Personal Spending Over the Last 80 Years

A very interesting chart on long-term trends in consumer spending appeared in this NY Times story about home prices and housing costs as they relate to the U.S. economy.

Did anyone have any idea that health care costs played such a big role in personal spending before and after World War II?  More recently, we should be thankful for the advances in food production and the waves of cheap imports or Americans would be even more stretched.

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Stocks Do Not ♥ September

The stock market seems to like what it sees in September. So far…

The cruelest month of them all for equities is barely underway but, given the economic backdrop here in 2010, the odds of seeing a ‘+’ sign in front of the month-end result seems quite unlikely, though the ‘-’ sign in front of the August number might increase those chances just a bit. Mark Hulbert at MarketWatch files this report on some of the statistics behind September’s well deserved reputation for being a miserable month for stocks.

I have good news and bad news when it comes to slicing and dicing the historical data as it pertains to September.

The good news is that it is possible, by carefully reading the statistical tea leaves, to get advance insight into whether any given month is likely to do better or worse than average.

The bad news: Those tea leaves provide no such hope that this September will be able to beat its historical reputation as being awful for stocks.

Let me begin by reviewing the dreadful details of September’s record. Since 1896, when the Dow Jones Industrial Average was created, the Dow has lost an average of 1.15% in September. The average gain for all other months is 0.71%. That spread of 1.86 percentage points is statistically significant at the 95% confidence level that statisticians often use to determine if a pattern is most likely genuine.

So much for the theory that a bad August could see a bounce in September. Over more than a century of trading, the data shows that stocks lose an average of 2.7 percent in September when they declined in August and entered the new month with a year-to-date loss.

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Beware the Banks’ New Credit Cards

More evidence that banks and other institutions are already finding ways to skirt recently enacted regulations designed to protect consumers and will, someday, probably make an even bigger mess than the one the nation is still in the process of cleaning up comes in this WSJ report about purveyors of credit cards becoming quite creative recently.

Amid all the junk mail pouring into your house in recent months, you might have noticed a solicitation or two for a “professional card,” otherwise known as a small-business or corporate credit card.

If so, watch out. While Capital One Financial Corp.’s World MasterCard, Citigroup Inc.’s Citibank CitiBusiness/ AAdvantage Mastercard and the others might look like typical plastic, they are anything but.

Professional cards aren’t covered under the Credit Card Accountability and Responsibility and Disclosure Act of 2009, or Card Act for short. Among other things, the law prohibits issuers from controversial billing practices such as hair-trigger interest rate increases, shortened payment cycles and inactivity fees—but it doesn’t apply to professional cards.

Until recently professional cards largely had been reserved for small-business owners or corporate executives. But since the Card Act was passed in March 2009, companies have been inundating ordinary consumers with applications. In the first quarter of 2010, issuers mailed out 47 million professional offers, a 256% increase from the same period last year, according to research firm Synovate.

I’ve noticed these coming in the mail lately, but, like every other credit card solicitation, they quickly end up in the circular file. There has been only one exception though. We recently took American Express up on their gold card offer in return for getting a free Bose SoundDock Music System after we make $100 in purchases. The annual fee goes from free to $175 after a year, so, you know we won’t end up being long time gold card holders.

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The “Bond Bubble”

[The following commentary is from the latest issue of the Weekend Update (Volume V, Issue 34) at Iacono Research. For subscription details, click here.]

The increasing amount of commentary on the subject of whether or not the world now faces a “bond bubble” combined with a recent article detailing the poor performance of inverse bond funds in 2010 seemed like sufficient justification to revisit a topic that was discussed here three weeks ago when I took “A Quick Look at Rising Rate Funds” (see Volume V, Issue 31).

Recall that, in the referenced discussion topic, short-term and long-term charts of Treasury yields were shown, in which it is clear to see that interest rates rose for decades to a peak in the early 1980s and have retreated from there to what now appears to be the end of another secular trend. Also, 13 inverse bond funds were presented in table form with the following three being suggested as likely candidates for the model portfolio when the time is right:

  • Profunds Rising Rates Opportunity 10 (RTPIX)
  • Rydex Inverse Government Long Bond Strategy (RYJUX)
  • ProShares Short 20+ Year Treasury (TBF)

Obviously, as should be clear when looking at the graphic below, the time has not been right over the last four months because all three of these “unleveraged” funds – a key consideration for a position that may be held in the model portfolio for a very long time – have been big losers. Funds that apply leverage of between 1.25x and 3x have done much worse than the 1x funds, in some cases the year-to-date losses exceeding 40 percent.

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Double Dippin’

This one seems to have been making the rounds in recent days – Merle Hazzard sings about the possibility of a double-dip recession for the U.S. economy.

It may come as news to a good portion of the nation’s long-term unemployed that, as Merle says, “we head right up and head back down again” – maybe he was referring to the banks…

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Retail Sales Up 0.4 Percent in July

The Commerce Department reported that retail sales rose for the first time in three months, however, the gains were less than expected as confidence in the economic recovery continued to wane and consumers were wary of spending amid a weak labor market.

A surge of 2.3 percent in gasoline station sales and a 1.6 percent boost in auto sales paced the advance. Overall retail sales rose 0.4 percent in July after an upwardly revised decline of 0.3 percent in June but, excluding autos, sales gained just 0.2 percent. Excluding both autos and gasoline, sales fell 0.1 percent, a clear sign that consumers have tightened their belts.

Clothing sales fell 0.7 percent while two categories closely linked to the nation’s troubled housing market – home furnishings and building materials – both declined 0.3 percent.

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