The voters have spoken and come January there will be more red ties worn by Republicans in Washington than there are today in that effort to turn this country around. It is interesting to note that "only 36.4% of eligible voters cast ballots in the midterm general election, marking the lowest voter turnout in 72 years," according to Thinkprogress. The same source goes on to say that the last time voter turnout was this low was in 1942 just after the US entered World War II when 33.9% of eligible voters participated in the election. I am no political pundit and my comments are not for or against any political party. Instead, since paying up to $10,000 a year since 1999 for independent research that I study closely I will share with you what to look for in determining how to read the economic tea leaves. Take 5 minutes to see this discussion on video:
I apologize for my industry
Let me begin by offering an apology for my industry. I entered the securities industry early 1979 and the common point of view is that it is not possible to understand the markets. My industry has investors believe it's all a random walk on Wall Street and that most of us are not smart enough to comprehend what drives the markets so investors must rely on educated sales people who have an agenda to make more money as we underwrite stock and push proprietary models and products. We will keep this discussion simple, because after all, it may not be easy, but it really is simple to understand.
When we look at the power of total spending by country as ranked by Gross Domestic Product, according to the World Bank in 2013 the US is number 1 in the world at $16.8 trillion. China stands at $9.24 trillion USD. As we drill down deeper we can see a report every year released by the Bureau of Labor Statistics called the Consumer Expenditure Survey. By analogy suppose you had 3 dogs in your back yard, which one would you watch the closest? You will probably pay close attention to the biggest and baddest dog, as that is the one that can do the most damage to your property and to people. We see there are 3 dogs or groups that constitute the US economy relative to total spending; government, business, and the consumer. Economists don't often agree on much, but where they do agree thanks to the same source is that the consumer stands in first position with about 70% of total spending in the US, followed by business at 20%, and government at 10%. So the consumer is the dog or group to watch the closest. Business and government contribute to total spending, but it is the consumer group that is driving the economic bus.
Red states vs blue states
Reflect on the past 2 presidential elections when you stayed up all night to see which candidate would take office. The great surprise is that you could have turned off the TV after the polls closed in Ohio. The blue states along both coasts were equal to the Koch brothers . In spite of their great spending, the Koch brothers and the coastal states were both inert at moving the dial in the outcome of the elections. You may not know anyone in Ohio, but that was the state that gave you all of the information you needed to know about how the rest of the country would fall in line. Keeping it simple, the most famous average family lives in Springfield, a mid-sized town maybe in the mid-West, we know as the Homer Simpson's. The 2013 average household income in the country income, whether there are 1 or 2 people working, is $51,100, according to the Bureau of Labor Statistics. From the same source, when we take a look at Thousand Oaks we can see that the average household income is about $100,000. With the national average at around $51,000 and the local average about $100,000, how are you and your family doing? How much can you save? Now that we know we must watch the average person if we want to ask the question are you the consumer spending more or saving more money?
Bart Simpson is 25 years old this year. What must parents buy 25 year old children? Not much. When we look at average families, as represented in the HS Dent Research chart above we see that peak income and peak earning takes place between ages 46-50. As children finish school and move out in their early 20s the parents' spending requirements suddenly become optional. The number of 46 year olds peaked in 2007, according to the Census Bureau. The most fundamental driver to the US economy is average people, each one unique, doing very predictable things in life. For example, most Americans get their first job at 20, buy their first car at 25, get married at 26, have their first child at 28, and buy their first home at 31. We tend to buy the largest home we will soon never need after the kids go to school or move away in our mid to late 40s.
The bottom 50% of Americans owned just 1% of all assets in 2013, down from 3% in 1989, according to the Federal Reserve Survey of Consumer Finances. From the same source we see that the wealthiest 5% of Americans owned 63% of all assets in the country last year. While the average peak earning and peak spending takes place in the late 40's the age of peak spending for the wealthy is age 53. As we have shown here before, the year that the highest number of 53 year olds peak just happens to be 2014, according to the HS Dent Research and the Census Bureau. 45% of 2,022 Americans surveyed in September 2014 do not believe that their financial situation will rebound in their lifetime to the level it was before the 2008 global financial crisis, according to Harris Poll. You might be managing today, but just suppose that the policymakers' smoke and mirrors short term fixes that may help produce election success results in global depression sometime soon. Before you get too complacent again, now is the time to get your house in order.
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