Recession
What U.S. Consumer Spending Data Is Telling Us
The markets slid yesterday on news that U.S. consumer spending increased by 0.3% in March, while income rose 0.4% over the same time frame. This is the first time since December we've seen income rise faster than spending.
I can't say I am entirely surprised.
As prices for "must haves" like gasoline and food continue to rise, consumers are digging into their savings to cope. This is not small potatoes, given that the average family saved a mere $38 out of every $1,000 in take home pay last month, according to the U.S. Commerce Department.
I can't help but have huge concerns about Team Bernanke's plan; no amount of stimulus is going to overcome the struggle most families are having – which is to boost savings and shed debt.
Here's the thing… if consumers can't save, then they can't buy. And if they can't buy, they can't build up the nation's wealth, which is predicated on consumer spending.
All three sets of figures in isolation really don't tell you much. But when taken together – spending, income, and GDP – they suggest our economy is too weak to put millions of Americans back to work, much less in jobs for which they are appropriately qualified.
Four Reasons to Invest in ETFs – And Five Ways to Get Started
A mere 15 years ago, selecting the right exchange-traded fund (ETF) was no big challenge. That's because the first ETF wasn't introduced until 1993, and the second didn't follow until 1995. Since then, however, the growth rate among these versatile investment vehicles has been exponential – so fast, in fact, that the monitoring firm Morningstar now tracks the performance of 854 ETFs, with new funds being added almost weekly.
So, from this mushrooming roster of new ETFs – now covering virtually every market sector, both domestic and international – how do you select the right one (or, more likely, ones) for your portfolio?
If you're not already familiar with ETFs, here are four reasons why you should consider adding some balance to your portfolio.
Big Banks May Be Forced to Buy Back Bad Mortgage Loans
Major U.S. banks are under pressure from government officials, as well as groups of investors and insurers, to repurchase or modify bad mortgage loans they pooled into securities and sold to unwitting buyers.
In the latest effort, a group of investors with roughly $500 billion invested in 2,300 mortgage securities is trying to force the large banks that originated or are now servicing faulty subprime-mortgage loans to repurchase or modify them, The Wall Street Journal reported.
Some investors "had no idea that their money was being invested in mortgage-backed securities," Dallas-based attorney Talcott Franklin told The Journal. "And yet somehow these people are now the ones being punished, and that's just not right."
U.S. Vacationers Deliver a Profitable Boost to Travel Stocks
The number of U.S. travelers hitting the road – and the air and sea – is on the rise, bringing profit-making momentum to travel stocks that will continue into 2011.
While the U.S. economic recovery is slowing down, travel has picked up since 2009's fourth quarter. Consumers are facing less debt and an increase in household net worth, and those who have weathered the worst of the storm have saved enough to treat themselves to a trip.
While 2009 was the year of the "staycation," travelers in 2010 have opted for more traditional vacations.
AAA projected the number of Americans traveling over this Labor Day weekend will be up 9.9% from 2009.
Three Ways to Brace for a Double-Dip Recession: Going Global
[Editor's Note: This is the second installment of a three-part series that discusses ways investors can brace for a double-dip recession. Part I (Going for the Gold) appeared yesterday (Wednesday) and Part III (Recession-proof Stocks) will appear tomorrow (Friday).]
The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era deficits, and an inflationary spiral that just wouldn't let go.
That 1981-82 double-dip downturn – the result of an economic "shock treatment" aimed at curing those ills – consisted of two recessions that were separated by a single quarter of growth.
The current backdrop is very different from the one that was in place back then, but the threat of a double-dip recession is no less real.
The world's No. 1 economy lost 8.4 million jobs during the recession that got its start in December 2007, making it the worst national downturn since the Great Depression and the biggest loss of employment since the end of World War II.
Three Ways to Brace for a Double-Dip Recession: Going for the Gold
[Editor's Note: This is the first installment of a three-part series that will detail how investors can brace for a double-dip recession. Parts II (global markets) and III recession-proof stocks) will appear tomorrow (Thursday) and Friday, respectively.]
The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era deficits, and an inflationary spiral that just wouldn't let go.
That 1981-82 double-dip downturn – the result of an economic "shock treatment" aimed at curing those ills – consisted of two recessions that were separated by a single quarter of growth.
The current backdrop is very different from the one that was in place back then, but the threat of a double-dip recession is no less real. Indeed, with each passing week, and with every new economic report that comes out, the possibility that the U.S. economy will backslide into a double-dip recession seems to become more of a probability – or even a likelihood.
"For me a 'double-dip' is another recession before we've healed from this recession [and] the probability of that kind of double-dip is more than 50%," Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor's S&P/Case-Shiller home price indexes, told Reuters. "I actually expect it."
Why Upbeat Earnings Reports Mean Caution to Investors
While earnings reports continue to pour out each day, investors should be careful before being excitedly swayed by strong financials – there is much more of the big picture to consider.
Stocks failed to get traction in the middle of last week after Alcoa (NYSE: AA) and Intel (Nasdaq: INTC) earnings reports underwhelmed investors, and Friday they spun off the road. The culprit: Fears that recent earnings gains represented a peak, and that weak readings on the economy were more representative of current conditions.
Retail sales disappointed and the Federal Reserve cut its 2010 growth forecast. Even word that Singapore grew at a record pace of 19.3% in the second quarter couldn't lift the air of despondency on Wall Street.
To read why there's a cloud over Wall Street, click here.
State Budget Crises Threaten U.S. Economic Recovery
Across the country state budget crises are threatening to undermine the U.S. economic recovery.
Some 48 states are emerging from a round of painful budget cuts for their 2010 fiscal budgets, and at least 46 states face shortfalls for the upcoming 2011 fiscal year, which in most states began July 1.
The recession has caused the steepest decline in state tax receipts on record – and states will continue to struggle to find the revenue needed to support critical public services for a number of years as a result.
Since virtually all states are required to balance their operating budgets each year they cannot maintain services during an economic downturn by running a deficit, as the federal government does.
Is the U.S. Economy Destined for Deflation?
With inflation low and the recovery waning, a growing chorus of analysts is beginning to suspect that U.S. policymakers aren't doing enough to head off deflation.
U.S. producer prices fell for a third straight month in June, sliding 0.5%. That follows declines of 0.1% in May and 0.3% in April. Core inflation, which excludes food and energy costs, managed only a 0.1% increase for the month, and is up just 1.1% in the past 12 months. The U.S. Federal Reserve's preferred target for inflation is 2%.
Meanwhile a high rate of unemployment continues to jeopardize the U.S. recovery, and economists fear that a significant drop in economic growth could tip the scales toward a deflationary spiral.
The Global Double-Dip Recession: Which Markets to Hold… And Which Ones May Fold
Last week's stock-market meltdown was a worldwide affair, and was touched off by trader fears of a global "double-dip" recession.
However, the truth is that the odds of a recessionary reprise are high in just a few countries – primarily those that have experienced excessive fiscal and monetary "stimulus," or that have real inflation problems.
The rest of the world is recovering just fine.
To find out which markets to hold – and which ones may fold – please read on…
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