The title at Business Insider read, "Black Friday Revealed How Poor Americans Really Are." Rather than believe we can read a book by its cover we will look past the title to see what's really going on in the economy. "In the short-term, a decline in crude oil prices will help the economy by putting more dollars back into consumer wallets, decreasing transportation costs and helping manufacturing," said Fatima Iqbal, senior investment strategist of the Azzad Wise Capital Fund. At least, that was the logic. It certainly came as a big surprise to both retailers and market observers that Black Friday sales plummeted this year. The thought of industry groups like the National Retail Federation was that most consumers might save $500 a year on gas prices which would fuel the biggest holiday season ever. But it didn't happen. In spite of such favorable forecasts, Business Insider found Black Friday sales were down 11%, while Cyber Monday's sales rose 8%, but were short of many predictions. For our 5 minute version on YouTube please watch:
Where are the buyers?
According to some analysts, the buyers are Missing in Action because they are probably broke. Brad Anderson, former CEO of Best Buy, on CNBC said customers are still feeling constrained," which could lead to a lackluster holiday season. According to me, this could just be the beginning of a trend, but there may be more fundamental reasons.
Around the world, it may be that Europe and Japan are on the verge of recessions and China is slowing, but U.S. growth has accelerated in recent quarters. That's fueled the best year for American job creation since 1999 and raised hopes consumers will finally be rewarded with higher wages. At the end of the day, the U.S. economy still looks like the best house in a bad neighborhood. At the same time, that economic progress may be stoking uncertainty among investors because the Federal Reserve has the freedom to raise interest rates in 2015. We have never been here before, so no one knows how the stock market that has become addicted to easy money might react to higher rates. If the central banks around the world fumbles the first increase since 2006 ball, both the bond and stock markets may react with great negative volatility.
Waiting for Santa
Investors may be concerned that the decreased demand for crude oil is the result of a slowing global economy, particularly in China and the euro zone, and that the resultant likely layoffs at the large oil companies may jeopardize, in time, the pace of growth in the United States, despite another good report on U.S. economic output, according to Value Line. As children of all ages sing Here Comes Santa Claus, December is typically very good for stocks. But Michael Block, Chief Strategist at Rhino Trading Partners observed,
Investors had been bidding up stock prices in expectation of the Santa Claus rally that so far is nowhere in sight.Block went on to observe that the S&P 500 is down 3.5% by mid-December, 2014.
Thanks to Harry Dent and to being a member of the HS Dent Advisor's Network there may be a very logical explanation to help us read the economic tea leaves. Since the consumer is the driving force to the US economy it is useful to see the patterns that we all go through in life. We are all unique individuals, but we often go through life in very predictable patterns.
In this first chart we can see that 20 is the average age for entering the workforce, 25-26 are huge markers as that is when we typically buy our first car, get married, and move looking for opportunity. We tend to buy first homes in our early 30's, trade up homes in our early 40's, and it is 42, for example, when the average mom buys the most potato chips for the family's average 14 year olds who are consuming the most chips they will ever eat in life.
In chart 2 we see that the plateau cycle occurs after the big wave of the first 20 years. The mid-40’s are notable as that is the age range where Americans tend to earn and spend the most money. This group peaked in 2007. Age 53 is a marker as that is the age that the highly educated tend to peak in spending. They peak later due to more school and marrying later than the majority of people. 2014 happens to be the year that the highest number of Americans turn 53. As we study the Consumer’s Expenditure Survey we can see that spending falls like a waterfall starting 54. Next year.
Some people get depressed when we study slide 3 as life begins declining. But it may help to remove emotions to be able to read the economy and take some of the guess work out of the equation. Peak spending for fine china occurs at 55, vacation and retirement homes peak at 65, cruise ship trips peak at 70 and nursing homes often occur at 84. That is, of course, assuming we make it past the average age of death at 79.
Maybe the walk down Wall St isn't so random
In 2015 the youngest Baby Boomer turns 51 and the oldest turns 69. This group comprises about 78 million Americans born between 1946 and 1964. Boomers have been like an egg consumed by a python, driving demand to all-time highs for almost everything from diapers, to Wham O Frisbees, college educations, Mustang cars, and McMansions in the suburbs, built buy and for Baby Boomers. This time is different, because the Boomers are moving into their sunset years, where the only thing that commands more space in the checkbook is increased health care costs. Put the price as low as you like, place interest rates at the lowest levels you have ever seen, let the government do all things possible to make you spend money and the truth is you could not be moved to spend money. On anything anymore.
Instead of being complacent or comparing ones investment portfolio to a benchmark, this is the time to s tay focused on your own needs and required rate of return. You might begin by asking these 3 questions:
- Is risk management important to me now? Would it be more important to me in a bear market?
- As I seeing to achieve returns in line with a specific benchmark, or is it more important to achieve personal objectives such as funding, and then maintaining my retirement?
- What relevance does the stock market have to my personal financial needs?
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