Monday, December 12, 2005


It gets tiresome to see the false presentation of news and then hear it repeated time and again. I read the false info in the blog world and I hear it expressed daily by those who love to hear a good negative story.

Over the years, Ed Yardeni has set the record straight but the mass media continues to spew out false info. Much of the false info is simply the telling of a story from a biased point of view. Many who repeat the false information know it is not true but big lies sell lots of newspapers. One of the oft repeated falsehoods involves the US savings rate. Here the blame partially must be attributed to the faulty methods used to calculate savings. Since I have written about this before, I will not go into the details again but instead will repeat some of the figures presented by Ed Yardeni.

Total household net worth in America increased by $4 Trillion Dollars in the last 4 quarters! This increase is bigger than the total of consumer debt outstanding which is about $3 Trillion Dollars. Household savings is larger than consumer debt by about $1.7 Trillion Dollars. Total household net worth in America is over $51 Trillion Dollars and only $10.9 Trillion Dollars of this net is home equity. The average American has assets net of all liabilities that is equal to 5.6 times his disposable personal income. American's total assets are over $62 Trillion Dollars and total liabilities are about $11.4 Trillion Dollars.

Since the recession, total savings and net worth have been growing steadily. The dire predictions of massive bankruptcy and the flight toward gold is simply misplaced fear.

In the corporate world, the numbers are equally impressive. Cash flows of non-financial corporations have increased by $1.37 Trillion Dollars in the past 4 quarters. Liquid assets and debt ratios are at the best levels in 40 years.

Some will take my last sentence as a contrary indicator. They will say that 1965 was not a great time to buy stocks; I beg to differ. The late 60's were good for stocks but by the end of the 60's inflation started to bite due to the policy of "guns and butter". The government decided to print more and more money to "pay" for the Viet-Nam war.

The situation today is much different. Government revenues are increasing rapidly. Spending went up rapidly during and shortly after the recession but the growth in revenues is climbing fast and the growth in expenditures is slowing. Besides, if the market is as good from 2005 to 2009 as it was from 1965 to 1969, I'll take it.

Another huge difference is that in the late 60's, so many of our men were soldiers that it affected the labor markets. Today, there is no real cost push inflation; certainly, not from wages. The only cost push is a temporary push from commodity prices and productivity has hammered these costs to the point that finished goods price increases are moderate.

Don't believe all you read about no savings, tapped out consumers and inflation. More Americans than not regularly deposit a portion of their incomes into retirement accounts give a portion to church and charity and spend the rest. Business capital spending fluctuates far more than personal consumption and capital spending is heating up big time.

Instead of Gloom and Doom, the media should be noting the bright economic prospects in our future. Big money is about to be spent on technology. Buy technology stocks before the BOOM goes BOOM, BOOM, and BOOM!


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