The S&P ran up almost 7% in May before closing with gains of about 2%. Chartists will tell you the first few days of June saw the index fall out of its channel, but rather than kissing it goodbye and falling lower, it quickly jumped back in. Momentum appeared to be on an upswing until the Bank of Japan told investors "no additional stimulus" this morning and sent things back into a tailspin. It looks like we're in for a bumpy ride.
The jobs report came out last Friday. The U.S. economy created 175,000 jobs in May. Optimistic analysts say this is a sign that the economy continues to grow at a moderate pace despite higher taxes, federal spending cuts and a weak global economy. The unemployment rate ticked up to 7.6% from 7.5% as more people entered the labor force in search of work. Economists expected an increase of 164,000 jobs and a jobless rate of 7.5%.
The number of new jobs created in April was revised lower to 149,000 from 165,000, while March's figure was revised up to 142,000 from 138,000. That's a net loss of 12,000 for those who don't want to do the math. The U6 jobless rate dipped to 13.8% from 13.9%, while the participation rate rose for the first time since October to 63.4%, as 420,000 people joined the labor force.
While we'd like to see job creation back in line with the November-February average of 237,000 jobs per month, it does appear the mid-year hiring slump experienced in 2011 and 2012 may be averted. A brighter piece of news is that layoffs are near all-time lows indicating that, while companies aren't hiring tons of new workers, they are reluctant to let current employees go.
For those who believe the Fed's Quantitative Easing program is helping things, the numbers aren't nearly strong enough for them to consider any kind of tapering off in their bond-purchasing activity. The Fed has set a target unemployment rate of 6.5%. It will take months of job creation north of 250,000 per month, or millions more leaving the workforce to get us to that point.
So, if things are getting better, even a little bit, why aren't Americans wealthier? An interesting study by the St. Louis Fed sheds some light on this. The problem is that most American households have only managed to rebuild a fraction of the wealth they lost during the recent recession, and the primary culprit is...drum roll...lack of diversification. Specifically, too much of American families' wealth is tied up in a single asset, their home.
In the 4th quarter of 2007, household net worth peaked at $67.4 trillion. It then sunk to a low of $51.4 trillion in 2009. Since then, it has rebounded to $66.1 trillion, leading one to believe that about 91% of the losses have been recovered.
The problem is that most of the gains have come from the stock market which benefits very few Americans. Inflation of about 2% over the past five years and an addition of 3.8 million households over the same time period put the real recovery rate at only about 45%.
According to the report by the Federal Reserve Bank of St. Louis, young, uneducated families have approximately 70% of their portfolio in residential real estate, as compared to 30% for older college-educated families. This helps explain, at least partially, why wealth is not spreading evenly among all Americans. Most investors' portfolios are simply not diversified enough and are not exposed to the stock market, among other assets.
Speaking of other assets...a quick word about gold. On Monday, S&P revised the U.S.'s credit rating outlook to stable from negative. Thinking that makes us a better credit risk than we were last Friday, and that upward pressure on interest rates may have relaxed a bit has the whole world selling gold, and other precious metals. Gold is going lower.
I dug up several other items of interest that will wait till next month. It is summer time and the markets typically slow down a bit as most of the traders in New York head for the Hamptons. So I'll take it easy on my readers.
In closing, those who know us know we always encourage our clients and associates to choose generosity over materialism, but we also tell them not to give carelessly. Do your due diligence and give to charities whose fundraising expenses pale in comparison to the direct aid they give to beneficiaries of their cause. The information is not always easy to find, but a dead giveaway can be a phone call from a paid solicitor.
I uncovered a report that found 50 charities that paid about $1 billion to for-profit donation solicitors and gave little in actual aid to their causes. The top ten worst offenders in terms of charitable funds raised that were then paid to solicitors are listed below. The average percentage of direct cash aid paid out by these so-called charities is a paltry 5.2%. That means almost 95% of the funds they raised did not go to help those they said they were helping.
10. Children's Cancer Fund of America: raised $37.5 million, and paid solicitors $29.2 million.
9. American Association of State Troopers: raised $45 million, and paid solicitors $36 million.
8. National Veterans Service Fund: raised $70.2 million, and paid solicitors $36.9 million.
7. International Union of Police Associations, AFL-CIO: raised $57.2 million, and paid solicitors $41.4 million. They are the biggest loser at a 0.5% direct cash aid payout rate.
6. Breast Cancer Relief Foundation: raised $63.9 million, and paid solicitors $44.8 million.
5. Firefighters Charitable Foundation: raised $63.8 million, and paid solicitors $54.7 million.
4. American Breast Cancer Foundation: raised $80.8 million, and paid solicitors $59.8 million.
3. Children's Wish Foundation International: raised $96.8 million, and paid solicitors $63.6 million making them the most-generous of the ten worst at a whopping 10.8% direct cash aid payout rate. Wow!
2. Cancer Fund of America: raised $98 million, and paid solicitors $80.4 million.
1. Kids Wish Network: raised $127.8 million, and paid solicitors $109.8 million.
I don't have any first-hand experience with any of the ten charities listed above, and I haven't verified the data in any way, but if you have supported any of the groups listed above, you might want to ask some more questions before writing them another check.
I'm almost certain you can find another, local charity that benefits the same type of folks you want to help at a much higher pass-through rate, and being able to stop in and pay a visit the "home office" or even volunteer a little time will get you a much-better feeling about the inner workings of an organization than giving a phone solicitor your credit card number just to get off the phone and go back to watching American Idol.
Have a great summer and don't hesitate to call or email if you have any questions. We'll do this again in early July.
