Why This May Be a Change My Mind Economy

ap new stock exchange ll 131230 16x9 608 A Tale of Two Economies

                                                            (Photo Credit: Richard Drew/AP Photo)

When will consumers change their minds about the economy?

While the stock market had a stellar year, home prices rose at the strongest rate since 2005 and auto sales hit post-recession highs, many Americans believe the United States is still in a recession.

Only 19 percent of those polled said the economy is “excellent” or “good,” while 38 percent said it is “poor,” according to a recent survey by Gallup. More than half said the economy is getting worse.

Despite such gloomy findings, however, Gallup and other pollsters say consumer confidence improved in the closing weeks of 2013. The Bloomberg consumer confidence index rose to its highest level since August. But it’s still not back to where it was before the recession.

That said, 2013 made believers out of many investors. It has been a stellar year for the stock market with solid gains for most savers’ 401(k) retirement funds. The big stock S&P 500 index rose 29 percent, its best year since 1997. The high-technology Nasdaq gained 37 percent and the Dow Jones Index added 26 percent for the year.

The housing market recovery broke new ground with average prices rising about 12 percent nationwide. New home construction rose and, in a small number of cities, home prices are now in record territory, gaining back all their losses from the housing bust.

New vehicle sales also picked up speed. The shopping website Edmunds.com expects auto sales to hit about 15.5 million this year, which is the strongest result since 2007.

The United States became the world’s leading producer of oil and natural gas this year. The rise in output and increasing energy efficiency helped lower costs for business and consumers.

While gasoline prices remained high, “we’re going to end up averaging about $3.49 nationally this year which will be about 11 cents less than last year,” senior analyst Tom Kloza of gasbuddy.com said.

The cost of energy, especially natural gas, for U.S. manufacturers is far lower than in Europe and Asia, giving the United States a competitive advantage.

Despite such gains, however, living standards for most Americans were flat. “For a lot of people, their incomes haven’t increased,” Greg McBride of bankrate.com said. “When we ask about their financial priorities, people say the top priority is just staying current or getting caught up on the bills.”

Many jobs that were lost during the recession never came back. Many discouraged workers who gave up looking for a job have not returned to the labor market.

At year-end, long-term unemployment benefits for 1.3 million Americans and their families were cut off.

While more than 2 million new jobs were created in 2013, a large share of them were low-income retail and restaurant positions. “I think consumers are very cautious and looking for those discounts,”  Jack Kleinhenz, president of the National Association for Business Economics, said.

Such caution underscores an economic divide. This year was especially good for the “haves,” but the “have-nots” have yet to see the real gains of the past two years trickle down to them.

This blog was first published on abcnews.com 


Why Wall Street Fat Cats Don’t Always Win

Are your ready for this?  On Wall Street at least outsiders are beating the fat cats.

Yup. The kind of humble low-fee mutual fund that all savers have access to may be the best place to watch your money grow.

Most index funds easily outperform expensive, exclusive hedge funds. And they have been doing so for the past 5 years.

So millions of middle-class savers with 401K plans are getting much better returns on their investments than billionaires who have handed over the cash to high-paid private fund managers.

Last month the S&P 500 – the benchmark for many mutual funds – rose  3 times as much as the typical hedge fund, according to Hennessee Hedge Fund Index.

Kind of builds on what I was suggesting about Twitter in my last post, and what investment writer Tim Lee says in “A New Case for Index Investing,” a smart column today in US News and World Report.

It’s easy to make the case that many high-paid Wall Street experts really don’t know what they’re talking about.

In an age when the super-rich are gobbling up an ever larger share of household earnings, and insider-trading scandals occupy the business headlines, it’s comforting to know the big money crowd doesn’t have a monopoly on valuable information.

I am not suggesting there is no such thing as a savvy, sage investment advisor. Many do a great job for their clients.

But when it comes to beating the market,  the cold hard numbers show that the boastful claims of many stock pickers don’t add up.

And so it goes with politics and our cultural life. Elites often don’t have  all the answers. A willingness to reach out to broader circles of information, beyond our comfort zones, can boost our returns!

Hey! I’ve Got A Great Stock Market Investment Tip For You

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If there is one really important thing that I’ve learned in more than 25 years of Wall Street and business reporting it’s what I don’t know.

I haven’t got a clue where the stock market is going next.  And despite all the outrageous claims made by investment professionals neither has anyone else.

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Now I’ve got heavyweight support for this argument from no less than the winners of this year’s Nobel Prize for Economics.  Eugene Fama, Robert Shiller and Robert Hansen “laid the foundation for the current understanding of asset prices,” said the Royal Swedish Academy of Sciences in its announcement.

And what did these 3 economists conclude?  Um,  that  it’s nearly impossible to figure out where markets are heading in the short run, and that therefore stock picking is a fool’s game.

Their research studied the psychology of bubbles and how many of us behave in times of financial stress.  In her fine piece of reporting this week explaining the Nobel award, Heidi Moore of The Guardian wrote that these 3 guys are “men who care what happens in the real world.”

“Economics has a reputation as wonky, nerdy discipline that loves theories that are pure and distant from humanity,”  said Moore. “This year’s Nobel prize in economics is finally, a victory for the study of human nature.”

And human nature can be pretty whacky.  Financial forecasting is at best a dismal science.

But that hasn’t stopped “experts” from trying.  Some make confident  sweeping predictions about what will happen to your money in the next few months, while other far-fetched forecasts go for broke,  playing on the well embedded human propensity for fear and dread.

Ignore them all.

While it is true that over the long term the stock market has consistently out-performed bonds and money market investments, the overwhelming majority of highly paid mutual fund managers do not  beat the market most of the time.  Their failure predict the end of the tech stocks bubble in 2000 and the 2008 financial crash were proof of that.

Often I’m asked by friends and colleagues what’s the next hot stock?

Sorry, I haven’t got a clue.

And if you really want to know the sorry truth, the worst performing part of my 401k savings plan is the stock portfolio that I picked myself.  Despite a considerable investment of time and emotion returns have been pathetic.

The index funds that I put money in and forgot about are doing just fine.