 215,000.
The unemployment rate rose to 4.3% in July, the highest since October 2021, from 4.1% in June.
At least part of the increase in the unemployment rate was due to an increase in the labor force participation rate. The labor force is increasing faster than the number of new jobs.
Average hourly earnings increased 0.2% in July, compared to 0.3% in June. Over 12 months, average hourly earnings increased 3.6% through July and 3.8% through June.
New unemployment claims increased by 14,000 to 249,000 in the latest week. That’s the second-highest level in the last 12 months, eclipsed only by 258,000 in August 2023.
Continuing claims, which lag a week behind new claims, increased to 1.877 million from 1.844 million.
The Markets
The S&P 500 lost 3.66% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 4.28%. The Russell 2000 dropped 8.16%. The All-Country World Index (excluding U.S. stocks) decreased 4.16%. Emerging market equities declined 3.28%.
Long-term treasuries gained 3.26% for the week. Investment-grade bonds increased 0.28%. Treasury Inflation-Protected Securities (TIPS) added 0.87%. High-yield bonds lost 0.44%.
In the currency world, the U.S. dollar declined 1.45%.
Energy-based commodities dropped 1.95%. Broader-based commodities fell 1.49%. Gold declined 0.86%.
Bob’s News & Updates
A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.
My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.
The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.
A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”
If you’re interested in my books, check my amazon.com author’s page.
I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.
