By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net
It is January 1st, 2014. Happy New Year to all readers. So what can we expect for this new year? I predict that we will see continued, but very slow improvement in the US economy and the global economy along with a slow recovery continuing with the current business cycle. These trends will likely be due to continued very modest monetary policy easing, slightly improved economic status as measured by GDP increases, moderating energy costs and continued advances lending to business efficiencies with information technology tools. I do not see significant positive fiscal policy adjustments in 2014. Although it is likely that interest rates will increase slowly and inflation will advance while not being reported accurately, equity markets will continue to advance since fixed income markets will not show significant yield improvement. Equity market advances are likely to be some what modest when compared to 2013 performance. Look forward to continued miss reporting of unemployment and other statistics. If we assume that the labor participation rate is a long term average, we are at 11.5% unemployment rather than 7%. The percentage of Americans working has maintained between 58 and 59% over the last 51 months as compared to the standard 65.8% expected. In November of 2007 121.9 million were working full time. Today it is 116.9 million while the population has increased by 16 million. One out of every 10 jobs is filled by a temp agency. Is ACA a factor? The duration of unemployment benefit draw was at 19.8 weeks in 2008. It is 37.2 weeks today. The number of self employed today is at an all time low. Regarding inflation, a gallon of gasoline was priced at $1.85 in 2008. Today it is at $3.26. This is not reflected in the CPI. The Medicaid budget was at $338 billion in 2008, for 2012 it is at $417 billion. The cost of welfare programs over the last 5 years is at $3.7 trillion. The US debt ratio was 70% in 2008 and is at 101% today. These factors create significant head winds against rapid economic recovery and are due, in my opinion, to less than adequate monetary and fiscal policy adopted by government. It is incredible just how durable the economy has been in spite of these issues.
Implementation of legislation such as ACA and Dodd Frank sponsored legislation along with the associated Volker rule ( a substitute for the repealed Glass-Steagall Act) will create a further drag on economic recovery. It is clear that the banking industry’s conduct regarding expansion of acquisition of risky assets with government encouragement must be curbed. In order to further regulate potential abuses by commission based broker dealers, FINRA is proposing the use of a Comprehensive Automated Risk Data System to monitor activity in personal investment accounts against abuses such as churning. Is the government interested in the potential for sales practice misconduct by broker dealers or more information about the investment activity in which you engage?
It is a fact that the number of defined benefit pension plans has declined by 18% in 2012. It is incumbent upon those who are engaged in the work force to plan on their own a savings strategy for retirement since retirement benefit programs are now more that ever, based on defined contribution opportunities.
We will continue to take responsibility on our own for the well being of our families, communities and our country as time goes on. This is as it should be if we will get back on the track of prosperity, safety and social gains.
For The Record:
DJIA 16,576.66
NASDAQ 4,176.59
S&P 500 1848.36
Suggested Reading: “Value Investing in Growth Companies” by Ang andChun
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