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  • USA Added 192,000 Jobs in February

    Nonfarm payroll employment increased by 192,000 in February, and the unemployment rate decreased to 8.9%, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in manufacturing, construction, professional and business services, health care and transportation. Revisions also added 58,000 jobs added in the previous two months. The change in total nonfarm payroll employment for December was revised from +121,000 to +152,000, and the change for January was revised from +36,000 to +63,000.

    The job gains are good news, but job growth has to sustain gains over 175,000 a month for at least 6 months (and gains over 250,000 would be much better) to begin to make a serious dent in the millions of jobs lost in the recession (weather likely restrained January job growth that showed up in the February figures if you take the average for the 2 months you get a gain of 127,500 jobs a month). Since a recent low in February 2010, total payroll employment has grown by 1.3 million, or an average of 106,000 per month. Approximately 125,000 jobs have to be added just to keep up with growth in the population. Until we are consistently adding 230,000+ jobs a months the employment picture is not improving strongly enough given the large number of recent job losses. Adding over 150,000 jobs a month is good, but more is needed to provide jobs for the large number of unemployed.

    The number of long-term unemployed (those jobless for 27 weeks or more) was 6.0 million and accounted for 43.9% of the unemployed. Decreasing the number of long term unemployed is a key measure, as significant gains are made it is a sign pointing to better economic conditions.

    Manufacturing employment rose by 33,000 in February. Almost all of the gain occurred in durable goods industries, including machinery (+9,000) and fabricated metal products (+7,000). Manufacturing has added 195,000 jobs since its most recent trough in December 2009; durable goods manufacturing added 233,000 jobs during this period.

    Construction employment grew by 33,000 in February, following a decline of 22,000 in January that may have reflected severe winter weather. Within construction, specialty trade contractors accounted for the bulk of the February job gain (+28,000).

    Related: USA Economy Adds 151,000 Jobs in October 2010, and Revisions Add 110,000 More – USA Unemployment Rate Remains at 9.7% (Feb 2010) – USA Unemployment Rate Rises to 8.1% (Feb 2009), Highest Level Since 1983
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  • Curious Cat Investing and Economics Carnival #12

    Welcome to the Curious Cat Investing and Economics Carnival: find useful recent personal finance, investing and economics blog posts and articles.

    • The Myth of Japan’s ‘Lost Decades’ by Eamonn Fingleton – “Japan’s surplus is up more than five-fold since 1990. And, yes, far from falling against the dollar, the Japanese yen has actually boasted the strongest rise of any major currency in the last two decades. How can such facts be reconciled with the ‘two lost decades’ story? I don’t think they can.”
    • Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation by John Hunter – “It is not less risky to have your entire retirement in treasury bills than to have a portfolio of stocks, bonds, international stocks, treasury bills, REITs… This is because their are not just risk of an investment declining in value. There are inflation risks, taxation risks…” (including structural imbalances introduced by the Feb depressing short term yields to provide billions to large banks from the pockets of savers).
    • Cheating Investors As Official Government Policy by Daniel R. Amerman – “When you put your savings into a money market fund, and the policy of the US government is to force interest rates to unnaturally low levels – you are being cheated out of the yield you should be receiving. When you buy a corporate bond or corporate bond fund – you are being cheated by overt government market interventions that have the explicitly stated purpose of lowering corporate borrowing costs.”
    • Force Yourself to Save by – “Save 50% of any bonus or raise… Theoretically you could save 100% of your raise and maintain the same lifestyle, but that’s no fun. What’s the point of a raise if it doesn’t include a new PS3?” (I have long favored putting a portion of each raise toward a saving plan – John)
    • Who holds the most U.S. Treasuries in the world? (Hint: It’s not China.) by James Jubak – “For a while China was the biggest holder of U.S. government debt. But now with $896 billion China has slipped to No. 2. As of last week, the leader of the pack is—the envelope, please–the New York Fed, which holds the Federal Reserve’s Treasury bills, notes, bonds, and TIPs. (TIPS are Treasury Inflation Protected Securities.) As of last week the Fed’s System Open Market Account held $1,108 billion in U.S. government debt. “
    • 15 Things You Need to Do, Before Reading Another Financial Blog – “Set up a system to monitor your next goal – Now that you have a goal, set up a system to monitor your progress. I have Mint email monthly progress reports on my financial goals. Another way is track your goal is by doing a monthly review.”
    • How Much House Can You Afford? by Ryan Guina – “if your mortgage payment is expected to jump $500 a month, set that money aside for a few months as part of your normal budgeting. Do this for other spending categories that may increase, such as utilities, home owner’s insurance, taxes, etc.”
    • MERS: Stop Foreclosing in Our Name by Barry Ritholtz – “Allow me to spell this out for you more specifically: MERS is an abomination, a legal blasphemy that should be destroyed before it unleashes the four horsemen of the apocalypse.”

    Related: investing books – articles on investing – Curious Cat Investing and Economics Search

  • Manufacturers Coming Back to the USA

    An increasing number of news articles are reporting on the increasing strength of manufacturing in the USA (and globally, actually).

    Made (once again) in America

    NovaSom chose Zentech Manufacturing Inc. for two key reasons: Executives here could oversee quality control, and the kits could be shipped to domestic customers in just days, not weeks or months.

    After years of American companies shipping jobs and contracts overseas, some are choosing local manufacturers or even “re-shoring” – bringing those jobs and work back to the United States.
    …
    One-fourth of more than 850 companies surveyed by MFG.com, a global online marketplace for manufacturers looking to source custom parts, returned work to North America from overseas in the last quarter of 2010.

    The “decrease” in manufacturing in the USA has been exaggerated as I written for year (manufacturing has grown steadily over the last few decades in the USA). It is true though manufacturing in some plants has moved overseas. Over the last few years more and more stories report on American companies moving manufacturing back to the USA that they had moved offshore previously.

    The Institute for Supply Management most recent survey reports a surge in US manufacturing to its highest reading in nearly seven years.

    Related: Manufacturing Cars in the USA – Leading Manufacturing Countries Globally (1980-2009) – Global Manufacturing Employment Data – 1979 to 2007

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  • Warren Buffett’s 2010 Letter to Shareholders

    Warren Buffett has published his always excellent annual shareholder letter. It is a pleasure to read them every year, when they are published, and re-read them at other times of the year.

    Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of the earth’s movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit. At GEICO, for example, we enthusiastically spent $900 million last year on advertising to obtain policyholders who deliver us no immediate profits. If we could spend twice that amount productively, we would happily do so though short-term results would be further penalized. Many large investments at our railroad and utility operations are also made with an eye to payoffs well down the road.
    …
    At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish.
    …
    From a standing start in 1985, Ajit has created an insurance business with float of $30 billion and significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By his accomplishments, he has added a great many billions of dollars to the value of Berkshire.
    …
    At bottom, a sound insurance operation requires four disciplines… (4) The willingness to walk away if the appropriate premium can’t be obtained. Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has led too many insurers to write business at inadequate prices. “The other guy is doing it so we must as well” spells trouble in any business, but none more so than insurance.
    …
    a few have very poor returns, a result of some serious mistakes I have made in my job of capital allocation. These errors came about because I misjudged either the competitive strength of the business I was purchasing or the future economics of the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes my eyesight has been poor.
    …
    It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.

    Warren Buffett packs in great lessons all throughout the letter. Read it and take them to heart.

    Related: Buffett Calls on Bank CEOs and Boards to be Held Responsible – Warren Buffett’s Q&A With Shareholders 2009 – The Greatest Wall Street Danger of All: You – Warren Buffet Webcast to MBAs – Warren Buffett’s 2007 Letter to Shareholders – Warren Buffett’s Annual Report
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  • Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation

    The biggest investing failing is not saving any money – so failing to invest. But once people actually save the next biggest issue I see is people confusing the investment risk of one investment in isolation from the investment risk of that investment within their portfolio.

    It is not less risky to have your entire retirement in treasury bills than to have a portfolio of stocks, bonds, international stocks, treasury bills, REITs… This is because their are not just risk of an investment declining in value. There are inflation risks, taxation risks… In addition, right now markets are extremely distorted due to the years of bailouts to large banks by the central banks (where they are artificially keeping short term rates extremely low passing benefits to investment bankers and penalizing individual investors in treasury bills and other short term debt instruments). There is also safety (for long term investments – 10, 20, 30… years) in achieving higher returns to gain additional assets – increased savings provide additional safety.

    Yes, developing markets are volatile and will go up and down a lot. No, it is not risky to put 5% of your retirement account in such investments if you have 0% now. I think it is much riskier to not have any real developing market exposure (granted even just having an S&P 500 index fund you have some – because lots of those companies are going to make a great deal in developing markets over the next 20 years).

    I believe treating very long term investments (20, 30, 40… years) as though the month to month or even year to year volatility were of much interest leads people to invest far too conservatively and exacerbates the problem of not saving enough.

    Now as the investment horizon shrinks it is increasing import to look at moving some of the portfolio into assets that are very stable (treasury bills, bank savings account…). Having 5 years of spending in such assets makes great sense to me. And the whole portfolio should be shifted to have a higher emphasis on preservation of capital and income (I like dividends stocks that have historically increased dividends yearly and are likely to continue). And the same time, even when you are retired, if you saved properly, a big part of your portfolio should still include assets that will be volatile and have good prospects for long term appreciation.

    Related: books on investing – Where to Invest for Yield Today – Lazy Portfolios Seven-year Winning Streak (2009) – Fed Continues Wall Street Welfare (2008), now bankers pay themselves huge bonuses because the Fed transferred investment returns to too-big-to-fail-banks from retirees, and others, investing in t-bills.

  • 12 Stocks for 10 Years: Feb 2011 Update

    The 12 stock for 10 years portfolio consists of stocks I would be comfortable putting into an IRA for 10 years. The main criteria is for companies with a history of large positive cash flow, that seemed likely to continue that trend.

    The current Marketocracy* calculated annualized rate or return (which excludes Tesco) is 7.6% (the S&P 500 annualized return for the period is 4.8%). Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that (it is not like this portfolio takes much management), the return beats the S&P 500 annual return by about 4.8% annually (it would be a bit less with Tesco, but still over 4%).

    In the last 6 months, I sold a portion of the Amazon position (the price seems quit rich for the stock and the portion of the portfolio it represented has increase due to the large gain) and I bought some additional Toyota (due to a good price and to increase the portion of the fund Toyota represented). In the last 6 months Toyota and Danaher have done particularly well.

    The current stocks, in order of return:

    Stock Current Return % of sleep well portfolio now % of the portfolio if I were buying today
    Amazon – AMZN 361% 10% 7%
    Google – GOOG 189% 16% 14%
    PetroChina – PTR 110% 7% 6%
    Templeton Dragon Fund – TDF 96% 10% 10%
    Templeton Emerging Market Fund – EMF 70% 5% 6%
    Danaher – DHR 47% 10% 10%
    Toyota – TM 25% 10% 10%
    Apple – AAPL 25% 6% 5%
    Intel – INTC 2% 5% 7%
    Cisco – CSCO -3% 4% 6%
    Tesco – TSCDY -2%** 0%* 10%
    Pfizer – PFE -20% 5% 7%

    The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.

    Related: 12 Stocks for 10 Years: Oct 2010 Update – 11 Stocks for 10 Years, July 2010 Update – 12 Stocks for 10 Years, July 2009 Update – hand picked articles on investing
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  • Failing to Save for Retirement Has Consequences

    I have posted about the need to save money while you are working numerous times. Here is a good article looking at the large number of people that have failed to do so and are now retiring.

    Retiring Boomers Find 401(k) Plans Fall Short

    The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal.
    …
    Vanguard long advised people to put 9% to 12% of their salaries—including the employer contribution—in their 401(k) plans. The current median amount that people contribute is 9%, counting the employer contribution, Vanguard says.

    Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market’s weak returns and uncertainty about the future of Social Security and Medicare.
    …
    Experts estimate Social Security will provide as much as 40% of pre-retirement income, or $35,080 a year for that median family. That leaves $39,465 needed from other sources. Most 401(k) accounts don’t come close to making up that gap.

    The median 401(k) plan held $149,400, including plans from previous jobs, according to the Center for Retirement Research. To figure the annual income from that, analysts typically look at what the family would get from a fixed annuity. That $149,400 would generate just $9,073 a year for a couple, according to New York Life Insurance Co., the leading provider of such annuities— less than one-quarter of the $39,465 needed.

    Just 8% of households approaching retirement have the $636,673 or more in their 401(k)s that would be needed to generate $39,465 a year.

    Knowing exactly what is needed for retirement is difficult. But knowing what is a responsible amount is not. It is certainly no less than 8%, and is likely the 12-15% figure Vanguard recommends. If you start at 10% from the time you join the full time workforce (in your 20’s) then you have some flexibility you can see how thing look when you are 30, maybe 12% is sensible, maybe 15%, maybe 10%. If you fail to save for a decade however, you are likely to need to be at 15%, or higher.
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  • USA Spends Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Health Care in 2009

    U.S. health care spending increased yet again in 2009, increasing 4%. Total health expenditures reached $2.5 trillion, which translates to $8,086 per person or 17.6% of the nation’s Gross Domestic Product (GDP). This represents yet another record high percentage of GDP taken by health care – for decades, year after year, health care takes more and more of the economic resources of the country. The broken USA health care system costs twice as much as other rich countries for worse results. And those are just the direct accounting costs – not the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…

    Medicare spending grew 7.9% in 2009 to $502.3 billion. The senior citizen and health care lobbies have continued to increase spending on medicare. Too bad they can’t work on improvement instead of increased spending. Spending for fee-for-service (FFS) Medicare accelerated in 2009, increasing 5.5%. Medicare Advantage (MA) spending increased 15.8% in 2009 following 21.4% growth in 2008 and was primarily attributable to a continuation of significant increases in MA enrollment. Total Part D spending (which includes spending for benefits, government administration, and the net cost of health insurance) increased 9.3% to $54.5 billion in 2009.

    Medicaid (which is a line item for the cost of medical treatment for the un-insured, though far from the only cost): Total Medicaid spending grew 9.0% in 2009 to $373.9 billion was driven by a 7.4% increase in Medicaid enrollment. Federal Medicaid expenditures increased 22%, while state Medicaid expenditures declined 9.8%. This difference in growth is due to a significant increase in the Federal Medical Assistance Percentages (FMAP) used to determine federal Medicaid payments to states—a provision of the American Recovery and Reinvestment Act of 2009 (ARRA). Essentially the federal government funded the spending since the states were almost all out of money.

    Private Health Insurance: Private health insurance premiums grew 1.3% in 2009 (actually a pretty great figure by itself – unfortunately one lone good piece of data is not enough). Benefit payment growth increased 2.8% in 2009. These trends were heavily influenced by the recession, which resulted in private health insurance enrollment declines (which reminds you why looking at 1 piece of data isn’t a good idea). In 2009, spending for benefits increased faster than premiums, and as a result, the net cost of private health insurance (or the difference between premiums and benefits) fell to an 11.1% share of total private health insurance spending.

    The burden of the large costs of the health care system in the USA are financed by businesses (21%), households (28%), governments (44%), and other private sponsors [foundations, charities and the like] (7%).

    Read the complete National Health Expenditure Data report.

    Related: USA Spends Record $2.3 trillion ($7,681 Per Person) on Health Care in 2008 – USA Heath Care System Needs Reform – Resources to Help Improve the Health Care System – CEOs Want Health-Care Reform

  • Curious Cat Investing and Economics Carnival #11

    Welcome to the Curious Cat Investing and Economics Carnival: find useful recent personal finance, investing and economics blog posts.

    • 5 Unconventional Ideas That Really Shouldn’t Be – “Before going to college or graduate school, know if this large investment of time and money is the best investment for you. For some people, college or grad school is the best investment. For some, self-education is.”
    • 12 Stocks for 10 Years: Oct 2010 Update by John Hunter – Google is the top holding and top performer up 184% since the inception of the fund, PetroChina is up 102% and Templeton Dragon Fund is up 100%.
    • 7 Ways To Retire Rich and On Time by Laura Adams – “1) Start an investing routine as early as possible. It might surprise you to know that the most important factor for investing success isn’t the investments you choose—it’s time… Compounding interest is a powerful force that can make even the most inexperienced investor rich… 4) Increase your savings rate each year. “
    • 10 stocks for the next 10 years by James Jubak – “Johnson Controls (JCI). The stock did amazingly well in 2010—up 42.3%–considering that two of the company’s three businesses were in sectors of the economy that had been crushed. 2011 will be a better year for the company’s auto interior and auto battery business and for its building-wide energy efficiency unit… Yingli Green Energy Holding (YGE) is my choice for a horse to ride in China’s solar industry.”
    • Six investing books that never left my bookshelf – “The Intelligent Investor: This has been referred to as the “value investor’s Bible” and the title is deserved. In it, Benjamin Graham, a former Columbia professor and the mentor of Warren Buffett, outlines his value-investing philosophy.”

  • China Grows GDP 10.3% in 2010

    China’s GDP grew 10.3% in 2010, 9.8% in the 4th quarter. China’s economy grew 9.2% in 2009. China likely became the 2nd largest economy in 2010, surpassing Japan. Inflation continues to be a worry with consumer inflation standing at 4.6% and producer inflation standing at 5.9%. Excessive real estate investing (pushing up prices and leading to what many see as overbuilding) also continues to be a worry that is growing.

    China quarterly growth surges, inflation eases

    industrial production grew 13.5% in December from a year earlier, up from a 13.3% rise in the prior month. Lu said industrial-production growth figures were among the most important of Thursday’s data batch, as it was barometer of the strength of underlying capital spending.

    “We expect GDP growth in year-on-year terms to moderate a bit from here,” Lu said. Tighter monetary conditions should see some easing in growth this year, forecasting full year growth expected at 9% and consumer inflation of 4%, according to Merrill’s estimates.
    …
    RBC revised its outlook for China’s growth this year to 9.5% from 8.8%, after trade data earlier this month showed imports and exports at record levels.

    Related: China GDP up 8.7% in 2009 – Rodgers on the US and Chinese Economies (2008)