Investors Are Doing Better Than Workers – Bloomberg 08-30-13

Salient to Investors:

Matthew C. Klein writes:

GDP has been expanding at the same rate in half1 as it has since mid-2010, showing that Fed stimulus has offset fiscal tightening.

However, growth is still too anemic to return to anything resembling full employment for several more years, even under the most optimistic assumptions.

US Bureau of Economic Analysis data indicates that most of the modest growth has gone to the small share of the population that owns the vast majority of the country’s assets. Since the beginning of 2013, total personal income has increased by $323.3 billion, while total employee compensation has increased by $112.5 billion. Income from real estate rent, dividends on stocks and interest payments on bonds accounted for $186.7 billion. The balance came from Social Security, Medicare, Medicaid, and veterans’ benefits. Workers average share of income growth since the beginning of 2010 is about half.

Higher returns on assets have not encouraged new business investment, while disproportionate employment growth has been in low-paying services industries, despite most of the jobs lost in the recession paid wages closer to the median income.

Read the full article at http://www.bloomberg.com/news/2013-08-30/investors-are-doing-better-than-workers.html

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The Very Worst Part of Today’s Lousy Jobs Report – Bloomberg 08-02-13

Salient to Investors:

Matthew C. Klein writes:

  • The FRB of Chicago said it would take another 5 years to return to full employment at the June jobs pace, even with aggressive assumptions about aging, immigration and the birthrate that make the “employment gap” smaller than many believe.
  • More than half of the jobs added in June were either in retail or food services and drinking places, where employees tend to have much shorter work weeks and much lower hourly wages.
  • Canadian researchers suggest that, since 2000, globalization and technological advancement have reduced the demand for high-skilled workers, who end up pushing lower-skilled workers out of the job market entirely. The share of people aged 25 to 54 counted as being in the labor force has fallen by 3.5 percent since 2000.
  • Hourly pay has grown by only 1.9 percent over the past 12 months, and is basically unchanged since the end of 2009. Americans have less purchasing power than they did in November 2012.

Read the full article at  http://www.bloomberg.com/news/2013-08-02/the-very-worst-part-of-today-s-lousy-jobs-report.html

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Young, Rich Real-Estate Dummies – Bloomberg 07-23-13

Salient to Investors:

Matthew C. Klein writes:

The Wall Street Journal reports that well-to-do young Americans prefer to invest into “safe” luxury real estate rather than “risky” equities.  The article could have been written in 2002 or 2003 before the housing bubble and bust.

$100 invested at the market peak in October 2007, reinvesting all dividends, would now be worth $123, while the Case-Shiller index of US home prices is still more than 25 percent below the peak reached in mid-2006.

Individual luxury properties might have done a lot better than the aggregate stock market, of course. They might also have done much worse. And past performance is no guarantee of future results. If anything, the reverse is true. In general, it isn’t smart to put all of your savings into a single product, whether it’s your home, or gold bullion, or the stock of an individual company.

The benefits from diversifying in a range of assets that rise over time but don’t move together over shorter periods are so well-known that they were discussed thousands of years ago by Talmudic rabbis.

Read the full article at  http://www.bloomberg.com/news/2013-07-23/young-rich-real-estate-dummies.html

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What Glass-Steagall 2 Gets Wrong: Everything – Bloomberg 07-12-13

Salient to Investors:

Matthew C. Klein writes:

  • Glass-Steagall 2 would do nothing to protect us from the devastation we recently experienced.
  • The belief that the 1933 Glass-Steagal Act made the financial system safe and promoted decades of prosperity and that the 2007 crisis would never have happened if G-S had remained intact is a myth.
  • Iceland, Ireland and Spain all generated devastating debt bubbles without derivatives or complex securities. Countrywide, Washington Mutual, Wachovia and Indymac failed because they had made bad bets on mortgages amid a housing bubble.
  • Elizabeth Warren said last year that the financial crisis would not have been prevented by Glass-Steagall, but said the 1999 repeal sent a signal to companies and regulators that the financial industry could do whatever it wanted.
  • A better solution would be to raise equity capital requirements, protect consumers from products designed to take advantage of them, and separate money creation from lending.

Read the full article at  http://www.bloomberg.com/news/2013-07-12/what-glass-steagall-2-gets-wrong-everything.html

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Hedge Funds Are Not Necessarily for Suckers – Bloomberg 07-12-13

Salient to Investors:

Matthew C. Klein writes:

  • Hedge Fund Research says the S&P 500 index with dividends reinvested beat the average hedge fund over the past decade.
  • There are always periods when certain asset classes did better than others. E.g., gold from the middle of 2001 increased by more than 600 percent over the following decade, while the S&P 500 stock index with reinvested dividends returned just under 20 percent. But stocks dramatically outperformed gold in the following 2 years.
  • Many types of hedge funds do very different things, so it makes no sense to lump them together as a single asset class and then compare them against stocks.
  • Over short periods, the relative performance of different funds is mostly determined by luck, whereas skill becomes increasingly important as the time horizon lengthens, The performance of the “average” fund does not indicate whether or not there are funds worth investing in.
  • The best approach is to diversify into assets that tend to rise over time but that move in different directions over shorter periods, and this equally applies to hedge fund allocations.

Read the full article at  http://www.bloomberg.com/news/2013-07-12/hedge-funds-are-not-necessarily-for-suckers.html

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Hedge Funds Ads Will Only Harm the Greedy – Bloomberg 07-11-13

Salient to Investors:

Matthew C. Klein writes:

  • Hedge funds et al can now solicit the public for capital by advertising, a welcome development.
  • It is easy to avoid scoundrels by sticking to index funds. Only the greedy get fleeced by offers that are too good to be true.
  • Most finance academics advise parking your savings in simple index funds that charge minimal fees. Yet people allocate trillions of dollars to the mutual fund industry, which has been ripping off investors with high fees and sub par performance for decades.

Read the full article at http://www.bloomberg.com/news/2013-07-11/hedge-funds-ads-will-only-harm-the-greedy.html

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Don’t Get Too Excited About Today’s Jobs Data – Bloomberg 07-05-13

Salient to Investors:

Matthew C. Klein writes:

  • The FRB of Chicago says it would take 4 more years of job gains at the current pace of 195,000 per month to jobs to return to full employment and close the gap that began opening at the end of 2007.
  • The US is on track for a lost decade under the most optimistic assumptions.
  • 112,000 of the 195,000 jobs added last month were in leisure and hospitality and retail, which pay less and have fewer benefits. Part-timer who would rather be working full-time rose in June by 322,000. Average hourly earnings for private-sector workers continue to increase by only 2 percent annually. The number of people who are unemployed or marginally attached to the labor force was essentially unchanged.
  • Most people, including the Fed, do not believe unemployment will go below 6.5 percent and near-term inflation exceed 2.5 percent until sometime in 2015, and begs the question what will happen in the years immediately following, when the Fed starts to tighten?
  • Given the Fed’s projection that the “normal” level of the short rate is around 4 percent, recent developments imply that the Fed’s tightening cycle will be completed sometime in early 2019.
  • William Dudley at FRB of New York says a short rate of 0 percent could be consistent with an unemployment rate of 5.0 percent, as long as inflation continues to be well-behaved. Since the US won’t return to full employment until at least 2017, this could easily mean that the first rate increase won’t occur until 2016 or even as late as 2018.

 

 

Read the full article at  http://www.bloomberg.com/news/2013-07-05/don-t-get-too-excited-about-today-s-jobs-data.html

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