Financial Options

Boomers Stand to Inherit Trillions
Closed-End Funds a Good Investment Option

Baby boomers stand to inherit $10 trillion in the next few years and women will get the bulk of it, according to a Cornell University study, because they outlive men an average of seven years.

«Women already control 60 percent of the nation's personal wealth – they outnumber men and they are traditionally the shoppers,» says financial expert Scott T. Schultz, author of Scott Schultz's Guide to Closed-End Funds (www.closedendfundguru.com).

«It's sad that, despite the fact that nearly a third make more money than their husbands and they're starting businesses at twice the rate men are, 38 percent of women ages 30 to 55 worry they'll eventually live in poverty because they can't adequately save for retirement,» he says.

With the first of the boomers hitting 65 this year, the nation will see an even greater number of retirement-aged women holding the country's purse strings.

«Many will inherit money and property from their parents and/or their husbands, and many will live another 30 to 40 years,» Schultz says, citing the Cornell study. «They'll need to invest their money to ensure they have enough to avoid that impoverished retirement they fear, but they – and the nation – have lost confidence in the stock market; April 2011 saw the lowest number of investors since 1999.»

What brokers don't tell clients about, he says, is closed-end funds. Schultz, ranked the No. 1 Separate Account Money Manager for three consecutive years by USA Today, says he earned that national honor by relying almost solely on these limited-issue stocks. Because they're available only in finite numbers and because watchful brokers can find them «on sale,» they're a better bet as an investment for those who are willing to sit on them awhile.

Why is the American public so in the dark about closed-end funds? Noting his book is the first written on the topic in more than 20 years, Schultz says there are a few reasons:

• Brokers can't generate a lot of commissions from them. Brokers move open-ended funds quickly because they earn a commission with each transaction. It's easy money for them, Schultz says. Closed-end funds require a longer term investment strategy, so brokers who want to get rich quick won't use them.

• They require more effort from the broker, who has to work to find the «sales.» One advantage of closed-end funds is that they can sometimes be purchased at a discount, so the investor starts off ahead of open-end investors who are paying full price for stocks, Schultz says. Even if the fund never gets back up to its full value, any increase at all is a gain. But the broker has to be willing to work to find the good investments with good discounts. And then he or she has to be willing to sit on them.

• Closed-end funds are boring! For a lot of brokers, it's just plain fun to trade stocks in products and initiatives with an exciting ring to them, whether it's Facebook or a treasure-hunting ship. These brokers are constantly trading stocks – and generating transaction feeds, lawyer fees and underwriting fees every time – because that's what they like to do. Closed-end funds require thoughtful, sometimes tedious research before buying, and then the patience of a saint as both the broker and the investor wait for the bid price to increase.

About Scott T. Schultz

Scott T. Schultz began his career in 1983 at E.F. Hutton and was ranked the nation's No. 1 Separate Account Money Manager by USA Today for three consecutive years using GIPS verified/audited performance numbers supplied by Morningstar, Inc. Schultz was a GOP nominee for U.S. Congress in 1988, and met with Presidents Ronald Reagan and George H.W. Bush at the White House. He graduated from Michigan State University with a degree in journalism.

The big news this week will be on the inflation front and the related issue of the dollar which has been under increasing pressure the last few weeks. With the Export/Import Price Indexes showing signs of inflation in both categories, including but not limited to big spikes in oil import prices, there are plenty of indications that dollar denominated price inflation is rearing its ugly head at home and abroad. Tuesday the BLS will release the Producer Price Index, the key measure of domestic wholesale price inflation, and Wednesday the Consumer Price Index, the headline measure of domestic retail price inflation.

Domestic inflation is heating up for one simple reason – the doubling of the size of the Fed balance sheet and the base M1 money supply. Both those important figures are reported on Thursday, every week. Unfortunately the Fed's hands are nearly tied in reversing these trends as the broader economy still appears weak. Unemployment is still rising with weekly first time jobless claims still exceeding 600,000. Last week's surprise drop in claims has the 4-week average trending down, but not yet enough to give any real leeway to start seriously battling inflation. Another good report on Leading Indicators, also due out Thursday, could shore up confidence in the economy and the dollar while also helping with the perception that the Fed is helpless to contain inflation.

Import inflation, especially in oil and other commodities, is being fed by weakness in the dollar, which is as much a matter of foreign investor confidence as anything else. Monday's Treasury report on International Capital will put a number to foreign feelings about the dollar and the US economy, while Wednesday's Current Account report from the Bureau of Economic Analysis will give investors a snapshot of the US position in the world economy.

The worst numbers this week are likely to come from housing, as has become almost expected, and manufacturing. The housing numbers this week are among the weakest in the sector the last several months – home builder confidence as reflected in the Housing Market Index from the National Association of Homebuilders and housing starts as reported by the Commerce Department. In manufacturing, the Fed will report on industrial production, which has been weak, and the New York Fed will report on Empire State manufacturing. The Empire State report, seen as a leading indicator of the national report, is expected to continue its negative course based on poor new order numbers in last month's report.

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With no major economic indicators due out Monday, the way is clear for the markets to react strongly to a decision by Supreme Court Justice Ruth Bader Ginsberg on the Chrysler creditor appeal to the Bankruptcy Court's approval of the Fiat sale. Markets have been reacting positively to an apparently quick and painless Chrysler bankruptcy and the potential for a similar process for General Motors. A stay preventing the sale could negatively impact US stocks, though financial stocks may breathe a sigh of relief if the major creditors that got shafted in favor of unions and the government get that reprieve. The Conference Board will release its Employment Trends Index on Monday, likely confirming the bulk of last week's labor market data that showed unemployment continuing to rise but at a slower pace.

Tuesday the Commerce Department will report on Wholesale Trade. With the weekly Redbook retail index and the International Council of Shopping Centers report on major chain store sales, retail is well covered Tuesday as well.

Wednesday's biggest news will be the Federal Reserve Beige Book, which will give savvy investors a chance to see the bright spots, geographically and by industry, that will lead the economic recovery. Other big news Wednesday will be the Foreign Trade statistics from the Commerce Department, where an increase in non-petroleum imports would be further sign of a rebound starting. And in the field of petroleum, Wednesday's oil inventory report will be very important as consumers are beginning to chafe at a subdued repeat of last summer's gasoline price spike that did at least as much to damage the economy as Wall Street's paper problems.

Thursday brings a triple whammy with stats on retail sales, jobless claims and business inventories. Retail sales are widely expected to improve after April's disappointing report while jobless claims continue at a high level. The less commented news on business inventories may be more important, as business inventories have contracted considerably but generally not as much as sales. Too high inventories are negative for economic growth, as businesses scale back production to deplete excess inventories. The inventory-to-sales ratio hit a 9-year high in January, but has started to fall. Also Thursday, the RBC Financial Group will release its CASH Index report on consumer confidence and finances, the Conference Board will release the Leading Indexes for Japan and the UK, and the Fed balance sheet and money supply reports will deserve a look.

Friday's big news is in international trade and inflation, with the release of Import/Export Price Indexes from the Bureau of Labor Statistics. With lending and spending still slow in the US, the first sign that the Fed's money creation is leading to inflation is likely to come from the import sector.

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The first week of June will be a busy one for investors watching economic news with reports on manufacturing, housing and retail sales early in the week and employment related reports dominating Wednesday through Friday. There's no single indicator that will really set the tone for the whole week with big news almost every day.

Monday, the Institute for Supply Management will release its Manufacturing Report on Business with the headline Purchasing Managers Index (PMI) number and the auto makers will release their May sales. Of real interest for those following the Big Three woes will be whether the prediction that «no one will buy cars from a bankrupt car company» hold true for Chrysler. Also Monday, the Commerce Department will release Constrution Spending and Personal Income and Spending reports. The first employment indicator of the week, the Help Wanted Online Data Series, is also due out Monday from the Conference Board.

Tuesday's big number will be the Pending Home Sales Index from the National Association of Realtors, which after last week's predictable mixed week in housing will set the tone of housing related discussion for the next three weeks.

Wednesday, there's more from manufacturing with the Factory Orders report from the Commerce Department plus the ISM will hit us with their Nonmanufacturing Report on Business to round out the view of the total private sector economy. The employment reports start in earnest Wednesday with the Challenger Report on layoffs and the ADP Employment report. With oil prices starting to get out of control heading into summer driving season and threatening a consumer confidence led recovery before it really gets started, the Wednesday oil report is important for more than just oil prices.

Thursday means more employment news with the Monster Employment Index which combines with Monday's Conference Board report to give a clear and complete picture of online hiring activity. In a week of labor market reports, it might be easy to ignore the weekly jobless claims, but if they can follow last week's drop to start a mini-trend, that's more good news for consumer confidence and the overall economic picture. Major retail chain stores will report on their May sales on Thursday, rounding out the retail big picture.

Friday is the big day with the Labor Department releasing the Employment Situation Report, widely expected to show another half million jobs lost and unemployment ticking above 9%. Also Friday, the Fed will report on Consumer Credit – any stabilization there bodes well for retail sales.

The Treasury Department has some extra activity this week, in addition to the normal weekly T-Bill auctions. Tuesday, there's an auction of 52-week T-bills and Thursday there are announcements of 3-year and 10-year Treasury Note auctions. With federal borrowing way up, there's potential here for numbers that could spook markets, especially Forex, though the federal borrowing should be priced in.

The big action in the US this week is going to be in three reports - the Consumer Confidence Index Tuesday and reports on existing and new home sales Wednesday and Thursday. Consumer confidence is expected to improve slightly for a second month, but remains at low levels not seen for years. Forex traders will need to keep their eyes on other reports from the Conference Board this week, especially Thursday's release of the Euro Zone Leading Index. With German business confidence up less than expected according to Monday's Ifo report, the euro could be in for a battering this week. Add that to the geopolitical strains pushing investors to the dollar's safe haven and there's plenty of room for more dollar gains especially early in the week. Commodity traders will want to watch those reports as well, as the dollar strength is helping cap the recent runup in oil prices.

Aside from the sales reports, the Case-Shiller Housing Price Index is due out Tuesday for a solid, and likely volatile, week of housing market indicators. With inventories still at high levels, foreclosure pressures, credit still tight and buyers still bargain hunting, solid gains in sales are likely to be matched by at least moderately down price reports. Whichever way the reports go, mixed news is the very likely conclusion to housing market news this week.