Only the rich are saving

Last quarter, the percentage of Americans’ personal savings rate stood at 5.9% of their disposable income, according to the Bureau of Economic Analysis’s. Given that number had fallen to as low as 1.9% in 2005, that’s a large improvement. But who is saving and who is not is the real question to ask. Our savings rate is clearly higher than it used to be relative to other countries. It is nowhere near the Chinese savings rate of 38% of 2014, for example, but it has improved to the point that we are now somewhere in the middle of the pack when looking at the 35 member countries of the Organization for Economic Cooperation and Development. But before we break out the champagne in toasting our newly-thrifty nation, you might want to understand that it is most likely the top 10% of households who are responsible for the lion’s share of this improvement. Given that income inequality is at historically high levels in this country (comparable to what they were during the American Revolution), an argument could be made that the “haves” in this country are so rich that they can’t spend it all. And so they increase their savings rate. We do know that as late as 2013, the bottom half of income earners saved little to no money. In 2015, a Pew Charitable Trust study indicated that 41% of households had less than $2,000 in savings and 25% of us had less than $400 on the side. After the financial Crisis there was some hopeful news for the common man on the credit card front. Debt had fallen...

One hundred days does not an economy make?

Markets by their very nature are impatient. Every day they are open, something, somewhere has to be making traders money. Applying that behavior to either Donald Trump or the overall economy would be a mistake. Nonetheless, it is what it is, Friday’s first quarter GDP data, which measures the pace of growth in the U.S. economy, came at a dismal 0.7%. That was far less than expected. Most economists were expecting a number closer to 1% or more. The response from Wall Street was “where’s the beef,” meaning that there has been little to no evidence that our new president has done anything whatsoever for the economy. But what about all the new hope corporations and investors are supposed to be feeling? Well, hope doesn’t pay the bills or seemingly goose investment spending very much. Fixed investment in the nation’s plants and equipment only expanded by a measly 1.6%. To be fair, the first quarter in just about every year tends to be the weakest. Economists call it “residual seasonality.” You can think of it as the after Christmas economic hangover when spending dampens down as the credit cards bill come due.  Most traders know this, but hey, if there are suckers out there that are dumb enough to sell stock because of it then… I’d rather listen to folks like Ben Bernanke, former Fed chieftain, who thinks that a combination of low inflation, low interest rates and global growth not only justifies the level of the stock market but may point to further gains ahead. Bernanke thinks very little of the market’s rise is predicated on additional U.S....

The world’s bread basket no more

The recent controversy over dairy trade policies between the Trump Administration and Canada is only the tip of the iceberg. While Trump is selectively picking on one particular product, the truth is that the United States is losing its competitive advantage in many areas of agriculture. Government subsidies to the agriculture industry worldwide have always been a thorn in the American side. That’s not to say that our farmers have gone without. We too subsidize our farmers. Taxpayers are expected to pay at least $87 billion to help farmers over the next dozen years. And for decades, we have been spending billions each year to protect them from lost income and crop failures. The difference between then and now is that, despite other countries’ farm subsidies, we were still number one worldwide in a great variety of food stuffs. So we didn’t care as much. Today this nation’s market share for commodity such as wheat, soy beans and corn are shrinking rapidly. Exports of wheat, for example, have declined by over 50% since the 1970s, while countries like Russia have expanded wheat production by over 60% in just the last ten years. As a result, Russia now dominates global wheat production. And Russia is not alone. Countries in South America, specifically Brazil and Argentina, traditional agriculture countries, have also increased production, thanks to investment, technology, year-round growing seasons, and new planting methods. Four years ago, Brazil overtook the U.S in soybean exports (now the world’s largest exporter) and will be the second-largest corn exporter after the U.S. this year. How did Brazil accomplish it? Brazil embarked on its agricultural...

Markets like earnings; Washington, not so much

  It was another week of volatility that saw stock averages bounce up and down within a well-defined range. It is what happens when investors are unsure of the future, but this period of uncertainty may be ending. Buoyed on the downside by good second quarter earnings thus far, but hemmed-in on the upside by political concerns, the markets have been marking time. Investors now believe that the Republicans are so disorganized that none of Trump’s initiatives will pass this year. If that were the case, traders believe the markets are too “rich.” If, on the other hand, Washington did get their act together, traders believe we could see 2,450 on the S&P 500 Index in quick order. I hate to say it, but time will tell. Technically, the S&P 500 Index came within 6 points of re-testing the intraday low it made on March 27th. I wrote last week that this re-test was likely to happen. Purists would say the re-test doesn’t count because the index never actually touched that low at 2,322.  And so we wait. It was Steve Mnuchin, the administration’s Treasury Secretary, who saved the day this week.  With the words “We’re pretty close” to bringing forward tax reform,” stocks soared on Thursday.  It just illustrates how keyed up investors are when it comes to the present debate in the nation’s capital. In a short period of time, investor sentiment has gone from everything that Trump wants will be done in his first 100 days to nothing he promised will ever get done, ever. Readers may agree that nether attitude is realistic. But that doesn’t...

Should college be free?

Recently, New York became the first state to offer a tuition-free college education to middle-class students at two and four year public colleges. Tennessee, Oregon and the city of San Francisco have also given similar benefits to students attending community colleges in their states. It’s about time. The headline of this column was taken from a series of articles I first published six years ago. At the time, I argued that the benefits of a college education today were about equivalent to the worth of a high school degree back in the 1940s and 1950s. Back then, graduating from high school opened the door to a good job, while creating a population of largely, law-abiding citizens (and guaranteed educated cannon fodder for the country’s military in time of war). Back in the day, when Thomas Jefferson first suggested creating a public school system, he and others like him argued that a free and common education would create good citizens, unite society and prevent crime and poverty.   It took decades before that concept became law but, once implemented, it worked as the founders expected. However, as society changed, a high school education was no longer sufficient. The computer age ushered in different educational demands and skill sets that students could only acquire in a higher-education environment.  For all intents and purposes, college (and vocational schools) has replaced high school as the entrance ticket to the “American Dream.” As such, I reasoned that since public high school education is free in the United States, why then should Americans pay for college? Under the New York legislation, tuition will be free for...