Change in US Economic Growth

The US government has tracked the change in the size of our economy every quarter for the last 67 years (i.e., 268 quarters). The country’s quarterly economic growth has been “as bad as or worse than” a drop of 2.9% only 18 times in the 268 quarters (7% of the time), including the data from 6/25/14 that reported… keep going

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The number of people employed nationwide has bounced back!

Our Clients, Advisors and Friends:

The European Central Bank (ECB) borrowed from the playbook of the USA’s Federal Reserve last week, taking a 5-year old American strategy into an area never seen before.

The Fed has been paying just ¼ of 1% since January 2009 to US banks on funds they deposit at the 12 regional Fed banks around the country. Fed chair Janet Yellen has considered lowering that rate in order to encourage domestic banks to lend more money (to corporations and individuals) to spark our nation’s economy.

The ECB (led my Mario Draghi) announced last Thursday (6/05/14) that it will now charge (not pay) European banks 0.1% to park money with them. Draghi, like Yellen,
believes that banks can be coaxed into making more loans. His unconventional approach
may be just what Europe needs to jump-start their economies (source: BTN Research).

The number of employed Americans (i.e., nonfarm jobs) peaked at 138.4 million on 1/31/08 (7 months before the beginning of the 2008 global financial crisis) then fell by 8.7 million over the next 2 years to 129.7 million by 2/28/10. The US employment numbers have steadily climbed back to their pre-recession levels and the government reported last week that the total number of people employed nationwide has bounced back to 138.5 million as of 5/31/14 (source: Department of Labor).

The bull market for the S&P 500 begins its 64th month today, up +222% (total return)
from its bear market low. The stock index has set 63 all-time record closes in the
63 months since 3/09/09. 3 of the 10 bulls that have occurred since 1950 (the current
bull is the 11th) have lasted at least 6 years, i.e., 72 months (source: BTN Research)

Notable Numbers for the Week:

1) TWO OUT OF THREE – 65% of all individual tax returns filed in 2011 (95.0 million
out of 145.4 million) reported less than $50,000 of adjusted gross income (source:
Internal Revenue Service).

2) HALF AS MANY – Lenders repossessed 119,429 homes nationwide (an average of 995
per day) during the first 4 months of 2014 (i.e., January-April), a 50% drop compared
to the 236,977 homes repossessed during the first 4 months of 2012 (source: RealtyTrac

3) TIME FOR REFORM – From 1984 through 2008, the Social Security payroll taxes
paid by Americans exceeded the benefit payments made by Social Security. However

since 2009, benefits paid have exceeded taxes collected, including a $51 billion
shortfall in 2013 (source: Social Security).

4) WERE YOU AVERAGE? – The net worth of an average American increased by +10.8% over the 12 months ending 3/31/14, including gains from stocks, bonds and real estate holdings (source: Federal Reserve

Doubting the validity of the 5+ year bull market has been a losing venture.

To Our Clients, Advisors and Friends:

Good morning!

In 2 days of testimony before separate Congressional committees last week, Fed Chair
Janet Yellen (on the job for less than 3 ½ months) opined on a variety of subjects.
She called the nation’s housing recovery “disappointing so far this year and (it)
will bear watching.” In spite of a stock market sitting near all-time highs (the

S&P 500 is within 0.7% of its 4/02/14 record close), Yellen stated that the equity
environment “doesn’t suggest that we are in obvious bubble territory.” As her predecessor
Ben Bernanke had repeatedly expressed, Yellen was less upbeat on the USA’s propensity
to overspend: “(due to) a combination of demographics, the structure of entitlement
programs and historical trends in healthcare costs, we can see that, over the long
term, deficits will rise to unsustainable levels relative to the economy” (source:
Federal Reserve).

Doubting the validity of the 5+ year bull market has been a losing venture. The
“gloom-and-doom” prognosticators that have concluded since 2009 that improbable
stock valuations are detached from the health of our actual economy may have sounded
really intelligent but the reality is that the S&P 500 has gained +210% (total return)
since the bear turned into a bull. This rising stock market will not go on forever,
but age alone is not the reason it will ultimately reverse course (source: BTN Research).

Applications for unemployment insurance benefits (aka initial jobless claims) were
reported at 319,000 for the week ending 5/03/14. The weekly average for this statistic
during the 2nd quarter of 2009 was 627,000 (source: Department of Labor).

Notable Numbers for the Week:

1) Four Renters for Every One Homeowner – Americans families formed 423,000 new
households during the 12 months ending 3/31/14. 79% of the new households formed
(333,000) were renters and 21% of the new households formed (90,000) were homeowners
(source: Census Bureau).

2) Not College Material – 72% of Americans at least age 25 have not received a bachelor’s degree or greater from college (source: Bureau of Labor Statistics

3) Was it Necessary? – 37% of employed college graduates are working in jobs today
that required only a high school diploma (source: Department of Labor).

4) Countdown – By the year 2028 (i.e., 14 years in the future), government expenditures
for Social Security, Medicare, Medicaid and net interest expense would consume all
projected federal tax receipts, i.e., the funds needed for all other federal expenditures
will be borrowed (source: Government Accountability Office).

The nation’s monthly unemployment rate tumbled from 0.4% to 6.3%

To Our Clients, Advisors and Friends:

Good morning!

US employers hired +288,000 workers in April 2014, the largest monthly
number reached since January 2012. The nation’s unemployment rate tumbled from
0.4% to 6.3%, the biggest monthly drop that the country has experienced
since July 1983 or 31 years ago. The fall in the rate was a function of
delayed spring hiring (due to winter storms) and to 806,000 Americans
dropping out of the employment calculation altogether. There are still 3.45
million Americans that have been out of work for at least 27 weeks (as of
4/30/14), equal to 35% of all jobless Americans (there are 9.75 million
individuals out-of-work). That percentage is double the prerecession level
of 16% from October 2006 but below the peak level of 46% from June 2010.
For workers without a job for more than 6 months between 2008 and 2012,
only 36% were employed a year later (source: Department of Labor).

April’s jobs report does suggest that the US economy is gaining strength, a
conclusion that would normally lead to rising interest rates. The Fed has
indicated that the timing of their long-anticipated rate hike will be
“data-dependent” and may not occur for another year or more. Factoring all
this information and more (including rising tensions in the Ukraine), the
bond market pushed domestic interest rates still lower last Friday
(5/02/14). The yield on the 10-year note begins today at 2.59% (source: BTN
Research).

The S&P 500 bull market that began on 3/09/09 will reach 62 months in
length as of Friday (5/09/14). The average bull market for the stock index
since 1950 has lasted 58 months. The S&P 500 is up +2.4% YTD on a total
return basis (source: BTN Research).

Notable Numbers for the Week:

1) More Renters Less Owners – 64.8% of US families are homeowners as
of 3/31/14, the lowest percentage in the country since 1995 (source: Census
Bureau).

2) More and More – Health care spending by the federal government
represented 2.1% of federal spending in 1962, but has risen to 27.7% of
spending by 2013 (source: Brookings Institution).

3) Booming Business – The production of crude oil in the United States
in 2014 (on an annualized basis) is at its highest level since 1985 and is
up +61% from its low point in 2008 (source: US Energy Information
Administration).

4) You Are On Your Own – The personal savings rate in the USA was
13.1% in 1973. The personal savings rate in the USA was 3.8% as of 3/31/14. The
rate is defined as “savings” (i.e., after-tax income less consumption
spending) divided by after-tax income (source: Department of Commerce).