Another day, another record for the Dow Jones Industrial Average, yet you feel like it is the end of the world. Of course, part of that is the never-ending whining and fear mongering in the media. There is nothing worse than seeing an old billionaire with a chip on his shoulder predicating the crash… again, yet still admitting that he is long on certain stocks. Millions of individuals have missed the rally because of this nonsense, and many have put their money to work in a haphazard manner. The mistakes some of my subscribers are making are quite frustrating.
- Buying one or two stocks at a time to “see how it goes”
- Selling too soon, often for a loss - I had ITMN for a gargantuan gain, but some subs sold before the news… simply because this high-Beta stock dipped
- Selling too late, mostly out of a reluctance to take losses, even though it’s an unavoidable part of the process
Many of these investors and more share their genesis of fear from past crashes and experiences compounded by the pounding and pounding of negativity from the media.
If it’s So Easy
You have the experts, the curmudgeons, and booksellers whining about how easy the market has been, suggesting that the public keep piling money into the US stock market; and because of the Fed, it has become so easy. However, the facts say otherwise. The month of August saw American investors continue to dump mutual funds who invested in American companies, in favor of those who invested outside the United States. American investors are wildly bullish on the easy US domestic stock investment trade and sold $17.8 billion in US mutual funds and bought $73.6 billion in international. So, why aren’t they riding the coattails of the Fed?
Last month, there was a net inflow of $15 trillion into ETFs, and less than 4% bought US equities, while 41% loaded up on international equities and 51% loaded up on fixed assets. Out of all that cash being invested, the top two countries to receive the funds were Russia and China.
|August 2014 Flows|
By Asset Class
|Net Flows ($, M)|
|U.S. Fixed Income||7,692.04|
Nevertheless, I do not think America could take another presidential period in what we have seen in the last six-years. It would seem patriots would have confidence in our bedrock of faith and capitalism, along with sheer determination and the will to weather the current storm. Of course, there are areas where America has slipped dramatically, and that has to be reversed in order to get back to where we will feel great again.
We Are Number 16?
We continue to look deeply into what’s gnawing at Americans, and if we are still number one. Last year, according to “Where to Be Born” report from the Economist, the United States slipped to the 16th best place to be born… continuing its freefall from the top spot held in 1988.
The report takes into account 11 measures including:
- Material wellbeing
- Life expectancy
- Quality of family life
- Quality of community life
- Personal physical security
- Gender equality
The United States climbed to number three in the ranking of 144 nations in competitiveness, according to the World Economic Forum. However, beneath the surface, the following issues need to be addressed:
- 130 Government budget
- 134 Government debt
- 102 Taxes as percentage of profits
- 57 Procedures to start a business
The number three ranking is very misleading. The fact of the matter is that small businesses are the spark of our economic engine, and it is obvious why people are deterred. Then, there’s the debt issue; there is no political will to improve it as witnessed by the annual debt ceiling dance of death that we see the right and left do, then eventually extending the temporary – about 60 times and counting. What’s worrisome is the idea that we have given up on large swathes of Americans who are being urged by President Obama to buckle down for a career flipping burgers.
The Real Burger Dilemma
In July, the National Labor Relations Board (NLRB) General Counsel ruled complaints against McDonald’s (MCD) franchisees that include the parent company. Progressives, led by President Obama, using NLRB to make MCD and others an easy target for Service Employees International Union (SEIU) and other unions are sacrificing the franchise model in a last ditched effort. The effort is not only misguided and dangerous to our economy, but it is behind the curve. MCD American business is in trouble from changing taste, but of course, the notion of so many potential dues - payers is the only thing that matters to the SEIU.
The fact of the matter is, half of those working minimum wage are teenagers; we need to find a way for them to bust their backs, so they are not stuck at this level for the rest of their lives. The notion that President Obama thinks so many young Americans can only flip burgers for the rest of their lives is frightening, especially as colleges recruit more international students.
There continues to be an aggressive push for our universities to recruit more foreigners to join their student bodies. In the 2012-2013 school year, a record 819,644 international students attended US universities. Many of our universities have stepped up their overseas recruitment, especially in China and India.
- 99% East and South Asia
- 53% Latin America
- 22% Southwest Asia
- 17% Middle East
- 7% Africa
One of the more illogical aspects of this trend is how many of these kids come to America, gain immeasurable knowledge, and return to their respective countries in part because of immigration policy.
This is shocking, and it cannot be ignored. Americans echo the growing theme of America slipping, but we are investing in foreign nations and their children.
This anecdotal report from all the Fed regions paints a picture of improvement that might be gaining steam. Low inflations and pockets of strength in retail, construction, and manufacturing, is nudging optimism in the right direction
|Federal Reserve Beige Book – September 2014|
|Economy modestly increased in summer, firms have optimistic outlook for rest of year, retail/auto sales higher, tourism upbeat, new/existing home sales ahead of last year, home prices up, manufacturing decline in new orders, bankers have mixed results cautious lending||Business activity improving, retail and manufacturing cite better sales over last year, real estate unchanged, employment situation flat, prices steady||Economic activity moderate in the summer, firms showing optimistic outlook for rest of year, spending, manufacturing, construction and real estate all higher, credit conditions improving, cost pressures up, commodity prices mixed but mostly lower||Moderate expansion, demand for construction higher, new/existing home sales leveled off, auto and retail sales robust, coal/shale gas production little changed, freight volume stronger, demand for credit higher, payrolls mildly increasing, input/finished good prices stable but up for ag/energy|
|New York||Richmond||Kansas City||St. Louis|
|Moderate expansion, prices of goods and services remain steady, upward pressure on input prices, labor market improving, hiring picking up, growth moderate in manufacturing, retail and auto sales mixed but steady, tourism strong, home sales strong with inventories low but rising, loan demand flat||Economy stronger recently, manufacturing shows shipments and new orders accelerated, executives upbeat on job outlook, retail sales strong but consumers conservative on spending, tourism up, housing sales improved but inventory and prices little changed, agriculture input prices unchanged, finished goods prices rose slowly||Modest economic growth and firms optimistic on future growth, consumer spending higher, tourism moderate, manufacturing slow but positive with future expectations solid, construction stronger, loan demand higher, energy activity higher, prices modest, wage pressures increased||Economic expansion at modest pace, retail activity improved modestly, manufacturing and services positive, residential real estate weak but commercial conditions mixed, lending activity slightly higher, wages and employment levels grew modestly, prices have increased moderately|
|Moderate economic growth, manufacturing activity positive with scattered reports of weaker demand, retail/auto sales up, services demand improved, home and commercial real estate leasing solid, oilfield demand robust, ag conditions improved, pricing and employment steady, outlook positive||Moderate economic growth, increased activity in consumer spending, tourism, construction, real estate, services, energy and manufacturing, ag conditions mixed, mining steady, residential real estate down, labor markets tightening, wages moderately higher, prices level||Modest business growth, retail spending lower but tourism boosted due to weather, service sector moderately growing, manufacturing modest, real estate slightly growing for construction and sales, more firms optimistic||Economy moderately improving, overall price inflation modest, wage pressures modest, retail sales higher, demand for services up, manufacturing activity mixed, ag conditions good, real estate improving although residential sector slower, loan demand increased moderately|