I hope everyone had a great weekend. On the heels of the Apple earnings last week one of the technical analysts (Peter Brandt) I follow shared this nugget: It takes 490 shares of AAPL to buy an average new home today. In 1997 it took 44,000 shares to buy same home.
Also, Federal Reserve Governor Plosser noted today, “There’s no question low rates are punishing savers. but for the good of the economy as a whole, we’re willing to deal with that.” How are ‘they’ going to deal with that? Are they going to pay my Dad’s medical, grocery or energy bill? Nope. These Fed members are simply out of touch.
Why the sell off to start the day? Blame Europe. There was another meeting with Greek debt holders only to come to no conclusions outside of the need for more discussions. The cost of insuring Portugal’s debt against default was at record highs last week and its bond yields remained at elevated levels amid concerns that a possible second bailout for the country in 2013 would include a Greek-model haircut for private-sector bondholders. There are rumors of a ‘transaction tax’ in France and there is a wall of debt maturities in the Eurozone to the tune of 22 billion euros this week alone.
We had US GDP data released on Friday and it was a bit below expectations. However, the U.S. economy grew at its fastest pace in more than a year and a half in the fourth quarter, signaling that a sturdier recovery took hold despite troubles in other parts of the world. Gross domestic product — the value of all goods and services produced — grew at an annual rate of 2.8% between October and December, the Commerce Department said Friday. That is up from 1.8% growth in the third quarter and 1.3% in the second quarter. There were three issues with the underlying strength of the data: inventories are 1.94% of 2.8% economic growth in Q4; government spending in the US fell 2.1% in 2011, the most since 1971; and US Q4 consumer spending rose 2%, which was less than forecast.
Barron’s noted over the weekend that for the 180 S&P 500 components that have reported so far, the ratio of “beats” to “misses” is 1.8 to 1. A “normal” quarter is 3:1. We have 99 S&P 500 companies announce earnings this week, so we will keep an keen eye on this metric.
In the second half of the S&P 500 experienced average daily moves of 1.44% vs. 0.75% since 1928.
“Dash For Trash” | SocGen makes an interesting observation about the surge of the high-beta names. The spread between high and low beta equities has also been very wide. When measured using deciles, we find a spread of around 15% in the US, and a remarkable 20% gap in Europe. Over the last 22 years we have only recorded such a wide spread in Europe on two other occasions – in October 2002 and in March/April 2009. This isn’t necessarily bullish, however. While the strong performance of high beta names may indicate a potential bottoming out of equity markets, we have seen numerous occasions in the US where the spread has been wider than the current 15% and where the equity market continued to trend lower. Notably almost all these bear market beta rallies coincided with an interest rate cut from the Fed.
Dale Westhoff, global head of structured products research at Credit Suisse Group AG, reported that of the 11 million homeowners who currently owe more on their homes than the homes are worth (“underwater”), approximately 6.5 million have never missed a payment and two million more are making ontime payments after a delinquency, according to Bloomberg. Westhoff is concerned that a stronger push for principal reductions could push defaults much higher if homeowners seek the aid (“moral hazard”). Laurie Goodman, analyst at Amherst Securities Group LP, thinks the reductions help. Among subprime borrowers who received payment reductions of more than 40% in 2010, 19% defaulted after 12 months if their reworked loans included a lower balance. For those subprime borrowers who only received a lower interest rate, 27% fell behind after 12 months, according to Goodman. A Deutsche Bank report noted that borrowers are 1.7 times more likely to default again when a loan is reworked without cutting the balance, according to Bloomberg.
Many seniors are choosing to work into their retirement years because they enjoy it, are living longer, and derive a sense of purpose from it, according to USA TODAY. The percentage of people who either work or want to work has risen in both the 65-and-older and 75-and-older groups. In 2011, the participation rate for 65-and-older was 17.9%, compared to 10.8% in 1985, according to Sara Rix, senior adviser for the AARP Public Policy Institute. For 75-and-older, the rate jumped from 4.3% in 1990 to 7.5% in 2011. These are “whopping” increases, according to Rix. The average age of retirement is 64 for men and 62 for women, according to the Center for Retirement Research. Census data shows that the number of Americans living to age 90 and beyond has tripled in the past three decades to nearly 2 million and is expected to quadruple by 2050.
Lipper data shows that investors poured $31.3 billion into mutual funds and ETFs that invest in dividend-paying stocks in 2011, nearly five times the amount in 2010, according to SmartMoney.com. That is a stark contrast from the $33.5 billion that was liquidated from all equity funds/ETFs. In 2011, approximately 68% of S&P 500 companies increased their dividend payouts, up from around 52% in 2010 and 41% in 2009, according to Bloomberg.
Today, 28% of all households consist of just one person, which is not only the highest level in U.S. history, but double the percentage in 1960, according to Fortune. The percentage is much higher in large urban areas. More than 40% of households in Atlanta, Washington, D.C., Denver, St. Louis, and Seattle have just one occupant. The rate is nearly 50% in Manhattan. Singles spent 23% more of their discretionary income in 2010 than their married counterparts (no children), according to the federal Consumer Expenditure survey. The Bureau of Labor Statistics estimates that consumption by U.S. singles contributes $1.9 trillion to the economy annually.
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