3/7/2013 8:45 PM ET|
Why the Dow is up but you're not
Shrinking incomes, surging prices for key items and low savings rates are more important to many households than the market's rise.
With the Dow Jones Industrial Average (INDU) having surpassed its October 2007 peak this week, can consumers breathe a sigh of relief?
The sentiment on Wall Street may be that our long national fiscal nightmare is finally over, but the stock market is just one barometer of prosperity, many economists and consumer experts argue. And the problems that have plagued the United States in recent years -- declining household income, surging prices for many key goods and services, low interest rates for savings -- remain very much in place, they say.
Add to that the fact that many investors started losing confidence in recent years -- and went to cash at the very time the Dow began its bullish run in 2009 -- and an equally scary reality emerges: The market's average may not reflect what many Americans are seeing in their monthly portfolio statements. "We're not even close to where we ought to be," says Ken Goldstein, an economist with the Conference Board, the organization behind the Consumer Confidence Index.
Goldstein is referring to the fact that the index, which translates consumer views on the economy into a numerical formula, is well off from where it stood at the Dow's previous peak: In October 2007, the index registered at 95.2. Today, it's at 69.6. (The index's post-2000 high of 144.7 came during the peak of the dot-com boom.)
It's not all bad news, of course. The unemployment rate, at 7.7%, is well below its past-decade high of 10% in October 2009. And while consumer prices have climbed since October 2007, they have done so at a fairly normal annual clip of 1.9%, according to the Bureau of Labor Statistics.
Plus, many savers have seen respectable increases in their retirement portfolios over the past five years. Vanguard, for example, reports that the average 401k account balance rose from $78,000 in 2007 to $86,000 in 2012. And even factoring in contributions, Vanguard research analyst Jean Young reports that one study of 401k participants, conducted by the firm, showed an average annual return rate of 2.3% over the same five-year period. Granted, says Young, such a yield is "nothing to write home about" -- by comparison, the Dow was up at least 20% in five of the 10 years during the '90s -- but Young adds that it's a solid figure given the low inflation over the period.
If there's any reason that investors are feeling the pain, Young argues, it's because they've bought into a media-fed notion that the economy is still broken, despite evidence to the contrary. "Negative headlines sell," she says.
The Great Disconnect
Still, many financial experts say that there's a rationale behind those headlines, despite the market's rosy return and other improving economic indicators. In short, they view the current state of affairs as the Great Disconnect that has followed in the wake of the Great Recession. And it's a story that they say can be told in one sobering statistic after another.
Begin with income. On the one hand, wages have basically kept pace with inflation since late 2007. But on the other, unemployment and underemployment have affected overall household income -- to the point that there's been about a 6% dip to the current median figure of $51,584 after adjusting for inflation, according to Sentier Research, which tracks income. "During this so-called recovery, we've gone down," says Sentier principal Gordon Green.
And what about expenses? While the Bureau of Labor Statistics may say prices are in check, some consumer watchdogs say what applies to overall prices may not apply to some key expense categories.
Consider the cost of fuel: A gallon of gas has gone from around $2.75 in October 2007 to $3.75 today, according to AAA. Or medical care: Annual premiums for family coverage for employees in large firms (200-plus workers) have increased from $2,831 in 2007 to $3,926 in 2012, according to the Kaiser Family Foundation. Or even a steak: In a January 2013 survey by Teri Gault, founder of the coupon and savings site The Grocery Game, Gault noted that the price for top sirloin had surged from $2.99 to $6.99 a pound at one California supermarket in the past year -- a 133% spike.
Little wonder, says Gault, that dollar stores have become all the consumer rage in recent years. Shoppers are "desperate for value," she says.
A loss of investor confidence
But what about stock market returns offsetting some of this economic stress? The relatively good news on the 401k side -- at least as reported by Vanguard -- does not necessarily jibe with the broader reality that many financial advisers say they're seeing. They say they're meeting with many first-time clients who have withdrawn large sums from IRA or traditional brokerage accounts during the past few years and have paid the price in returns as a result. "Almost everyone coming in to me today has tons of cash," says Lee Munson, founder of Portfolio LLC, a New Mexico-based investment firm.
And there's data to back up those adviser claims: In the two-year period through January 2013, the Investment Company Institute reports that outflows from equity mutual funds outpaced inflows in 21 of the 24 months -- meaning money was being withdrawn from the market at a fairly significant rate. It's a loss of investor confidence that speaks volumes, says Joe Duran, chief executive officer of United Capital, a California-based investment advisory firm. "They feel like the game is rigged," says Duran.
Of course, at one time, "going to cash" wasn't so bad. In fact, it's the way a generation of retirees saw themselves through their golden years, living off CDs and other fixed-income investments that paid yields of 5%-plus. But therein lies what many financial experts say is the greatest cause for concern over the past five years -- the dip from that top-tier interest rate on savings of 5.3% in October 2007 to 1% today, according to Bankrate.com.
It's a sea change that has shaken the traditional model of retirement planning, says Greg McBride, senior financial analyst of Bankrate.com. "The sharp reversal in interest rates has dramatically cut the buying power of retirees and anyone else dependent on a fixed income," he says.
Still, McBride says that if someone saving for retirement was smart enough to stick with stocks through the past five years, they may be OK, other economic factors aside. But McBride is just not sure how many investors had the wisdom to do so. "The train may be back at the top of the mountain," says McBride, "but you're not there unless you stayed on the train."
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But, but, but. Think geographicaly and in longer terms. In the north east property taxes have risen 300% since 1999. Tolls have gone up 200%. A pack of cigarettes has gone up 300%. Local fees such as vehicle registration has risen 200%. Insurance rates!!!! Lets just forget about that one. But large companies who are long established in the region and have a large workforce are still hiring at the same pay rates they were 12 years ago. The swell of Illegal aliens have killed the pay scale for laboring trades. Mass developement has increased the local population and flooded the workforce causing an abundance of people willing to work for whatever they can get and employers abuse that.
Same timeframe. Interest rates on loans and credit cards have increased and savings rates have plummeted. Being in my 30's and having started my career in 98' iv'e seen my retirement accounts wiped out three times and due to poor management most was not recovered. Why shouldn't i stay away from banks and wall street? My cash savings is the only thing that has grown during that period.
Unemployment claims are down because most people were cut in the end of 2012. I've never seen so many adults and families living with their parents. Bah! You can put whatever spin you'd like on it.
A lot of people have been out of stocks the last 4 years and that`s why it seems 70%
are bearish.The masses will pile in at 15,000 and then it`s time for a correction.It` happens
I guess hope and change only worked for the top 1%
If you had invested in the dow in 2007 it's true that you would be even after 5 yrs. of no gain, but if you had invested in some of the individual dow stocks you would still be under water. Boeing was 100, now 78, bac was 55, now 12, alcoa was 55, now 8, gm was 40, then went bankrupt, was 42, now 36, hp was 55, now20, ge was 42, now 23, microsoft was 38, now 28, merck was 63, now 43. That's only some of the pain suffered by people who stayed with their indvidual stocks. Wash. mutual went bankrupt......you could go on and on showing how the market wa manipulated.Nobody knows how many billions were lost by individual investors.who held onto their stocks.
Which media headlines is she looking at? Because none outline record welfare recipients that seem to be RISING each month as unemployment "supposedly" falls.... You would think with all these people being hired welfare and food stamp recipients would FALL. Must be easy as hell to get them or a lot of false claims!
If our economy is "fixed" then are we to celebrate the low wages, reduced time, less benefits, and growing welfare dependents? Is this the new "normal"?
Whoever Jean Young is you needs to talk to the Middle Class. She says in this article, If there's any reason that investors are feeling the pain, Young argues, it's because they've bought into a media-fed notion that the economy is still broken, despite evidence to the contrary. "Negative headlines sell".
The Middle Class are the ones allowing the "fat cats" to make all this money.
REMEMBER, A MIDDLE CLASS REVOLUTION IS COMING!
August 28, 2013 is the date in Washington, D.C.
Wall Street has purchased our government - mostly the Republicans because they love the system and are in agreement with Wall Streets values - but they own both parties - yes even the tea party Republicans - the system has been set up so that candidates can't get elected without Wall Street.
Wall Street is never satisfied, they want your Medicare dollars, Social Security dollars, your 401K until there is
nothing left - it is all consuming.
They are counting on the stupidity of Americans to keep choosing R's of D's to bicker against each other and name call while they steal the rug out from underneath you but until we wake up - if we ever do - we will be responsible for our own demise.
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[BRIEFING.COM] The Nasdaq Composite (+0.5%) and S&P 500 (+0.2%) posted modest gains on Thursday, but not before enduring a morning dip into the red, which took place in reaction to reports indicating Russia has commenced military exercises on the Ukrainian border.
The news from Europe knocked the key indices from their early highs, while giving a boost to safe-haven assets like gold futures (+0.5% to $1290.80/ozt), Treasuries (10-yr yield -1 bps to 2.69%), and the Japanese yen (102.30 ... More
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