Recession? NO WAY!

"Did she say the economy is actually getting better!?!?"
(Photo by Greencolander of Flickr)

Yes, I know what you're thinking. That my title is crazy, right? May’s stock market performance was dismal and these last couple weeks have been sad, to say the least. However, I do not feel that we are moving anywhere close to a recession.  The US economy is sluggish, that’s for sure, but folks, we are improving little by little. 

Want to hear my proof? Let’s go then!

• The GDP (gross domestic production) growth rate is still forecast to be approx. 2.5% for 2012 and 3.0% for 2013 compared to negative 3.5% in 2009, +3.0 in 2010, +1.7% in 2011. The historical annual average growth rate from 1947-2012 is 3.25%.  
• New housing starts are on a slightly upward projectile since bottoming out in March of last year.  And projections for the rest of 2012 and 2013 show strong improvement.  Remember that the US creates 1.5 million NEW households every year.  The foreclosures and short sales have flooded the market since 2008 but that product is starting to dry up.  New households will need someplace to live!  So, we should start seeing housing prices start to rise by 2013. A sidenote: I have a few friends who have recently sold houses in the San Diego North County market and the houses have sold very fast with back up offers to boot.  One house in Oceanside sold in 1 day for $25,000 more than the comps indicated. Good news!
• Banks are lending again.  Big uptick in commercial and industrial loans as well as consumer loans in 2012.  
• Unemployment remains high at 8%, there is no one disputing that.  However, we are still losing vast numbers of jobs in the public sector—government, states, schools, cities, municipalities, etc…  Which may not be a bad thing since we all know that government carries a lot of bloat.  The private sector is doing well. Over the last 6 months, the household survey (The household survey, in contrast, estimates the nation's employment based on responses from interviews with approximately 60,000 households) has registered 1.7million net new jobs created compared to 1.0 million on the establishment survey (The payroll survey estimates the nation's employment based on responses from a sample of about 400,000 business establishments).  That is a difference of over 600,000.  
• April savings rate was 3.4% compared to over 8% a couple years ago.  This indicates that consumers are indeed spending again as they are more confident.  Remember that 70% of the GDP growth is driven by consumer spending!  
• Retail sales are very strong and very far from recession levels.  
• The U.S. is still the world’s largest manufacturer.   
• While China is indeed catching up, there is no other country close to our manufacturing production.  The U.S. has done a remarkably good job of holding global manufacturing against the onslaught of China.The stock market is projecting a lot of gloom and doom out there in the marketplace.   

"Too worried! Need more treats!"

Worries about Europe, not enough job growth, stagnant housing, fear that Congress will keep kicking the can down the road in terms of the deficit, etc… These are rightful concerns and I think the market is imagining the worst possible outcomes.  But there is definitely room for optimism as based on the numbers above.  Personally, I feel that the biggest boost to the US economy and a way out of this malaise is for Congress to come to an agreement and adopt the Simpson Bowles report that was presented to our President and Congress last summer.  It is a 6 point program to restore our economy and get us back on the right road:

1. Achieve $4 trillion deficit reduction by 2020.
2. Reduce the deficit to 2.3% of GDP by 2015
3. Sharply reduce tax rates, abolish the AMT and cut backdoor spending in the tax code
4. Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%
5. Ensure lasting social security solvency
6. Reduce debt to 60% of GDP by 2023 and 40% by 2035. 

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

If you have not read this report, here is a link.  I encourage you to read it thoroughly and to lobby your representatives to follow these principles.  This is a bipartisan study and report—it is neither Democrat nor Republican.  It is what is good for America.  Congress appears incapable of acting so we the people need to start calling and lobbying our elected officials! 

Why H.R. 4624, the Investment Adviser Oversight Act of 2012 is BAD

On Wednesday, June 6th, the House Financial Services Committee will conduct hearings on a bill called “H.R. 4624, the Investment Adviser Oversight Act of 2012”. This legislation was proposed by both Representatives Spencer Bachus and Carolyn McCarthy. The plan is to have all small firms like me regulated by one agency called FINRA.  These are the folks who currently regulate  Wall Street--get the picture! 

This is not a good bill! 

As an independent financial planner, I work with all kinds of "regular folks" helping them with all aspects of their financial life.  I sell "peace of mind."  I am compensated by a fixed retainer or fee. I sell no products, receive no commissions, finders fees, kickbacks etc...  I am regulated by the State of California. 

For many years, Registered Investment Advisers (like me) have been trying to differentiate ourselves from the bankers and brokers who sell products. We have tried the following:
Fiduciary vs. Suitability - I must always put my clients’ interests ahead of my own and disclose any potential conflicts of interest. This is called a “fiduciary standard”. Advisers overseen by FINRA are governed by a “suitability standard” – her or she must have a reasonable basis for believing that their recommendations are suitable for you.
Fee Only versus Fee Based (Commissions) – As a fee only advisor, I only make money when you are willing to pay me out of your own pocket. Fee based advisors can also charge you directly, or earn a commission based on the product that you buy. Most times, you – the client – don’t know the amount of that commission. Some people think the advice they receive is “free”. They don’t know that the cost of their financial advisor is likely reducing their investment returns.


The Bachus/McCarthy bill will require that  Financial advisors who work with consumers will be supervised by one Self Regulatory Organization (SRO) and that SRO will be FINRA. The stated intent is to eliminate confusion and offer greater consumer protection. One of their arguments is that FINRA registered financial advisors are audited on a regular basis, whereas small state registered advisors may never be audited. (This is true.) They want to water down the fiduciary standard to align more closely with the suitability standard. Rumor has it that the cost to join this SRO will be in the $50,000 range.  This fee would literally put many of us out of business! 

While I am totally in favor of increased regulation for all financial firms, we need to find a better way.