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How Has the Financial Crisis Affected YOU?

Monday, January 12, 2009 | Ben Schott

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As investors, we pay attention to numbers like unemployment, housing starts, retail sales and consumer confidence.

But as this financial crisis lengthens and deepens, there are a few other numbers I'd love to see ... 

How about average retirement account loss?

Talk about an accurate indicator of how bad things are for the average American family. 

Or how about setting up something like TV's Nielson Ratings, but for family spending trends?  (Sure, retail sales and consumer spending paint a picture, but it's such a wide view of what's going on that it hardly seems real.)

I'd love to know how much the average middle class couple spent on holiday gifts this year compared to last.

My point, I suppose, is that the market's meltdown has affected people and families in ways that you can't see just by reading the Journal or watching CNBC.

So here's my question for you today:

How has this financial crisis affected you?

Have your preconceived notions about our financial system or about investing changed?

Are your retirement plans on track?

Have you and your family cut back on your spending?

If you've lost money, what's your plan for getting it back?

As a Tycoon Report reader and perhaps a student of CRISS or ETF Master Trader, how has your experience throughout this crisis differed from those of your friends and neighbors?

If you'd like to share your answer with us and your fellow readers, you could post a comment below.

But even better, especially if you haven't done so before, I'd like to invite you to submit an article of your own.  If we get some good ones, I'll publish them right here in the newsletter.

So, how has this market mess affected you?  What do you plan to do about it?

I look forward to hearing your responses, and have a great week!


(Please let us know what you think about Ben Schott's article.)
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Ben Schott
Editor in Chief
The Tycoon Report


Economic Calendar for the Week of January 12 - January 16

Wednesday, January 14, 2009
    
08:30     Retail Sales

    * Importance (A-F): This release merits an A-.
    * Source: The Census Bureau of the Department of Commerce.
    * Release Time: 8:30 ET around the 13th of the month (data for one month prior).
    * Raw Data Available At: http://www.census.gov/svsd/www/advtable.html.

The retail sales report is a measure of the total receipts of retail stores. The changes in retail sales are widely followed as the most timely indicator of broad consumer spending patterns. Retail sales are often viewed ex-autos, as auto sales can move sharply from month-to-month. It is also important to keep an eye on the gas and food components, where changes in sales are often a result of price changes rather than shifting consumer demand.

Retail sales can be quite volatile and the advance reports are subject to rather large revisions. Retail sales do not include spending on services, which makes up over half of total consumption. Total personal consumption is not available until the personal income and consumption reports are released, typically two weeks after retail sales.

Highlights

    * December retail sales will post a significant decline.  There is little doubt that it was a weak overall holiday spending period.  The December same-store sales data for retailers on December 8 will help provide a clearer picture of the degree of weakness.
    * December auto sales managed to increase from the November levels (although year-over-year levels were very weak).  This will help moderate the overall decline in non-auto retail sales.

Big Picture

    * Retail sales have fallen dramatically starting in September.  That was when the financial markets fell apart and the news became apocalyptic.  Auto sales have also collapsed as the news of potential auto company bankruptcies dominated headlines.  Retail sales are likely to remain weak for quite a while given the current trends in employment, and the negative wealth impact for depressed prices for homes and stocks.

Thursday, January 15, 2009

08:30     PPI: Producer Price Index

    * Importance (A-F): This release merits a B-.
    * Source: Bureau of Labor statistics, U.S. Department of Labor.
    * Release Time: Around the 11th of each month at 8:30 ET for the prior month.
    * Raw Data Available At: http://stats.bls.gov/news.release/ppi.toc.htm.

The Producer Price Index measures prices of goods at the wholesale level. There are three broad subcategories within PPI: crude, intermediate, and finished. The market tracks the finished goods index most closely, as it represents prices for goods that are ready for sale to the end user. Goods prices at the crude and intermediate stages of production often provide an indication of coming (dis)inflationary pressures, but the closer you get to crude goods, the more that these prices track commodity prices which are already available in traded indexes such as the CRB (Commodity Research Bureau).

At all stages of production, the market places more emphasis on the index excluding food and energy, referred to as the core rate. Food and energy prices tend to be quite volatile and obscure trends in the underlying inflation rate. Though the market reaction is determined by the month/month changes, year/year changes are also noted by analysts. The index is not revised on a monthly basis, but annual revisions to seasonal adjustment factors can produce small adjustments to past releases.

Highlights

    * December PPI will post another large increase due to the continued decline in energy prices for most of the month.
    * The core rate rose only 0.1% in December, due to the lagged impact of weak demand.  We expect the core rate to rise at a very modest pace at most in the months ahead.  Energy prices have stabilized, so large drops in PPI are not likely to continue into 2009 data.  Nevertheless, the outlook is for very limited price pressures, and possibly some deflation in selected areas.

Big Picture

    * PPI trends have been highly volatile in 2008, mirroring the trends in global oil prices.  After a net 4.3% increase in the three month period of May-July, PPI has now fallen 6.3% over the four months of August-November.  December will be down sharply as well.  In early 2009, the core rate will rise modestly if at all, while energy prices could stabilize.  That would leave PPI near flat.  Falling global commodity prices and weak economic demand will keep inflation in check at the producer level.  If global economies remain weak in 2009, as is widely expected, inflation at the producer level will be insignificant. There may even be concerns about global deflation.

10:00  Philadelphia Fed Index

Release Details

    * Importance (A-F): The Philadelphia Fed Index merits a B.
    * Source: The Philadelphia Federal Reserve bank.
    * Release Time: Third Thursday of the month at 12 ET for the current month.
    * Raw Data Available At: http://www.phil.frb.org/

In Brief

There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The Philadelphia Fed's survey is first each month, actually coming out during the third week of the month for which it is reporting. Several smaller surveys are then released before the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the NAPM and are of little value. The purchasing managers' reports are measured like the national NAPM - 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark.

These surveys can be of some help in forecasting the national NAPM - particularly the Philadelphia and Chicago surveys which are more closely watched due to their timeliness and the fact that these regions represent a reasonable cross section of national manufacturing activities.


Highlights

    * Raw Data Available At: http://www.phil.frb.org/

Friday, January 16, 2009

08:30     CPI: Consumer Price Index

Release Details

    * Importance (A-F): This release merits a B .
    * Source: Bureau of Labor statistics, U.S. Department of Labor.
    * Release Time: 8:30 ET, about the 13th of each month for the prior month.
    * Raw Data Available At: http://stats.bls.gov/news.release/cpi.toc.htm.

The Consumer Price Index is a measure of the price level of a fixed market basket of goods and services purchased by consumers. CPI is the most widely cited inflation indicator, and it is used to calculate cost of living adjustments for government programs and it is the basis of COLAs for many private labor agreements as well. It has been criticized for overstating inflation, because it does not adjust for substitution effects and because the fixed basket does not reflect price changes in new technology goods which are often declining in price. Despite these criticisms, it remains the benchmark inflation index.

CPI can be greatly influenced in any given month by a movement in volatile food and energy prices. Therefore, it is important to look at CPI excluding food and energy, commonly called the "core rate" of inflation. Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new cars. In addition to tracking the month/month changes in core CPI, the year/year change in core CPI is seen by most economists as the best measure of the underlying inflation rate.

Big Picture

    * Inflation is back under control. The commodity-produced inflation scare of this summer is long gone.  The idea that higher energy prices will necessarily lead to broad inflation pressures is dead.  The concern has actually shifted to deflation, with the idea that businesses will have a hard time mantaining profit margins.  Lower energy prices and weak demand are leading to some large monthly declines in CPI for the fall months.  CPI will remain in check well into 2009.  The year-over-year increase in CPI stood at 4.9% through September, but plunged to 3.7% after the October data, and is headed even lower.

09:15     Capacity Utilization

Release Details
    * Importance (A-F): This release merits a B-.
    * Source: Federal Reserve.
    * Release Time: 9:15 ET around the 15th of the month (data for month prior).
    * Raw Data Available At: http://www.federalreserve.gov/releases/G17/Current/g17.txt.

The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather. Severe hot or cold spells can boost production as increased heating/cooling needs drive utility production up.

In addition to production, this monthly report also provides a measure of capacity utilization. Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure. Capacity is very difficult to measure, and the Fed essentially assumes that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. The 85% mark is seen as a key barrier over which inflationary pressures are generated, but given revisions to these data and the difficulties with capacity measurement, the 85% mark should be viewed cautiously. It would be appropriate to look for corroborating inflation indications from commodity prices and vendor deliveries.
Big Picture

    * The outlook for industrial production through the end of 2008 and into 2009 has worsened.  Production has held up surprisingly well through 2008 due in part to strong exports.  Exports grew at a 7.0% annual rate in 2005, 9.1% in 2006, 8.4% in 2007, and at an annual average rate of 7.8% through the first three quarters of 2008.  A major factor in this boom was a continually weakening dollar.  Now, the dollar has strengthened and global economies are entering recession.  This will undermine export growth and take away a major support for US industrial production.  US companies will also be impacted by the darkening US economic outlook.  Production is therefore likely to trend lower.

09:55     University of Michigan Consumer Sentiment Index

Release Details
    * Importance (A-F): This release merits a B-.
    * Source: The University of Michigan.
    * Release Time: Preliminary: 10:00 ET on the second Friday of the month (data for current month); Final: 10:00 ET on the fourth Friday of the month (data for current month).

The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes - expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
Big Picture

    * Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending.  Gas prices and political events can have an outsized impact on sentiment.  In general, these data are of very little economic value.  Sentiment has been low all year despite rising consumer spending.  This broken clock will now happen to reflect the correct time.  The consumer will be pulling back.




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8 Comments

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  1. John (1 year ago) Is this Spam?

    In a nutshell-my variable annuity lost 50%(approx. $50,000)which I dumped and went with a guaranteed annuity that pays 6% no matter what happens to the market. All my investments went down and I have since invested in more bonds and fixed securities. I am afraid to buy new stocks right now so I am going to sit on the sidelines till I see something that makes me confident I can make money in the stock market again. Yes-I lost a lot and am being extra careful right now but still feel I will be able to retire in 15 years or so somewhat comfortably. The big problem right now is who do you trust in getting advice right now about making future investments? I really don't know who to believe. Like Chris Rowe said in a previous article-forget all the BS the media is throwing at you. So what do we do? Any ideas??

  2. Bill (1 year ago) Is this Spam?

    My wife and I are both 70 years of age; living on SS and IRAs that both of us had invested in mutual funds. We have lost over 65% of our life savings; we cannot sell our house (except at a loss) because of the tight credit market and reduced prices of houses and increased inventory. In short the current financial meltdown has caused us to 1. drastically reduce our spending 2. Increase our cash emergency funds savings and 3. Put an indefinite hold our plans to sell our house and move to be near our GRANDchildren.



    In short our retirement has turned sour in the past 12 months with no end in sight!

  3. David (1 year ago) Is this Spam?

    Ben you ask some important questions and the crisis has certainly affected me. As of last friday my portfolio is down to a 2006 p/e of less than 1, a 2007 p/e of 2, and current forecasts provide for a p/e this year of 5.5, a significant reduction of earnings over the time frame.

    On the brighter side of things the p/bk of my portfolio is just .22 and 2009's p/e and peg are 2.67 and .18 so with over a decade to go before retirement age I will probably see at least one and probably two economic cycles that will see my stocks rally, fall and then rally again significantly over the time frame.

    Of more importance to me is the why. There has been talk recently of the failure of a 50 bill Ponzi scheme and yet no one is talking of the trillions of dollars Ponzi scheme represented by the floating exchange rate which has resulted in the massive loss of wealth and retirement savings around the world. Perhaps it should be more accurately called the ponzi exchamge rate. It is easy to explian this scheme. Current account deficits are run up not just by the US but also other economies that are used to fund lending to people in the economy and eventually the lending bubble bursts causing the loss of significant amounts of peoples retirement savings. This has been repeating time after time for probably centuries. You would think that we would learn from past mistakes. This time however it looks like the politicians are at least partly on the right track by providing liquidity support to the economy during the contraction to reduce it's impact. But this is really only the start of the necessary solution, and before you go blaming it entirely on wall street bear in mind that much of this debt and lending arose initially as a result of the deficits run up by the strong dollar policy, a political decision. It is not so much the policy that is wrong but the failure to ensure that the dollar strength was sustainable by an adequate level of exports by the economy. And so the real solution can only be implimented by polical forces within those economies that are operating both current account and long term deficits. Perhaps this involves lower exchange rates but by far the most sensible solution is to place greater emphasis on increasing exports.

    On the other side of the coin those economies that are operating current account surpluses in conjunction with long term surpluses should perhaps consider whether it would be better to see the currency earned from their exports consumed by higher imports rather than the next bursting bubble and take steps to facilitate this course of action.

  4. Ethan R (1 year ago) Is this Spam?

    Hey, look who's back! The man, the myth, the legend...

    I say Thank God for double short ETF's, they have kept me sane and solvent for the last six months. As for the 401k, keep socking the money in there every two weeks and pray that eventually things turn around. Think of all the cheap shares you will have to appreciate if/when that happens.



    See you Friday, big Ben! ER

  5. handy s (1 year ago) Is this Spam?

    I am a disabled vet and my job now is to grow my investments. I am extremely lucky to have a great wife who was and is supportive of me and some great council from 15 years ago to GET OUT OF DEBT.

    We started in 1995 and were clear by 2003. We were able to do this by eliminating consumer debt by making do or doing without. No new cars, toys or travel. We downsized from a 6 bedroom georgian 5/4 and a door to a small house we now own outright.

    Thanks to the folks here at the Tycoon report, we cashed out of 90% of stocks and most mutual funds in time and bought short term bonds.

    Some were deeply discounted and have brought us back to near where we were when this mess started. The only real losses were some of the mutual funds I kept. We haven't changed our life style and are looking to buy a newer car now the prices have come down.

    I plan to dollar cost average back into stocks who have retained at least 80% of their value during the downturn when a bottom has BEEN indicated. I am sure you will let me know.

    Thanks again.

    Handysam

  6. John (1 year ago) Is this Spam?

    401k losses must be the topic du-jour today. This is the second article I have read today, and it is not even 9:00 am yet. My thought is that no one was complaining about the 10 percent annual gains on the way up. We see that bottom line figure on the 401k statement and pat ourselves on the back for how much money we have made. We are reminded that this is virtual money when we hear that Bill Gates loses so many millions of dollars each time MSFT stock goes down a point. But when it comes to our own account, we feel like some thief has taken it out of our pocket. Personally, I want more ability to manange and more investment options in my 401k, which is exactly what I will not get once the government gets done fixing the system for all us whiners.

    Sorry for the rant. Bottom line for me - now that I read that Buy And Hold Is Dead on the cover of Time Magazine - it is time to buy and hold again.

  7. john (1 year ago) Is this Spam?

    Ben,

    I am 60 so I have a few years before I need my roth. One issue I like is BPT, it has always paid a fat divy, and I believe it will continue.

    It has made a 50% retracement over a ten year span so I would say it is a buy here. It will most likely move lower with the Mkt. in 09, but the divy has you covered.

    I pay my card off monthly, so no debt. Own my cars, not new, buy used, always have. I buy my needs and not my wants.

    I have a cleaning business, Business's always need rats to do the cleaning (at nite!), so I feel protected, moving in the shadows.

    I learned a boat load from CRISS and highly recommend it to those who want to trade and manage their money. Buy and hold worked from 1981 to 2000, but not any more. (my opinion). So to be able to trade you need a technical foundation, and CRISS provided that to me.

    I think many folks have been living with their belts in the last loop. If they lean out we as a country will make it. Would you rather be in any other country in tough times?? And if you are an investor easily influenced, turn off the news and watch your charts.

  8. Mike (1 year ago) Is this Spam?

    Ben, I retired in 1997 and have always self directed my 401K and now my rollover IRA. I was down last year but only a small % because I went to cds and bonds along with money market in Jan 08. The losses came from 2 bonds from CIT mostly and they have since come back a tad. I have recently bought into ETF XLP, Duk,and CPTNX.
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