Over the next decade domestic crude oil production is expected to increase 20% or more to levels not seen in the U.S. since the 1990s, according to the U.S. Energy Information Administration. We were producing 5.5 million barrels per day (bpd) last year compared to 5.1 million bpd in 2007 and production is expected to grow by 550,000 bpd to 6.7 million bpd by 2020. Production is expected to slow after that but still maintain a healthy pace of over 6.1 million bpd through 2035.

U.S. oil production grew faster than in any other country over the last three years. Names from big oil’s boom days like the Texas Panhandle, the Oklahoma Border and Granite Wash in states such as Texas, Oklahoma and Kansas have been joined by new wildcat states like the Bakken shale area of North Dakota and even Pennsylvania.

Naturally, since it is an election year, politicians are quick to take credit for oil’s resurgence.

“Under my administration, domestic oil and natural gas production is up, while imports of foreign oil are down, said President Obama, which is true but not because of any policies of his administration. Energy exploration and drilling decisions are made many years in advance. Decisions made 4-6 years ago are only now showing up as increased production today.

The real cause and impetus behind this energy rebound is a combination of three factors: the price of oil, an oversupply of U.S. natural gas and new technologies that make drilling and finding new oil cost effective.

Oil is hovering around $100/bbl. and has traded in a rough range of between $85-$110/BBL. most of last year. At the same time, natural gas prices are at a ten-year low so it pays for oil and gas exploration drillers to focus on finding more of the higher priced crude oil component of the energy spectrum.

At the same time, new drilling techniques like horizontal drilling and hydraulic fracturing that contributed to the recent explosion in natural gas production are being applied to traditional oil fields. As a result of the higher prices and cost effective technology, pools of oil and oil shale that were passed up in the past as too expensive to drill, are now profitable to extract.

All this good news still won’t bring this country to its goal of “energy independence” anytime soon. The U.S. is forecasted to consume 19 million bpd of oil by 2020 versus production of only 10.2 million bpd. Of course that forecast can change depending on price, supply, demand and decisions made by both the private and public sector here.

For example, just this week the Obama Administration rejected the proposed XL Keystone pipeline from Canada, a $7 billion, 1,700 mile route through the Great Plains of Texas. The decision is not final, but rather a delaying tactic to allow the pipeline’s supporters to update their proposal. It is projects like this that can impact the nation’s energy production in years to come. Let’s hope this country and its leaders can establish a cohesive energy policy soon that will someday make us energy independent.

FBI Operation 'Perfect Hedge'

Why should this surprise us? Over the last few years an increasing number of investors I talk with have argued that “the game is rigged” against us little guys. Time after time, I have watched the markets trade up in advance of good news or down before the opposite occurred. It happens much too often to be coincidence.

Back in the early Eighties, straight out of graduate school, I joined Drexel Burnham Lambert, a venerable investment banking firm back in the day. There, I made the acquaintance of Mike Milken, who at the time was diligently putting together a junk bond empire for Drexel. He moved his operation to California and invited me along, but I joined Merrill Lynch instead to establish their foreign equity effort.

That turned out to be a smart move. Milken and his associates went on to make millions but ultimately went down in flames as authorities uncovered an enormous insider trading scam centered on the “junk bond king”. As a spectator, I had a front row seat throughout the entire sordid affair.  Milken and some of his buddies went to jail. Drexel went bust and I understood how deceptive and easy it was for individuals to be sucked into insider trading.

The SEC and the FBI are focusing on specific transactions involving individual securities where insider information was leaked. The FBI contends that there was a criminal ring of analysts, traders and fund managers among some prominent financial firms that regularly took advantage of illegal information and garnered millions in profits for the alleged violators.

Readers may recall that last year Raj Rajaratnam, the founder of a well known hedge fund, was sentenced to 11 years in prison for making millions in an insider trading scam.  Altogether the FBI has wracked up 56 convictions in their four year probe called “Operation Hedge”.

I applaud their efforts. Like the FBI, I believe insider trading has exploded in financial markets and goes far beyond a few hedge funds and their associates. But insider trading between government and the private sector is even bigger than the abuses presently being uncovered among and between Wall Street firms. However, I doubt that either the FBI or the SEC has much stomach to actively probe the connections between our elected officials, government bureaucrats and their campaign contributors within the private sector.

As readers are aware, I have already written two columns denouncing the present legal ability of our senators and congressmen and their families and friends to profit from insider information that they have acquired in the course of the legislative process.

My last column on the subject centered on the passage of the STOCK Act (Stop Trading on Congressional Knowledge), a bill that would have prevented that practice. It was no surprise that House majority Leader Eric Cantor (R-VA) scuttled the bill in December.

 Insider trading will remain a serious and debilitating side effect of a financial system where “greed is good” and the amount of money you make is never enough. At most, the SEC and FBI will be able to catch those sloppy enough to leave a trail but the really insidious information exchanges will continue to fall under ‘business as usual.’

The Fed banked billions in 2011

The Fed’s net income was actually down from a record breaking $81.7 billion profit in 2010 on its $2.9 trillion investment portfolio.  Still, they did better than the S&P 500 Index, although not as well as the Dow last year.

The real question is how much risk the Fed is taking in relation to return. It appears that on the metric the Fed is taking on more and more risk to generate a return that is under the “riskless” 3% return of a 30 year U.S. Treasury bond.

Take the mortgage market, for example. Over the last three years, The Fed has bet $1.25 trillion that its efforts could turn around housing in America. That bet hasn’t panned out. Since they started buying mortgage backed bonds in the beginning of 2009, the value of the housing market has declined 4.1%.

Rather than pull in their horns, the Fed is buying another $200 billion more in 2012. That amounts to 20% of all new mortgage loans. That may just be a beginning, if you can believe some Fed officials. They indicate the central bank could buy two or three times that amount.

The Fed normally makes its money from interest earned on U.S. Treasury bonds, federal agency debt and securities held by firms such as Fannie Mae and Freddie Mac. That sounds tame enough, but that is not the entire story. By the nature of its charter, the Fed is supposed to deal in risky assets from time to time. Like Star Trek, their mission may be “to boldly go where no man has gone before.”

The Fed is a classic buy at the low investor lending money and investing when no one else will. During the financial crisis, when banks, corporations and even countries were experiencing a free fall in prices in all their financial securities, the Fed was the buyer of last resort.

            Yet, today, even some of the most sophisticated Americans have it in their head that the Fed uses taxpayer money in its operations. Even the Wall Street Journal reported in a recent story, “Fed’s Lofty Profit Becomes Treasury’s Gain” that “The central bank has come under attack for taking too many risks with taxpayer money…” The facts are that the Fed actually contributes to the pool of taxpayer funds and will continue to do so whenever possible.

            Since the Federal Reserve Bank has the power to create money, it does not need to borrow money from, or use taxpayer money. Sure, the Fed might lose money at some point if inflation suddenly spiked and it needed to pay higher interest on bank reserves. If things really got messy and it needed to sell some of its government bonds, it might suffer a loss but those would be, at worst, temporary issues.

Remember, too, that the Fed is both a buyer and a seller with a far longer time horizon than the markets. Its mission is to administer interest rate policy and insure that unemployment does not get too far out of whack. As such, it creates and controls interest rates to a large extent and can create over time an economic environment conducive to those goals.

There is a reason that investors worldwide don’t bet against the Fed. Although profits are fairly far down on the list of the Fed’s agenda, because of the nature of their objectives, it is more than likely that they will turn a profit as long as they continue to buy low and sell high.

Some call it the “Robin Hood Tax” (part of H.R.3313) because it supposedly taxes the rich and distributes the proceeds to the rest of us peons. It is a bit more complicated than that, but you get the idea. Some say the proposal surfaced as a result of the Occupy Wall Street movement. Others credit the late Noble prize-winning economist James Tobin for the idea.  The basic thrust is to impose a financial speculation tax of .03% or $3 in taxes for each $10,000 in financial transactions.

Although it doesn’t sound like much of a tax, its proponents claim it could generate as much as $48 billion or more per year if all G-20 countries signed on to implement the tax.

In Europe, where every nation is scrambling to raise money, the idea is supported by the European Commission in Brussels that would like to see as much as $10 per $10,000 tax in place throughout Europe by 2014. The Italians, under their new Prime Minister Mario Monti, is planning to impose the tax as part of his country’s fiscal reform plan. Both the French and German leaders are on record as backing the idea and even Pope Benedict XVI came out in support of it.

 In the United States, the idea has found surprising support among some strange bedfellows. Bill Gates, George Soros, Ralph Nader, Al Gore, the nurses union and the A.F.L.-C.I.O. among others. As such, a bill to impose a tax on certain trading transactions in financial markets (part of H.R. 3313) is working its way through Congress. All the sponsors of the bill are democrats.

Republicans oppose it, which should come as no surprise since the vast majority of Republicans won’t even read a proposal to raise taxes of any sort.  Surprisingly, the White House and Britain’s Prime Minister David Cameron are less than enthusiastic about it. Both feel it might jeopardize their country’s leadership positions within financial markets where such a tax may drive traders elsewhere to do their business. The White House also believes it would hurt pension funds and the banks.

In my opinion those are lame arguments and don’t square with the facts. For instance, both Hong Kong and Singapore, two fast-growing financial markets, already charge a $20 per $10,000 transaction tax. Great Britain, the leading financial center in Europe, has had a stamp tax in force for 25 years called the Stamp Duty Reserve Tax on most paperless trades of companies located or registered in the UK. It has not impacted the financial status of those markets one whit.

The Securities Industry is against it (surprise, surprise) warning that such a tax would impede efficiency, depth and liquidity in the markets as well as raise costs to issuers, pensions and investors.

What the tax will do, in my opinion, is reduce the speculation in global markets while generating much-needed revenues. Speculation, in the form of High Frequency Trading (HFT) is the bane of our existence. These traders buy and sell blocks of stocks, bonds and exchange traded funds second by second, minute by minute in large volumes throughout the day generating thin but profitable trades that add up. They could care less about a company’s earnings or its future prospects. When a stock drops, hundreds, if not thousands, of HFTs and day traders jump on the trade, like vultures over a wounded animal, they drive their victim to its knees before going on to their next prey, all in the name of profit.

A $3, $5 or even $10 tax on these transactions will crater that market and do much to reduce global volatility. Who knows, actual investing may come back into vogue and with it the retail investor. Sure, the tax may hurt the little guy but the individual investor usually doesn’t trade ten or fifteen times a day at $10,000 a crack.

Detractors argue that it is not HFT but the circumstances of the market, such as the European crisis, that is responsible for the volatility. I agree that the problems we face worldwide do create volatility and always have, but the markets have never reacted with the level of violent swings and almost daily market volatility that we experience today.

 So I say string your bows, Oh, ye Merry Men, let arrows fly and support this transaction tax.

Will Congress muzzle their own insider trading?

Back in May of this year, in my column (“Gordon Gekko should run for Congress”), I pointed out that our nation’s elected officials were not subject to the insider trading law that regulated everyone else. As a result, individual politicians and their cronies have profited substantially year after year from the knowledge they picked up in closed door hearings, subcommittees and the like.

This access to insider information has become even more important over the last few years as more and more market moving events are triggered by governmental actions. Just consider how government pronouncements in the U.S. and Europe over the last six months have caused huge market swings. 

Efforts to change this law have been going on for years with scant success. News stories such as the Wall Street Journal articles on the subject last year and last month’s “60 Minutes” report on the scandal have increased public awareness. I suspect that if their approval ratings were not so low (congress has a historically low 9% approval rating) the politicians would simply ignore the heat, as they have done in the past, and continue to profit at our expense.

A month ago only nine congressmen supported the bill that would require elected officials to report all trades over $1,000 within 90 days. After the 60 Minutes show, that number increased to 180 and more than 20 Senators have since jumped on the band wagon.

Today, a cozy relationship exists between politicians, political intelligence firms and big players on Wall Street. There is nothing illegal in a congressman or senator divulging sensitive information to a political intelligence firm which in turn sells that information to Wall Street. The more market-sensitive information that is passed on through the pipeline, the more a particular politician can demand in future campaign contributions from the beneficiaries of that information.

This bill would make it illegal for individuals and “political intelligence firms” to continue that practice. It would also require firms and individuals involved in “political intelligence” to register just like any other federal lobbyist.

Call me a cynic, but I doubt this bill will pass. Not only are lawmaker’s potential for using their office for personal gain at stake, but this bill will also jeopardize the pipeline to campaign funds from those special interests we hear so much about.

In a different world, all my readers and everyone in America who cares (the 99%), will call or e-mail their representatives in Washington and demand he or she vote for this bill when it comes up for a vote next week. It is your chance to change a lot of what is wrong with Wall Street right now. It’s your move, America.

Readers may recall that as a result of the last go-around over the debt ceiling, investors worried that a technical default by the U.S. would create massive negative fallout among the holders of our national debt. “They” (so the story goes) would dump our debt overnight creating a huge spike in interest rates, etc. etc.

So who are “they”?

Let’s start with foreign holders. China is often mentioned as a critical investor of U.S. government debt. The horror story most mentioned is that China could use their position as a weapon. They could sell their holdings in our bonds sparking a global financial disaster. As the largest foreign holder of our debt, I do not discount the importance of China’s holdings. But as an investor in U.S. Treasuries, China still ranks as a minor player with less than $1 trillion in holdings ($895.6 billion).

China has actually reduced its level of U.S. government debt by $33.4 billion over the last two years. The bond market barely budged as a result. In fact, U.S. interest rates have declined during that period.

For all the talk about China, few know that Japan, considered one of our most reliable economic and political partners, holds only slightly less of our debt at $877.2 billion. The United Kingdom (another ally) is next followed by a global group of oil exporters who use our debt holdings as part of their oil export business. In addition, Brazil, the Caribbean Banking Centers, Hong Kong and Canada hold portions of our debt. None of the above would likely dump our bonds and might even buy more if asked.

It may surprise you to know that over a third of our government debt is held by the United States. The Fed and other intergovernmental holders own $5.351 trillion while state and local governments account for another $511.8 billion (roughly the same amount as Great Britain).

About 60% of our debt is in the hands of the private sector. Insurance companies and depository institutions (banks) hold just over half a $1 trillion while a diverse group of investors including individuals, brokers/dealers, personal trusts, estates, savings bond and corporate institutions, among others, hold $1.458 trillion. Mutual funds own $637.7 billion and pension funds another $706 billion or so.

The point is that contrary to popular opinion the majority of our debt is held in friendly hands. Sure some holders’ of our debt might sell if our credit rating is reduced again or there is some kind of technical default on U.S. sovereign debt, but those would be marginal sellers. Certainly the U.S. federal, state ad local governments would keep what they owned and possibly buy more.

Most of the private sector holders would also keep their investments. It would be difficult for pension funds, insurance companies and others to find a comparable alternative for their government debt holdings. Despite the possible downgrades, U.S. debt is still the safest investment around.

Finally, any credit rating change to our debt would not occur in a vacuum. Investors will always need to find a suitable replacement and in a world where Europe is teetering on the edge, where emerging economies are slowing and currencies go up and down like yo-yos. Our sovereign debt, while not stellar, still appears to be more appealing than the alternatives.

Chugging out of the fog

The EU gave itself a self-imposed deadline of this Wednesday to come up with at least an outline of a deal. It wasn’t easy. There were so many moving parts to include that in the end it took a marathon, ten-hour series of negotiations to get everyone on board.

The respective finance ministers addressed the three areas that most threatened the financial well-being of the Union. Greek debt was the first order of business. Europe’s leaders vowed to reduce that nation’s debt to 120 % of GDP versus its present rate of 180%. Much of this reduction will be accomplished by asking private creditors (mostly banks) to accept a 50% loss on the Greek bonds they hold.  It remains to be seen whether these financial institutions will cooperate, but governments have historically managed to get what they have wanted from the private sector (or else).

This 50% “haircut” is equal to roughly $139 billion, which will be applied to a second rescue plan for Greece. The Euro leaders promised to guarantee the remaining half of Greece’s existing debt and will spend as much as $42 billion to insure against further losses. It will take at least another two or three months to finalize this debt deal.

The next issue, of course, was how to mitigate the big hit Europe’s banks are going to take in this haircut.  The losses they will incur will drastically lower their reserves and the major concern was how to replenish these reserves quickly. The banks have been directed to go out into the open market and raise as much as $148 billion between now and next June.

Of course, the devil is in the details. There is no guarantee that there will be an appetite for new European debt or equity offerings. Still, depending on the terms, there may be demand from countries such as China, Brazil or in the worst case, European governments themselves that may be buyers of last resort if push comes to shove.

The EU recently agreed to establish a European Financial Stability Facility (EFSF) and fund it with $610 billion.  Somewhat akin to the U.S. TARP, the ESFS is a bailout mechanism, only instead of baling out banks; the money was earmarked to save countries like Italy, Portugal and Greece.

The problem was the EFSF is just too small to insure the debt of bigger countries. There was a need to leverage the fund in order to insure at least part of the debt of borderline economies like Italy and Spain. The ministers agreed to allow the ESFS to act as a direct insurer of bond issues, which will bring the total firepower of the fund up to $1.39 trillion.  This should make new bond offerings by Italy and Spain more attractive to investors, according to the EU.

There is also an effort to entice big institutional investors from both the private sector as well as government sovereign funds to contribute to a special fund, backed by the EFSF, which could be used to buy government bonds as well as to help in the recapitalization of Europe’s banks.

I admit there are still a lot of details to work out but the Europeans should get an “A” for effort in finally addressing the core problems of their financial crisis.  I do believe that implementing this program will take time. The process will be less than perfect and that could mean more disappointment ahead, but at least Europe is on the right track at last.

Dont Tread on Me

But don’t try to compare what is happening today on Wall Street or in D.C. to the on-going struggle for basic human rights in the Middle East, nor to the riots in Greece over their debt crisis, or the seemingly senseless rampage of young people through the neighborhoods of London this summer. The one palpable thread that weaves its way throughout the masses in this global awakening of civil disobedience is that these protestors are convinced that their governments are no longer listening to them.

One recurring complaint that I have heard ever since Occupy Wall Street descended upon Zuccotti Park in lower Manhattan on September 17^th is that the protestors cannot articulate exactly what it is they are protesting against. To me, it is as clear as the sky above. It is the same reason our forefathers held the first Tea Party in Boston. Put in historic terms, these modern day revolutionaries are protesting “taxation without representation.” That no matter how bad the situation becomes for the majority of Americans, the status quo will remain the same 

They argue that there is now an entrenched and extremely dangerous liason between Corporate America, Wall Street and our political system that threatens our economic and political freedom. If you have been reading my columns over the last few years, you may have picked up the same message.

 I have often pointed to the excesses of Wall Street and railed against the practices of the financial sector. Occupy Wall Street and I share the same opinion of government bailouts that have done little but further enrich our nation’s bankers and brokers. Instead of lending out the billions of dollars they received in taxpayer money, the banks pocketed that money, speculated with that money and paid their executives huge bonuses with that money. The country narrowly avoided a second depression because of them and yet, how many of these miscreants have paid for their crimes?

This week we were told that two years after the recession, inflation-adjusted median household income fell 6.7% to $49,909. During the recession itself, household income fell 3.2% and yet American corporations are making record profits with record amounts of cash in their coffers. Yet, they refuse to hire new workers or even raise the salaries of those they employ.

 Whether we like it or not, the rich in this country have gotten richer and the rest of us have gotten poorer and it is a trend that appears to be accelerating.

The Occupy Wall Street movement calls us “the 99 percent”. They claim that the top one percent of Americans owns 40% of the nation’s wealth. They also argue that the gap between the 1% and the 99% is only going to grow wider. They are protesting (revolting may be a better word) in fear that the middle class in this country will be a thing of the past unless something is done.

The greed of Corporate America also figures prominently in their slogans and protest placards. But a corporation cannot feel greed since it is not human. It is an entity that is driven by only one principal–profit. It cannot, nor should it, be worried about things like humanity, kindness, fair play, a livable wage, etc. So, for example, when corporations are making historic record profits by demanding that their existing workers work longer hours for less money, fewer benefits and no raise or bonuses, it is simply following its stated objective, improving profits. Corporate executives will receive large bonuses to keep costs low and they know that with unemployment over 9% they can always replace workers who complain or protest.

There was a time in this country where the very same practices occurred. In an effort to protect themselves, workers organized and government regulated the worst of the excesses of corporation’s unbridled devotion to profit. That was then but now unions are a shadow of their former selves.

As for government, if the regulator is beholden to these same corporations, then the system no longer works. Although we, the great silent middle class, continue to pay taxes, continue to dutifully vote to “throw the bums out” and replace them with new bums, our views as to what is fair is no longer represented by our leaders.

Our system no longer works when politicians, in order to get elected, finance their campaigns by taking huge sums of money from the corporate sector. How can they do what is fair and equitable for us and at the same time regulate the hand that feeds them?

How different is that from those days when American colonists were taxed but ignored by a monarch who administered to the favored few residing in England?

   There is a growing frustration in this country. We work harder than ever, for less and yet we are told that everything that can be done is being done. Most of us are angry; some about the ecosystem, others about the two wars that are a decade old or our inability to get ahead or even find a job. There are plenty of us that are mad about all of the above and then some.

In my opinion, we are seeing the beginning of a revolt by the long suffering, long silent majority. We have a tradition of taking to the streets when our voices are not being heard, beginning with the American Revolution. Veterans of WWI marched for their pensions. The Middle Class marched during the Great Depression; Farmers marched to forestall foreclosure and food prices. Workers marched for the right to unionize, and women to vote. Today brave and motivated Americans are marching again, and I say it’s about time.  As long as their protests remain peaceful, count me among them.

New versus used cars?

My wife, Barbara, and I have been shopping for either a used or new car. We own matching 2004 Subaru’s that we purchased used back in 2005-2006. We would much prefer a vehicle with even better gas mileage, but we live in the Northeast where snow and ice demand a four, or all-wheel drive vehicle and that limits our choice of fuel efficient transportation.

The good news for us is that although all used cars are priced higher these days, smaller, fuel efficient models and hybrids are commanding especially good prices. As a rule of thumb, every $1 increase in the price per gallon of gas, the value of used compact cars rises 8% to 12%. So if the trade-in value of your car was worth $10,000 last year, it could bring $11,000 this year.

However, this shortfall in supply won’t last long. Dealers estimate by late fall or winter the pipeline will begin to fill once again.

Much of this used car price windfall is a by-product of the 2008 recession. The consumer was hit by the double blow– less income and, thanks to the financial crisis, increased difficulty in qualifying for either a lease or auto loan.  As a result, today, three years later, there are a lot less used autos for sale. The average car on the highway today is 10.6 years old, according to Polk, the auto research firm.  That’s up from 9.8 years in 2007.

 Another large source of used cars for dealerships has traditionally been the leased cars market. Companies sell leased cars as used when leases expire. But a lot less leases were written during the financial crisis, leaving a large hole in supply at the wholesale level.

“Wholesale prices are quite high,” says Mike Coggins, General Manager of Haddad Dealerships in Berkshire County, MA. “We haven’t passed those prices on to the consumer so our margins are smaller.”

Still, Coggins isn’t complaining since his used car sales are up 25% this year, leading all of his other divisions.

The effect of Japan’s earthquake has also contributed to an overall shortage of new autos this year. The disaster in Japan disrupted the world’s supply chain of auto parts as well as the export of many Japanese made vehicles to the United States. This is a far cry from three years ago when all three U.S. automakers were on the ropes and dealerships around the country were closing every day.

It may actually make more sense for us to look at replacing our autos with a new car this time around. I am going to do my research, something you should do as well, if you are planning to buy a car.  Figure out the price differences between a used model and a brand new vehicle before making a decision. I tend to drive my auto for many years (as opposed to trading it in every three years) so the new car avenue may make economic sense for me.  Find out a ballpark asking price for your vehicles from “Kelly Blue Book” on the internet and find out what similar cars are selling for in your area.

I know that we would probably get a higher price for our vehicles by selling them to a private party. Something I suggest you try if you really want to get the best price for your car. We will probably take a 10% haircut on the price by trading it in to a dealer.

Yet, neither of us is willing to put the effort into listing it on the internet and haggling with potential buyers. I would much rather devote that time to writing columns for you, my readers.

Most popular costume this year

Yes, year after year, Hallows’ Eve has slowly insinuated its way into our hearts and minds. This year seven out of every ten Americans (68.6%) plan to celebrate, plunking down an average $72 in costumes, decorations and candy, according to the National Retail Federation. Total Halloween spending is forecasted to reach $6.86 billion versus $5.8 billion last year.  

Pop-up stores have exploded, now numbering 15,000 nationwide, which is a 15% increase over last year. Consumers have also turned to the Internet where online retailers now account for as much as 20% of total sales with eBay alone expected to sell 500,000 costumes, according to IBISWorld.

            Zombies are the preferred costume this year with over 2.6 million people planning to wear shredded, torn or just plain worn-out clothes while doing the “Thriller” walk around their neighborhoods. Three guesses why?

1) To commemorate the actions of our political leaders

2) To emulate the continued performance of our nation’s largest banks or

3) It is the cheapest costume we can put together since we haven’t had a raise in four years. 

The largest boost in spending has come from the 18-to-34-year-old demographic group whose participation and spending has surged over the last 5-10 years. They are big on costumes and are no longer satisfied with two holes in Mom’s faded sheet. This year those costumes will account for $1.75 billion. Americans will spend hefty sums on costumes of Zombies, Lady Gaga, Harry Potter, Star Wars, Vampires, Captain America, Hanna Montana and my favorite, Batman. 

I will confess my contribution to these statistics. Several years ago (when I lived in Manhattan) I would march every year in the Greenwich Village Halloween Parade dressed as Batman. I paid several hundred dollars for my rubberized (and extremely hot) costume, which was made in Mexico, and have had so much fun that the return on my investment was well worth it. Now, most costumes are made in China.

Kids’ costumes account for about $1 billion, but an additional growth area is the family pet where 14% of consumers will spend $310 million to disguise their cat or dog as Elvis, Superman or Little Red Riding Hood. As for me, I won’t be dressing Titus, our Labrador retriever, any time soon. He has a tendency to transform any and all costumes into shredded rags faster than a speeding bullet.

Fully 34% of Halloween celebrants plan to throw a party, while 22% will visit a haunted house. But traditional pursuits, such as handing out candy to trick or treaters still occupies first place among Americans (73.5%), carving a pumpkin (47.8%) and taking the kids door-to-door (32.9%).

Almost half will decorate their home or yard, spending an average $20 each for life-size skeletons, fake cob webs, ghosts and inflatable pumpkins. Halloween now ranks second only to Christmas in the area of home décor for the holidays.

All in all, Halloween this year is shaping up to be a monster event. Granted, some participants are cutting back this year due to the economy. They may make their own costume or skimp on the amount of candy in the bowl by the door but most everyone will still be out celebrating.  That’s a good thing, in my opinion. Who knows– you may even catch a glimpse of the “The Dark Knight” if you happen to venture around my neighborhood.