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Economic Fiction

February 1, 2016

“Anyone claiming America’s economy is in decline is peddling fiction.” - President Barack Obama, Jan. 12, 2016.  My readers can now refer to me as a fiction writer then because despite the president’s assertion, the data and several analysts (armchair and otherwise) disagree. 

 

A few cases in point…

 

When I got into financial planning, there was a saying that, “utilities are perfect for widows and orphans,” because they were “safe” investments. And they were for a long time.

But today, the Dow Jones Utilities Average has been in decline since January 2015. Fiction?

Small cap stocks have been decimated since last summer – down more than 20 percent since June! Fiction?

 

In December 2014, the Dow Jones Transportation Index sat at nearly 9200. Since then, it’s trended downward severely.

 

Fiction?

 

The S&P 500 is weighted stock index. That means large cap stocks are more heavily weighted in the index. Its 2015 return hovered around 0. But if stocks were equally weighted, it would be worse because the average stock in the S&P 500 is down 20 percent or more from its 52-week high.

 

Fiction?

 

The NASDAQ is even worse in terms of large cap weighting. It ended 2015 up nearly 7 percent, but would’ve finished with a loss without the FANG stocks, which are up 30 to 156 percent in the last year!

 

Fiction?

 

After cutting global growth prospects, the World Bank’s Head Economist, Kaushik Basu, said, ”There are severe fault lines beneath the surface."

 

“The global economy, and in particular the emerging economies, could hit a severe road bump,” he said. Is all of this fiction?

 

I don’t think so. Unfortunately, there’s ample evidence saying the American economic decline is frighteningly real.

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