Tuesday, May 31, 2016

Rothschilds Prove that Elite Bankers Rule the World

Rothschilds Prove that Elite Bankers Rule the World — 
Establish Billionaire Tax Haven INSIDE America


Friday, May 20, 2016

The Average American’s Retirement Savings By Age -- And Where So Many Go Wrong

Would you like to know if you're on track for a financially secure retirement? This short piece will give you an excellent idea... complete with two easily readable graphs and a table. Trust me, it's worth five minutes of your time.


Wednesday, May 4, 2016

The Savings Rate Also Rises... By Michael K. Farr, May 3, 2016

Late last week we learned that Personal Income rose at a respectable pace of +0.4% in March, exceeding the consensus estimate of +0.3%.  As has become a recurring theme, though, the pace of consumer spending was unable to keep up with the growth in income.  Personal Spending rose just +0.1% in March, below the consensus estimate of +0.2%.  The net effect?  The savings rate rose again, this time to a 13-month high of 5.4%.  For the full first quarter of 2016, the savings rate of 5.2% matched the highest level since the fourth quarter of 2012.   

We have been talking about the likelihood of a higher savings rate for several years, and we continue to believe that further increases will be a significant drag on economic growth for at least the next several years.  Why?  Well the quickest explanation is that leading up the financial crisis, the savings rate had fallen far too low relative to historical averages.  Since World War Two, the US consumer has saved an average of 8.7% of his Disposable Personal Income (DPI) on an annual basis.  That rate fell to a low of 2.6% in 2005 but has since rebounded to 5.1% in 2015 - still well  below the long-term average.  So the recent increases in saving may simply be that the consumer is compensating for years of profligate spending and under-saving.    

But simply showing that the savings rate is low relative to history is not a great explanation for why we think the savings rate will continue rising from here.  The consumer savings rate can be affected by a number of different variables, including income levels, unemployment rates, housing prices, stock prices, inflation rates, consumer confidence, lending standards (access to credit), gas prices, interest rates, etc.  Given that many of these variables have been supportive of consumer spending in recent years, most economists have been somewhat confounded by the recent increases in the savings rate.  For example, the unemployment rate has been cut in half, incomes have risen, stock prices have tripled since March, 2009, the housing market has rebounded nicely, inflation is low, confidence has rebounded, lending standards have loosened, and gas prices and interest rates are very low.  There is not much in these indicators that would "spook" consumers into saving more.  So why the sudden urge to put more aside for a rainy day?

In our view, the most logical explanation is that many of the economic indicators cited above are not an accurate depiction of the typical middle-class family.  Most notably, middle-class incomes have risen at a much slower pace than the cost of non-discretionary expenditures, such as health care, education, child care, housing, and yes, saving for retirement (the cost of which goes up as asset prices rise and expected future returns go down).  The squeezing of the middle class has been a decades-long trend that shows little sign of reversing.  The average American is in precarious financial condition, without the means to address a minor short-term financial emergency much less fund a 30-year retirement.  The cover story in this month's The Atlantic magazine ("The Secret Shame of Middle-Class Americans", by Neal Gabler) is just the latest in a long series of news pieces that have shed light on this issue.  The entire article can be found at this link:http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/.  But let me offer some quotations taken directly from the article: 
  • The Fed asked respondents (to a national survey it conducted) how they would pay for a $400 emergency.  The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.
  • Two reports published last year by the Pew Charitable Trusts found, respectively, that 55 percent of households didn't have enough liquid savings to replace a month's worth of lost income, and that of the 56 percent of people who said they'd worried about their finances in the previous year, 71 percent were concerned about having enough money to cover everyday expenses.
  • Median net worth has declined steeply in the past generation-down 85.3 percent from 1983 to 2013 for the bottom income quintile, down 63.5 percent for the second-lowest quintile, and down 25.8 percent for the third, or middle, quintile. According to research funded by the Russell Sage Foundation, the inflation-adjusted net worth of the typical household, one at the median point of wealth distribution, was $87,992 in 2003. By 2013, it had declined to $54,500, a 38 percent drop. And though the bursting of the housing bubble in 2008 certainly contributed to the drop, the decline for the lower quintiles began long before the recession-as early as the mid-1980s, Wolff says.
  • ...the study by Lusardi, Tufano, and Schneider found that nearly one-quarter of households making $100,000 to $150,000 a year claim not to be able to raise $2,000 in a month.
  • Real hourly wages-that is, wage rates adjusted for inflation-peaked in 1972; since then, the average hourly wage has essentially been flat. (These figures do not include the value of benefits, which has increased.)
  • Though household incomes rose dramatically from 1967 to 2014 for the top quintile (ie, the highest earning one-fifth), and more dramatically still for the top 5 percent, incomes in the bottom three quintiles rose much more gradually: only 23.2 percent for the middle quintile, 13.1 percent for the second-lowest quintile, and 17.8 percent for the bottom quintile. That is over a period of 47 years! But even that minor growth is somewhat misleading. The peak years for income in the bottom three quintiles were 1999 and 2000; incomes have declined overall since then-down 6.9 percent for the middle quintile, 10.8 percent for the second-lowest quintile, and 17.1 percent for the lowest quintile.
  • A 2014 analysis by USA Today concluded that the American dream, defined by factors that generally corresponded to the Commerce Department's middle-class benchmarks, would require an income of just more than $130,000 a year for an average family of four. Median family income in 2014 was roughly half that.
  • The American Psychological Association conducts a yearly survey on stress in the United States. The 2014 survey-in which 54 percent of Americans said they had just enough or not enough money each month to meet their expenses-found money to be the country's No. 1 stressor.
  • A 2014 New York Times poll found that only 64 percent of Americans said they believed in the American dream-the lowest figure in nearly two decades.
Again, it has become abundantly clear that the large majority of Americans are financially prepared for neither a major crisis nor retirement.  Moreover, the big increases in asset prices we've seen in recent years (stocks, real estate, bonds), combined with the very low level of interest rates, means that those underprepared Americans will have to set aside more money, not less, in order to reach their retirement and security goals.  Unfortunately, this is one cost that the Fed refuses to consider in its assessment of inflation.  If we can't expect to earn the historical 10%+ on stocks and something reasonable like 4%-5% on bonds, then we need to save more, especially if we have deferred the process of saving for retirement until now.  Setting aside more for retirement or an emergency is a very real cost that needs to be considered. 

As always when I discuss this topic, I ask you to please not mistake this as a political commentary.  I am simply trying to shed additional light on the problem as it relates to our future economic growth prospects.  A little less than 70% of our economy is comprised of consumer spending, so the consumer's financial condition is of utmost importance.  Possible solutions to the problem are outside the scope of this Market Commentary, but I'll give you a clue.  Congress...get your act together!