Market Update – June 14, 2012

Some stats I read this week…

The Federal Reserve Survey of Consumer Finances was just released.  It’s done every three years and the new release has data from 2010 (which was greatly impacted by the recession):

1. The net worth of the median family in 2010 ($77,300) was about the same as it was 18 years earlier.

2. The median family had a net worth of $126,400 in 2007.  Approximately ¾ of the loss came from the decrease in housing prices.

3. Median family income fell to $45,800 in 2010 (from $49,600 in 2007).

4. Only 52% of families saved money in 2010.  This was 56.4% in 2007.  But, total savings have increased since 2007 (meaning that a smaller group is saving more in total).

5. Approximately 74.9% of families have debt.

6. Approximately 39.4% of families carry credit card debt (down from 46.1% in 2007) and the median balance fell 16.1% to $2,600.  Approximately 32% of families do not have a credit card  (up from 27% in 2007).

7. Approximately 19.2% of families have education-related debt (up from 15.2% in 2007).  Also, this was the first time that education loans made up a larger share of the average family’s obligations than automobile loans.

8. Families in the middle 60% lost a greater percentage of their wealth than the top 20% or the bottom 20%.  This is because the middle class has most of their wealth in their home.  The median amount of home equity dropped from $110,000 in 2007 to $75,000 in 2010.  In addition, home prices have not recovered (while financial assets had some recovery by the end of 2010).

9. The top 10% of households (by income) earned $349,000 in 2010.  The average net worth of the top 10% of families was $2.9 million.

Foreigners are buying our real estate.  International buyers accounted for 8.9% ($82.5 billion) of the $928 billion spent on residential real estate for the year ended March 31^st.  This was up 24% from the prior year.  Approximately 55% of the buyers came from Canada, China, Mexico, India and the U.K.  Five states accounted for 55% of the sales (Florida, California, Texas, Arizona and NY).  The majority (62%) of the buyers paid cash.  Remember, you have low home prices and a weak dollar.

Record corporate profits.  Corporate profits were $1.9 trillion last year.  This amounts to $6,500 per citizen.  Profits were 12.9% of GDP last year.  This is a record (since we started maintaining these numbers in 1940).  They averaged 7.5% (of GDP) under President Reagan and 11.7% under President Obama.

Record earnings for the S&P 500.  S&P 500 reported earnings hit a record high in Q1 (the previous records were in 2011 Q2 and Q3).  Q1 earnings were ~7% higher than mid-2007.  (Operating earnings were the third highest on record.)  Some of the possible reasons for record earnings include a weak job market (employees can’t negotiate higher wages), government spending, Fed policy (helping bank profits), etc.   It’s often said that margins revert to the mean.

Is the market cheap or expensive?  Some say the S&P 500 is cheap because it’s trading at 13X earnings.  Others use Robert Shiller’s methodology of comparing prices to the average earnings over the past ten years and say that the market is expensive (trading at 20X earnings rather than the historical average of 16X earnings).

Fund managers are scared.  The average fund is holding 5.3% of their portfolio in cash – the highest level since January 2009.

Strong work ethic.  In 2005, immigrants comprised 12% of the population but 15% of the work force.

By the people, for the people…I mean by the rich, for the rich.  Governor Romney collected $76.8 million in May and President Obama collected approximately $60 million.  (President Obama has a larger war chest.)  Don’t forget…this is one month’s collections.  I’m sure that the contributors won’t want anything (in return) from the winner.  (In the 2008 election, President Obama raised $750 million.)

I don’t even want to be considered anymore.  The Nobel Prize is going to cut its prizes by 20% to $1.1 million.  This is the first time that they ever reduced it.  Their endowment is worth $419 million – down 8% from a year ago.

Great quote from Richard Rahn (Cato Institute) in an op-ed piece in The Washington Times.  “A schoolteacher in the classroom who teaches kids to read is creating real long-term wealth. An education bureaucrat demanding more paperwork from teachers, thus reducing the classroom teacher’s time spent with students, is a wealth destroyer. Most of the increase in education spending has gone to create wealth destroyers, not wealth creators.”

Great website.  Here’s a site that lets you track how employment has changed in different sectors over time.  Just slide the timeline to see the change.

Have a great week.

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