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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Stock market
April 5, 2013 at 10:00 AM

Vote: Pause or correction in the stock market?

Today’s “disappointing” jobs report shouldn’t be a surprise. Corporations are sitting on record cash, but not using it to add jobs. Most of the gambling in the $600 trillion derivatives market is all about rent-seeking, not creating jobs. Poor earnings and falling wealth for average Americans translates into weaker demand. So does government austerity. As I write, the Dow Jones Industrial Average is down about 110 points and the S&P 500 off about 1 percent. The stock rally has had more to do with abundant money from the Federal Reserve than the underlying condition of the real economy or dangers overseas (the eurozone, Syria, North Korea).

So what happens now?

Read on for the top links of the week and the haiku:

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Comments | More in Investing, Stock market

March 19, 2013 at 10:44 AM

The Alpo Generation

The Wall Street Journal reports today, “Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement.” According to a report by the Employee Benefit Research Institute, 57 percent of workers surveyed had less than $25,000 in total household savings and investments (excluding their homes), up from 49 percent with so little in 2008. According to the report, “Retirement savings may be taking a back seat to more immediate financial concerns: Just 2 percent of workers and 4 percent of retirees identify saving or planning for retirement as the most pressing financial issue facing most Americans today. Both workers and retirees are most likely to identify job uncertainty (30 percent of workers and 27 percent of retirees) and making ends meet (12 percent each).” Only 18 percent were very confident they would have a financially secure retirement.

This is only the latest evidence of the challenges facing large numbers of aging Americans. This is the first generation that will retire heavily dependent on the social experiment called 401(k)s — and they’re proving to be a disaster. In 2010, the median household retirement account balance for those between 55 and 64 was only $120,000. And that’s if they have a 401(k) or set up an IRA in an era of diminishing wages and benefits: One third of households don’t have a retirement account of any kind. The average monthly Social Security benefit of $1,230 won’t go far.

The Great Recession destroyed 40 percent of Americans’ personal wealth — unless you’re in the 1 percent — and, as the Washington Post reported:

For the first time since the New Deal, a majority of Americans are headed toward a retirement in which they will be financially worse off than their parents, jeopardizing a long era of improved living standards for the nation’s elderly, according to a growing consensus of new research.

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Comments | More in Poverty, Retirement, Stock market, Working America

March 14, 2013 at 10:14 AM

How high can the Dow go?

A trader  works on the floor of the New York Stock Exchange on Wednesday (Photo by  Richard Drew/AP)

A trader works on the floor of the New York Stock Exchange on Wednesday (Photo by Richard Drew/AP)

 

If the Dow Jones Industrial Average closes higher today, it will mark the longest winning streak since November 1996. We’ve discussed before why the Dow is a highly flawed measure of the overall economy and even the stock market, but it still gets attention. What could possibly go wrong?

1. It’s not a November 1996 economy, when unemployment was low, average Americans were seeing improved wages compared to the declines experienced since the late 1970s and the economy was highly dynamic. If you lost your job one day, you likely had another the next day. NAFTA had not begun its giant sucking sound. China was not in the World Trade Organization, playing by its own rules. The economy was not as financialized as today and banks were still relatively highly regulated. Americans were not nearly as in debt.

2. The market has been seized by lemming mentality and valuations are starting to detach from reality. Sure, some stocks are undervalued, but others are not. Bonds are producing little return, hence the allure of stocks — that could change.

3. Shocks will sink this market in a Wall Street minute. Among the potential black swans: North Korea really does it this time; China’s property bubble pops; growing dissatisfaction with Beijing’s response to pollution and inequality leads to civil unrest; a miscalculation in Asia leads to a hot confrontation between China and Japan (or Vietnam or the Philippines); the eurozone crisis heats up again; the Middle East blows up; Pakistan spins out of control; a terrorist attack.

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March 6, 2013 at 10:20 AM

The Dow and our great divergence

The Dow Jones Industrial Index is a great indicator of the great divergence facing America today. The Dow hit a new record on Tuesday — although adjusted for inflation, it’s still below its 2000 level — and was still rising this morning. The index has its critics simply as a market measure, but there’s no doubt that thanks to easy money from the Federal Reserve and record corporate profits, the stock market has enjoyed a good four years. So much for Obama “socialism.” Meanwhile, unemployment remains stubbornly high, middle-class wealth is devastated from the housing crash and years of stagnant wages, while economic mobility is largely stuck. The hangover from the Great Recession includes a $1 trillion gap in output. Nearly 48 million are on food stamps. Political paralysis makes it impossible to engage in the stimulus, especially infrastructure spending, that would help. Instead, we’re doing austerity, which has failed across Europe.  Naked Capitalism comments:

The Fed has been trying to reflate asset values to goose the real economy. What it has done instead is goose the incomes of the top 1% while everyone else is on the whole worse off. But the central bank is suffering from a very bad case of “if the only tool you have is a hammer, every problem looks like a nail” syndrome. It’s unwilling or unable to admit that its program is working only for a very few. It has convinced itself that if it just keeps on the same failed path long enough, things will turn around. As we can see from Japan, “long enough” can exceed 20 years, and it is not clear that the latest Japanese pump priming will finally pull the economy out of the ditch.

Stock ownership is heavily concentrated among the wealthy. About 21 million households own stocks directly. Most own stocks indirectly, through mutual funds, often from their 401(k) accounts, many of them small. According to the Investment Company Institute, an industry group, 44 percent of American households were invested in mutual funds in 2011 vs. a record 45.7 percent in 2000.

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Comments | More in Investing, Jobs/Unemployment, Stock market

October 26, 2012 at 10:15 AM

Vote: Is the stock market overvalued?

Equities have had a good run. Big companies, especially, that came through the Great Recession often ended up with very strong balance sheets, lean operations and rising profits. That last part may be changing as the third-quarter results come out. The markets had serious swoons over three sessions and have been tepid ever since. Of course, October is often a bad month, even in bull markets. So what do you think?

Is the market at a turning point?

Read on for the best links of the week and the haiku:

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October 8, 2012 at 10:30 AM

October, beyond the election

Whatever happens in the American electioneering over the next month, here are a few things to watch that touch only peripherally on the campaigns:

1. Slowing in Asia. The World Bank today lowered its growth forecast for East Asia and the Pacific region, chiefly because of China’s ongoing slowdown and lack of effective stimulus. This will have a direct effect on the Pacific Northwest because of our trade dependency on Asia (China is Washington’s No. 1 export destination).

2. The eurozone. Yes, this is getting old, but it’s not getting better. Greece is still in the monetary union, barely. Germany continues to resist more aggressive measures to restart growth. Austerity is causing a deep recession in many eurozone nations. It’s amazing how far they can kick the can down the road. But the best outcome on this trajectory is a long downturn complete with social unrest. The worst: A sudden crisis that causes all the dominoes to fall down.

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Comments | More in China economy and business, Debt ceiling debate, Dollar, Eurozone, Federal Reserve, Interest rates, Macro/Big picture, Oil prices, Outlook, Pacific Northwest economy, Politics and the economy, Stock market

August 7, 2012 at 10:15 AM

Trapped in a 401(k) and the stock market?

With the Dow back above 13,000, a reader asks, “what options investors really have instead of the market for their 401k portfolios?” He continues, “With so many companies eliminating defined benefit retirement and pushing employees into investment-based plans, that money every payday has to go into something that has the potential to create some growth. That creates a continuing demand for stocks and bonds, despite the risk, and it would seem that the demand keeps the Dow up.”

It’s an interesting theory. But Dow 13,000 won’t survive the next big bump in Europe or an inability in the Other Washington to avoid the fiscal cliff. As to other options, let me give a few caveats. I’m not a certified financial planner. I also believe there are only two personal finance stories: 1) Don’t be greedy, and 2) Don’t be stupid.

That said, we are long past the long bull market of the 1990s. In his latest outlook, PIMCO’s Bill Gross bluntly states “The cult of equity is dying.” From 1912 on, stocks produced a solid 6.6 percent real return. But for a variety of reasons, investors may face much lower returns in the future.

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August 3, 2012 at 10:15 AM

Vote: Do you trust the stock market

A software problem shaved $440 million off Knight Capital Group this week. It was reminiscent of the 2010 “flash crash” meltdown. Then there was the Facebook debut, fouled up on Nasdaq. As Reuters commented:

In the old days, it was simpler: human traders known as “specialists” worked on the floors of stock exchanges, such as the New York Stock Exchange, to match buyers with sellers and complete trades themselves if matches couldn’t be made.

But over the past decade, those specialists have been replaced by automated trading systems, and much trading volume has moved away from exchanges and into other venues, such as “dark pools” – trading systems that let investors anonymously buy or sell larger blocks of stock without tipping their hand to a wider market.

What do you think?

Do you trust the stock market?

Read on for the best links of the week and the haiku:

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May 23, 2012 at 9:58 AM

Is Dow 13,000 in our rearview mirrors?

The Dow Jones Industrial Average topped 13,200 as May began. Since then, it’s been pretty much all down hill. As I write, the DJIA is off another 1.34 percent to 12,338. Whatever the reality, many people still look at the average as a measure of the economy’s health. And while you know I am wary of any simple explanation of most market moves, it’s clear that the “greed and risk” mentality of a month ago has been replaced by “fear.”

There’s plenty about which to be unsettled: The eurozone crisis, the huge gambling loss at the one big American bank that was supposed to be well-run and Facebook’s botched initial public offering (although, according to the Wall Street Journal, Morgan Stanley and other underwriters have made a profit of $100 million).

The big enchilada is concern about America’s slow recovery slowing even further, along with political paralysis in D.C. Washington actually lost 300 jobs last month, hardly a promising sign if the trend continues into the summer. Unemployment remains at unacceptable, economy-wrecking levels. Then there’s China, facing its own slowing economy and a political succession crisis with the downfall of Bo Xilai. Interestingly, fear of an imminent Israeli strike on Iran has faded. And some signs point to housing at least hitting bottom, really, this year.

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March 23, 2012 at 10:00 AM

Vote: Stock market pause or pullback?

Today’s flash crash didn’t inspire confidence that the market can break a three-day losing streak. The broader economy continues to mend, but danger signs are prominent: China may suffer a hard landing and Europe is not fixed. Then there’s the issue of whether stocks are overpriced.

For the week ending March 21, inflows to stock mutual funds slowed considerably. On Seeking Alpha, John Mylant wonders if the bullishness of market analysts is cause for concern.

Now it’s your turn:

What’s next for stocks

Read on for the best links of the week and the haiku:

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