Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are the 10 most fascinating ones I read this week.
1. Get ready for a new recession
Come Jan. 1, a pile of tax cuts expire and spending cuts go into effect. Unless Congress comes up with a solution to avoid this "fiscal cliff," we're heading right back into a recession. That's what the nonpartisan Congressional Budget Office warned this week:
CBO estimates that the combination of policies under current law will reduce the federal budget deficit by $607 billion, or 4.0 percent of gross domestic product (GDP), between fiscal years 2012 and 2013. ... Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.
2. Fear and greed!
CNNMoney developed what it calls the "Fear & Greed Index." It's made of up of metrics like market volatility and demand for junk bonds -- an imperfect, but logical way to measure investors' moods.
The index currently sits at "extreme fear," which isn't surprising -- stocks have declined in 14 of the last 17 trading sessions. And that's actually good news. I'll remind you of the most oft-repeated line in investing: "Be fearful when others are greedy, and greedy when others are fearful."
3. On the road again... just less
The finance blog Calculated Risk has a great chart showing total miles driven in the U.S.:
Source: Calculated Risk. Click image to enlarge.
And not only are we driving fewer miles, but the average fuel economy at automakers like General Motors (NYSE: GM ) and Ford (NYSE: F ) is increasing sharply. Combine the two, and gas spikes simply don't affect us as much as they used to. Consumers are more flexible today than they were four years ago.
4. Two for me...
The dividend payout ratio on the S&P 500 (INDEX: ^GSPC ) is near an all-time low. But add in share repurchases, and look at all nonfinancial companies throughout the economy, and the finance blog Rortybomb shared a shocking stat:
[U]p until 1980 or so, nonfinancial businesses paid out about 40 percent of their profits to shareholders. But in most of the years since 1980, they've paid out more than all of them. ... In 2007, earnings were $750 billion, dividends were $480 billion, and net stock repurchases were $790 billion. (Yes, net stock repurchases exceeded after-tax profits.)
Differences between net income and free cash flow might explain some of this, but I doubt it's much. Consider how bad most companies are at repurchasing shares, and this isn't encouraging.
5. Speak for yourself
At the height of the finance bubble four years ago, a YouTube clip titled "Damn, it feels good to be a banker" told the story of the glamorous life on Wall Street.
Stephen Ridley, an actual banker, totally disagrees and tells his story:
Though I managed to maintain relationships with certain friends (testament to how good these friends were), I never was really 'there' and never really relaxed to enjoy their company, I was either pre-occupied, exhausted, or too self-centered to really have a 2 way conversation. I was constantly tired, constantly stressed, and I had this constant reoccurring thought. The thought went like this. I'm not happy. These are my golden years, my 20s, the years I want to look back on and talk about with fondness and pride. I should be making interesting stories, having the time of my life while I have no dependents. I'm richer than I've ever been, yet I'm not as happy as I was backpacking around South America on a shoestring.
I had a brief experience in investment banking years ago, and ran for the door when I heard the saying, "If you don't work on Saturday, don't bother coming back on Sunday." Best move of my life.
6. Apple and the world
Joe Weisenthal of BusinessInsider cites a slew of Apple (Nasdaq: AAPL ) facts culled from a Morgan Stanley report, including:
- 9% of S&P trading volume is Apple. That's the highest of any one stock since 1982.
- 26% of all large hedge funds hold Apple positions that are larger than 1% of their portfolios.
- Almost no other stock correlates well with Apple.
7. What you really need to retire
Too many pre-retirees focus on getting the right mix of stocks and bonds in their portfolio when what really makes a difference is how much money they're saving. And sadly, we're not saving enough, says The Wall Street Journal:
Researchers looked at what would happen if investors were able to invest 100% of their portfolio in "riskless" stocks, which earned 6.5% a year after inflation. The idea, says Ms. Munnell, was to present a best-case "perfect" investment strategy.
Even with this magical investment, the study found that 44% would still fall short of retirement-income goals at age 67. The boost that came from such an ideal portfolio would be equal to six months' salary for the typical saver.
8. Happiness and work
Gallup published survey results studying the difference in reported happiness between stay-at-home moms, employed moms, and women with no children at home. Have a look:
Employed Women, No Kids at Home
Source: Gallup.9. What's really pushing up health care prices
Some say health care costs have risen precipitously because there's overuse. A blog post in the Academy of Health analyzing a recent study shows that's probably not the case:
Inpatient admissions went down more than 3% from 2009 to 2010. ... Outpatient visits, including those to emergency room visits and outpatient surgery centers, also declined by more than 3% from 2009-2010. Even outpatient radiology services went down 2.7% from 2009-2010. The use of prescription drugs went up slightly overall (0.9%), but this was mostly in generic prescriptions (up 2.5%), not brand name drugs (down 3.9%). ... Many believe that we in America are using too much health care. They argue that because many lack "skin in the game," they consume too much care. This report shows that actual utilization is stable to decreasing in many areas. It's the prices per unit of care that are going up, pretty much across the board. That will continue, even if we find new ways to incentivize people to avoid care. That's a dangerous trend. If it continues, it means that we will be getting less and less health care, but paying more and more each year.
10. Just when you thought it couldn't get any worse in Detroit...
...comes this, from Bloomberg: "Detroit, whose 139 square miles contain 60 percent fewer residents than in 1950, will try to nudge them into a smaller living space by eliminating almost half its streetlights."
The article explains that 40% of the city's streetlights are already broken, so this isn't creating much more darkness than already exists. But it highlights two points: How dramatic Detroit's downfall has been and how strained state and local governments are.
Enjoy your weekend.