Business & Economics: January 2007 Archives
Despite media bashing of the American economy since Bush took office, the numbers continue to show that the American economy is growing strongly.
The economy opened 2006 on a strong note, growing at a 5.6 percent pace, the fastest spurt in 2 1/2 years. But it lost steam during the spring and late summer. It grew at a 2.6 percent pace in the second quarter and then a weaker 2 percent pace in the third quarter. The fourth-quarter's rebound ended the year on a positive note.For all of 2006, the gross domestic product (GDP) increased by 3.4 percent, an improvement from a 3.2 percent showing in 2005.
That's even more impressive considering the economy was hit by the housing slump. Investment in home building for all of last year was slashed by 4.2 percent, the most in 15 years.
GDP measures the value of all goods and services produced within the United States and is the best barometer of the country's economic standing.
What's more, inflation is low, if not ideal.
Even with the slight improvement, underlying inflation is running higher than the Federal Reserve would like. For all of 2006, core inflation rose by 2.2 percent, up from 2.1 percent in 2005.
And unemployment is at all-time lows (even though official numbers for 2006 haven't been released yet). By every measure, the economy is booming.
Here's a fun article about stupid money moves with lots of contributions from readers along with tips for how to avoid common pitfalls.
Several posters cited bad decisions about vehicles: getting the wrong one, paying too much or incurring perfectly avoidable damage."CTBob1" bemoaned the day he leased a car, saying he "will never, ever, ever do that again."
"Maybe it makes sense for rich people who are very responsible and hardly ever drive, but for me it ended up costing me some serious $$$$. I went waaaaay over the allotted mileage and I didn't take the best care of the car. . . . I ended up throwing good money after bad and took out a loan to buy my car outright when the lease ended in order to avoid any fees." ...
- Buy for the long haul. People who buy cars and drive them for 10 years or more can save, over a lifetime, hundreds of thousands of dollars on vehicles compared with people who swap out their cars every five years. The savings compared with those who lease are even greater.
My stupidest money move (that I can remember) was selling my 1991 Ford Escort in 2000 for $500 because I had already bought a new car and just wanted the old one out of my driveway. The Escort had some engine trouble (a thrown piston or something) but was drivable and easily repaired, and it was probably worth a few thousand dollars. Dumb!
What's the biggest money mistake you've made?
John Dorfman says that Wall Street analysts know not of what they speak, and that we'd do best to do the opposite of what they advise or to ignore their stock picks entirely.
The four stocks that Wall Street analysts most despised at the beginning of 2006 posted an average 21 percent return for the year.The four stocks they most loved returned only 2.4 percent, which was far worse than the return of almost 16 percent on the Standard & Poor's 500 Index.
In short, the despised stocks walloped the favored ones. Is that a freak result?
No, it is not.
For nine years, I have been studying the annual performance of the four stocks that analysts most unanimously recommend, and the performance of four stocks on which they issue an unusually large number of ``sell'' recommendations.
The analysts' darlings lost 3.7 percent a year, on average. The stocks they hated declined 0.2 percent.
Both groups of stocks did worse than the S&P 500, which returned 7.4 percent a year, on average, during the period of the study: 1998 through 2006.
Analysts seem to follow stocks like fads or fashion trends, with little actual reason behind their preferences. I tend to ignore them entirely, and so far so good.
(HT: Sound Mind Investing.)
My wife sent me this article that perfectly illustrates how WalMart benefits consumers who don't even shop there by increasing competition and driving down prices.
St. Louis shoppers can expect to see more grocery prices fall as competitors react to Schnuck Markets Inc.'s move to cut what it charges for some 10,000 items."We've always been competitive, and we always will be. That's the bottom line," said Greg Dierberg, president and chief executive of Chesterfield-based Dierbergs Markets Inc. "We'll react to any items that we need to."
For example, he said, Dierbergs today will lower the price of bananas to 50 cents a pound from 59 cents, matching a cut by Maryland Heights-based Schnucks. Bananas are one of the most popular items sold in grocery stores.
Translation: Dierbergs' profits will be reduced and consumers will keep more of their own money. When it comes to groceries, poor people benefit the most from reduced prices. So why are Leftists so dead-set against WalMart? They push down eeeevil corporate profit and put money back into the pockets of the poorest among us.
I've been thinking about how to take advantage of the benefits of incorporation for my family, but I can't really come up with anything. I'm not self-employed and my wife is in school, so it's not clear to me how incorporation could help us. Is there a way we could pay for her education as a business expense? How about our cars or home? And it probably goes without saying that it has to be legal.
Marc Faber says the world market is in for a "correction" in 2007, just like 1987.
Marc Faber, who predicted the U.S. stock market crash in 1987, said global assets are poised for a ``severe correction'' and it's time to sell.``In the next few months, we could get a severe correction in all asset markets,'' Faber said in an interview with Bloomberg Television in New York. ``In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate.''
Strategists at 14 of the biggest Wall Street firms all estimate that U.S. stocks will advance this year. The last time they were in agreement was for 2001, when the S&P 500 dropped 13 percent.
Though Rich Karlgaard thinks that signs point to a good 2007.
American stocks do well. Three reasons to predict another bullish year:1. The ten-year U.S. Treasury is yielding 4.6%. This supports a broad market P/E of 22, which is 22% higher than today's P/E of 18.
2. A rash of buybacks, mergers and LBOs have shrunk the supply of stocks by 5% a year since 2002. Heed your supply-demand knowledge!
3. As Forbes columnist Ken Fisher has pointed out, stocks do best during a President's third year. The last negative third year was 1939. The last merely single-digit-gain third year was 1987. What about the risks--Middle East turmoil, protectionism, inflation, dollar collapse? Already priced into the market.
Global stocks do better. Since 1972 the MSCI EAFE (Morgan Stanley Capital International Europe, Australasia and Far East) Index (12.8% average annual return) has run neck and neck with the U.S. S&P Index (12.7%). But over any given two- to three-year period the performance differences between the two indexes are more dramatic. Low P/E ratios in the U.K., Germany and France--all below 15 right now--and sub-2% bond yields in Japan make the MSCI EAFE a good buy.
So who is right? I don't know... but I don't generally think it's smart to try to time the market.
(HT: My wife Jessica.)
Full Disclosure chronicles the demise of California with this latest entry about doomed public employee pension funds.
Los Angeles, CA In a bombshell expose of California’s massive unfunded public employee benefits Full Disclosure Network™ is featuring a two-part series with public employee officials and finance expert B. Scott Minerd, CEO Guggenheim Partners, Asset Management ...Segment #1: Scott Minerd describes his role as a Managing Director of Credit Suisse he exposed the risky concentration in derivative securities which directly led to the liquidation of the Orange County investment portfolio and the county's subsequent bankruptcy." He defines the new GASB (General Accounting Standard Board) rules and estimates new disclosures will reveal $300 to $400 billion in unrecorded benefits owed to California public employees.
Segment #2: Will Municipal bankruptcies spread across California? Minerd suggests that pension benefit debt is unanticipated by the public and bond rating companies. The $300-$400 billion debt is “present value” but Minerd adds” the actual sum is more likely a trillion dollars.”
And there are four more parts after that, each explaining in greater detail how the politicians and greedy electorate have doomed California to eventual insolvency. I'm glad I'm out of there!
