Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday July 30th the S&P 500 closed @ 1102, and that was...
  
   +1.9% ABOVE its 12-Month moving average which stood @ 1081.
   -0.9% BELOW its 40-Week moving average which stood @ 1111.
   +1.9% ABOVE its 10-Week moving average which stood @ 1081.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL and the LONG-Term trend is  NEUTRAL.

Chart of The Day - Dow Priced in Gold Suffers -80% Plunge

Chart & Analysis Courtesy of Chart of The Day

For some perspective on the stock market, today's chart presents the Dow divided by the price of one ounce of Gold. This results in what is referred to as the Dow/Gold Ratio or the cost of the Dow in ounces of Gold. 

For example, it currently takes 9.0 ounces of gold to "Buy the Dow." This is considerably less
(-80% less) than the 44.8 ounces it took to buy the Dow back in 1999. 

While the actual Dow currently trades significantly higher than its March 9, 2009 lows (currently up +60%), the most recent rally that occurred in the Dow priced in gold is fairly similar to several bear market rallies that have occurred since late 1999. It is also of interest that the Dow (priced in Gold) is once again testing resistance of its accelerated downtrend.

Foreclosures Climb in 75% of Metro Areas

RealtyTrac, an online marketer of foreclosed homes, says that foreclosure filings climbed in 75% of the nation's metro areas during the first half of 2010.

California, Florida, Arizona and Nevada continue to lead the nation in the rate of foreclosures. Las Vegas was the worst-hit city.

According to spokesman Rick Sharga, unemployment has replaced toxic mortgages as the leading cause of foreclosures throughout the country.  "Las Vegas has seamlessly shifted from having a high level of foreclosures due to bad loans," said Sharga, "to defaults caused by a high level of unemployment." Some 14.5% of its work force was idle in June, up +2.1 points from last June.  Las Vegas had 1 filing for every 15 households in the metro area. 

The second highest rate was in Cape Coral/Fort Myers, Fla., with 1 for every 20 households. Two California cities, Modesto and Merced, tied for third with one filing for every 22 households.  One in every 48 Salt Lake City households filed foreclosure notices during the first six months of 2010, a +55% increase over the same period in 2009.  

Besides Salt Lake City, other metro areas where foreclosures have soared primarily due to the economy include Chicago, which saw filings climb +23% year-over-year to 1 in every 48 households. Charleston, S.C.'s, rate climbed +17% to 1 in every 68 homes, while Albuquerque saw a +157% jump in filings to 1 in 80 households.  Each of these cities has rising unemployment.


 

Net Worth Is On The Rise For Seniors

Net worth has increased almost 80% for older Americans over the past 20 years. Yet, major inequalities continue to exist with older African Americans and people without high school diplomas reporting smaller economic gains and fewer financial resources overall.

Between 1974 and 2007, the proportion of older people below poverty from decreased from 15% to 10% and with low income from 35% to 26%, and an increase in the proportion of people with high income from 18% to 31%. 


In 2007, the median net worth of households headed by white people age 65 and over ($280,000) was 6 times that of older black households ($46,000), down from 8 times higher in 2003. 


Labor force participation rates have risen among all women age 55 and over during the past 4 decades. Labor force participation rates among men age 55 and over have gradually begun to increase after a steady decline from the early 1960s to the mid-1990s. 


Source: Federal Interagency Forum on Aging-Related Statistics

5 Statistics That Prove America's Middle Class Is Being Systematically Wiped Out Of Existence

 1. 61% of Americans "always or usually" live paycheck to paycheck, which was up from 49% in 2008 and 43% in 2007.

2. 83% of all U.S. stocks are in the hands of 1% of the people.

3. 36% of Americans say that they don't contribute anything to retirement savings.

4. A staggering 43% of Americans have less than $10,000 saved up for retirement.

5. Only the top 5% of U.S. households have earned enough additional income to match the rise in housing costs since 1975.

Chart of The Day - Inflation-Adjusted S&P 500 Leaves Much To Be Desired

Chart & Analysis Courtesy of Chart of The Day

For some long-term stock market perspective, today's chart illustrates the inflation-adjusted S&P 500 since 1900. It is of interest that, when adjusted for inflation, massive bear markets similar in magnitude to what occurred in the early stages of the Great Depression (i.e. early 1930s) are actually not all that uncommon.

For example, the secular bear markets that concluded in the early 1920s and early 1980s were of similar magnitude.

It is also of interest that the inflation-adjusted S&P 500 is up +550% since 1900. This equates to an average annual return of only +1.7%.

Currently, with the S&P 500 trading -41% off its inflation-adjusted year 2000 peak, the S&P 500 trades very much near the center of its century-plus upward sloping trend channel.

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday July 23rd the S&P 500 closed @ 1103, and that was...
  
   +2.0% ABOVE its 12-Month moving average which stood @ 1069.
   -0.8% BELOW its 40-Week moving average which stood @ 1110.
   +2.1% ABOVE its 10-Week moving average which stood @ 1098.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL and the LONG-Term trend is NOW NEUTRAL.

Retirement Likely to Mean a Lifestyle Downgrade

If you're a baby boomer, the odds are high you'll exhaust your retirement savings after 10 or 20 years of retirement, according to the latest Retirement Readiness Rating report released this week by the Employee Benefit Research Institute. 

Nearly 50% of older boomers -- those now aged 56 to 62 -- and some 44% of younger boomers -- aged 46 to 55 now -- are at risk of not having sufficient income to pay for basic retirement expenses and uninsured medical expenses, according to the study.

After factoring in health-care and long-term-care costs, the National Retirement Risk Index, or NRRI, produced by Boston College's Center for Retirement Research, finds that some 65% of American households are at risk of not having enough money to maintain their living standard in retirement, according to the NRRI.

The portion of Americans who plan to work past age 67 is higher than ever: a record 55% plan to work full- or part-time, up from 52% one year ago. And the percentage planning to work full-time past age 67 reached a new high of 28%, up from 19% one year ago. 

There was also a sharp rise in workers who said they will need to work longer than planned because of the economic crisis. Roughly 65% said they will have to work more than 1 year longer, compared to 54% in the previous study. And 27% said they will have to work more than 5 years longer, compared to 24% in the previous study.

Many Americans are already working longer, be it to maintain their standard of living, stay mentally engaged or for the health-care benefits. Americans aged 65 and older in the upper income quintile now get about 40% of their income from working.

Saving more and perhaps reducing your standard of living now might be the only way to be reasonably certain you'll enjoy any standard of living later on.

According to EBRI, if you want to be one of the 9 in 10 households that maintains its standard of living in retirement, younger boomers in the lowest income quartiles will have to save, on top of what they already save, an additional +25% of compensation every year, while those in the in the third income quintile will have to save an additional +15% per year. Those in the highest income quartile catch a break and don't have to save any more.

BOTTOM LINE: As a nation, we are far from retirement-ready, so millions will have to prepare to live frugally or save more.

20% of Americans Suffered Major Economic Loss

The new Economic Security Index, constructed by Yale political scientist Jacob Hacker and a team of researchers, estimates that 20% of Americans suffered a significant economic loss last year - the highest level in the past 25 years.

The Index looks at the interaction of 3 key variables that have a direct bearing on a person's economic security: income loss, medical expenses and debt.

The ESI defines people as economically insecure when their situation meets two criteria. First, within a year's time they have lost -25% or more of their available gross income. Available gross income is the money they have left over after paying for medical costs and debt. Second, they don't have enough in an emergency fund or other liquid reserves to make up the difference. 

According to the index, which tracks Census Bureau data since 1985, 12.2% of Americans were economically insecure in 1985. By 2009, Hacker and his team estimate that 20.4% of Americans could be classified that way. The actual number of people affected increased by more than half, from 28 million in 1985 to roughly 46 million by 2007, the last year for which hard numbers were available. 

In the past, some economists, such as Stephen Rose of the moderate-progressive think tank The Third Way, have conducted research that counters the broadly negative view about how the middle class has fared economically over the years.

Social Security - Senior Survey Stats

• 55% - of people aged 65+ say they do or plan to rely on Social Security “in a substantial way.”
  
  
  
• 41% -  People aged 50+ are more likely to say they rely or plan to rely most on payments from Social Security for their retirement income with only 13% for people under 50.
  
  
  
• 65% - of 50+ people say Social Security will be more important to them when they retire than they thought it would be when they were in their 20s or 30s.
  
  
  
•  34% - of the 50+ crowd think Social Security is or will be “much” more important than they did when they were younger.
  
  
  
•  81% - of people oppose cutting Social Security as a way to help reduce the deficit. 71% “strongly” oppose it.
  
  
  
  Source: AARP

Lots of Early boomers Will Go Bust in Retirement

Scores of pre-retirees simply don’t have enough money set aside; golden years could get tarnished fast.

By Hilary Johnson @ Investment News

July 13, 2010 

The oldest baby boomers, many of whom are expecting to retire soon, will likely not have enough money to carry them through their twilight years, according to a study released today by the Employee Benefit Research Institute.

Almost half, or 47.2%, of early boomers, born between 1948 and 1954 (and now age 56 to 62), were found not to have enough to pay for everyday expenses, as well as uninsured health care costs. Younger boomers, who are now age 46 to 55, are slightly better prepared, with 43.7% having insufficient resources. 

For Generation Xers (born between 1965 and 1974), the picture gets slightly worse again, with 44.5% of that group ill-prepared for retirement, according to the analysis by the non-profit, non-partisan EBRI, which based the study on a database of 24 million households that participate in 401(k) plans.

The retirement predicament for GenXers relates to an almost complete absence of any defined benefit plans for younger people, as well as the impact of inflation, especially on health care costs, explained Jack VanDerhei, EBRI research director.

Naturally, wealth makes a difference to retirement preparedness, too, with 70% of households in the lowest one-third of income at risk for running out of money. About 42% of the middle income group are at risk, according to EBRI. Not surprisingly, only 23% of the wealthiest households are at risk of running out of funds during their retirement.

These findings should spur “someone” to beef up retirement information and education, so that pre-retirees could really understand the challenge facing them. Mr. VanDerhei said.

“If people with significant savings gaps don’t start focusing on this until they turn 60, it’s virtually impossible to help them,” Mr. VanDerhei said.  

“But if I can get to someone at age 45, and convince them what they’re currently doing has virtually no chance of being successful, making up a deficit by saving an extra 3% to 5% isn’t difficult.” 

A web calculator that allows people to see how much they need might help the situation, Mr. VanDerhei suggested. “There should be some way to educate these individuals to do some sort of financial planning. They need to start with more information, and then they can go to their broker or whomever, to implement the plan.”

Unprecedented Global Fiscal Environment Presents Significant Challenges

What’s worrisome about the current global fiscal situation is that it’s unprecedented in peacetime for so many large economies to be under such extreme fiscal duress and indebtedness. And part of the reason they are in such a fiscal black hole resides in the explosion in their structural, age-related liabilities. 

According to the IMF, the net present value of pensions, health care and long-term care out to 2050 dwarfs the costs of the banking crisis everywhere. 

Based on policy commitments in mid-2009, it is over 600% of GDP in Spain and Greece, 500% GDP in the U.S., 335% in the UK, and between 200% and 300% in other major EU countries. The precise numbers are less important than the orders of magnitude, and the implications for public policy.

It is no accident that this year, in Greece, Spain, France, the UK, and several U.S. states, for example, budgetary pressures have forced governments to implement or consider a variety of demographically driven policies. 

These include an increase in the retirement age, a temporary freeze on pensions, higher public employee contributions to pension schemes, and schemes to get citizens to pay more towards health care, or to specific conditions.

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday July 16 the S&P 500 closed @ 1065, and that was...
  
   -0.9% BELOW its 12-Month moving average which stood @ 1075.
   -4.2% BELOW its 40-Week moving average which stood @ 1111.
   -1.6% BELOW its 10-Week moving average which stood @ 1082.


Therefore, the INTERMEDIATE-Term trend IS BEARISH and the LONG-Term trend is BEARISH.

Why Rates of Return on Equity Are Likely to Drop Going Forward

As the world economy and financial system struggle to regain their footing, they must contend with a number of problems. One of these is a negative change in demographics. 

The population is aging rapidly and the proportion of retired to working people is rising sharply. Although demographic projections of population, life expectancy, and fertility are not free from error, the nature of aging means that for all intents and purposes, demographics are our destiny.

As each year passes, there are proportionately fewer young people, and more older people in the work force. As a long-term trend, the unique combination of rising life expectancy and weak fertility rates will define the economic and asset environment. Unless the effects of population aging are offset by purposeful shifts in micro and macro policy, we are losing an important driver of economic growth, and therefore, of top-line revenues.

The loss of growth drivers arising from labor supply and labor market developments doesn’t mean that equity values are going to decline absolutely and persistently, but it does suggest that the rate of return on equity will drop compared with previous decades.

How Much Inflation Have We Had Since 1913?

Just like compound interest, compound inflation grows faster and faster.  The average annual inflation since 1913 is only 3.42%.

But as you can see from the chart above compounding something for almost 100 years at +3.42% will result in over +2000% inflation!

A +2071% increase is a hard concept to grasp so to put it another way, something that cost $1.00 in 1913 would cost $21.71 today ($1 + $20.71 inflation).

Or conversely a $1.00 today is only worth 4.8¢ in 1913 dollars.  In other words the government over the years has stolen 95.2¢ out of every dollar!

If that isn't bad enough, actually the situation is even worse than that. If you look at the chart carefully you will see that inflation was fairly steep during the "teens" from 1913 - 1920. Then during the 1920's and 1930's inflation actually declined.

So actually most of the +2000% inflation occurred since 1940.  The average annual inflation rate since 1940 has been +4.11% with the 1940's, the 1970's and the 1980's having +5.63%,  +7.09% and +5.55% average annual inflation, respectively.

Each of those decades were especially hard economically for people trying to make ends meet while prices increased and wages didn't keep up.

Senior Voters: Engaged and Unhappy

78% - Percentage of seniors who are certain they will vote in the election.

65% - Percentage of seniors who have little or no confidence in the government's ability to make progress on important issues.


52% - Percentage of seniors who say they will likely vote for a Republican candidate in the mid-term election.


65% - Percentage of seniors who say they are closely following campaign news.


74% - Percentage of seniors who say they are dissatisfied with national conditions.


36% - Percentage of seniors who say they are less likely to vote for an incumbent running for re-election.


32% - Percentage of seniors who say they are more likely to vote for someone who has never held elected office.

Foreclosures to Persist

According to authors at the Federal Reserve Bank of Cleveland, the nation’s high foreclosure rate is likely to persist.

The Fed article looks at the changes in foreclosure and unemployment rates across states, noting the differences in the timing of the movements.

The conjecture that the high foreclosure rate will persist is based in part on the observation that states that experienced boom-bust housing cycles in the past (Texas, Oklahoma, Massachusetts and California) had elevated foreclosure starts for years after the peak in foreclosure starts and inventory.

These previous boom-bust cycles “were small in comparison to the current cycle,” the article said.  

While the recession has left deep scars in the housing and labor markets — with the unemployment rate doubling and the foreclosure start rate roughly tripling — the timing of the movements differs over the cycle, according to the abstract, written by Timothy Dunne, a vice president at the Federal Reserve Bank of Cleveland, and Kyle Fee, a research assistant.

How The Recession Has Changed America's Spending - Forbes.com

Americans were becoming frugal before the economy's decline, but the recession has accelerated this trend.

 The biggest news out of the Pew study was that "more than half of the adults in U.S. labor force (55%) have experienced some work-related hardship--be it a spell of unemployment, a cut in pay, a reduction in hours or an involuntary move to part-time work.
 
In addition, the bursting of the pre-recession housing and stock market bubbles has shrunk the wealth of the average American household by an estimated -20%, the deepest such decline in the post-World War II era, according to government data."
 
Read the entire article here...

Forbes.com - John Zogby - How The Recession Has Changed America's Spending

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday July 9th the S&P 500 closed @ 1078, and that was...
  
   +0.1% ABOVE its 12-Month moving average which stood @ 1077.
   -3.0% BELOW its 40-Week moving average which stood @ 1111.
   -0.8% BELOW its 10-Week moving average which stood @ 1087.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL and the LONG-Term trend is BEARISH.

Defined-Contribution Plan Stats - Retirement by the Numbers

$4.1 trillion – Amount held in defined-contribution plans as of year-end 2009.

$4.2 trillion - Amount held in IRAs as of year-end 2009.

70% - Percentage of retirees with multiple distribution options for a defined-contribution plan in 2007.

46% - Percentage of retirees who received advice from a partner or spouse; 42% turned to a financial advisor.

88% - Percentage of retirees who had a choice to receive a lump sum from their defined-contribution plan; 61% chose a full or partial distribution.

65% - Percentage of retirees who said an annuity was an option for their defined-contribution plan; 32% chose to annuitize their distributions.


Source: Investment Company Institute

Leading Economic Indicators Forecast Recession Probability

On July 2, the Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) registered negative growth for the 4th consecutive week, coming in at -7.7.

The rate of decline from the peak in October 2009 is unprecedented since the metric was first devised in 1967.

The ECRI WLI growth metric has had a respectable record for forecasting recessions.

A significant decline in the WLI has been a leading indicator for 6 of the 7 recessions since the 1960s. It lagged one recession (1981-1982) by 9 weeks.
The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative.

The index has never dropped to the current level without the onset of a recession.

The deepest decline without a near-term recession was in the Crash of 1987, when the index slipped to -6.8 versus -7.7 today.
 
Lowering the fed funds rate has been a primary tool for stimulating a weak economy. That tool is not available to the Fed in our current situation.

Commentary and analysis courtesy of Doug Short

Bankruptcy Filings Up

Bankruptcy filings surged +14% during the first half of 2010, according to the American Bankruptcy Institute.

Filings totaled 770,117 through June, compared to 675,351 during the same period last year. The institute also said that bankruptcies totaled 126,270 in June, a jump of +8.5% from the same month in 2009, when they totaled 116,365. The institute relied on data from the National Bankruptcy Research Center for its information.

Samuel Gerdano, executive director of the institute, says "Years of rising consumer debt and low savings rates, combined with the housing and unemployment crisis, are causing bankruptcy levels not seen since the 2005."

In 2005 Congress amended the Bankruptcy Code, making it harder for Americans to file and sparking a rush to file by October of 2005, when the amendments kicked in. In 2005, bankruptcy filings totaled more than 2 million.

By comparison, Gerdano expects there will be more than 1.6 million new bankruptcy filings by the end of 2010.

Medicare Advantage Plan Stats

• 33 – Number of Medicare Advantage plans the average beneficiary has to choose from in 2010.
  
  
• 18% - Percentage of beneficiaries affiliated with United Healthcare for Medicare Advantage plans.
  
  
• 15% - Percentage of beneficiaries affiliated with Humana for Medicare Advantage plans; the same percentage is affiliated with Blue Cross/Blue Shield.
  
  
• $44 – Monthly premium for the average enrollee, up +22% from 2009.
  
  
• +5.7% - Increase in Medicare Advantage enrollment in 2010.
  
  
• 11.1 million – Number of beneficiaries in 2010.
  
  
• -18% - Decline in number of Medicare Advantage plans in 2010.

Source: Kaiser Family Foundation

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday July 2nd the S&P 500 closed @ 1022, and that was...
  
   -4.3% BELOW its 12-Month moving average which stood @ 1069.
   -7.9% BELOW its 40-Week moving average which stood @ 1110.
   -6.9% BELOW its 10-Week moving average which stood @ 1098.


Therefore, the INTERMEDIATE-Term trend IS BEARISH and the LONG-Term trend is NOW BEARISH.

Nearly 1 in 3 First-Quarter Home Sales A Foreclosure

Nearly 1 out of every 3 U.S. home sales in the first quarter was a foreclosure property as steep price discounts boosted demand for distressed real estate, according to RealtyTrac.

Foreclosure homes accounted for 31% of all residential sales in the 1st quarter of 2010, with the average sales price of properties that sold while in some stage of foreclosure nearly -27% below homes that were not in the process, Irvine, California-based RealtyTrac said.


"In a normal market, only 1% to 2% of home sales are foreclosures, so this is certainly a significant level," Rick Sharga, senior vice president at RealtyTrac, said in an interview.


Total U.S. foreclosure sales in 2009 were up more than 1,100% from 2006 and more than 2,500% from 2005. Foreclosure sales accounted for 29% of all sales in 2009, up from 23% in 2008 and a mere 6% in 2007, the real estate data company said.


Meanwhile, the Sun Belt continued to lead foreclosures nationally, with Nevada, California and Arizona posting the highest percentage of foreclosure sales in the 1st quarter.


Foreclosure sales accounted for 64% of all sales in Nevada in the 1st quarter -- the highest percentage of any state. The state's percentage was down from 65% of all sales in the previous quarter and 75% of overall sales in the first quarter of 2009.


California posted the 2nd highest percentage for U.S. states, with foreclosure sales accounting for 51% of all sales there in the 1st quarter -- up from 50% in the previous quarter, but down from 70% of all sales in the 1st quarter of 2009.


Other states where foreclosure sales accounted for at least one-third of total sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon.


Foreclosures are by far one of the biggest threats to the U.S. housing market. Improvement in the housing market bodes well for the national economy, as it points to better demand in the sector where the first signs of the latest recession took root.

Sources of Income for Seniors in Retirement...

Social Security makes up about 40% of retirees’ incomes, while pensions and annuities add another 20% for people ages 65 and older.  

26% of the income comes from wages, with another 13% coming from assets.  

Of those who are retired, 80% receive some level of Social Security, 55% earn money on savings, while 35% have pensions.  

20% of people who have retired are still working.  

Here’s a scary thought:  The median income is just $18,000, which is up from $13,264 in 1974.  As you can see, retirement income has not really kept up with inflation.  

Not too surprisingly, women rely more on Social Security income than men, who have pensions and annuities to fall back on.  

(Source:  Employee Benefit Research Institute and U.S. Census Bureau)