(Headlines - scroll down for full stories)
1. Investor Alert: Don't Buy That Mutual Fund Just Yet
2. Did Homebuilder CEOs Foresee the Housing Bust?
3. Kuwait, Saudi Arabia Weigh in on Oil Production Debate
4. New Signs of Weakness in Manufacturing Sector
1. Investor Alert: Don't Buy That Mutual Fund Just Yet
As the Dow Jones industrial average hits record highs, it's no wonder that
investors may want to jump on the bandwagon by purchasing stocks. But those
looking to do so through mutual funds may want to hold off for a while, says The
Wall Street Journal.
That's because investors buying stock mutual funds now may get whacked with a
big tax bill at the end of the year. You see, mutual funds pay out net capital
gains — profits they've made from trades — to investors around late November or
December. If you've just bought the fund, you're on the hook to pay capital
gains taxes of 35 percent, as opposed to 15 percent for a long-term investor in
the fund.
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"Investors who put money in these funds just before the [capital gains]
distribution will, in effect, get back some of their own money — and then have
to pay taxes on it, if they're investing for a taxable account. Investors who
opted to reinvest their dividends will not receive a check, but will still be
subject to a tax hit," explains the Journal.
And to make matters worse, many mutual fund companies are predicting that
capital gains will be even higher than last year's gains, which were the highest
since 2000, according to the Journal.
For example, Janus estimates that the distribution for its Global Opportunities
fund will be 13 percent of net asset value (NAV), compared with less than 1
percent last year. Two other Janus funds, the Contrarian and Venture funds are
expected to distribute 12.2 percent of NAV and 11.3 percent of NAV,
respectively, compared to 1.4 percent and 4.9 percent distributions last year.
In addition to Janus, T. Rowe Price, American Funds, and Oppenheimer Funds have
told the Journal that they are expecting to pay larger distributions this year.
This wouldn't be so bad except for the fact that some funds have depleted their
"tax-loss carryforwards," which is a means to hold over losses from previous
years (the bear market of 2000-2002, for example) to offset gains.
The Journal says that funds like growth funds may still have sufficient tax-loss
carryforwards to employ this year because of devastating losses during the
dot-com crash. For example, Putnam Investments' $3.8 billion Investors Fund has
a tax-loss carryforward of about $1.7 billion.
"Before investing, contact the fund you're interested in, or go to its Web site,
for payout details," advises the Journal. "Check to see if it is planning to
make a year-end distribution — and if so, how much and when. If the payout is
large and will drive up your tax bill significantly, consider waiting to invest
until after the record date for the distribution."
Editor's Note:
2. Did Homebuilder CEOs Foresee the Housing Bust?
If their sales of company stock are any indication, CEOs of three of the top
eight U.S. homebuilders may have known hard times were about to befall the
housing market.
The CEOs of KB Home, Ryland, and Toll Brothers each sold hefty amounts of
company stock last year before share prices nosedived this year, says USA Today
based on a review of regulatory filings the paper asked Thomson Financial to
perform.
Ryland CEO Chad Dreier sold 560,000 shares of Ryland stock from Jan. 21, 2005 to
April 2006, netting $38.3 million from the sales. During that time, Ryland's
stock went from around $60 to about $43 a share today. The stock peaked at $83 a
share in January 2006 while Dreier was still selling.
As of April 2006, Dreier still owned 476,916 shares, worth an estimated $20.5
million. In one year, Dreier sold more than half his stock in the company,
despite the fact that he's been with the company for 12 years.
KB Home CEO Bruce Karatz unloaded 950,000 shares worth $76.1 million on July
12-13, 2005. Shares of KB Home were trading at about $80 a share at that time.
Today, shares are trading at about $43 a share. That means the remaining
1,668,070 shares Karatz still had after the July sale are worth just $71.7
million today.
Karatz has been with KB Home for 34 years, and he's been the CEO for 20 of them.
While nobody knows what these CEOs were thinking at the time, it sure looks like
Karatz wanted to sell his shares before the price peaked.
Before Karatz sold his shares, he was upbeat about the housing market "Consumer
demand … remains vibrant, fueling strong growth in unit deliveries and selling
prices."
Robert Toll, CEO of Toll Bros., sold $110.1 million worth of company stock in
February 2005, taking in $134.1 million through four sales by July 2005. Toll
Bros. traded at an average of $49 a share during that period, peaking at about
$58 when Toll was making his last sale in July 2005.
A spokesman for the company says that Toll still owned $1 billion worth of stock
after the sales. Having fallen to around $28 a share today, Toll's stock would
now be worth around $510.7 million.
Mark LoPresti of Thomson tells USA Today that insider selling can be a signal
for investors to sell also. "We don't know for sure what's in the hearts of
insiders," says LoPresti. But in his opinion, "It was extreme activity."
Editor's Note:
3. Kuwait, Saudi Arabia Weigh in on Oil Production Debate
Kuwait threatened a possible production cut if crude prices fall much further,
but Saudi Arabia stepped in to say that they are pleased with the falling prices
right now. Saudi Arabia's comment plus rising U.S. oil stockpiles sent oil
prices tumbling once again.
Kuwait's oil minister, Sheikh Ali al-Jarrah al-Sabah, tells Reuters, "The
current situation with prices and the big retreat that has taken place is
uncomfortable for OPEC nations."
"Kuwait may voluntarily lower [oil output] in order to maintain the market's
stability," Sheikh Ali added. He said that $60 a barrel is comfortable, but $50
is worrisome.
Kuwait's comments follow a production cut by Nigeria and Venezuela. But, it
looks as if the threat from Kuwait isn't having a domino effect on the rest of
OPEC.
"We are currently in negotiations with fellow OPEC members. Matters have been
left that these voluntary reductions undertaken by some OPEC countries will calm
the markets, at least for the current period," Sheikh Ali said.
The Saudi Arabia ambassador to the U.S., Prince Turki al-Faisal, says that Saudi
Arabia's goal is to bring oil prices down to "reasonable levels."
"Saudi Arabia has always had in its mind not just big consumers but more
importantly also had in mind poorer countries," he said at an event for the
Center for Strategic and International Studies in Washington. "It is our concern
to bring down prices to reasonable levels."
The diplomat's comments eased fears that Saudi Arabia, the world's largest oil
producer, was quietly sanctioning the voluntary production cuts taken by other
OPEC members.
"OPEC will continue on its course promoting policies that are mutually
beneficial to both consumers and suppliers," the prince said.
Al-Faisal's remarks helped bring oil prices to a low of $57.75 today.
Growing U.S. stockpiles of oil and gas also helped pressure oil prices. The
Energy Information Administration said that crude stockpiles rose an unexpected
3.3 million barrels last week.
Editor's Note:
4. New Signs of Weakness in Manufacturing Sector
Orders to U.S. factories for manufactured goods were weak for a second
consecutive month as the nation's manufacturing sector sent signals it was
shifting into a lower gear.
The Commerce Department reported Wednesday that new orders were basically
unchanged in August at $403.6 billion following a 1 percent decline in July. The
weakness in August reflected big declines in demand for computers and commercial
aircraft.
Analysts believe that the slowing economy is beginning to have an impact on
manufacturers, with the weakness apparently continuing in September. The
Institute for Supply Management reported Monday that its closely watched gauge
of manufacturing activity expanded in September at the slowest pace in more than
a year.
The overall economy slowed abruptly in the spring under the impact of soaring
gasoline prices, rising interest rates and a weakening housing market.
That slowdown is expected to continue for the rest of the year, although recent
declines in energy prices have eased worries that a full-blown recession could
be brewing.
The Federal Reserve, which had boosted interest rates for two years to fight
rising inflation pressures, is expected to keep rates unchanged for the rest of
this year, content to watch and see if the slowing economy will reduce
inflation.
The unchanged level for orders in August was in line with expectations but the
government revised the July performance from an originally estimated 0.6 percent
decline to an even worse 1 percent fall.
Orders for durable goods, items expected to last three years or more, were
unchanged in August following a 2.8 percent plunge in July. The August
performance had originally been reported last week as a drop of 0.5 percent.
Orders for non-durable goods were unchanged in August at $193.1 billion
following a 1.2 percent July increase.
Excluding the volatile transportation sector, factory orders fell by 1.5 percent
in August after having dropped by 0.1 percent in July.
© 2006 Associated Press.
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