We’re Going Broke Chasing the American Dream

Provided by MarketWatch

The parlous financial state of many Americans is well-known: My MarketWatch colleagues Quentin Fottrell and Catey Hill had good pieces about it recently.

I’ve written that many Americans take Social Security early or don’t invest in stocks because they just don’t have the money.

But it often takes a personal story to bring it all home, and that’s what writer and critic Neal Gabler did in the May issue of the Atlantic, where he revealed that he’s one of the 47% of Americans who couldn’t come up with $400 in an emergency.

With honesty and courage, Gabler describes how he — who according to Wikipedia turns 66 this year — got into such desperate straits after a writing career he modestly calls “passably good,” but is surely far better.

Gabler has written acclaimed biographies of Walt Disney and Walter Winchell (the model for the smarmy gossip columnist played by Burt Lancaster in the classic movie, “Sweet Smell of Success”). “An Empire of Their Own,” about the pioneering producers of Hollywood, is in my opinion one of the best books ever written about the American Jewish experience.

Unfortunately, Gabler was, as he freely admits, “a financial illiterate, or worse — an ignoramus.”

“I don’t ask for or expect any sympathy,” he writes. “I am responsible for my quagmire — no one else.”

His situation is the product of some bad luck and many poor choices. For the details, you should read the article yourself, or better yet buy the magazine on the newsstand (consider it a non-tax-deductible contribution to good journalism). But in brief, here they are:

1. He chose to be a writer, not the most stable profession.

2. He chose to write books, which don’t produce income for years.

3. He chose to live in high-cost New York City.

4. He chose to have two children, whom he sent to private school early on and then to Stanford and Emory for college.

5. His wife quit her job as a film executive to spend more time with the kids when they moved to eastern Long Island.

By making this public, Gabler opens himself up to scrutiny and criticism, and he didn’t respond to my request for an interview. But how many of us can say we haven’t, with the best of intentions, made big financial mistakes?

Gabler touches on what may be one of our biggest problems, yet one that’s almost taboo to mention: Too many of us are chasing the American Dream without having anywhere near the means to pay for it.

“In retrospect, of course, my problem was simple: too little income, too many expenses,” Gabler writes, speaking for many baby boomers and the shrinking professional middle class.

Convinced their lives would be better than their parents’ (who, in the case of early boomers like Gabler, lived through the Depression and World War II) and that their children’s lives would be better than their own, people did whatever it took to maintain at least the appearance of success, if not affluence.

It wasn’t only “keeping up with the Joneses,” as Gabler points out. “People want to feel, need to feel, that they are advancing in the world. It’s what sustains them,” he writes.

Ambition and aiming high are good things. But the American Dream is much more expensive than it used to be. In 2014, I estimated it costs a family of four$130,000 a year to live it, while incomes are stagnating because ofglobalization, technology, trade, immigration, what have you. That’s putting the Dream out of reach of more and more people.

Too many have filled that gap with easy credit card debt, cash-out refinancings and home equity lines of credit (which exceeded $1 trillion from 2002 to 2005 alone), or by emptying their 401(k) accounts. It may have felt good, but it bankrupted their future. What an apt metaphor for a country that’s living way beyond its means!

It’s really, really hard to tell your daughter you can’t afford to send her to Stanford and instead she’ll have to go to Stony Brook (an excellent state university in eastern Long Island, where Gabler now teaches). It’s hard to say “no” to so many things and still think you’re living the Dream.

So maybe we need to redefine the American Dream beyond the purely material goals of the postwar years, when our growth seemed unstoppable. Maybe it should be more about the freedom to succeed or fail on our own terms. It could also encompass pride in achievement, family and friends, community service and leaving a legacy of which we can be proud.

Because we’re chasing a dream that’s becoming more and more unattainable for more and more people, and too many of us, like Neal Gabler, wind up with nothing to show for it.

Written by Howard Gold of MarketWatch 

(Source: MarketWatch)

Why I Believe the American Dream Just Died

New Beginnings
(Photo by Edwin Levick/Getty Images)

Opinion: When the rich won’t acknowledge their own success, what hope is there for anyone else?

Rarely a day goes by where I don’t hear some politician or pundit claim that the American Dream has become unattainable for too many. It’s also a common theme in my Facebook feed.

Sometimes the culprit is student debt. Sometimes it’s static wages, or the disappearance of pensions and manufacturing jobs. Sometimes it’s how predatory lenders have the disproportionate capacity to financially maim so many.

And I have responded by despairing for their desperation, for their newfound conviction that America is no longer the land of opportunity–that the prospect of upward mobility has become a cruel mirage. My only solace was my equally strong conviction that I not only have achieved at least some version of the American dream (yes, via a combination of privilege, hard-work and luck), but that my daughter will have a chance to do the same.

But, for the first time, I’m no longer so sure my daughter will get there. Not because she’ll lack for intelligence or dedication or good fortune, but because she will be raised in an era of unprecedented entitlement. If it takes a village to raise a child, then her father’s voice will be drowned out by millions of naysayers.

So, What Changed?

My breaking point came yesterday, upon reading a Legg Mason survey of affluent investors, which Legg Mason defined as individuals with more than $200,000 in investment assets. It found that just 55% of those surveyed believe that the American Dream remains within reach, with only 23% “strongly agreeing” that they are living proof of its existence.

Remember, these people are prosperous, by almost any relative measure of global or American life in 2016. Their $200,000 isn’t an annual salary. It’s the amount of cash sitting in bank accounts or investments that are designed to appreciate in value. It doesn’t even include the value of their home, or even their second or third. (Legg Mason excluded vacation properties.) It’s income after tax, mortgage payments, and literally every other past expense. There should be little worry about where the next meal, or next lifetime of meals, is coming from. If the car dies, these survey respondents can afford to immediately buy another one without the help of a financing plan (save for the event of an unexpected medical disaster or macro economic meltdown).

But they don’t feel rich. And before you tell me that $200,000 doesn’t go as far as it used to, particularly in certain cities, please realize that only 36% of those with at least $1 million in investible assets “strongly agreed” that they had attained the American Dream.

A few more stats from the Legg Mason survey:

— 64% of those with annual household incomes of at least $250,000 believe the American Dream is now out of reach.

— 62% of those between 55 and 64 years-old believe the American Dream is unattainable.

— Women are 14% more likely than are men to believe the American dream is unattainable.

To be sure, the “American Dream” has no official definition, making it largely in the eye of the beholder. But when asked to give their top characteristics of someone who has achieved the American Dream, Legg Mason survey respondents said the following (in order):

  1. Feeling financially secure
  2. Having the freedom to live the way you want to
  3. Being able to retire at 65 and live comfortably in old age
  4. Owning your own home
  5. Knowing that working hard pays off

We’ve already addressed and dismissed the first one, and the second is equally absurd. If you have $200,000 of investible assets–let alone $1 million–and you don’t have the “freedom to live the way you want to live,” perhaps that’s more reflective on your expectations than on your actual means. For example, I want to live with a private helicopter (with a dedicated pilot) sitting outside of my home so that I can avoid traffic when heading into the city. A private chef would also be nice, plus a heated indoor pool, and court-side season tickets to the Boston Celtics. Am I missing out on the American Dream until those luxuries materialize? Of course not.

Retiring at 65 (or maybe an extra couple of years, given average lifespan increases) should be possible for most of these survey respondents, again depending on their definition of living comfortably. And I’d assume that most people with this much cash either own their own home, or have intentionally decided that it’s too much of a hassle (helicopter pad maintenance and all). Finally, if you’ve achieved the first four, it’s hard to imagine that the fifth remains elusive.

But, again, none of this is about objective logic. It’s about sentiment, and a political and societal climate that can no longer distinguish between those who actually have been victimized and those who simply fuel their own narcissism with self-pity. How can the most Americans aspire to the American Dream when those who have achieved it refuse to acknowledge their own success?

They probably can’t, which means this cycle of pessimism will feed on itself and, in some cases, become self-fulfilling. I really hope my daughter doesn’t fall into that trap, that she will take advantage of opportunities and, if successful, that she will be grateful for it. Not ignorant of it.

Written by Dan Primack of Fortune

(Source: Fortune)

China Leads Trend of Dwindling Foreign Interest in U.S. Stocks

China leads trend of dwindling foreign interest in U.S. stocks
Provided by MarketWatch

Last year, Chinese investors dumped nearly all the stocks that they had acquired over a span of seven years and are likely to remain cautious this year amid ongoing financial market volatility at home. But aggressive stock buybacks by U.S. companies flush with cash will likely offset the sting of waning Chinese appetite, according to Goldman Sachs.

China accounted for $96 billion in sales of U.S. stocks in 2015, wiping out almost all of the $97 billion purchased between 2008 and 2014, said David Kostin, chief U.S. strategist at Goldman Sachs, in a recent report. That is more than half of the $171 billion in U.S. equities sold by foreigners last year with much of the Chinese exodus occurring in the fourth quarter.

“Investors in China also sold $130 billion of U.S. debt securities in 2015, suggesting an overall reduction in U.S. investment from China rather than a rotation from U.S. equities to bonds,” he said.

The steady decline in oil prices accelerated U.S. stock sales with outflows from Canada and the Middle East hitting their highest levels since 2004.

Canadians sold $80 billion in U.S. stocks, contrasting with $3 billion in purchases in 2014. Investors from the Middle East sold $39 billion worth last year, nearly doubling the $20 billion in sales in 2014.

“Despite a low positive correlation between oil prices and flows from the Middle East, the drop in oil prices appears to have magnified U.S. equity outflows from both the Middle East and Canada,” said Kostin.

Brent crude oil , the international benchmark, fell 35% in 2015, according to FactSet data.

The outlook on foreign demand for U.S. stocks remains weak in 2016 on a combination of China’s economic uncertainties and a strong dollar .

“Since 1980, average annual purchases of U.S. equities by foreign investors during periods of a rising U.S. trade-weighted dollar equaled $37 billion compared with $82 billion when the dollar is falling,” he said.

Goldman Sachs forecast the trade-weighted dollar—which measures the currency against a select group of currencies most often used in international trade—to rise 8% over the next 12 months. More specifically, the bank predicted the greenback to rise 16% against the euro , 20% versus the Japanese yen  and 8% against the Chinese yuan .

Goldman Sachs estimates that international investors will divest a total of $50 billion worth of equities this year, the second year in a row that foreigners are net sellers.

Still, corporate buybacks are expected to more than make up for dwindling foreign interest with U.S. companies projected to repurchase $450 billion in shares this year. That is below 2015’s $561 billion but above the average of $360 billion buybacks between 2011 to 2015.

“With the U.S. economy expected to grow at a modest 2% pace and cash balances at high levels, firms are likely to continue to pursue buybacks as a means of generating shareholder value,” said the strategist.

J.P. Morgan Chase & Co. , Rockwell Automation Corp. , and Bank of America Corp.  have all announced sizable stock repurchase plans in the past couple of months with more companies likely to follow suit.

Among the most scrutinized will be Apple Inc.  which could release its capital allocation plan as early as Monday when it reports fiscal second-quarter earnings amid expectations that the company may boost its buyback program by $40 billion to $50 billion.

Goldman Sachs expects the S&P 500’s  earnings per share to rise 9% to $110 in 2016 from $100 in 2015.

Written by Sue Chang of MarketWatch

(Source: MarketWatch)

Obama, Fed Chair Yellen Discuss Outlook for Economy

© Carlos Barria / Reuters
© Carlos Barria / Reuters

WASHINGTON — With the U.S. economy improving, President Barack Obama and Federal Reserve Chair Janet Yellen discussed the outlook for near and long-term economic growth during a Monday afternoon meeting in the Oval Office, the White House said.

Obama and Yellen also talked about the state of the labor market, inequality and potential risks to the economy, both in the U.S. and globally. They also reviewed steps taken during the Obama administration to strengthen the financial system and protect consumers, the White House said of the private meeting.

White House spokesman Josh Earnest said both Obama and Yellen are focused on ways to expand economic opportunities for the U.S. middle class. Earnest called the meeting an opportunity for the two to “trade notes” while emphasizing that Yellen makes decisions about monetary policy independently.

Yellen has recently noted that the U.S. job market and housing recovery have lifted the economy close to full health despite the risks that remain, including a global economic slump.

The president occasionally meets with the Fed chair to discuss the state of the economy. The last such meeting was in November 2014.

“The president has been pleased with the way that she has fulfilled what is a critically important job,” Earnest said. He added that Obama has “the upmost respect for the independent nature of her role.”

Yellen has also met with Obama on two occasions to discuss the progress being made in implementing the sweeping overhaul of banking regulations that Congress passed following the 2008 financial crisis. Those meetings, which included other federal bank regulators, occurred on March 7 of this year and on Oct. 6, 2014.

Written by Associated Press

Chart of the Week: April 6, 2016

Screen Shot 2016-04-04 at 8.58.36 PM

The dust of a volatile quarter has cleared. The equity market exhibited a higher correlation to oil prices over the quarter than it has historically: oil price movements drove large cap stocks lower early in the year, to -10.3% YTD at the lowest point, and subsequently helped them rebound and finish the quarter up 1.3%. Price appreciation in oil and metals pushed the commodities index up 0.4%, and emerging market equities also moved higher, helped by stronger commodity prices, lower expectations for U.S. rate increases and a fall in the U.S. dollar. Further rate cuts in Europe and Japan did not boost developed market equities, which fell 2.9%. However, very low global interest rates, in combination with an extremely dovish Federal Reserve, caused spread compression and lower base rates over the quarter, leading to positive returns from U.S. fixed income. Finally, some investors dialed down equity risk in response to the U.S. recession scare, leading small cap stocks to fall 1.5%. While in our view the chance of recession over the next year is low, we continue to recommend a diversified portfolio of assets as the best way of weathering market volatility while achieving long-term investment goals.

For more information please visit the Source below.

(Source: JPMorgan)

Dow Posts Biggest Quarterly Comeback Since 1933

© woraput chawalitphon/Getty Images
© woraput chawalitphon/Getty Images

After tumultuous trading in early 2016, two of the three major U.S. averages clawed back to finish the first quarter in the green.

At one point in the quarter, the major indexes plunged more than 11 percent from the start of the year. They rebounded, though, and enjoyed particularly strong runs in March.

The Dow Jones industrial average saw its biggest quarterly comeback since 1933.

The S&P 500 (.SPX) and the Dow (.DJI) both rose for the second straight quarter, finishing 0.8 and 1.5 percent higher, respectively. The S&P enjoyed gains of 6.6 percent in March, while the Dow climbed 7.1 percent for the month.

The Nasdaq (.IXIC), meanwhile, had its first negative first quarter since 2009, falling 2.8 percent. But the index also recovered in March, rising 6.8 percent.

Early volatility drove investors to gold, and the metal posted its best quarter in about 30 years. Gold prices rose 16.5 percent in the first quarter.

Check out more stats below:

— WTI crude oil (@CL.1) rose 3.5 percent for its first positive quarter in the last three.

— The dollar index dipped 4.1 percent, marking its worst quarter since the third quarter of 2010 when it fell 8.49 percent.

— Financials and health care endured their worst first quarter since the financial crisis, sliding 5.6 and 5.9 percent, respectively.

— Utilities had their best first quarter on record.

— Telecom also did well, having its best first quarter since 1998.

— Verizon (VZ) and Caterpilla (CAT)r led the Dow, with gains of 17 percent and 12.6 percent, respectively.

— Goldman Sachs (GS) and Boeing (BA) lost the most in the Dow, shedding 12.9 and 12.2 percent of their value, respectively.

— Commodities stocks Freeport-McMoRan (FCX) and Newmont Mining (NEM)enjoyed the strongest quarters in the S&P, rising 52.7 and 47.8 percent, respectively.

— Endo International (ENDP) and Williams Companies (WMB) were the worst S&P performers, with losses of 54 and 37.5 percent, respectively.

Written by Christine Wang of CNBC

(Source: MSN)

Companies To Feel Pinch Of Tightened Tax Loopholes

money-tax-loopholes
Provided by IBT US
The upcoming U.S. tax filing deadline — Monday, April 18 — doesn’t just have regular Joes on edge. Massive corporate entities based in the U.S. are getting a little nervous, too, according to a report from the Financial Times.

The number of companies warning their investors about increased impact from taxes in 2015 has doubled from last year, the FT says.

The warnings come from the potential closing of myriad international tax loopholes, courtesy of the Organisation for Economic Co-operation and Development (OECD), a consortium of 34 countries, including the Germany, the U.K. and the U.S.

Some of those loopholes include accounting tricks like shifting profits from Ireland, where tax rates are already relatively low, to Bermuda, where the company doesn’t pay any taxes. Companies are able to do this because the definitions of “residence” are different in U.S. and Irish tax law, allowing money made from sales in Ireland to wind up being “based” in Bermuda or another country considered a tax shelter.

The OECD estimates that various companies’ tax avoidance costs governments around $240 billion.

The companies that are likely to be hit hardest are those in the tech sector, like Apple, already-beleaguered Yahoo and Google. Travel site Priceline is already fighting a French tax penalty of 356 million euros ($397 million), and the U.K. is looking to take back 1 billion pounds ($1.4 billion) from corporations after eliminating a tax break on interest costs.

Google, the report notes, has included language about tax concerns for 10 years now. Other companies have also been proactive about warning investors that the tax hammer could fall at any moment.

But investors have been slow on the uptake. “I still think that investors are not asking the right questions. They are in early stages of understanding the issues,” Fiona Reynolds, the managing director of a network of fund managers, told the FT.

Written by Oriana Schwindt of International Business Times

(Source: MSN)

If You Could Live Anywhere, Where Would You Live?

© Provided by CNBC
© Provided by CNBC

If cities are your cup of tea, then here is some good news. The 2016 Worldwide Cost of Living Report compares the prices of 160 products and services – from food and drink to domestic care and private schools – in cities around the world. It found the cost-of-living in many cities fell during 2015 thanks to lower commodity prices, weakening currencies, and geopolitical unrest.

Be warned: a lower cost-of-living doesn’t mean a city offers good value. Take Zurich, for instance. Remember the uproar when the Swiss unpegged their currency early in 2015? The Swiss franc realized double-digit gains, the Swiss stock market swooned, and the Swiss people went shopping in neighboring countries. Well, the cost of living in Zurich fell from September 2014 to September 2015, but the decline wasn’t proportionate to declines elsewhere in Europe, and Zurich currently reigns as Europe’s most expensive city.

In September 2015, the most and least expensive cities in the world were:

Most expensive:

  • Republic of Singapore
  • Zurich, Switzerland
  • Hong Kong, China
  • Geneva, Switzerland
  • Paris, France

Least expensive:

  • Chennai, India
  • Karachi, Pakistan
  • Mumbai, India
  • Bangalore, India
  • Lusaka, Gambia

Cities in the United States didn’t fare well, either. A strong U.S. dollar helped push all 16 of the U.S. cities that were in the survey up at least 15 places. New York and Los Angeles both rank among the 10 most expensive cities in the world.

Idled Workers Return to U.S. Labor Force

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Michael Mulvey of USA Today

Hundreds of thousands of Americans are streaming back into an improving labor market as employers raise wages and hire less skilled job candidates to cope with an intensifying worker shortage.

The portion of the U.S. population working or looking for jobs — known as the labor force participation rate — has risen to 62.9% from 62.4% since September, Labor Department figures show. The rate had been falling since 2008, mostly because of baby boomer retirements, and that’s still expected to be the long-term trend.

Yet part of the decline was caused by a bruising post-recession job market that prompted discouraged workers to drop out of the labor force and many other unemployed Americans to retire, go on disability or return to school.

At least some of those idled workers are returning to work or looking again now that the jobless rate has fallen to 4.9%, a level many economists consider full employment. They’ve been drawn back by employers who are raising pay or becoming less selective..

“We’re just hearing a lot more openness” from employers, says Tim Gates, of staffing firm Adecco.

Wells Fargo said recently the rebound appears to be driven by the less educated, including discouraged workers who had been on the sidelines. Since September, the participation rate for college graduates with at least a Bachelors degree has dropped to 73.8% from 74.4%. The rate for other groups, including high school graduates and those with less than a high school diploma, has climbed at least half a percentage point.

Even so, their unemployment rate has declined, indicating that many of those returning are landing jobs despite increased competition from their peers.

Other groups are also coming bac, including retirees, the disabled and people in school, according to a Goldman Sachs analysis. Many are enticed by rising wages. Although average wage growth across the economy has been tepid at about 2% nationally, average earnings for private-sector employees in the same job at least 12 months jumped 4.1% in the fourth quarter, according to payroll processor ADP.

Companies are also getting creative. Adecco’s Gates says some manufacturers unable to find experienced workers are splitting jobs into two positions and hiring less skilled candidates for the simpler tasks. Others are bringing on unskilled workers and training them, a strategy rarely deployed when unemployment was elevated after the recession, says Becca Dernberger, of Manpower’s Northeast division.

Written by Paul Davidson of USA Today

(Source: USA Today)

Weekly Market Commentary: March 28, 2016

Provided by geralt/Pixabay
Provided by geralt/Pixabay

Are corporations in the United States struggling?

In its cover article last week, The Economist (a British publication), suggested there is not enough competition among American companies. It pointed out:

“Aggregate domestic profits are at near-record levels relative to GDP… High profits might be a sign of brilliant innovations or wise long-term investments were it not for the fact that they are also suspiciously persistent. A very profitable American firm has an 80 percent chance of being that way 10 years later. In the 1990s the odds were only about 50 percent.”

At the end of last week, U.S. headlines indicated concern about declining corporate profits:

  • Consumers prop up U.S. economy, but profits under pressure
  • S. Fourth-Quarter GDP Revised Up to 1.4% Growth but Corporate Profits Fall
  • Corporate profits fall in 2015 for first time since Great Recession
  • S. Corporate Profits Fall 8.1% in 4th Quarter

So, are U.S. companies experiencing record profits or are they in trouble?

Last week’s press release from the Bureau of Economic Analysis indicated corporate profits (after inventory valuation and capital consumption adjustments) declined from the third quarter of 2015 to the fourth quarter of 2015; hence, the headlines.

However, a one-quarter decline doesn’t provide a complete picture of the health of corporate America. As CFO.com pointed out, over the full year, corporate profits were up 3.3 percent year-to-year.

Trading Economics offered additional context. From 1950 through 2015, U.S. corporate profits averaged about $395 billion annually. Profits hit a record low for that period, $14 billion, during the first quarter of 1951. Profits rose to an all-time high of about $1.64 trillion during the third quarter of 2014.

Fourth quarter’s profits of $1.38 trillion remain well above that average.

Data as of 3/24/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.7% -0.4% -2.7% 9.5% 9.2% 4.7%
Dow Jones Global ex-U.S. -2.1 -3.1 -14.1 -2.0 -2.0 -0.5
10-year Treasury Note (Yield Only) 1.9 NA 1.9 1.9 3.4 4.7
Gold (per ounce) -2.5 14.9 2.5 -8.6 -3.3 8.2
Bloomberg Commodity Index -1.9 0.9 -20.8 -16.8 -14.0 -7.0
DJ Equity All REIT Total Return Index -1.2 2.7 -0.2 9.3 11.6 6.3

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

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