By JLP | May 2, 2014
Did you hear the news?
Non-farm payrolls increased 288,000 in April and the unemployment rate “plummeted” .4% to 6.3%. See this Yahoo! story.
At the same time the employment participation rate fell .4% to 62.8%.
In case you don’t know, the participation rate “refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate.” (Source).
Here is what that rate has looked like since 1990:
It’s dropped 2.9 percentage points since President Obama took office. It had dropped 1.5 percentage points during Bush’s presidency.
I understand some of the reason for this drop could be people retiring. Regardless, it makes the unemployment rate statistic almost meaningless.
While writing this post, I happened to see an AFL-CIO blog post about this news. They failed to even mention the labor participation rate. Why does this not surprise me?
Have a good weekend, everybody.
By JLP | April 29, 2014
I have seen Pamela Yellen’s books before, but never really paid attention to them until I read this piece by Allan Roth.
Yellen is known for her “Bank on Yourself” books, a strategy that utilizes whole life insurance (UGH!).
Yellen is very outspoken when it comes to traditional financial advisors (on that we can agree). Perusing her blog, I found mentions of how misleading Wall Street is and such. Okay, fine.
Ms. Yellen is also misleading. Take a look at the following graphic she posted on her website to see why (click on the graphic to see a larger version):
Do you notice anything interesting in that graphic?
She left out dividends!
Is this an oversight or was it done to make her strategy look better? Either way, it doesn’t make her look good. If it was an oversight, it makes her look amateur. If it was done to make her strategy look better, it makes her look dishonest. She looks no better than the Beardstown Ladies did when they calculated their returns INCLUDING their contributions.
Regardless, there is NO REASON for this.
How big of a difference does leaving out dividends make? A lot.
I did some research and found that the S&P 500 Total Return Index closed at 2107.28 on March 24, 2000. The same index closed at 3127.87 on February 3, 2014. There are 5064 days (13.8644 years) between the two dates. If we divide 3127.87 by 2107.28, we get 1.4843. If we raise 1.4843 to 1/13.8644 and subtract 1, we get .0289 or 2.89% as the annualized rate of return between the two dates. No, it’s not good, but it’s a lot better than the .95% return that Yellen states in her chart.
I mentioned this in a couple of comments on her blog, but my comments went to moderation and I’m pretty sure they will end up in the trash. She is not interested in having a discussion. She is not interested in people who disagree with her. All of the comments I read were very positive about her strategy, which I find unbelievable and yes…dishonest. I pray her followers are more sophisticated than they appear.
DISCLAIMER: I have not read any of Yellen’s books. I do not want to spend money on them.
By JLP | April 2, 2014
I found this tidbit from John Cassidy’s latest column in Fortune to be interesting:
“A couple of months ago I mentioned the cyclically adjusted price/earnings (CAPE) ratio, which was flashing amber. Another warning sign is provided by the so-called Q ratio, which compares the market value of corporate assets with their replacement cost, and which was developed by the late James Tobin, a Yale economist. As of March 6, when the S&P 500 closed at 1,877, the Q ratio was indicating that the market was overvalued by 76%, says Andrew Smithers, a London-based analyst who helped popularize the measure. The only times the market has been more overvalued with the late 1920s in the late 1990s.”
My wife and I are still in the accumulation phase and I’m not one to time to try to time the market. If the market comes crashing down, I simply won’t look at the 401(K) balance for a few months. Ignorance is bliss.
By JLP | March 14, 2014
I have been (slowly) working my way through a book titled “Changing Texas – Implications of Addressing or Ignoring the Texas Challenge.” It’s a pretty dry read.
I came across this part that I wanted to share with you [brackets] mine:
1. The U.S. workforce is becoming more racially and ethnically diverse;
2. The racial and ethnic groups that are less well educated (e.g., Hispanics) are the fastest growing due to higher rates of natural increase and [illegal?] immigration;
3. The increasing rate of retirement of “baby boomers”–the most highly educated generation in United States history–is expected to lead to a drop in the average level of education of the U.S. workforce now and for the next two decades;
4. If these current population trends continue and states do not improve the education levels and graduation rates from high school and college for all racial and ethnic groups, the knowledge and skill levels of the U.S. workforce will decline;
5. If the knowledge and skill levels of the workforce decline, occupational achievement will be lower;
6. If occupational achievement declines, the income of the U.S. residents will decline;
7. If the levels of knowledge and skills of the U.S. workforce decline, more jobs will be exported off-shore;
8. As jobs are exported off-shore and U.S. residents’ incomes decline, the taxes paid by U.S. residents will decline; and
9. As taxes decline, revenue for state and federal support of state and federal of state and federal services will decline, including support for education.
This chain of interrelationships is dependent on the validity of three key demographic and socioeconomic trends:
1. The rate of increase in minority populations with reduced socioeconomic resource bases;
2. The relationship between the demographic characteristics of populations and the education level of the population; and
3. The relationships between education and income (both personal and household) and between education and poverty and other types of socioeconomic change.
Will jobs be exported or will people from other countries come to live and work in the U.S.? I have also read that basby boomers will most likely work longer because so many of them haven’t saved enough for retirement.
Either way, I do not like the sound of a less education society. I cannot see this as being a good thing.
By JLP | February 10, 2014
The S&P 500 Index was down 3.46% in January. There’s a saying that goes something like “As goes January…”
Well, based on history, that’s not necessarily true. Take a look at the following two graphics. The first one is all the returns (these are total returns) for the month of January listed in order from worst to best. The other column shows the total return for the remainder of that year (February – December). The second graphic summarizes those results, looking only at the Januaries with negative returns.
Of the 33 Januaries with a negative return, 18 of them were followed by a positive return for the remainder of the year. Interestingly, of the 56 Januaries with a positive return, only 11 of them had a negative return for the February – December that followed.
Basically, January’s return doesn’t mean too much when it’s negative&151;at least as far as I have looked at it. I’m sure the results hinge more on where the January return is in a market cycle (not good for January 2014 if you look at 2013′s amazing year).
Anyway, I post the info and you form your own opinions.
By JLP | January 2, 2014
Here is a newly-updated Periodic Table of Dow Jones Total Market Index Sector Total Returns:
By JLP | January 1, 2014
What a year.
• The Dow Jones Industrial Average was up 29.65%
• The S&P 500 Index was up 32.39%
• The S&P MidCap 400 Index was up 33.50%
• The S&P SmallCap 600 was 41.31%
Of the ten indexes I keep track of here at AFM, 7 were up. Of the three that were down, Gold was by far the worst, losing 28.24% for the year.
The S&P 500′s 2013 return was its best since 1997 (it ranks 14th in the 88 years that I have data for).
You can view the full report (along with the numbers for 2011 and 2012) by clicking on the following graphic.