The Pew Research Center released a report last week concerning the economic benefits of marriage. Historically, the economic benefit of marriage has belonged more to women than to men. However, according to the report, for the first time, men are benefiting economically more than women. The report compares the data of 30 to 44 year old men and women in 2007 to data from 1970. With more highly educated women going into the workforce, many are now earning more money than their husbands. Unfortunately, the glass ceiling and gender gap still play a big role, with women earning 77.81% of what a man earns, compared to 52% in 1970.
With interest rates remaining so low for so long, a big concern is the scams that will develop, especially those that will be leveled at retirees who depend so much on interest income to help cover living expenses. We are starting to see ads for all types of “guaranteed” income in various products. We can’t caution people enough to resist the temptation to fall for these types of ads. One simple maxim to follow is: “The greater the return – the greater the risk.” In some cases, it doesn’t take a lot more income to create significantly more risk. For anyone tempted to seek out these types of “special products”, we remain open to helping you evaluate them.
Over these past couple of weeks we have seen a return of volatility in the stock market and of course investors only worry about volatility when it’s to the downside. This time last year, we were suffering through the continuation of a six month run of volatility that took the markets to a low on March 9th. Everyone was feeling depressed and very unhappy. We were certainly right there along with other investors, but we also tried to keep it in perspective by recognizing that it was fear rather than fundamentals that was gripping the markets. The decision to weather this storm was rewarded as the markets started their almost unprecedented climb. By some index measures, the markets are up as much as 70% from the lows. We have said several times that there must be some consolidation, giving the markets a chance to rest. Just as they don’t fall forever, they don’t rise forever, either. GDP was declining last year. This year, it is not. Profits were in the tank last year, with most reports falling below expectations. This year, they are not. We were on the verge of watching many companies go bankrupt last year. That pace has now slowed dramatically. We were watching housing prices in free fall last year, while today not only have home prices stabilized in many places around the country, but in some areas, prices have started to rise. By no means do we believe our country doesn’t have its issues today, but the issues are not nearly as severe as they were perceived to be 12 months ago. Market corrections are a part of the “normal” process. The world economy, while not the best it’s ever been, is certainly in better shape than it was last year. Just as it required patience during the downturn, it will require patience during a return to prosperity.
There is a proposal floating around Washington that would require 401(k) investors to convert a portion of their program into an annuity which would guarantee lifetime payments, much like the old style pension plans. According to the Investment Company Institute, seven out of ten 401(k) participants think this is a bad idea. While a guaranteed cash flow might make sense for some people, we are not in favor of mandating how people invest their money. Each individual circumstance needs careful examination so it can be tailored to individual needs. Just like every man doesn’t fit a size 40 regular suit, or a woman in a size 6 dress, the same is true for retirement planning. This is a bad idea from a financial planning standpoint.
The Labor Department reported recently that for every job available in November 2009, 6.4 workers were looking for a job. That’s a record high. It was only 1.7 when the recession began. Here’s the part that befuddles us the most: There are almost 2.5 million jobs being offered, but are not being filled by people seeking employment. Of course, it doesn’t say what type of job is being offered, nor the pay for that job, but it does make us wonder if, in some cases, people are simply saying “they are looking for jobs” so they can continue collecting unemployment benefits.
Bubbles usually develop when there is “easy money”, i.e., low interest rates, as the opportunity arises to speculate with that money in hopes of driving prices higher. This “easy money” philosophy led to the ever expanding real estate market, especially on the residential side, only to have those prices tumble dramatically. This “easy money” led to a bubble in oil and energy costs, only to see the price of oil drop dramatically. This “easy money” led to almost every bubble throughout history. There will inevitably be future bubbles, but whether they occur in oil, commodities, gold, real estate, or the stock market, is yet to be determined. The fact is, bubbles will occur and they always burst. Perhaps the greatest opportunity for a bubble today rests in China. Only time will determine where it is, as bubbles are generally not recognized until after they have burst. As investors, we need to be cautious of these so-called “opportunities” because it is those who chase the speculators who almost always lose.
The old deadline for receiving a 1099 was January 31st and we have become so accustomed to that date that it is often hard to remember that most companies have until February 16th to get 1099s out to investors. If you seem to be “missing” any of your 1099s, please exercise patience until the middle of February and hopefully the “missing” ones will arrive by then.
It’s official! The Super Bowl will now feature the Indianapolis Colts (of the old NFL) and the NFC Champions, New Orleans Saints. While we must admit that we would have liked to have seen Brett Favre playing (how much fun that would have been), we must give the Saints a lot of credit for hanging in there. It’s likely to be for naught, but then…”on any given Sunday”. No, we haven’t become sports commentators, we’re including this because according to the “Super Bowl Theory”, if a team from the NFC (Saints) wins, or a team from the old NFL (Colts – remember they used to be in Baltimore?) wins, then it will be an up year for the market. Heads we win, tails we win! It’s a wonderful theory, but it’s taken a beating for the last several years. Nonetheless, investors continue to look for any “edge”.
With the return of the volatility in the markets, there is some concern that things don’t seem as bright as they did just a few weeks ago. While some of the news has certainly been disappointing, this should not come as any surprise to anyone who reads the Bullets. We have suggested from the beginning that our rise from the depths of the market decline would be an up and down rise, and it continues to be that. In spite of the issues, we also need to look at some of the bright spots. According to Thompson Reuters, thus far 78% of S&P 500 companies reporting earnings have handily beaten the expectation of the analysts. Revenue is expected to be up 5% and profits are expected to be up 193% from where they were last year. Yes, in fairness, we are comparing numbers off a very low base, but improvement is still improvement. We are especially pleased with the revenue growth. With all of the cash on the sidelines, combined with the money that has gone into bond funds over the past couple of years, it is entirely possible that the market could continue to see positive momentum, albeit as a trend rather than an every day occurrence.
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon.
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