Found this story about the shrinking middle class.  The author based it on 22 statistics that prove it.  As a skeptic I decided to look into the numbers.  If you want to explode your head, you can read all of the unsupported opinions in the comment section of the original story.  I won’t review all 22 statistics.  It would take too long and you would not finish this post.  So let’s take a look at a few of them and see what we get.

Proof #1 - “83% of all U.S. stocks are in the hands of 1 percent of the people.”

This is the first “Proof” of the rich getting richer.  This table ends in 2001 and does not reflect any of the effects of the last 9 years.  So it is a stretch to use this data to support a claim about the rich getting richer in 2010.  The red box shows that the top 1% has 83% of the wealth.  In 1962 the top 1% had 94% of the wealth.  Hey!  Wait!  This table supports a position that is in direct conflict of the author.  Well that is awkward!

Proof #2 “66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.”

Well, that does seem a little unbalanced.  Again this is during the boom years.  I don’t have any info for the time before and after this period.

Proof #3 “36% of Americans say that they don’t contribute anything to retirement savings.”

There is nothing in this stat that says if this number is higher or lower than in the past.  Also, it does not talk about income levels and cannot be used to support the point of the story.  When I looked at the source of this “proof“, it said

Some 21 percent of all respondents said they have reduced their 401(k) contributions or personal savings in the last six months in order to get by, while 23 percent of the $100,000-and-over group said they had done so.

This shows that times are tough but may suggest that the higher incomes (over $100,000) were actually saving less.  Not a big difference but this does not support the conclusion that the middle class is shrinking.

I don’t know if the middle class is shrinking or not but based on the samples I took from this article the author has failed to support his position.

From the New York Times.

Some republicans seem to think that George W. Bush did a great job on the economy and the budget. 

Last week Mitch McConnell, the Senate minority leader, declared that “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.”

What?  Is he delusional?

Paul Krugman describes it this way….

The actual record of the Bush years was (i) two and half years of declining employment, followed by (ii) four and a half years of modest job growth, at a pace significantly below the eight-year average under Bill Clinton, followed by (iii) a year of economic catastrophe. In 2007, at the height of the “Bush boom,” such as it was, median household income, adjusted for inflation, was still lower than it had been in 2000.

The “Bush boom” – I love it.  More like the Bush Kaboom.

Well a bit of good news.  Unemployment fell from 10.0 to 9.7 in January.  The number of people unemployed is 14.8 million.  Yes that is a lot of people and I’m not saying that 9.7 is good it’s just better.  Unemployment is historically a lagging indicator of the economy.  Another nice indicator is that involuntary part-time workers fell from 9.2 to 8.3 million in January.  These are people that have a job but work part-time because there is not enough for them to do at the job that they have.  This is a good sign and as more of these people get to full time work their companies will have to hire new people.

NOTE:  This post is part of an ongoing education series.  This information is for educational purposes only.  This information does not constitute investment advice.  No rational person would make investment decisions based on a blog post.  Please consult with your financial advisor before taking any action.  If you think it is OK to make investment decisions based on a blog post, then for the love of the FSM – Stop reading my blog.

Fortune has an interesting story on 4 possible bubbles.  The four areas of concern, as they see them are: Gold, Oil, Treasuries and Stocks.

Gold – I have never been a fan of “investing” in gold.  It is a commodity and has very serious price fluctuations.  However, over long periods of time gold does hold its value.    You may have heard the catch phrase, “Gold is a hedge against inflation.”   That is to say, what you could buy with an ounce of gold in 1920 you can also buy with an ounce of gold in 2000.  You will not lose ground to inflation nor will you beat inflation.  As the price goes up companies can afford to get more gold out of the ground.  We could be looking at a bad combination of people chasing “what is hot” combined with new production hitting the market.  If some investors get spooked the price could fall quite a bit.  If you really, really want to put 5% of your money in gold – I could live with that, just don’t do it after the price has doubled in just a few years.  Even better, skip gold and do some real investing.

Oil – Some of the same logic applies here.  Remember,  oil was $150 a barrel about two years ago and predictions were that it will go to $200.  Well, it went to $50.  Now oil is back to $75.  Will it go up or down from here?  Who knows?  There is this old joke about oil,  “What price does OPEC want for oil each year? $100, $100, $25, $100.”  The occasional drop in prices keeps us addicted.  This is not for the faint of heart or the rational, in my opinion.

US Treasuries – This one should worry the average investor.  If you are looking for more stability and are ok with lower returns, treasuries can be a good place to go.  However, low interest rates (current FED funds rate is 0.25%) have made it easy for banks to borrow cheap money and buy treasuries.  The high demand pushes up prices and lowers the yield (current 10 year yield is around 3.6%).  Remember, bonds are a little tricky because as the price goes up the yield goes down. When the Fed starts to raise rates, treasuries will look less attractive and the bonds you already own could take a beating.  Keep an eye on how much of your portfolio is in bonds and shy away from long bonds (ten years or longer maturities).

Stock Market – While the market made a nice return in 2009 (S & P up 26.5% for 2009) it still has a long way to go to make up for the almost 40% loss in 2008.  I don’t expect any big returns in the next few years and I think the odds of a full blown double dip are very low.  The stock market is the best place to go for long term investments (10+ years).  If you planning on adding money to the market at this time, think about putting in 10% each month over the next 10 months.

NOTE:  This post is part of an ongoing education series.  This information is for educational purposes only.  This information does not constitute investment advice.  No rational person would make investment decisions based on a blog post.  Please consult with your financial advisor before taking any action.

According to data released by the National Retail Federation, retail sales from Nov. 1 to Dec. 24 2009 are up 3.6% as compared to the same period in 2008.  Sales for the same period in 2008 were down 2.3% when compared to 2007.

Retail makes up 70% of the GDP (Gross Domestic Product) in the United States.  A very strong sign that the economy is growing.

A new story in the December issue of the Atlantic discusses the connection of the popular Christian “Prosperity Gospel” with the failure of the US economy and the housing slump.

As Pastor Fernando Garay says,

“It doesn’t matter what country you’re from, what degree you have, or what money you have in the bank,”

And

“You don’t have to say, ‘God, bless my business. Bless my bank account.’ The blessings will come! The blessings are looking for you! God will take care of you. God will not let you be without a house!”

I love that “God will not let you be without a house!”  Really?  What about the millions of people around the world that don’t have a house?  Are they just doing it wrong?  Well according to some that preach the Prosperity Gospel – they are.

Pastor Garay’s wife explains…

“Instead of saying ‘I’m poor,’ say ‘I’m rich,’”

“The word of God will manifest itself in reality.”

This is simply a version of The Secret.  Or, The Secret is a version of this without the mention of god.  This encourages people to buy beyond their ability.  No car is too fancy – no house is too big.  Just buy it and pray that the bills get paid.  No REALLY try it – IT WORKS.

As one member of the church explains…

“Monday I have to pay this, and Tuesday I have to pay that.” Then, just that morning, “Jesus gave me $1,000.”

SO….  it does work.  Just ask for money and Jesus will bring it to you.  Hey, if Jesus has all of this money – why does he need 10% from you?  Well it may go all the way back to our good friend, Oral Roberts. 

Roberts claimed his Bible flipped open to the Third Epistle of John, verse 2: “Beloved, I wish above all things that thou mayest prosper and be in health. Even as thy soul prospereth.” Soon Roberts developed his famous concept of seed faith, still popular today. If people would donate money to his ministry, a “seed” offered to God, he’d say, then God would multiply it a hundredfold. Eventually, Roberts retreated into a life that revolved around private jets and country clubs.

So… It’s not just The Secret, now it is a pyramid scheme.

The world’s biggest promoter of this Prosperity Gospel today is Joel Osteen.  He and his wife tell a story about how they got their dream home.  They just really, really wanted a big house that they could not afford.  Well guess what, now they live in a really big house!  A gift from god.  Maybe it had something to do with the thousands of people that come to his megachurch and give him money.

This brings two terrible realities.  The first is that people get into financial trouble by not investing wisely.  They get expensive houses and expensive cars and they don’t save because God will take care of you.  Then something bad happens, you lose your job or they just cut your pay a little or your hours.  Now you can’t make the payments and the housing market falls 10 -20% (or more) and everything is lost.  Years of work with no money saved, no investments and no house!  The second bad thing is that just like in The Secret,  it is all your fault.  Call it bad thoughts, negative energy or sin – it’s the same.  Why should we help you – if it’s your fault?  All of this while the sellers of the books and the preachers keep getting rich by wisely investing your money.

Bureau of Labor Statistics has release the November employment news.  November Unemployment rate is 10.0%.  This is down from 10.2% from last month.  The total number of people unemployed also fell slightly to 15.4 million.  This is still a very big number but unemployment is a lagging indicator.  That means it is one of the last things to get better when the economy improves.

The most encouraging thing in the data is that 36 states posted lower rates.  Six were the same and eight went up.  Michigan enjoyed a drop of 0.4% for 15.1% to 14.7%. 

NOTE:  This information is for educational purposes only.  This information does not constitute investment advice.  No rational person would make investment decisions based on a blog post.  Please consult with your financial advisor before taking any action.