tag:blogger.com,1999:blog-21271298808666149922024-02-20T17:13:01.307-08:00Secure Planning Inc.Secure Planning Inc.http://www.blogger.com/profile/12180318156790449635noreply@blogger.comBlogger126125tag:blogger.com,1999:blog-2127129880866614992.post-34039011441280712762014-05-30T09:05:00.002-07:002014-05-30T09:05:41.371-07:00Lost Momentum<div class="MsoNormal">
<span style="font-size: 13.0pt;">The U.S. Government recently
released results of economic growth for the first quarter. The report indicated
that the economy shrank by 1%. While the expectation had been for slow growth, this
significant negative reversal signaled a loss of momentum from the fourth
quarter of 2013. The impact is visible in the housing industry, where both
existing home and new home sales slowed. One would think that this information
would result in a negative stock market reaction, but the S&P 500 soared to
a new high. At the same time, the slowing economy has resulted in the 10-year
Treasury Bond dropping in yield, from about 3% to 2.44%, with an increase in the
value of underlying bonds. This change in the Treasury values has also impacted
high quality bonds, with yields decreasing and values rising. Taken to another
level, this lowering of interest rates has pushed the mortgage interest rates
back down, making it less expensive to buy a home. The slowing momentum of the
first quarter would appear to have a very positive impact on the second
quarter. We are beginning to see home sales, consumer spending and
manufacturing increase. For these reasons, stocks have climbed. Clearly, the
loss of momentum from the first quarter, due primarily to bad weather, has
turned around. We will now have to wait and see if momentum can be regained.</span></div>
<div class="MsoNormal">
<span style="font-size: 13.0pt;">Ed Mallon <o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-52117647518181087162014-05-20T09:37:00.000-07:002014-05-20T10:05:01.941-07:00Demographics<div class="MsoNormal">
<span style="font-family: "Calibri","sans-serif"; font-size: 13.0pt; mso-bidi-font-family: "Times New Roman";">The current economic picture is one of
slow growth. The economy is moving in fits and starts but lacks momentum. The
S&P 500 closed yesterday at 1885. At the end of 2013, the S&P 500
closed at 1848, meaning it has risen about 2% for the year to date. This
certainly is not the robust market of 2013. Many reasons might account for
slowing the growth in stocks, but overall, I’d say the stock market got ahead
of itself. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: "Calibri","sans-serif"; font-size: 13.0pt; mso-bidi-font-family: "Times New Roman";">When we came out of the 1982 recession,
the growth in GDP was 7.5%, with the next two recessions recovering at a more
modest 5.6% and 5.2%. Nominal GDP growth is just 3.7% during the current
expansion. This slow growth is not just in the U.S. but is occurring in Europe,
Japan and China, to name a few. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: "Calibri","sans-serif"; font-size: 13.0pt; mso-bidi-font-family: "Times New Roman";">Perhaps something else is at work that
is being overlooked. From 1968 to 1985, the population growth in the U.S. was
2% annually. During this same period, the growth in GDP was 4%. From 1985 until
2000, the population grew 1% and the GDP grew 3%. Since 2000, the approximate
population growth is 0.6% and the growth of GDP, overall, is just above 2%. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: "Calibri","sans-serif"; font-size: 13.0pt; mso-bidi-font-family: "Times New Roman";">I believe there is a correlation
between population growth, the aging of the population and the growth of GDP. The
United States has benefited over the years from the constant influx of
immigrants into the U.S. This influx brought young people who had families, and
brought down the average age in the U.S. as the balance of the population aged.
This has not been the case in Russia, where the birth rate has been low and the
mortality rate is high. Europe also suffers from this problem, except for
Germany, which took in the East German population. Japan and China both have
aging populations. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: "Calibri","sans-serif"; font-size: 13.0pt; mso-bidi-font-family: "Times New Roman";">In the 1980s and 1990s, the U.S. had
wide swings in economic growth. With our aging population, we are now experiencing
a period of fewer swings and longer-term growth prospects. While the current
growth is not up to previous levels, it will possibly last for a much longer
time, say the next 5 to 8 years. The U.S. is part of an international community
now, so the growth possibilities of the U.S. will be moderated by the lack of
growth in some developed and developing countries. This period will not show
spectacular growth, but it should be good for the U.S. economy. I’ll talk more
about the impact of demographics at another time.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: "Calibri","sans-serif"; font-size: 13.0pt; mso-bidi-font-family: "Times New Roman";">Ed Mallon <o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-50744629215933073792014-04-07T08:04:00.001-07:002014-04-07T14:55:06.472-07:00Fear of No Growth<div class="MsoNormal">
<span style="font-size: 12.0pt;">Since the beginning of this
year the stock and bond markets have been rather subdued. In 2013 the general
outlook was that the economy was picking up momentum. The increase in business
activity, business profits and a shrinking of government spending was seen
leading the economy back to “normal.” The results for the year were in
many ways more robust than what had been expected. More jobs were created, new
jobless claims dropped and the unemployment rate fell. As we came into the
first quarter of 2014 there was concern that economic growth was lagging. Jobs
were still being created, new jobless claims were still down and the greatest
number of people since the first quarter of 2008 were employed. The problem
with all of this was that the sense of “growth” in many sectors of the economy
wasn’t there in the first quarter. The S&P 500, as of this writing, is up
an anemic 0.0% for the year. As we await results from corporations for the
first quarter, it seems likely stocks will fall further. At the same time, the
slow growth of the economy has made bonds stronger. There is a reduced sense of
worry about inflation, business earnings are good and the Federal Reserve’s
pull back in the buying of bonds and mortgages has not disrupted day to day
bond trading. Overall what we are seeing is stability of the economy but with
no real growth impetus. It appears that bad weather in the first quarter,
coupled with no growth in Europe is what slowed down the economy. As we enter
the second quarter we may begin to see signs of a turn around. The European
Union is taking steps to grow their economy as Japan does likewise. These moves
along with better weather and the growth that is taking place in the U.S. may
be enough to get the momentum going again. For now, dividend paying stocks and
interest bearing bonds are what’s considered best!<o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">Ed Mallon <o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-58207221529296161762014-03-24T10:24:00.003-07:002014-03-24T13:35:39.518-07:00Cheap Natural Gas<br />
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Today,
in the second section, page 2, of the Wall Street Journal (WSJ) an article appeared
about what cheap natural gas means to the U.S. economy. For some time I’ve
thought that the abundant gas in the United States would result in greater
manufacturing coming here. I had not considered the impact of construction from
this change. The WSJ reported that the chemical industry alone is accounting
for more than $100 billion of new construction in the gulf coast states, with
another $125 billion anticipated. This business investment is by the U.S.,
Germany, Canada, and other countries. “From 2010 to 2012, energy-intensive
manufacturing sectors added more than 196,000 U.S. jobs and increased real
sales by $124 billion.” This new growth is not just in the manufacturing
plants moving here and being built, but in the construction, steel and other
fabrication industries related to construction. Increasing construction costs,
from the pressure on a limited supply of labor and materials in the Gulf Coast,
may bode well for other parts of the country with less expensive construction
costs. This should have a positive long-term impact for U.S. construction and
job formation.</span><br />
<span style="font-family: Verdana, sans-serif;">Ed Mallon</span><br />
<br /></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-7997056999576045112014-03-03T11:21:00.002-08:002014-03-03T12:02:55.526-08:00The Rhythm is BrokenSometimes the stock market achieves a nice rhythm. We have recently seen such a period. After a poor start to the year, good economic news prevailed and the markets increased. Today in Reuters News Service, I noted a number of very good traits that should continue the momentum of growth in the economy. Factory orders rebounded from an eight-month low. Automobile sales increased. A gain in construction spending was reported, despite unseasonably cold weather! Consumer spending increased, with spending on services up 0.9%, the biggest gain since October 2001. All good news, and yet, as of this writing, the stock market is down more than 1%. The break in the rhythm is because of the uncertainty surrounding Russia’s military intervention into Ukraine. As I have stated in the past, “the markets do not like uncertainty.” We have no way to dispel this uncertainty, and this is why we have a diversified portfolio. In times like this, investors tend to drive up the value of more defensive issues, such as bonds. I will be watching the situation in Ukraine to determine the best investment course of action. For now we will make no changes.
Ed Mallon
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-31847648445329443032014-02-04T10:57:00.002-08:002014-02-04T10:57:58.653-08:00A Correction?<div class="MsoNormal">
<span style="font-size: 13.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">As I have reported recently, it is not
unusual for the stock market to have a correction after a lengthy time on the
rise. Yesterday we saw that a correction can still be painful. The stock market
dropped a little over 2% yesterday, meaning that anyone in the market at that
time lost money. Although you are a long-term investor, <a href="" name="_GoBack"></a>that
is your money. A correction is usually about a 10% drop in the value of stocks.
This usually sets the stage for another increase in value. A day like yesterday
is generally followed by two to three days of the market rising before it again
tests the downside. <o:p></o:p></span></div>
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<span style="font-size: 13.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">I believe that equity investments will
bring us rewards in the future as the economy grows and energy becomes
increasingly available. The road to those rewards will be bumpy, such as
what we saw yesterday.<o:p></o:p></span></div>
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</div>
<div class="MsoNormal">
<span style="font-size: 13.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Ed Mallon<o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-10160898246255683982014-01-24T10:45:00.000-08:002014-01-24T10:45:20.555-08:00Doing its own Thing<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "MS Mincho"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">Last
year, equities were up significantly. Some wondered what would happen this
year. As I am writing this, the S&P 500 was back to the December 19th level
of 1805. On January 15, 2014, the S&P hit a record high of 1848. Interestingly,
this record high for 2014 is the same as the closing point of the S&P at
the end of the last year, meaning that the S&P is down about 2.5% since the
end of 2013. Given that the stock market was up 28% last year, this change is
barely a blip on the radar screen. So where is the money that is leaving the
stock market going? Bonds are up in value! As I always say, the three rules of
investing are:<a href="" name="_GoBack"></a> diversify, diversify, diversify. You never
know which asset class is going to do the best. As an investor, the idea is not
to hit home runs but to make money. After increasing so much last year, a
correction, with the market dropping about 10%, would not be unusual. I believe
that, in the long run, stocks will do very well.</span><br />
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "MS Mincho"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">Ed Mallon</span>Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-10315028235696326692014-01-13T12:49:00.001-08:002014-01-13T12:49:37.948-08:00Non-correlation<div class="MsoNormal">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Non-correlation of investment assets
may seem to be complicated, but it is very important to the long-term success
of an investment portfolio. To understand non-correlation, we must first
understand what we mean when assets are correlated. Investment assets are
referred to as being highly correlated when they show a tendency to vary
together. For example, U.S. stock classes--large, medium and small-- tend to
increase and decrease in value together. For many years, large international
stocks were not considered to be correlated to U.S. stocks, but they are now
92% correlated. Bonds are not correlated to stocks. Bond groups--investment
grade corporate bonds, U.S. Treasury bonds and municipal bonds--tend to be
highly correlated. Stocks and bonds are not correlated and therefore each moves
in its own manner. The importance of including non-correlated assets in your
investment portfolio is to reduce investment risk. Bonds, stocks, real estate,
emerging market investments, and commodities are non-correlated. By mixing
these various non-correlated asset classes, your portfolio is not as likely to
be whipsawed, up or down, by the volatility of one particular class of assets.<a href="" name="_GoBack"></a> While this strategy is helpful in most instances, it is not
foolproof. On the other hand, including asset classes that are non-correlated
doesn’t prevent them all, or most, from moving up or down at the same time. In
2008, we saw an example of non-correlated assets all moving down together, as
the U.S. and world economies went through a terrible economic period. This is
the exception and not the norm, but illustrates what can happen. For this
reason, I believe that a static portfolio, one that sets an allocation of
non-correlated assets that does not change, can be detrimental to your
investment wealth. Depending on the state of the economy and other relevant information,
raising or lowering the percentages of various non-correlated assets can be
useful, and is an active asset management style.<span style="font-size: 10pt;"><o:p></o:p></span></span></div>
<span style="font-size: 12pt;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Ed
Mallon</span></span>Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-75910587307136628372013-12-19T08:37:00.000-08:002013-12-19T08:37:10.718-08:00Fed Takes Action<div class="MsoNormal">
<span style="font-family: "Arial","sans-serif"; font-size: 13.0pt;">As
the economy has grown stronger, the Federal Reserve has been discussing when to
reduce its bond and mortgage purchases. For about 15 months, the Fed has been
purchasing about $85 billion each month and has acquired approximately $3 trillion
in these investments. The purpose was to add liquidity to the economy, which
resulted in lower mortgage interest rates, lower long-term bond interest rates
and a booming stock market. The Fed indicated this afternoon that they will taper
off these purchases by about $10 billion, bringing them down to about $75
billion monthly. Tapering will reduce the flow of cash from the Fed but will
also allow them to adjust upward easily if the economy shows signs of souring. If
tapering does not disturb the economy, it will likely be followed by additional
cuts until all purchases are stopped. The long-term impact of this change will
likely be an increase in longer-term interest rates and slowing of the rise in
stock prices. I had not personally expected the change until March of
2014, once Janet Yellen<a href="" name="_GoBack"></a> was in place as the new Fed
Chairman. The change is likely to be the last major action by the current Fed
Chief, Ben Bernanke. At the same time that they announced the tapering of
purchases, the Fed also indicated that short-term rates would remain close to
zero until after the unemployment rate goes below 6.5%. This information means
that short-term rates will be likely to stay at zero until late 2015 or early
2016. <o:p></o:p></span></div>
<br />
<div class="MsoNormal">
<span style="font-family: "Arial","sans-serif"; font-size: 13.0pt;">Ed
Mallon<o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-21690150698955053342013-12-06T10:28:00.001-08:002013-12-06T10:53:45.621-08:00Market Turning Down<div class="MsoNormal">
<div class="MsoNormal">
<div class="MsoNormal">
<span style="font-family: inherit;">During
the past number of market sessions, we have seen some profit taking on stocks
and repositioning of bonds, which has moved the stock market down. The result
is confusion on the economic front. The good news, announced on Thursday, was
that in the third quarter the economy grew at a rate of 3.6%, rather than the 2.8%
originally reported. Business inventories, at $116.6 billion--the largest
accumulation of inventories since the first quarter of 1998--accounted for most
of the growth. This growth is in sharp contrast with domestic demand that rose
only 1.8% rather than the expected 2.1%. As a subplot, consumer spending
dropped to 1.4%, the lowest since the fourth quarter of 2009. Retail spending, so
far in the fourth quarter, does not seem to be picking up as we go into the
biggest shopping period of the year. Retailers may have to take major markdowns
before the holiday season is over, to align inventories with consumer spending.
Corporate profits, after tax for the third quarter, dropped to 2.6% from 3.5%
in the second quarter. If heavy discounting of inventories takes place, corporate
profits may drop further. Expectations of advancing corporate profits have kept
the recent stock rally going. The reality of what might happen to corporate
profits is setting in and moving the market downward. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">All
is not lost. It appears this will be a correction and not a bear market. One of
my favorite indicators is the number of initial jobless claims. I have not
reported on that in a while. Last week, jobless claims were at 298,000, the
lowest number we have seen in years, and the third weekly drop, which is also
impressive. Not long ago, I was wishing for the claims to drop<a href="" name="_GoBack"></a>
below 400,000! With all of this information, I am maintaining my position that
the Federal Reserve will not reduce bond purchases before March of 2014. The
liquidity level of the economy should remain constant, which is good. The
economy surprised experts in the second quarter, growing more than 2% after
original estimates of 1%. Again in the third quarter, the economy grew at 3.6%
after the original estimate of 2.8%. Who knows? Perhaps it will do so again in
the fourth quarter.<o:p></o:p></span></div>
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<br /></div>
<br />
<div class="MsoNormal">
<span style="font-family: inherit;">Ed
Mallon </span><span style="font-family: "Helvetica","sans-serif"; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 10.0pt;"><o:p></o:p></span></div>
</div>
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Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.com0tag:blogger.com,1999:blog-2127129880866614992.post-22268422742895125302013-11-26T07:27:00.001-08:002013-11-26T11:23:52.952-08:00Change Afoot!<div class="MsoNormal">
<div class="MsoNormal">
<div class="MsoNormal">
<span style="font-family: "Arial","sans-serif"; font-size: 13.0pt;">At this time of year,
I look both back and forwards. In looking back, I see that we are better off,
overall, this year than we were a year ago, from a financial perspective.
Looking toward next year, I believe we will be better off than we are today. That
being said, some interesting things on the horizon could have a significant
impact on financial matters. If the agreement with Iran goes through, it could
mean significantly lower oil prices for Eastern and Western Europe. This would
be good for their economies and also for world economies as discretionary
income would grow. The new Fed Chairman, likely to be Janet Yellen, will bring
a softening to monetary changes that will be enacted by the Fed during 2014.
This should result in less shock to the financial system as the stimulus is discontinued,
and should reduce the risk of a major market correction. The big unknown on
the negative side is what Congress will do about the budget and deficit
reduction. I am guessing that the Republicans will not want a repeat of
October as we head into an election year. We will see. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Arial","sans-serif"; font-size: 13.0pt;">Thanksgiving is my
favorite holiday. I wish each of you peace, joy and the blessing of living in a
country like the United States of America!<o:p></o:p></span></div>
<span style="font-family: Arial, sans-serif; font-size: 13pt;">Ed Mallon</span><span style="font-family: Calibri, sans-serif; font-size: 13pt;"> </span></div>
</div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-35011182403410760982013-11-11T13:24:00.000-08:002013-11-26T11:15:16.763-08:00Market Conditions<span style="font-size: 12pt;">There was a front page
article in the Wall Street Journal this morning about “Mom and Pop” now
entering the stock market, after an absence since 2008. It seems that by the
time “Mom and Pop” enter the market, it’s at the top! I can’t say I completely
agree with this but it does reflect how fast the stock market has gone up this
year and the amount of new money being invested. According to Warren Buffett, a
simple way to look at the market is to measure the ratio of the aggregate value
of the stocks in the Wilshire 5000 to the U.S. GNP. If this ratio is under 100%
stocks seem priced to buy. If it is over 100% stocks are pricey and will likely
come down. According to this idea, back in 2009, when the ratio was 76%, it was
a time to buy. As of September 30</span><sup>th</sup><span style="font-size: 12pt;"> the ratio was 109%. Does this
mean that stocks are headed for a tumble?</span><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt;">There are many ways to look
at the stock market none of which has proven infallible. The market is based on
what a willing buyer will pay a willing seller. We all know the stock market
goes up and down and it is difficult to determine when it will do either. The
best way to address this issue is to have a diversified portfolio of stocks and
bonds that have a relatively low correlation to each other. As an investor you
do not want to be “chasing” yield, but to set your investments in accordance
with your risk tolerance. I am sure that Warren Buffett is not selling most of
his investments in fear of a downturn in stock values, but he may be limiting
new purchases until such time as he feels that there are better values.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt;"><br /></span></div>
<br />
<div class="MsoNormal">
<span style="font-size: 12.0pt;">Ed <o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-90243427492603299662013-10-21T12:50:00.000-07:002013-10-21T12:50:11.896-07:00The After Glow<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">We
all watched as the government shut down and witnessed how dysfunctional
Washington has become. During this time the stock market held up rather well
while interest rates on bonds tended to go up. As bond interest rises the value
of the bonds decline. The impact on the bond market was reversed once a deal
was struck. Bond interest rates have come down to a point we have not seen
since mid-May, in some cases. For now, the Federal Reserve(Fed) continues to
purchase about $85 Billion of mortgages and bonds each month to assure
liquidity and continuing expansion of the economy. At some point in the future,
the Fed will reduce and then eliminate their purchases. When this happens it is
expected that bond interest rates will go up and the value of bonds will go
down. It is likely that this reduction in purchases will not take place until
mid-January when the new Chairperson of the Federal Reserve takes over. For
now, there is a lull in the bond market. To counter the potential increase in
interest rates, it seems wise to move bond investments into shorter duration
bonds that pay little but have a lower risk of principal devaluation. For those
portfolios that are largely in bonds, like a Conservative portfolio with 80% in
bonds, there will likely be a reduction in earnings and negligible gains in
principal by using this strategy. My guess is that this will all be played out
during the next 12 to 18 months, after which time investment grade bonds should
stabilize and become the sound investment that they are intended to represent.
For now, I see an opportunity to rebalance portfolios to reduce the chance of
principal loss in bonds. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Ed</span><span style="font-family: "Times New Roman","serif";"><o:p></o:p></span></div>
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-8844928344835233462013-09-30T08:18:00.000-07:002013-09-30T08:18:50.854-07:00Budget, Debt, Fed<div class="MsoNormal">
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preoccupation in the stock and bond markets at this time is with what is happening in
Washington. The mixed economic reports that came out last week indicate that
the Federal Reserve will likely make no changes to their bond and mortgage
buying program until very late this year or early next year. This has sent bond
prices up as yields have fallen. At the same time, the equity markets are
justifiably worried about what Congress is going to do to resolve the budget
and Federal debt ceiling issues. If the debt ceiling issue is not resolved, the
government will run out of funds by the latter part of October. Currently, the
concern is with a budget resolution by October 1<sup>st</sup>, the beginning of
the next fiscal year. The lack of a resolution will result in closure of
non-essential government services and the inability to pay Social Security and
Military Pension benefits. The repercussions of this inaction would have a
detrimental effect on the entire economy. This concern has lead to a downturn in
the stock market. The short-term outlook is cloudy. In the long term, I believe
the stock markets in the U.S. will do well if the economy continues to grow.
Stocks trade at a multiple of earnings. On a trailing 12 month basis, the
market’s current price-to-earnings ratio of about 19 is a third above its
long-term average. This has occurred because earnings growth has been tepid
while stock prices have gone up significantly. The expectation is that we will
see greater earnings growth in the future. Shutting down the government could
change this assessment. Bond markets will have to adapt to increasing interest
rates over the next year or so, but should subsequently be fine.<span style="font-size: 10.0pt; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></div>
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Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-78325109665699552512013-09-10T10:19:00.000-07:002013-09-27T11:54:11.316-07:00From Damascus to Jerusalem<div class="MsoNormal">
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With all that
is going on in Syria, I’ve been asking people how far they think Damascus,
Syria, is from Jerusalem? One great answer I received was “it must be either
very close or far away.” Apparently we are not much for geography in the United
States. Most of us recognize that the Middle East is a very dense area of the
world, but just how dense? In answering my basic question you can look in the
New Testament, where Saul, soon to be Paul, has an encounter on the road from
Jerusalem to Damascus. This indicates that, even 2000 years ago, it was
possible to travel between these two cites on foot. The answer to my question
is 135 miles. But this belies the question of density in the Middle East. Some
interesting distances: between Damascus and Cairo, Egypt: 382 miles; Nicosia,
Cyprus: 204 miles; Tel Aviv, Israel: 133 miles; Amman, Jordan: 109 miles; and
Beirut, Lebanon: 55 miles. These are all capital cities in the Middle East and
they are very close to each other. The fallout of the civil war in Syria on the
countries surrounding it has lead to disruptions, as millions of people have
fled from Syria to these nations. Any action that is taken in Syria will
undoubtedly have repercussions on countries in close proximity, and we just
don’t know where this may lead. Generally, this type of tenuous situation is
not good for stock markets. The stock markets in the U. S. have shown no
apparent significant downturn<a href="" name="_GoBack">--</a>yet! The Middle East still
supplies about one-third of the oil that is used in the U.S. A disruption to
the supply line, or worry about such a disruption, could send oil prices skyrocketing.
Such an event would have a negative impact on the growth of the U.S. economy, with
more consumer dollars going for gas and less for consumer products. While we
are in the stages of becoming self-sufficient in energy, our infrastructure, to
make this possible, is not yet fully in place. Today, on the front page of the <u>Wall
Street Journal</u>, it was reported Secretary of State John Kerry, in London, 2855
miles from Damascus, in an off-the-cuff remark, suggested that President Bashar
al-Assad could avert an attack by promptly handing his chemical weapons to the
international community. Moscow, 2184 miles from Damascus, declared its support
and quickly got Damascus on board. In Washington, DC, 5877 miles from Damascus,
the vote on action in Syria became muddled. No matter the outcome, the Middle
East does have an impact on the markets and citizens of the U.S. <span style="font-size: 10.0pt; mso-ascii-font-family: Cambria; mso-ascii-theme-font: major-latin; mso-hansi-font-family: Cambria; mso-hansi-theme-font: major-latin;"><o:p></o:p></span></div>
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Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-90601145280711307422013-08-16T06:40:00.002-07:002013-08-16T17:11:28.538-07:00Is the Stock Market Too High?<span style="font-family: inherit;">A question that often comes up after the stock market has had a significant increase in value is: “Is the stock market price too high?” The corollary of this question may be: “Is the stock market too low, or </span>under-priced?<span style="font-family: inherit;">” Current economic data indicates that the economy grew more than </span><span style="font-family: inherit;">expected in the second quarter. Instead of rising only about 1%, the government’s original </span><span style="font-family: inherit;">estimate, it rose in excess of 2%. Housing start numbers came out this morning showing an </span><span style="font-family: inherit;">increase in July over June of an estimated 50,000 (896,000 vs. 846,000). Consumers are </span><span style="font-family: inherit;">spending more, initial job claims for last week dropped to 335,000 (the lowest since November</span><br />
<span style="font-family: inherit;">2007), employers added 162,000 new jobs last month, and the value of homes has increased. </span><span style="font-family: inherit;">This is all good news, but there is some bad news, too. Retail earnings for companies like </span><span style="font-family: inherit;">Macy’s, McDonald’s, Wal-Mart, and others that target lower- and middle-income people </span><span style="font-family: inherit;">dropped. Manufacturing growth and factory orders are down. The Federal Reserve is indicating </span><span style="font-family: inherit;">it is going to reduce, then eliminate, the stimulus it has been giving the economy within the next </span><span style="font-family: inherit;">year. So how do you judge the stock market? Many say the “old ways” are out. But if the “old </span><span style="font-family: inherit;">ways” are out, then how do you determine if this is a buying or selling opportunity? Let’s look at </span><br />
<span style="font-family: inherit;">the old methods of making decisions. When we invest in stocks we are investing to capture the </span><span style="font-family: inherit;">earnings and earning potential of a company. The price earnings ratio (P/E) is a significant way </span><span style="font-family: inherit;">of looking at individual stocks and the broad market. It takes the price of a stock and divides it </span><span style="font-family: inherit;">by the earnings of the stock. This gives us an understanding of how an increase or decrease in </span><span style="font-family: inherit;">the price of a stock is determined, based on earnings of the stock. Using the S&P 500 as an </span><span style="font-family: inherit;">example, the P/E is 18.62 vs. 15.89 a year ago, which appears to be a big increase in price vs. </span><span style="font-family: inherit;">earnings in one year. We cannot stop at this point, because what we really want to know is how </span><span style="font-family: inherit;">much will we earn between this year and next? The forward P/E, which looks at estimated </span><span style="font-family: inherit;">earnings for the coming year, is 15.40, lower than the ratio was (15.89) last year. This appears to </span><span style="font-family: inherit;">be a bullish sign for stocks because it indicates that current prices are not out of line with the </span><span style="font-family: inherit;">norm. Another piece of information to examine is the percentage of dividends paid to the price </span><span style="font-family: inherit;">of the stock. For the S&P 500, the current dividend rate is 2.04% vs. 2.07% a year ago, which </span><span style="font-family: inherit;">seems to be a small dip. When we examine what is really happening, we must take into account </span><span style="font-family: inherit;">the price gain from a year ago. If we had $100,000 in the S&P 500 one year ago, our annual </span><span style="font-family: inherit;">dividend would be about $2,070 (2.07%). Between last year and this year our, account would </span><span style="font-family: inherit;">have grown by 17%, the rise in the S&P 500 during the one year period. Now our account would </span><span style="font-family: inherit;">have $117,000, earning 2.04% for an annual dividend of $2,387 or $317 more than last year. All </span><span style="font-family: inherit;">of this indicates that, as earning on stocks have grown, the prices have risen and the companies </span><span style="font-family: inherit;">have been paying increasing dividends. This seems to me to be a rational way to look at the </span><span style="font-family: inherit;">stock market, even if I’m using the “old ways.”</span><br />
<span style="font-family: inherit;">Ed Mallon</span>Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-6185114957054376762013-07-17T11:49:00.001-07:002013-07-18T05:29:01.097-07:00ExpectationsWe all have certain expectations and so does the market place. As each year progresses, expectations arise about the future inflation rate, the growth of the economy, consumer spending, and other such areas of interest. Based on these expectations, investors make decisions about what investments they want, when, and how. As real results come in, the expectation is compared to the result. Generally, if the result meets or exceeds expectations the response is good. If the result falls short of the expectation, the response is not good. Last week, a report was released showing that consumer spending, a key ingredient in moving the economy, did not meet expectations and the market dropped. The market moved lower due to fear that consumers had curtailed their overall discretionary spending for everything except automobiles. This week, a report was released indicating that consumer prices were rising and exceeding expectations, moving the market up. The market rose because higher prices are apparently taking hold, thus increasing the possibility of added profits for companies. Currently, we are at the end of a quarter, with a half year behind us and a half year to go. Earnings from various companies are very important to the market at this time as analysts attempt to figure out what will happen for the balance of the year. We closed the second quarter with both stocks and bonds down for the month of June. As of this writing, stocks have staged a dramatic recovery and bonds are moving into positive territory. This is all good news, but the markets are very susceptible to wide fluctuations, and earnings reports will continue to come in between now and early August. At this time, the economy appears to be growing stronger, the Federal Reserve will reduce purchases on bonds, and the U.S. deficit for the current fiscal year, which ends on September 31, will be substantially lower than expected. This is good news for the U.S. economy and the stock market. We as investors need to remember that short term shifts in investments will occur, and we must be patient and look at the long term. To me, the long term looks extremely good. <br />
Ed Mallon<br />
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Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-55046273827426584812013-07-01T12:21:00.001-07:002013-07-02T11:33:58.084-07:00Double Down!<span style="font-family: Arial, Helvetica, sans-serif;">The month of June was unkind to both bonds and stocks, as both lost value during the month. From the beginning of May until last week, Barclays index, which tracks investment grade bonds, was down 3.77%. Some people are referring to this as a “blood bath”, which it certainly is not. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Back in 1994, we had what has come to be known as the “bond massacre” when bond values dropped 5.3%. Bonds, like stocks, do go up and down, but bonds pay interest, which helps offset losses. The reason for owning bonds is that, over the long-term, they are more stable and can offset significant losses in stocks. The portion of the bond market that was most adversely impacted was United States government notes with maturities of 10 years or longer. These bonds were down an average of 10.8% during that same period. The long-term investor knows that a knee-jerk reaction is not the best investment move. As occurs quite often with a big selloff, the pendulum swung back, with bond interest rates falling later in the month and the value of bonds beginning to grow, although not back to where they had been at the beginning of May. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">While it is unusual, stocks and bonds can rise or fall at the same time. Such was the case in June as stocks also fell. Using the S&P 500 as our measurement, the index fell from 1666 on May 21st to 1573 on June 24th, a drop of 5.6%. It recovered to 1606 by the close of the stock market on June 28th. In many respects, the second quarter of the year returned the gains of the first quarter. What precipitated this selloff of both bonds and stocks was an assessment by the Federal Reserve Board that the economy was getting stronger and would be growing significantly in 2014 and 2015. In May, I indicated that I thought the market was ready for a 10% correction but not a bear market. Some bonds have produced that correction, as have some stocks. The long-term outlook seems bright.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Ed</span>Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-79788162684391290352013-06-25T08:01:00.001-07:002013-06-25T08:01:36.499-07:00The Fed Makes its MarkOn Wednesday June 19th, following a regular Federal Reserve Board (Fed) meeting, Chairman Ben Bernanke made an announcement composed essentially of two parts. Mr. Bernanke said the Fed would wind down the bond-buying program, in which they have been buying $85 billion in bonds monthly, and work towards a goal of ceasing the operation by mid-2014. His justification for the change is an optimistic assessment of the current state of the economy and its direction over the next two years. The Fed expects the jobless rate, which was 7.6% in May, to fall to 6.5% to 6.9% by the end of 2014. Mr. Bernanke commented on better fundamentals, saying, “In particular, the housing sector, which has been a drag on growth since the crisis, is now obviously a support to growth.” He was referring to rising home prices increasing household wealth and thereby strengthening consumer confidence and spending. Overall, the Fed expects the economy to grow by 3.0% to 3.5% in 2014, which would be a marked improvement. The Fed also expects inflation to remain low, between 1.5% and 2%. Other members of the Fed indicated that it is unlikely the Fed will begin pushing up short-term interest rates until 2015. Better economic growth, low short-term interest rates and a housing boom all seem very positive. The problem is, many in the financial community believe the result of the Fed reducing, then eliminating the bond program will bring higher mortgage interest rates, a slowdown in housing, reduced consumer confidence and a stalling of the economy. Fear of what might happen when Mr. Bernanke steps down in January of 2014 is an additional negative. Markets don’t like uncertainty!<br />
The bond and stock markets’ response to this change was sudden and sharp! The value of bonds and the value of stocks both dropped. As interest rates on a bond rise, the value of the bond drops. A month ago, for example, the 10-year Treasury bond had about a 1.7% interest rate. Now, the rate is 2.59%, or a drop in value of about 8%. The stock market has also taken a big hit with the S&P 500 down 5.7% since May 28th, falling from 1661 to 1566. Gold, too, has fallen. The day of Bernanke’s announcement, the value of an ounce of gold was $1,373.60 and is now $1,276.90, a drop of over 7% in a matter of days. So much for the safety of gold. For the investor, this may be a good time to take a summer respite and come back in the fall. The next few months could show substantial market volatility. If Mr. Bernanke and the Fed are correct, we should see the economy continue to pick up as we move forward in 2013. That being the case, the stock market should recover, eventually, and the bond market will settle down. For now, we will wait and see.<br />
Ed Mallon<br />
(written Monday, June 24, 2013)Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-61803673320282503852013-06-13T12:07:00.000-07:002013-10-01T08:52:10.258-07:00Mixed MarketWhen putting together an investment portfolio, you do not want your various investments to move up or down in tandem all the time. That is why one of the basic tenets in building a portfolio is to use non-correlated assets. Two broad categories of non-correlated assets are stocks and bonds. Stocks move separately from bonds and for this reason we like to have both in a portfolio. The current environment might appear to contradict this non-correlation of stocks and bonds, since both have lost value since May 9th. In fact, this does not disprove non-correlation; it just proves that current information has pushed both stocks and bonds downward. The question, therefore, must be “Why?” Looking at the bond market, we know that as interest rates rise, the value of bonds decreases. Lately, interest rates have begun to rise, in large part due to the uncertainty of the Federal Reserve Board (FRB) policy on buying $85 billion of bonds monthly, which has kept rates low until recently. The stock market moved down, reflecting the fear that a reduction in buying by the FRB would stall the economy, just as it was beginning to pick up momentum. My belief is that the FRB decided to test the markets by seeing what would happen if a reduction in buying bonds was to begin shortly (this summer or fall). The result has likely been to make them very concerned about such a possible change. The FRB meets next Tuesday and Wednesday, and will be discussing this issue and what they need to do. As the fears of reduction of bond purchases by the FRB have grown, the currencies of Japan and Europe have risen, which, if continued, would curtail any chance of growth for them. Emerging countries are seeing the value of their currencies decreasing, as investors avoid risk in favor of liquidity, creating a negative impact on their economies. The impact of a possible change in bond purchases by the FRB has already resulted in the bond, stock and currency markets preparing for the worst. It is my belief that the FRB is well aware of their role in leading the world out of an economic recession. With what has taken place in a very short period of time, the fragile recovery is headed in the wrong direction. For three years now, the FRB has been working to create momentum in the economy. I don’t think they are going to do anything to disrupt the goal at this time. Everyone wants to know, “What’s the deal?” The FRB must come out next week and say, with a great deal of certainty, that there will be no change in our buying of $85 billion each month until early next year at the earliest, or some similar indicator of their plans! A week from today we should have a pretty good idea of what they will be doing and for how long. If not, markets will continue to be volatile. <br />
Ed Mallon Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-27381945490924143932013-06-10T09:14:00.000-07:002013-06-10T09:14:13.722-07:00In the Name of National SecurityHow far should the federal government be allowed to go in reducing freedom and privacy to provide security for our nation? Since 9/11, the federal government, in the name of national security, has not only reduced certain freedoms and collected more data, but has also authorized holding assets and individuals without their normal rights under the Constitution. This secretive use of power has been building up for some time. With the NSA document leaks, reported in the Guardian newspaper last week, the massive level of surveillance over the public was revealed. This time we were made aware of how invasive the government is willing to be to “protect our rights.” Clearly, the genie is out of the bottle, recognizing that large volumes of data can be mined easily to find specific information. The time has come to take the shroud off the NSA and make them as accountable to the public as any other government agency. When we allow our government to keep secrets from our own citizens, it does not turn out well. An open discussion and evaluation is needed to decide the boundaries for information gathering on our own citizens before we lose this hard won democracy that we all cherish. <br />
Ed Mallon<br />
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-69424103221953857802013-05-28T06:42:00.002-07:002013-05-28T06:42:36.107-07:00In Memorium(written) May 27, 2013 <br />
Each year at this time I go back in my memory to visit a friend and mentor. I joined the Cub Scouts at age 8. The Pack had 160 boys, met on Wednesday and had one adult leader (that is another story). The assistant Den leader was Michael Thomas Glynn. He took me under his wing and became the big brother I never had. He helped me become a Wolf. Then he was promoted to Den Leader and I was chosen to be the assistant. Mike moved up again and I became Den Leader. When I joined the Boy Scouts, Mike was my Patrol leader. I just kept following in Mike's footsteps. Mike had all the merit badges to become an Eagle Scout, but hard as he tried, he couldn't earn the last two required badges, swimming and life saving. He was proud of me when, with his encouragement, I became the first Eagle in Troop 416. Mike went on to graduate 66th in a class of 596 from West Point in 1965. To this day, I remember Mike's enthusiasm on Christmas Eve 1965 when he met my fiancé, Fran. He spoke about the career he hoped to have in the State Department when he completed his military service. Mike went to Vietnam on January 3, 1966. He was a Platoon Leader in Pleiku Province, Vietnam, when he was killed on May 28, 1966. He was the second member of the West Point Class of '65 to die in Vietnam. What might have been? At this time of year, we should look with appreciation and gratitude to the men and woman who serve in our military, and especially to those who have given their lives. <br />
Ed Mallon <br />
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-34657464112902318772013-05-17T06:54:00.003-07:002013-05-17T06:54:35.355-07:00IndexesAs the economy has gone through its many changes, I have continued to watch certain trends. One of the trends is new jobless claims each week. The number for the week is good to know, and we’d like to see it below 350,000, but the four-week average is the important number. We want to see that drop below 350,000. Last Friday, the Labor Department announced the jobless weekly number at 335,000 and the four-week number at 336,000. This was good news. <br />
This information is available to everyone, so it is important to have some personal indexes that are not controlled by the government or media. The BK index is used to get some sense of the impact of inflation on the economy. You will recall that back on September 23, 2010, I discussed the BK index and the alarming 27% jump in the index, while the CPI only went up 3%. Since that time, the index has gone from 1.59 to 1.65, an increase of approximately 3.8% over almost three years. This would indicate that inflation is not rearing its ugly head in the consumer marketplace. (For those of you who have forgotten, this index measures the price of a Junior Whopper with cheese at Burger King over time). <br />
Another index that I use to determine the direction of the economy is the FMAS Index. This index has been pretty reliable at determining the direction of the economy. It is also known as a leading indicator because it tends to decrease before consumer spending as a whole goes down, and tends to rise as consumers begin to spend again. I have been using this index since I realized the income of my wife, Fran Mallon (FM), an artist, and the number of Art Sales (AS), tend to move ahead of the economy. Thus I am pleased to announce that for the first quarter of this year the FMAS Index is up 400%, indicating that the economy is about to become robust! <br />
Another very important index is the EROORES Index (Ed’s random observation of real estate sales). While this index turns out to be hard to quantify, casual observation of my own neighborhood revealed that three houses went on the market during a three-week period, and all were under contract in less than a week. Many of my clients in Denver have noted that housing sales are going like “hot cakes”, and with the help of their observations, I have gathered that the housing market is totally robust. Yes, the economy appears to be headed in the right direction, however slowly that may be.<br />
Ed Mallon<br />
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-71917098177964088732013-04-30T11:44:00.002-07:002013-05-01T06:29:21.454-07:00The Merry Month of AprilApril has turned out to be a most interesting month. The weather was “un-April-like” and the stock market “Un-Stock Market” like! The starting point is actually March 29th when the S&P 500 closed at 1569. The close on April 1st was 1564, down 5 points. Some market commentators immediately began discussing an “April Swoon”. By April 11th, the “Swoon” idea was no longer discussed, as the S&P 500 hit 1593. Now the experts were predicting all kinds of good things for the stock market. The middle of April is when large companies report their earnings for the first quarter. The results were subpar. Earnings either missed the consensus-estimated earnings (many companies); were better than estimates, but the company put forth possible issues facing them in the future (GE); or better than expected earnings, with experts fearing issues going forward (Apple). As the earnings season took hold, the stock market began to wilt (think “Swoon” again). By April 18th, one week after the high point, the S&P had dropped to 1542, down 51 points, or more than 3%. This was good for bonds, as interest rates fell and the value of bonds increased. Then something strange happened. The market went up, up, up. As of this writing it stands at 1598, the highest point of the month. So, for the month, both bond and stock values increased, and both gold and oil rose again. What can one make of all of this positive change? My only answer is that, as you look to the future, the economy, though growing slowly, about 2.4% for the first quarter, is growing. While earnings did not meet expectations, the stock market was able to rebound and take a longer perspective, which has not been the case for the past five years. If it continues, this is likely a good sign for the economy.<br />
Ed<br />
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.comtag:blogger.com,1999:blog-2127129880866614992.post-61470125027114907822013-04-08T11:53:00.000-07:002013-04-08T13:27:45.281-07:00Unemployment DropIt seems that even when it appears we are seeing “good news” it may belie bad news. It appears such is the case with the drop, reported last week, in the unemployment rate from 7.8% to 7.6%. The initial stated cause of the drop was people dropping out of the work force. Seems straight forward enough but it made me wonder; “What are they living on now?” Today the Wall Street Journal, in a front page article, seems to have come up with one place where these unemployed workers have been going. A rather high percentage are using Social Security Disability as their avenue for income. This is not to say that a person qualifying for disability shouldn’t get the benefit. During most recessions, people who lose their jobs or become underemployed and who have significant disabilities, will apply for benefits. During the early part of the recession, December 2007 thru June 2009, the percentage of people on government disability rose from 7.1% to 7.6%. At the end of March 2013, this had risen to 8.9%. This represents 8.8 million beneficiaries getting $137 billion of benefits, as well as 2.1 million family members getting $80 billion in aid. After two years on disability an individual can qualify for Medicare benefits too. Some states, during this prolonged recession, helped compound the problem, as they moved welfare and Medicaid recipients off their roles and onto the Social Security Disability program, ending the state’s payment responsibility. The average payment to a recipient is $1,130 a month, or about $13,560 annually. This is about $2,000 more than a person would get paid at the Federal minimum wage and also about $2,000 more than the poverty level. While the costs associated with the program are great, the plan is expected to have insufficient funds by 2016, it’s the loss of workers that may be the true burden to the U.S. In 1970 about 1.7% of the potential work force was on disability, now it is 5.7%. Of the 8.8 million on disability about 2.5 million are in their 20’s to 40’s. In the past the work force in the U.S. was growing at about 1.7% a year, now it is barely increasing, in part due to the increase in individuals getting disability payments and no longer working. The fear is that many of these potential workers, who could be retrained for other jobs, will simply remain on disability. As with many agencies of the government, the Social Security Disability agency is under-staffed and unable to keep up with medical reviews that might change the picture. In addition, back in the mid 80’s, Congress widened the sphere of who is eligible for benefits. In the long run, if Congress does not take action, the nation could have 2.5 million potential workers getting about $34 billion in benefits and not contributing to the economy. If these potential workers suddenly came back our unemployment might be 9.6% rather than 7.6%. A retraining program for some of these individuals seems in order.<br />
Ed Mallon<br />
Ed Mallonhttp://www.blogger.com/profile/13776499741034997186noreply@blogger.com