This week's blog covers the topic of Corporate Acquisitions. The first section is the weekly recap from Vanguard. In the middle is a brief overview of this topic. The last section is a bit of trivia about August for your enjoyment.
Vanguard Weekly Recap
The saying "No news is good news" probably would have served the economy well after another week of dismal economic reports. The government's revised benchmark indicator of economic growth dropped, durable-goods orders slowed to a crawl, and the housing market endured a double-whammy as new- and existing-home sales plunged. For the week ended August 27, the S&P 500 Index fell 0.7% to 1,064.59 (for a year-to-date total return—including price change plus dividends—of about -3.3%). The yield of the 10-year U.S. Treasury note climbed 4 basis points to 2.66% (for a year-to-date drop of 119 basis points).
Corporate Acquisitions
Corporations are once again starting to acquire other companies. I have personal experience with this as CommScope acquired a division of Avaya and moved me and my family to North Carolina about 6 years ago. Here are the bullet points:
* When the economy goes into a recession stock prices drop and acquisitions basically stop.
* As the economy recovers, corporate profits increase with increasing stock price and the numbers of acquisitions increase.
* It is a very positive sign for the economy and the stock market as the company doing the acquiring believes that the value of the company being acquired is cheap looking into the future and their business can afford the additional cost.
* The stock price of the acquiring company goes does because of the cost to acquire.
* The stock price of the acquired company goes up as the Board of Directors will only allow the acquisition if it brings additional value to the stock holders.
* To pay for the acquisition, cost is reduced by eliminating duplicate corporate functions like HR, Purchasing, Accounting, etc.
* The ultimate reason for the acquisition is that it is cheaper to acquire than to grow organically.
* The timing of the acquisition is approved by the Board of Directors who believe that the business climate is improving.
Bottom Line: This recent increase in corporate acquisitions is very bullish for the stock market and reduces jobs increasing unemployment. This continues to lead to a stagnant economy and low interest rates.
August Trivia
The hot and sticky month of August was named after Julius Ceasar’s grandnephew Augustus.
The Roman Senate named a month after General Augustus once he became emperor of the Empire; which happened after his legions defeated Cleopatra and Marc Anthony in battle.
The Senate also changed the number of days in the month to 31, so the month would have as many as Julius Ceasar’s month, July, had. It became the eighth month of the year in the Gregorian Calendar.
The precious stone of August is a Peridot and Onyx. The Gladiolus and Poppy are both known as the August flower.
But did you know August is: Women’s Small Business Month; Admit You’re Happy Month; National Psoriasis Awareness Month; National Sandwich Month; National Catfish Month; Black Business Month; Panini Month; Happiness Happens Month and Inventor’s Month.
Saturday, August 28, 2010
Sunday, August 22, 2010
Stocks vs. Stock Mutual Funds
This newsletter also includes the usual info from Vanguard as well as a short segment on stocks versus stock mutual funds.
Vanguard Weekly Recap
The U.S. economy continues in sputter mode. While July saw some improvements in industrial production and housing starts, the most recent initial unemployment claims rose for a third straight week. For the week ended August 20, the S&P 500 Index fell 0.7%, to 1,072 (for a year-to-date total return—including price change plus dividends—of about -2.7%). The yield of the 10-year U.S. Treasury note dropped 6 basis points to 2.62% (for a year-to-date decrease of 123 basis points).
Stocks vs Stock Mutual Funds
The environment for owning stocks has drastically changed since the advent of low cost on-line stock trading. Brokerage houses still desire to make more money each year so that they can grow and pay people very very very nice bonuses. The only way their revenue can grow with this low cost on-line stock trading environment is to get investors to buy and sell a whole lot more often. On Mad Money, Cramer of Cramerica will tell you to Buy Buy Buy or Sell Sell Sell a specific stock and his viewing audience is to follow his recommendation like he has divine knowledge.
It use to be that you bought a stock and held onto it because the environment for stocks was fairly normal, a buy and hold strategy. Today stocks are much more manipulated as an individual or a group of individuals can move a stock up or down in a major way. These brokerage houses have computer programs that execute trades based upon a number of factors including momentum.
So what should you do if you like to own stocks? Do not get married to them, follow them, and be willing to take a profit. Brokerage houses have hired psychologists to study investor behavior and the higher the stock price the more likely an individual is likely to buy it and conversely the lower the stock price the more likely an individual is likely to sell it. The reason is an individual investor tends to get emotionally attached and feels successful when their stock is successful and vice versa. Brokerage houses tend to do analysis, I did read a very thick and boring book on security analysis some years ago, and will tend to do the opposite of the individual investors.
An individual stock can be moved in a fashion that is not logical and is out of your control. It can go to $0.00 and you can lose 100% of your money. It is hard to know if you should buy, sell or hold a stock when you are in a competition with a brokerage house with computer programs that do security analysis and is funding TV shows and analysts to get you to make a trade. In a trade, every seller must find a buyer.
My opinion is that the average investor should only have about 10% of their holdings in individual stocks. A mutual fund that invests in individual stocks has much less risk due to diversification and performance can not be influenced to the same extent by outside forces.
If you find that you have a relatively high loading of stocks, my advice is to use a rebound in the stock market, that is stuck in a trading range, as an opportunity to sell. While it is fun to watch a stock to go up, it makes you feel good, the going down is a terrible ride. A bird in the hand is indeed worth 2 in the bush.
Six Tips For A College Freshman
#1 The first week defines the rest of the year
#2 Organize Study Groups!
#3 Study for tests!
#4 Get involved
#5 If you don’t like your roommate, switch
#6 Go to sporting events
Vanguard Weekly Recap
The U.S. economy continues in sputter mode. While July saw some improvements in industrial production and housing starts, the most recent initial unemployment claims rose for a third straight week. For the week ended August 20, the S&P 500 Index fell 0.7%, to 1,072 (for a year-to-date total return—including price change plus dividends—of about -2.7%). The yield of the 10-year U.S. Treasury note dropped 6 basis points to 2.62% (for a year-to-date decrease of 123 basis points).
Stocks vs Stock Mutual Funds
The environment for owning stocks has drastically changed since the advent of low cost on-line stock trading. Brokerage houses still desire to make more money each year so that they can grow and pay people very very very nice bonuses. The only way their revenue can grow with this low cost on-line stock trading environment is to get investors to buy and sell a whole lot more often. On Mad Money, Cramer of Cramerica will tell you to Buy Buy Buy or Sell Sell Sell a specific stock and his viewing audience is to follow his recommendation like he has divine knowledge.
It use to be that you bought a stock and held onto it because the environment for stocks was fairly normal, a buy and hold strategy. Today stocks are much more manipulated as an individual or a group of individuals can move a stock up or down in a major way. These brokerage houses have computer programs that execute trades based upon a number of factors including momentum.
So what should you do if you like to own stocks? Do not get married to them, follow them, and be willing to take a profit. Brokerage houses have hired psychologists to study investor behavior and the higher the stock price the more likely an individual is likely to buy it and conversely the lower the stock price the more likely an individual is likely to sell it. The reason is an individual investor tends to get emotionally attached and feels successful when their stock is successful and vice versa. Brokerage houses tend to do analysis, I did read a very thick and boring book on security analysis some years ago, and will tend to do the opposite of the individual investors.
An individual stock can be moved in a fashion that is not logical and is out of your control. It can go to $0.00 and you can lose 100% of your money. It is hard to know if you should buy, sell or hold a stock when you are in a competition with a brokerage house with computer programs that do security analysis and is funding TV shows and analysts to get you to make a trade. In a trade, every seller must find a buyer.
My opinion is that the average investor should only have about 10% of their holdings in individual stocks. A mutual fund that invests in individual stocks has much less risk due to diversification and performance can not be influenced to the same extent by outside forces.
If you find that you have a relatively high loading of stocks, my advice is to use a rebound in the stock market, that is stuck in a trading range, as an opportunity to sell. While it is fun to watch a stock to go up, it makes you feel good, the going down is a terrible ride. A bird in the hand is indeed worth 2 in the bush.
Six Tips For A College Freshman
#1 The first week defines the rest of the year
#2 Organize Study Groups!
#3 Study for tests!
#4 Get involved
#5 If you don’t like your roommate, switch
#6 Go to sporting events
Sunday, August 15, 2010
Growth Prediction
This newsletter will cover the recent action in the stock market and look at future direction. The first segment is the weekly recap from Vanguard follow by my perspective on the stock market and lastly some trivia.
Vanguard Weekly Recap
The economy continued to show signs of weakness as the U.S. trade deficit widened at an unprecedented pace, the Federal Reserve announced it would continue its expansionary monetary policies, and deflationary fears continued even though consumer prices rose for the first time in three months. For the week ended August 13, the S&P 500 Index fell 3.8%, to 1,079 (for a year-to-date total return—including price change plus dividends—of about -2.0%). The yield of the 10-year U.S. Treasury note fell 17 basis points to 2.69% (for a year-to-date decrease of 116 basis points).
Growth Prediction
This week it seemed like we were watching baseball with all of the statistics flying around and the way markets reacted to it. It was like getting a batting average for a person to predict if a hit will occur. You know the stuff like batting average in August, against left handers, with a person in scoring position after the 3rd inning when eating oatmeal for breakfast. Okay, I made up the part with the oatmeal.
Data would be released and immediately it would go into a computer algorithm and out would come an answer of the future impact for the stock market and things happened. Forget anything about corporate earnings, they were meaningless unless it was negative and then it was another statistic to use to predict the future. The only thing that mattered was the latest statistic and what it meant in predicting future stock prices.
My favorite statistic was retail sales for July was up 0.4% instead of the expected 0.5% so things must be bad. Given the amount of shopping needed for each person entering the freshman year of college, including us, and my credit card balance, the August retail sales numbers should be huge. Enough has been purchased to fill the minivan and we still have 5 more shopping days to go.
Let's look at some data related to corporate earnings to see if this week made sense. On August 9th the expected 2010 earnings growth rate for the S&P 500 was raised to 35.2% from 33.5% while the expected 2011 earnings growth rate for the S&P 500 was reduced to 14.9% from 17.3%. Putting this into numbers, the aggregate earning for the S&P 500 companies was raised to $81 from $78 for 2010 and reduced for 2011 from $93 to $90. If we use a normal price to earnings ratio of 15 this equates to a S&P 500 index value of 1215 for 2010 and 1350 for 2011. Given that the S&P 500 index is currently at 1079.25 stocks appear to be undervalued.
Another indicator that I follow is the Volatility Index, ^VIX. The current value is slightly elevated, nothing compared to what we saw a few months ago and we are in a downward trend. This means that no big events are lurking like an European Union crisis, or BP oil spill disaster so no big down-draft exists.
So what does all of this mean? It means that in the short term the stock market is probably in a trading range with the Dow between the most recent low and high, about 9,600 and 11,300. Longer term, stocks are undervalued and remain as a good buying opportunity for a person with a longer term perspective.
Friday the 13th Trivia
Friday the 13th occurs when the thirteenth day of a month falls on a Friday, which superstition holds to be a day of bad luck. In the Gregorian calendar, this day occurs at least once, but at most three times a year. Any month's 13th day will fall on a Friday if the month starts on a Sunday. The fear of Friday the 13th is called friggatriskaidekaphobia (frigga meaning "Friday" and triskaidekaphobia meaning fear of the number thirteen), or paraskevidekatriaphobia, a concatenation of the Greek words Paraskeví (Παρασκευή, meaning "Friday"), and dekatreís (δεκατρείς, meaning "thirteen") attached to phobía (φοβία, from phóbos, φόβος, meaning "fear"). The latter word was derived in 1911 and first appeared in a mainstream source in 1953.
According to the Stress Management Center and Phobia Institute in Asheville, North Carolina, an estimated 17 to 21 million people in the United States are affected by a fear of this day. Some people are so paralyzed by fear that they avoid their normal routines in doing business, taking flights or even getting out of bed. "It's been estimated that [US]$800 or $900 million is lost in business on this day".
Vanguard Weekly Recap
The economy continued to show signs of weakness as the U.S. trade deficit widened at an unprecedented pace, the Federal Reserve announced it would continue its expansionary monetary policies, and deflationary fears continued even though consumer prices rose for the first time in three months. For the week ended August 13, the S&P 500 Index fell 3.8%, to 1,079 (for a year-to-date total return—including price change plus dividends—of about -2.0%). The yield of the 10-year U.S. Treasury note fell 17 basis points to 2.69% (for a year-to-date decrease of 116 basis points).
Growth Prediction
This week it seemed like we were watching baseball with all of the statistics flying around and the way markets reacted to it. It was like getting a batting average for a person to predict if a hit will occur. You know the stuff like batting average in August, against left handers, with a person in scoring position after the 3rd inning when eating oatmeal for breakfast. Okay, I made up the part with the oatmeal.
Data would be released and immediately it would go into a computer algorithm and out would come an answer of the future impact for the stock market and things happened. Forget anything about corporate earnings, they were meaningless unless it was negative and then it was another statistic to use to predict the future. The only thing that mattered was the latest statistic and what it meant in predicting future stock prices.
My favorite statistic was retail sales for July was up 0.4% instead of the expected 0.5% so things must be bad. Given the amount of shopping needed for each person entering the freshman year of college, including us, and my credit card balance, the August retail sales numbers should be huge. Enough has been purchased to fill the minivan and we still have 5 more shopping days to go.
Let's look at some data related to corporate earnings to see if this week made sense. On August 9th the expected 2010 earnings growth rate for the S&P 500 was raised to 35.2% from 33.5% while the expected 2011 earnings growth rate for the S&P 500 was reduced to 14.9% from 17.3%. Putting this into numbers, the aggregate earning for the S&P 500 companies was raised to $81 from $78 for 2010 and reduced for 2011 from $93 to $90. If we use a normal price to earnings ratio of 15 this equates to a S&P 500 index value of 1215 for 2010 and 1350 for 2011. Given that the S&P 500 index is currently at 1079.25 stocks appear to be undervalued.
Another indicator that I follow is the Volatility Index, ^VIX. The current value is slightly elevated, nothing compared to what we saw a few months ago and we are in a downward trend. This means that no big events are lurking like an European Union crisis, or BP oil spill disaster so no big down-draft exists.
So what does all of this mean? It means that in the short term the stock market is probably in a trading range with the Dow between the most recent low and high, about 9,600 and 11,300. Longer term, stocks are undervalued and remain as a good buying opportunity for a person with a longer term perspective.
Friday the 13th Trivia
Friday the 13th occurs when the thirteenth day of a month falls on a Friday, which superstition holds to be a day of bad luck. In the Gregorian calendar, this day occurs at least once, but at most three times a year. Any month's 13th day will fall on a Friday if the month starts on a Sunday. The fear of Friday the 13th is called friggatriskaidekaphobia (frigga meaning "Friday" and triskaidekaphobia meaning fear of the number thirteen), or paraskevidekatriaphobia, a concatenation of the Greek words Paraskeví (Παρασκευή, meaning "Friday"), and dekatreís (δεκατρείς, meaning "thirteen") attached to phobía (φοβία, from phóbos, φόβος, meaning "fear"). The latter word was derived in 1911 and first appeared in a mainstream source in 1953.
According to the Stress Management Center and Phobia Institute in Asheville, North Carolina, an estimated 17 to 21 million people in the United States are affected by a fear of this day. Some people are so paralyzed by fear that they avoid their normal routines in doing business, taking flights or even getting out of bed. "It's been estimated that [US]$800 or $900 million is lost in business on this day".
Monday, August 9, 2010
Fees and Mutual Fund Performance
I am copying paragraphs from an article on the Morningstar website concerning the impact of fees on mutual fund performance. You would want to think that if you are paying more money for a mutual fund that you would be getting a higher return. Unfortunately, this is not true with the difference in performance being the additional cost of the fees. The more you pay in fees the worse your performance.
This fits nicely with yesterday's article, "Excessive Fees" that funds with high fees should be avoided because you are only paying a sales charge like a sales tax. This article quantifies the data. Let me know if you have a question.
___________________________________________________
How Expense Ratios Performed
If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.
Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.
For example, the cheapest quintile from 2005 in domestic equity returned an annualized 3.35% versus 2.02% for the most expensive quintile over the ensuing five years. The gap was similar in other categories such as taxable bond, where cheap funds returned 5.11% versus 3.82% for pricey funds. That same relationship held up dependably in the other time periods we measured. For 2008, the cheapest quintile of balanced funds lost 0.04% over the next two years, while the most expensive shed 1.13%.
The gap was also impressive as measured by the success ratio because high-cost funds are much more likely to have poor performance and be liquidated or merged away. For the 2005 group, we found that 48% of domestic-equity funds in the cheapest quintile survived and outperformed versus 24% in the priciest quintile. Put another way, funds in the cheapest quintile of domestic equity were twice as likely to succeed as those in the priciest quintile. It was a similar story in other categories, although in munis the advantage was greater than 6 to 1. The same basic relationship held up for the other years we looked at. Although I think of expense advantages as taking a long time to compound to your advantage, even the 2008 group saw low-cost funds with nearly a 2 to 1 success advantage.
Given that performance edge, you won't be surprised to hear that low-cost funds also produced better risk- and load-adjusted performance as measured by the star rating. For example, the 2005 group enjoyed a subsequent 3.23 average star rating compared with 2.66 for the priciest quintile in domestic equity. The edge grew in taxable bonds to 3.34 versus 2.3. The edge held up for predicting three-year ratings for the 2006 and 2007 groups.
Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance. Start by focusing on funds in the cheapest or two cheapest quintiles, and you'll be on the path to success.
This fits nicely with yesterday's article, "Excessive Fees" that funds with high fees should be avoided because you are only paying a sales charge like a sales tax. This article quantifies the data. Let me know if you have a question.
___________________________________________________
How Expense Ratios Performed
If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.
Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.
For example, the cheapest quintile from 2005 in domestic equity returned an annualized 3.35% versus 2.02% for the most expensive quintile over the ensuing five years. The gap was similar in other categories such as taxable bond, where cheap funds returned 5.11% versus 3.82% for pricey funds. That same relationship held up dependably in the other time periods we measured. For 2008, the cheapest quintile of balanced funds lost 0.04% over the next two years, while the most expensive shed 1.13%.
The gap was also impressive as measured by the success ratio because high-cost funds are much more likely to have poor performance and be liquidated or merged away. For the 2005 group, we found that 48% of domestic-equity funds in the cheapest quintile survived and outperformed versus 24% in the priciest quintile. Put another way, funds in the cheapest quintile of domestic equity were twice as likely to succeed as those in the priciest quintile. It was a similar story in other categories, although in munis the advantage was greater than 6 to 1. The same basic relationship held up for the other years we looked at. Although I think of expense advantages as taking a long time to compound to your advantage, even the 2008 group saw low-cost funds with nearly a 2 to 1 success advantage.
Given that performance edge, you won't be surprised to hear that low-cost funds also produced better risk- and load-adjusted performance as measured by the star rating. For example, the 2005 group enjoyed a subsequent 3.23 average star rating compared with 2.66 for the priciest quintile in domestic equity. The edge grew in taxable bonds to 3.34 versus 2.3. The edge held up for predicting three-year ratings for the 2006 and 2007 groups.
Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance. Start by focusing on funds in the cheapest or two cheapest quintiles, and you'll be on the path to success.
Sunday, August 8, 2010
Excessive Fees
Today's Charlotte Observer had an article titled "Lawsuits over 401(k) fees on the rise." It is written by Walter Hamilton of the Los Angeles Times. Here is a short paraphrase of the article and my view on this issue.
Employees of Edison International won a victory when a federal judge, U.S. District Judge Stephen Wilson, ruled that the company's 401(k) fees were excessive and employee's were entitled to recover over-charges. This is one of more than 2 dozen lawsuits filed against U.S. employers, including Wal-Mart Stores Inc., in recent years. The basis for the lawsuit is that the employer selects high-cost investments in exchange for reducing the administrative costs paid by the employers themselves.
This lawsuit claims that an average Edison International employee paid more than $300 per year in unnecessary fees, this does not include foregone investment gains on that money. The Labor Department reported that over a worker's career an extra 1% a year in fees could reduce the eventual value of a 401(k) account by 28%
Perhaps you think this is just in a few 401(k) accounts and you need not be concerned about this issue. This is a very important issue and pays a key role in determining you final account balance. Most investors pay higher fees than necessary and do not even realize it. A 28% reduction in an account balance when you retire is a really big deal.
Here are some ways you can significantly reduce these fees and put more money in your pocket:
1) Buy a no-load mutual fund instead of a Class A, B, or C mutual fund. If you see the word Class it means you will be paying a load.You can easily pay 1% higher in fees with loaded funds. If you see the word Class in a mutual fund, just say no. A load is just a sales charge, view it like a sales tax. Perhaps you are like me and would rather shop during a tax-free weekend and not pay 7.5% in tax.
2) Buy a mutual fund directly from a Mutual Fund Company, like Fidelity or Vanguard, instead of from a bank or insurance company. Ever seen a bad looking bank or insurance company? They get their money from customers, aka investors. Buying wholesale is always lower in cost than buying retail.
3) Do Not Buy a mutual fund made up of mutual funds. An example of a fund of funds is a target fund like a 2020 fund because you pay the fee twice, once for each fund and then for the composition.
4) Only Buy a mutual fund that you can find on the internet at a site like finance.yahoo.com or Fidelity.com. If you can not find it, it normally means that it is a composition of mutual funds. An example is a Growth and Income fund composed of a growth fund and an income fund.
Employees of Edison International won a victory when a federal judge, U.S. District Judge Stephen Wilson, ruled that the company's 401(k) fees were excessive and employee's were entitled to recover over-charges. This is one of more than 2 dozen lawsuits filed against U.S. employers, including Wal-Mart Stores Inc., in recent years. The basis for the lawsuit is that the employer selects high-cost investments in exchange for reducing the administrative costs paid by the employers themselves.
This lawsuit claims that an average Edison International employee paid more than $300 per year in unnecessary fees, this does not include foregone investment gains on that money. The Labor Department reported that over a worker's career an extra 1% a year in fees could reduce the eventual value of a 401(k) account by 28%
Perhaps you think this is just in a few 401(k) accounts and you need not be concerned about this issue. This is a very important issue and pays a key role in determining you final account balance. Most investors pay higher fees than necessary and do not even realize it. A 28% reduction in an account balance when you retire is a really big deal.
Here are some ways you can significantly reduce these fees and put more money in your pocket:
1) Buy a no-load mutual fund instead of a Class A, B, or C mutual fund. If you see the word Class it means you will be paying a load.You can easily pay 1% higher in fees with loaded funds. If you see the word Class in a mutual fund, just say no. A load is just a sales charge, view it like a sales tax. Perhaps you are like me and would rather shop during a tax-free weekend and not pay 7.5% in tax.
2) Buy a mutual fund directly from a Mutual Fund Company, like Fidelity or Vanguard, instead of from a bank or insurance company. Ever seen a bad looking bank or insurance company? They get their money from customers, aka investors. Buying wholesale is always lower in cost than buying retail.
3) Do Not Buy a mutual fund made up of mutual funds. An example of a fund of funds is a target fund like a 2020 fund because you pay the fee twice, once for each fund and then for the composition.
4) Only Buy a mutual fund that you can find on the internet at a site like finance.yahoo.com or Fidelity.com. If you can not find it, it normally means that it is a composition of mutual funds. An example is a Growth and Income fund composed of a growth fund and an income fund.
Saturday, August 7, 2010
Future Retirement Liabilities
This has been another interesting week for an investor with a large move in the stock market on Monday and then concern about the jobs number on Friday. What would happen if the number was not good enough, would the stock market have a big drop? The jobs number was reported on schedule and the private sector grew by 71,000 and the public sector shrunk for a net loss during the month not meeting expectation and investors held their breath. At the end of the day the stock market did drop a little, the VIX also dropped, and we made it through this lagging indicator once again.
What does all of this mean? We are still in a consolidation phase in the economic business cycle and at the end of the fear, VIX, cycle. Let's relax a little already. Now is a great time to refinance a home as well as purchase a home as interest rates are at low levels not seen in 50 years with a 15 year mortgage below 4%.
This newsletter contains the weekly recap from Vanguard, followed by a section on Future Retirement Liabilities, and lastly a short trivia section for your enjoyment. The middle section presents data from www.usdebtclock.org website on the current shortfall for Social Security and Medicare to pay future benefits to us.
Vanguard Weekly Recap
The economy has continued to struggle, shedding 131,000 jobs in July. While the unemployment rate remained at 9.5% last month despite the job losses, this was most likely due to a drop in the number of people seeking work. Most of the other economic news that came out this week was also negative, as factory orders fell, the manufacturing sector lost momentum, and personal income was flat. Two exceptions to the otherwise disappointing news were construction spending and the service sector, both of which showed signs of recovery. For the week, the S&P 500 Index rose 1.8% to 1,122 (for a year-to-date total return—including price change plus dividends—of about 1.7%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.86% (for a year-to-date decrease of 99 basis points).
Unfunded Future Retirement Liabilities
The website www.usdebtclock.org provides data on the national debt and other categories. While I can not attest to the validity of the data, it does give a person something to think about concerning our future. The data covered is the future liabilies for Social Security, Medicare Prescription Drugs, and Medicare.
This a calculation of how much money needed today to cover all future liabilities, or a math exercise. It gets a number based upon assumptions like population growth rate, retirement age, longevity, inflation rate, rate for increasing medical cost, and so on. Here are the numbers:
Social Security Liability: $14.5 Trillion
Medicare Prescription Drug Liability: $19.2 Trillion
Medicare Liability: $76.2 Trillion
Total Liability: $109.9 Trillion
Total Liability per US Citizen: $354,530
So what does this mean?
* Things are going to be changing
* The amount of funding going into Social Security and Medicare are going up
* The amount of benefits are going down
* The recently passed health care bill probably is going to be around with little changes
* Experts talk about our debt problems have to do with paying for entitlements. I think that the word entitlement really means these retirement benefits that we are counting on for the future.
* You need to be saving lots more for retirement, it would be good for each of us to have $354,530 set aside at retirement. If you do not, what is your back-up plan?
Trivia
1. The dial tone of a normal telephone is in the key of "F".
2. A group of unicorns is called a blessing. A group of owls is called a parliament.
3. In 1963, baseball pitcher Gaylord Perry remarked, "They'll put a man on the moon before I hit a home run." On July 20, 1969, a few hours after Neil Armstrong set foot on the moon, Gaylord Perry hit his first home run.
4. Kermit the Frog is left-handed.
5. The word "pound" is abbreviated "lb." from the Latin "libra pondo", meaning weight or balance, where the constellation got its name.
6. Mel Blanc, the voice of Bugs Bunny, was allergic to carrots.
7. One of the reasons marijuana is illegal today is because cotton growers in the 30s lobbied against hemp farmers (they saw it as competition).
8. Maine is the only state in the United States whose name has one syllable.
9. At latitude 60 degrees south you can sail the entire way around the world.
10. Isaac Asimov is the only author to have a book in every Dewey-decimal category.
What does all of this mean? We are still in a consolidation phase in the economic business cycle and at the end of the fear, VIX, cycle. Let's relax a little already. Now is a great time to refinance a home as well as purchase a home as interest rates are at low levels not seen in 50 years with a 15 year mortgage below 4%.
This newsletter contains the weekly recap from Vanguard, followed by a section on Future Retirement Liabilities, and lastly a short trivia section for your enjoyment. The middle section presents data from www.usdebtclock.org website on the current shortfall for Social Security and Medicare to pay future benefits to us.
Vanguard Weekly Recap
The economy has continued to struggle, shedding 131,000 jobs in July. While the unemployment rate remained at 9.5% last month despite the job losses, this was most likely due to a drop in the number of people seeking work. Most of the other economic news that came out this week was also negative, as factory orders fell, the manufacturing sector lost momentum, and personal income was flat. Two exceptions to the otherwise disappointing news were construction spending and the service sector, both of which showed signs of recovery. For the week, the S&P 500 Index rose 1.8% to 1,122 (for a year-to-date total return—including price change plus dividends—of about 1.7%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.86% (for a year-to-date decrease of 99 basis points).
Unfunded Future Retirement Liabilities
The website www.usdebtclock.org provides data on the national debt and other categories. While I can not attest to the validity of the data, it does give a person something to think about concerning our future. The data covered is the future liabilies for Social Security, Medicare Prescription Drugs, and Medicare.
This a calculation of how much money needed today to cover all future liabilities, or a math exercise. It gets a number based upon assumptions like population growth rate, retirement age, longevity, inflation rate, rate for increasing medical cost, and so on. Here are the numbers:
Social Security Liability: $14.5 Trillion
Medicare Prescription Drug Liability: $19.2 Trillion
Medicare Liability: $76.2 Trillion
Total Liability: $109.9 Trillion
Total Liability per US Citizen: $354,530
So what does this mean?
* Things are going to be changing
* The amount of funding going into Social Security and Medicare are going up
* The amount of benefits are going down
* The recently passed health care bill probably is going to be around with little changes
* Experts talk about our debt problems have to do with paying for entitlements. I think that the word entitlement really means these retirement benefits that we are counting on for the future.
* You need to be saving lots more for retirement, it would be good for each of us to have $354,530 set aside at retirement. If you do not, what is your back-up plan?
Trivia
1. The dial tone of a normal telephone is in the key of "F".
2. A group of unicorns is called a blessing. A group of owls is called a parliament.
3. In 1963, baseball pitcher Gaylord Perry remarked, "They'll put a man on the moon before I hit a home run." On July 20, 1969, a few hours after Neil Armstrong set foot on the moon, Gaylord Perry hit his first home run.
4. Kermit the Frog is left-handed.
5. The word "pound" is abbreviated "lb." from the Latin "libra pondo", meaning weight or balance, where the constellation got its name.
6. Mel Blanc, the voice of Bugs Bunny, was allergic to carrots.
7. One of the reasons marijuana is illegal today is because cotton growers in the 30s lobbied against hemp farmers (they saw it as competition).
8. Maine is the only state in the United States whose name has one syllable.
9. At latitude 60 degrees south you can sail the entire way around the world.
10. Isaac Asimov is the only author to have a book in every Dewey-decimal category.
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