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! 

9 Reasons to Not Panic About the Debt Downgrade

The Silver Lining in the US Credit Downgrade

Photo by Eric E Proimos on Flickr

 The US has had a AAA rating since 1941 and certainly in my lifetime, it was unthinkable that we could ever lose this coveted rating. But the unthinkable happened last Friday and one of three credit rating agencies (S&P) stripped the US of the AAA rating and downgraded us to AA. So…what does this mean and what are implications? 

1. Only S & P chose to downgrade, that means that Moody’s and Fitch still have confidence in our AAA status. Two out of three ain’t bad!

2. Insiders at the rating agencies and many large companies believe that the S&P move was super cautious because, remember, that they gave AAA ratings to all the companies that held all the toxic assets that brought down the economy in 2008. They were severely chastised by Congress for being asleep at the wheel and they lost a lot of credibility in the process. Payback time??? 

3. The downgrade is more a function of the political impasse in Washington and concerns that our political system cannot chart the necessary course to reduce our deficit and have a balanced budget. 

4. Warren Buffet’s perspective (and I value his commentary far more than the “talking heads” of the media) is that there's no question that the United States' debt is still AAA and that he's not changing his mind about Treasurys based on Standard & Poor's downgrade. "If anything, it may change my opinion on S&P," the legendary investor said. 

5. Japan lost its AAA rating many years ago but has had no problems borrowing money at super low interest rates despite a Debt-GDP (gross domestic product) ratio about where we will be in 7-10 years.

6. Rates are a function of supply and demand. Our supply isn’t changing, so a downgrade would tell us that the demand will now change. Really folks? Where will the money go? China is a huge purchaser of our debt and might like to park it somewhere else but where? No other country has the liquidity and the size to store their cash reserves. And no other country is safer. 

7. The new rating does not mean we are heading into a recession. While our economy is still struggling (Pimco calls it a “hobble through” economy) there is room for cautious optimism. 70% of the S&P 500 companies have exceeded earnings estimates this year. The unemployment figures look bad but if you drill down, the governments (cities, states, counties, US govt) are the ones shedding jobs while the private sector is adding jobs. Isn’t this what we hoped for and expected to happen as our infrastructure shrinks? 

8. The silver lining is that this is a wakeup call to Washington. It is a loud and urgent signal that we can no longer kick this can down the road. We have to deal with our burgeoning debt, our not so balanced budget, our entitlement programs such as Medicare and social security and we need to do it NOW. Both parties need to put aside their agendas and do what is right for our country and the world as we are still the Super Power. I was encouraged by President Obama’s speech today because I think that our politicians (both parties) now realize the damaging effects of the past 4 weeks. It was a humiliating picture to the world of how partisan and childish we have become. There will be enormous pressure on the bipartisan committee of 12 to get the job done and come up with a plan to show the world that we are serious about putting our country back on the path to financial soundness.

9. I, for one, am almost elated that this happened. We needed a kick in the butt. If I had a boatload of cash lying around, I would be buying every good US Company that I could. Ahhh… if only I had a small portion of Warren Buffet’s fortune!

Poor, sweet Toxie

Hey everyone, Marcie here!

While I was perusing through NPR's business section this morning, I came across a little video. While humorous and mildly cute, I watched the story of Planet Money's "Toxie." As an experiment, Planet Money bought a toxic housing asset to, literally, "watch it die." (Yeah, they named it "Toxie," and she wears a cute little bow.) And while it's a little morbid in a dark humor type of way, watching Toxie's video and inevitable death, actually sheds a lot of light for us normal folk as to what really happened with the economic collapse a couple years ago and also what's still happening today.

So, how did "Toxie" the little toxic asset with the cute bow fare? Listen for yourself! Oh, and if you want to watch the video of the cute floofball asset (which I highly recommend), click here.

We wish you a financially happy new year

How many times did you hear this phrase this weekend?

"Happy New Year!"

Did you say it? Did family, friends or people at the store say it to you? I think I sent and received dozens of messages, emails, and texts with that exact phrase. We say "Happy New Year" so easily, but making resolutions, having dreams of a new start year after year, does that really make us happy?

Dr. Henry Cloud, a clinical psychologist, says no, but he gives several helpful hints to happiness in his interview on CNN's American Morning.

So, how does this relate to finances? We hear from many friends, clients and acquaintances about issues with their finances, especially pertaining to the economy. We empathize with what's happening now and we understand. It's hard for some of you. But we want to encourage and remind everyone it doesn't need to affect your overall happiness or outlook on life.

There are items that Dr. Cloud says that align perfectly with achieving financial peace of mind:

1. Make goals. They don't need to be lofty goals. Begin your goals at square one and work from there. For example, achieving a goal of saving 10% of all income for retirement in one year seems really hard. So, start at 5% and work from there.

2. Concentrate on what you can control. We can't control the stock market or the unemployment rate. But we can control  making good spending decisions and educated choices.  Doing research, asking for help and making goals can help achieve peace of mind.

We know that this new year won't be perfect. But it's nice to know that despite the cloudy days, there are decisions we can make to give us sunshine through the clouds. If you have questions about any goals you'd like to make, feel free to give us a call!

And we wish you peace and true happiness, in all aspects of your life!


1/3/11, 3:46pm edit: Dr. Cloud himself responded to our blog on his Facebook page. His words: 


It is incredible how much of this material affects people's finances. Several of the practices are related to people making more money, and at the same time, not needing to make more in order to feel happy. The happy ones do better, but know that happiness does not come from material circumstances. And, many of these practices, like gratitude, for example, mitigate against stupid spending and financial problems. Take the one about comparing oneself to others. If people just would follow that one principle, they would often save a LOT of money not trying to keep up with the Jones'.


You can follow Dr. Henry Cloud on his Facebook page!

New Financial Reform Bill: Progress Or Not?

If you have turned on the news, you probably have heard and re-heard reports on two events: the horrendous BP oil spill and the, newly passed, Financial Reform Bill. While I wish I had insight on how to fix the oil spill, I do have a few thoughts about the Reform Bill that was passed Thursday, July 15th.

So, what is in this Reform Bill?

Jill Schlesinger, author of "The Financial Decoder," and contributor to CBS' Moneywatch.com, wrote an article on June 25th, using with layman's terms, what the bill can and cannot do. She states, "the bill probably won't prevent the next crisis," but it will help consumers in some ways.

For example, there will be a new Consumer Financial Protection Bureau, which will help consumers by moderating the credit card and house mortgage industries. According to the Senate, the new Bureau will "finally [be] a watchdog to oversee financial products, giving Americans confidence that there is a system in place that works for them – not just big banks on Wall Street."  

Schlesinger says in another article about the new Bureau, "The new rules will prohibit mortgage brokers from steering customers into more expensive loans for a commission and will ban no-documentation or "liar" loans. It will also make credit card statements more readable and transparent, allowing consumers to more easily compare products."

She also notes where the new Bureau will not protect consumers in all things, namely auto dealer supervision and addressing the fiduciary standard: "Although the new consumer rules are a step forward, there are some noticeable omissions. During negotiations, two important consumer measures were left out: the oversight of auto dealers and the fiduciary standard. I'm particularly upset about the later, which would have made it law for financial professionals to put their customers' interests first."

I agree with Schlesinger about these omissions, namely about the fiduciary standard. We work very hard at Stewart Financial Services to address our client's needs first. There are many planners and institutions out there who base their financial advice simply on what funds would give them the biggest commission, or return... regardless if it's a good fit for their client's financial goals or dreams.

The SEC has been delegated to take care of an umbrella fiduciary standard for all financial advisors. We hope to see progress on this front, hopefully, within 6 months from now.

If you have a question about what the fiduciary standard is, please click on the orange button below. Stewart Financial Services is proud to follow all these guidelines for our clients' financial well being.

FocusonFiduciary.com

Also, if you have further questions about the Financial Bill Reform, you can click here to view Senate.gov's complete copy of the bill, or, as always, feel free to ask me. I feel the Consumer Financial Protection Bureau is a good step in the right direction... let's just keep making these steps! 

What To Do When Your Home Is Underwater

Currently, there is so much consternation for consumers concerning their homes right now. This article written by a colleague of mine really details the options that are available and the ramifications of each one. Very good article.

Here is a link to the blog by Burt Whitehead, "What To Do When Your Home Is Underwater."

Inflation or Deflation???

Excellent article written by some of my colleagues at Cambridge Advisors. Enjoy reading.

Bert Whitehead's blog about Inflation or Deflation

Prescription for Today's Economic Uncertainty

Many people are over-indebted, over-fed and living in a fast-depreciating house. Savings rates, although improved, are paltry. It's time to return to the practice of thrift and leave the culture of debt behind. If there is any lesson to be learned from the current economic uncertainty it is that we can no longer rely on gains from our assets to adequately provide for us. We need to focus on what we can control-spending less and saving more. Building a bigger nest egg is our best hope for accumulating enough assets to finance our lifestyles over a 30- to 40-year period. To accomplish this, we must live well below our means and save the difference. Even if you are years away from retirement, start saving now. For every 10 years you delay saving for retirement, you will need to save three times as much each month just to catch up. Put savings at the top of your expense list and pay yourself first. Take full advantage of the match your employer offers in your retirement savings plan. Never leave free money on the table. If you are just a few years away from retirement and determine that you'd rather build a bigger safety net than rely on stock market returns to get you through, think about working longer or working part-time after you've retired from your full-time job. You may even consider a second career. Leaving your nest egg to grow for a longer period may mean you won't have to alter your lifestyle later on. If you are already in retirement and are concerned that your spending level might jeopardize the longevity of your assets, then a retrenchment plan may be in order. Scrutinize your expenses, cut back the "fluff" and find expense-cutting ideas in books and magazine articles. Find ways to have fun with little or no money. Find a cause you have passion for and get involved. It will cost you more time than money. Running retirement projections as often as I do, the variable that seems to threaten the longevity of retirees' assets more than any other is their spending level. What retirees seem to worry most about is outliving their assets. Turn worry into action. Spend less, save more and measure your goals periodically to assess your progress. If you don't manage it, you can't measure it. It's never too late to start. It's only too late if you don't start at all.