The Middle’s Not Where It’s At; Unemployment Blame Game; The Fed’s Milky White Problem

Stuck in the middle…

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The middle class is shrinking and that’s not necessarily a good thing. Studies done by the Pew Research Center show that between 2000 and 2014, the middle class actually shrank in 9 out of ten U.S. cities. Of the 229 U.S. cities cited in the study, the amount of households classified as middle class dropped in 203 of those cities. Sure, some of those households left their socioeconomic perches because they graduated to the upper class. But that’s mostly not the case. In fact, the middle class now makes up less than half the population in the cities studied while the income inequality gap keeps growing. That could trigger some ugly economic consequences. The wider the gap gets, the more it is likely to inhibit economic growth. At least that’s what some experts think. What’s worse is that children raised in areas that are predominantly low-income, are less likely to reach the middle class. In case you were wondering, the middle class is defined as a household that earns an annual income between 2/3 to two times the median income. In 2014, a three-person household was considered middle class if its annual income was between $42,000 to $125,000. The largest middle class populations were found to be in the good old midwest. I’m sure there is irony in there somewhere. The largest low-income populations were found to be in the southwest, particularly near the Mexico border, while the highest populations of upper class were found to be in the northeast and the west coast. No matter where you stand on the issue, it’s one that is going to figure prominently in the November elections.

On the Verizon…

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Nothing like unemployment numbers to ruin an otherwise pleasant Thursday. The number of first time applicants rose by 20,000 to a grand total of 294,000 seeking jobless benefits. Unfortunately it marked the third straight week of increases of first-time applicants. But at least that number was still below the 300,00 mark  – for 62 weeks straight, mind you  – so the situation isn’t that alarming. Well, except maybe for those who find themselves out of work. Also, economists are actually pointing the finger at Verizon – or rather the 40,000 Verizon workers who went on strike back in April. They are likely the ones who have applied for jobless benefits while on strike.  Economists predicted that the number of applicants would fall to about 270,000, which makes perfect mathematical sense if you figure that the Verizon strike is apparently responsible for that unwelcome surge and without it the numbers would have dropped.

White as a sheet…

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The Fed’s been taking a lot of heat lately. And some of that heat has absolutely nothing to do with the fact that it hasn’t raised rates, yet again. Instead, top lawmakers penned a letter to Janet Yellen and company calling out the lack of diversity at the Central Bank which is “disproportionately white and male.” Ha! Who would have thought the Central Bank and the Academy Awards have something in common? Signed by 116 members of the House and 11 senators, the letter expressed disappointment over the Fed’s failure to “represent the public” and would like it to consider a number of factors, including race, when filling posts in the future. The letter did, however, praise Yellen for her strong leadership. So props to her on that. So just how disproportionately white and male is the Fed? Well, of the five current Fed governors, all of them are white. However, to be fair, two of them are women, including Janet Yellen, who happens to be the first women to head the Central Bank in its 100 year history. If that’s not disproportionately white and male, then I don’t know what is. Since monetary policy strongly correlates with hard-working Americans of every ilk, it does seem odd that the Fed is primarily made up of mostly one ilk. Give or take. At least minorities make up 24% of regional Fed bank boards. While that’s not an ideal representation, it’s still a 16% increase from 2010.

 

Classy…

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The middle class has fallen to less than 50% of the population, according to a new report published by the Pew Research Center. Gasp. The middle class used to account for 61% of the population and it’s a fact that has got everyone from economists to politicians in a tizzy, as each and everyone of them tries to dissect exactly what that means and how it will help or hinder their agendas. The upper class rose 47%, growing from 20 million people to 50 million people with their share of the national income pie up 49% from 28%. In case you were wondering, 190 million of us are not upper-class. Got three people in your household? Well, if your household income is $41,869, then call yourself middle-class. But, the good news is that the median income for the middle class has risen 34%…since the 1970’s. Then there’s lowest – and fastest growing – bracket: 70 million among us make just 9% of the national income. Apparently, 99% of gains are going to just the top 10% of the population and a family income of less than $50,486 after taxes has a nasty way of causing that particular family to go even deeper into debt. Some argue that this income disparity explains why economic recovery is taking so much longer than it should. Others, however, argue that it’s all matter of how you look at the information and that the picture really isn’t all that grim. Hmmm.

How do you like your stake?

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Guess what happens when Warren Buffett tells the world he owns shares of a company? If you guessed that shares go up then you’d be correct. For instance, today the Oracle of Omaha disclosed in a regulatory filing that his company, Berkshire Hathaway, owns a passive 8% stake in Seritage Growth Properties. So what makes for a “passive” stake? Basically, Warren Buffet buys a huge chunk, in this case about 2 million shares worth an estimated $70 million – $100 million and he, well Berkshire Hathaway anyway, sits on it for the long term. With Warren Buffett’s recent disclosure about his stake, the stock went up today as much as 17% at one point, hitting $41.18, all because of the exciting news. Seritage, by the way, is the spawn of a Real Estate Investment Trust (REIT) that was spun-off from Sears Holding Group as a way to help the embattled retailer capitalize on its approximately 235 real estate holdings. And Sears did just that when it managed to raise $2.7 billion from the REIT.  Incidentally, while activist investors tend to love REITs, Washington DC is not fan of the practice and is doing its very best from letting spun-off companies turn into REITs. REITs don’t pay as much to Uncle Sam in corporate income tax like other companies do and its profits go almost entirely to shareholders. Then shareholders pay the taxes on those dividends at the same tax rates as their ordinary income. Preventing companies from exercising this little practice would raise about $4.3 billion for the government. But for now, Warren Buffett can just sit pretty sit on his big/little stake while Washington dukes out the issue in Congress.

Pay days….

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Look out Apple Pay, Samsung Pay, Android Pay…Walmart has entered into the almost crowded mobile payment arena by launching, you guessed it – Walmart Pay. Through its own smartphone app, you simply use a credit, debit or even a gift card and voila! That purchase is yours in just a couple of swipes. Testing has already begun at Walmart’s home base in Arkansas and will likely launch in all 4,500 plus stores by next year. Walmart has been on the prowl to find ways to make for an easier shopping experience…at Walmart. It’s estimated that 22 million people use the current Walmart app every single month and that more than 50% of those online transactions take place on mobile devices. Walmart’s system, by the way, is cleverly designed to integrate nicely with other payment applications, including all the ones mentioned in the first sentence. If you need any more of a reason to use Walmart Pay, then consider that it’s actually a more hack-proof alternative – the app stores your card but transmits an alternate card number that is generated by the card issuer. The merchant never gets the real number which leaves hackers with nothing to hack from the merchant. By the way, Walmart doesn’t accept ApplePay. How very convenient.

The White House Comes After Wall Street Advisors; January’s Frigid Housing Numbers; Target’s New Shipping Policy Gives Cause to Shop

Hard sell…

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Image courtesy of ddpavumba/FreeDigitalPhotos.net

The White House is coming after Wall Street, in particular, financial advisors who might be a little too loose with money saved diligently by America’s middle class. President Obama wants the Labor Department to revamp its rules ensuring that retirement advisors put clients’ fiscal needs before their own bank accounts by putting the kibosh on hidden fees and conflicts of interest. Currently, investment advisors have this practice of suggesting expensive products to their clients that could at best be categorized as “suitable”  – but not “ideal.” In fact, these “suitable” investment products could cost a retiree five years worth of savings. Investment advisors would actually now be required to follow, dare I say it – a “fiduciary standard.” Many Republicans and financial firms, not to mention Republicans who work in financial firms, are just not that into this whole new idea of revamping the rules for two reasons that aren’t likely to elicit any sympathy: 1. They’re worried a new system will considerably shrink all the money they make in compensation fees and 2. They think the current system works just fine. However, the current system, according to White House, anyway, says it has cost unsuspecting working middle-class families an estimated $17 billion a year.  So who is this system working for, exactly? Hmmm.

Bring it home…

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Image courtesy of hywards/FreeDigitalPhoos.net

The number of existing homes that sold in January was 4.82 million. In case you were ready to celebrate…don’t. Those numbers suck. They suck because it’s a 4.9% drop from December and is at the lowest rate it has been in nine months. Nine months ago, (which by the way,  was May  – in case you didn’t feel like doing the math) saw 4.9 million homes sold. The National Association of Realtors provided us with these disappointing figures but all is not lost because, as it turns out, this 4.82 million figure is still 3.2% higher than it was a year ago. Naturally it wouldn’t be right if much of the blame didn’t go to Mother Nature who, it seems, loves nothing more than setting the bitter wintry stage for gloomy fiscal numbers. But with low interest rates and strong jobs numbers, here’s hoping spring will kick winter’s fiscal butt.

Aw’ ship…

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Image courtesy of digitalart/FreeDigitalPhotos.net

Target has graciously decided to offer free shipping for online orders on just a $25 minimum purchase – with no exclusions, allegedly. Be still my beating consumer heart. If you recall – as I certainly do – Target was offering “free shipping” with a minimum $50 order. The retailer was inspired by the success it had when it offered free holiday season shipping through December 20, this past holiday season. It was an effort to compete with the slew of online retailers, but it payed off in more ways than one.  The company set new sales records for Thanksgiving and cyber-Monday and saw 60% of its website traffic come from mobile users. Once upon a time Amazon also offered free shipping with a $25 minimum purchase but alas, its investors got their way and Amazon was forced to up its minimum to $35. In the meantime, Walmart, while raising its minimum wage, has yet to change their free shipping policy, which offers the perk on only certain “eligible orders,” which seems a little too open to interpretation, as far as I’m concerned. Target also has big gigantic plans to open online fulfillment centers and if that doesn’t bode a Target/Amazon smack down then I don’t know what does. Target’s inventive digital app has also been doing particularly well in the popularity contest picking up a couple new million users and shooting past that pesky $1 billion promo sales mark.