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Timothy E. Moffitt

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  • Prediction #5: Median Household Income Will Decline

    Five Predictions for 2014

    Prediction #5: Real Disposable Median Household Income Will Continue to Decline.

    My guess is another $300 to $500 reduction.

    Here is real disposable median household income for the past six years:

    2007 = $56,189
    2008 = $55,484
    2009 = $53,760...
    2010 = $52,703
    2011 = $51,557
    2012 = $51,371
    2013= Is going to be right about at 2012 levels, maybe a tick higher (best guess)

    Household income, adjusted for inflation, is down about 10 percent from pre-Great Recession levels. Clearly, households are not better off, and the trend continues to point to lower and lower levels, even though we are five years post-recession. Some data sets will show a marginal 2% improvement over the past two years. Other data sets point to continued declines.

    My prediction: the median household will not be better off next year, in fact it will be worse off, because of 1) increasing taxes and their impact on prices and take-home, after-tax pay, and 2) the increased personal costs of ACA health care costs and commodity price increases to the individual worker.

    The saving grace could be a bump in real wages and hours worked, but I am not holding my breath, as hours and wages continue to suffer from persistent employer jitters.

    Happy New Year!!!


  • Prediction #4: Stock Prices are Rising!

    Five Predictions for 2014

    Prediction #4: The equities (i.e., stock) markets are going up! I am betting on 7% (S&P 500) in 2014.

    Ok, so 2013 has been the best year for the equities markets since 1995; in fact, we have had five straight years of winners. 2014 will not disappoint. It, too, will move marginally upward, but be forewarned, there is more than a 50-50 chance, in my mind, that you will ...see a 15% drop sometime during the year. I am predicting (ok, speculating) the retracement will take place during July and August.

    2013 recap: S&P 500 up 28%; Russell 2000 up 35%; nasdaq up 35% -- the late year surge is symptomatic of the later innings surge of a classic bull market. About $250 billion found its way into the equities markets in 2013, and the small caps are richly valued -- time for a correction when the euphoria wears off.

    But, it will be a bit, because the cautious retail investors, who are always late to the party, still have some funds to shift from money and bond funds into equities. Also, there is sufficient momentum to carry this market for another year. Stock buybacks are fast and furious (probably shouldn't use that term in this context). And what about all of that cash that is sitting on the sidelines -- both household and corporate??? Will 2014 be the year the cash floodgates are opened?

    I should probably add some disclaimer, such as: I am not an investment advisor, and the above does not in any way, shape, or form represent investment advice. I should also add that I am a semi-strong efficient advocate of the equity markets. Thus, you cannot consistently beat the market; so, just dollar-cost-average your way into market indexes and you will outperform the best stock pickers in the world...yep, that pretty much sums it up.


  • Prediction #3: Interest Rates are Going Up!

    Five Predictions for 2014

    Prediction #3: Interest rates are going up!

    If the Fed is serious about tapering and the economy is going to progress positively, there is no question that rates are going to nudge up. My estimate is 100 to 125 basis points (1 to 1.25 percentage points) for the interest rate proxy 10-year treasury note.

    In 2010, 23.5% of household financial assets were in bonds; toda...y it is hovering around 19%. The postwar mean is 14%. We are still shrugging off the 2008 Great Recession flight-to-fixed-income hangover. Moreover, with the robust equities markets' performances in 2013, many retail investors will want to jump in during the 9th inning, shifting from money market and fixed income products to equities.

    100 billion went into bond funds during the first four months of 2013; 95 million came out during the balance of the year....there is no appetite for low interest rate bonds. Support for bonds will continue to wane. Lack of demand should bump up the rates marginally...not to mention all of the deficit building we are adroitly accomplishing on behalf of our children and grandchildren and even their children.

    Implications: slower housing markets, mortgage markets, consumer durables growth, and GDP growth (see Prediction #1).

    Caveat #1: The Fed has stated it has every intention of holding short-term rates at 0% -- but the yield curve could continue to steepen to the point the Fed breaks.

    Caveat #2: I have been completely wrong on interest rate movements 13 of the past 15 years. If the goofballs in Washington do not interfere with the interaction of demand and supply for money, I believe strongly I will be right in 2014 -- but the smart money should probably bet against me.


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