InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

How To Collect Your Share of My Million Dollar Giveaway

How To Collect Your Share of My Million Dollar GiveawayWe recently kicked off the most outrageous initiative in the history of investment research. It’s called the Income Millionaire Project. And the goal is simple: create 1,000 income millionaires. That’s a $1 billion goal! No one has ever tried it before, but that doesn’t bother me. I’m so sure you can use this program to make a million bucks… I’ll pay you $1,000 to start your journey. Go here for details.

 

Goodbye ‘New Normal’ and Good Riddance

By Robert Frick on December 23, 2015

I bet that like me you’re sick of the “New Normal.”

The New Normal describes the sickly economic growth and life-support measures that followed the financial crisis. That term was coined in 2010 by Mohamed El-Erian, then the head of PIMCO, to underscore that the crisis was not a “mere flesh wound,” but a cataclysmic event that “cut to the bone.” 

The financial crisis deserved the label Great Recession, and analysts like El-Erian and others were right in predicting years of healing. Our red, white and blue muscle car hasn’t been able to leave second gear, which equates to about 2% GDP growth per year, if we’re lucky.

But thankfully we may be seeing the first glimmers of returning to the Old Normal, when the economy could rev its engine and peel out, and the danger was it running too hot—not it stalling out, as is the danger in the New Normal. This Old Normal scenario bodes well for economic vibrancy, stronger investment performance, higher wages and even lower taxes.

A story in last week’s Wall Street Journal about Lincoln, Nebraska, crystalized this for me. More on Lincoln in a minute.

Where We Stand

As I said, only glimmers of the Old Normal exist now. We are far from firing on all cylinders.

The Federal Reserve’s low-interest-rate, easy money policy has kept our economic engine from stalling out, but it hasn’t supercharged any sector. And last week’s raising of the Fed’s benchmark rate to between 0.25% and 0.50% was a mere vote of confidence, not a pre-emptive strike against future inflation, which isn’t even a serious rumor at this point.

The New Normal hasn’t helped the middle class, that’s for sure. And a healthy middle class is the mark of a healthy economy, given that 70% of our economy is based on consumer spending and the middle class was once the biggest and most dependable engine of consumer spending.

Most of the gains of our anemic recovery have gone to the wealthy—the wealthiest 3% of Americans gained 31% of pre-tax income in 2013, and 54% of wealth, according to the Center on Budget and Policy Priorities. This is only an acceleration of a 30-year trend.

The top 20% of households by wealth now account for more consumer spending than the middle class, according to a PricewaterhouseCoopers study. The same study found that 90% of all increases in consumption between 2009 and 2012 came from that top 20% of households.

This contributed to an alarming change in the economy that went under-reported earlier this month. A Pew Research Center study found that the middle class has shrunk so much that for the first time in 40 years there are more low-income and high-income Americans than there are middle-income Americans.

Employment in the New Normal  hasn’t been good for the middle class either. Yes, the official unemployment rate is down to 5%, but that hasn’t helped boost wages meaningfully so far, and that 5% is deceptive. As my colleague Ben Shepherd pointed out in a Dec. 4 Mind Over Markets, The Sun Always Rises, the U-6 unemployment rate is 9.9%. This measure includes workers for whom unemployment benefits have run out and those who dropped out of the labor market.

Land of Lincoln

Which brings us to Lincoln, Nebraska. The Wall Street Journal story outlined how Lincoln’s 2.3% unemployment rate, one of the lowest in the country, meant wages were increasing strongly, some employers were having trouble finding workers, and some people were moving to the city for the good jobs.

Wages surged 8.4% there from October 2014 to October this year, and employers found they needed to offer bonuses and other perks to attract good employees.

The number of cities like Lincoln is still small, but they are growing, so this situation is not an anomaly–though its far from a national trend. The story said Lincoln is one of 31 U.S. metropolitan areas with unemployment rates of 3% or less, and a year ago there were only 18 nationwide.

Years ago I was a newspaper business reporter, and later the business editor of the daily newspaper in Rochester, New York, the Democrat & Chronicle. The 1980s were still a boom time for Rochester—Eastman Kodak was strong, and the city had terrific high-tech and precision-manufacturing companies, as well as major Xerox operations and two General Motors parts plants.

We would document and write often about labor shortages in certain areas, as well as rising wages and retailers that grew fat from blue and white collar workers’ spending. Economic power was not as lopsided as it is today–workers had a healthy share,  and I had a many friends who switched to much higher-paying jobs at different corporations because their talents were in such demand. There was optimism.

That was our Normal. I’ll bet most millennials can’t even imagine times like those.

Yes, the economy has undergone major shifts since the Great Recession, and boom times exactly like those in the 1980s will never return. International competition and changes in technology means U.S. workers need more and better training and education to compete. Government needs to help create fertile ground for more Lincolns to sprout.

But as I look ahead to 2016, I think we may be seeing seeds sprouting for a New New Normal, call it a Neo Normal, with rising wages that channel most wealth to the many, not the few. With a revived middle class, the economy and our investments can thrive once again.


You might also enjoy…

 

R.I.P Bull Market—Here’s How To Protect Your Wealth

I hope you’ve enjoyed the phenomenal bull market of the past eight years…

Because it’s about to come to a screeching halt.

The Federal Reserve’s nearly decade-long spending spree has finally come to an end.

With no other options left at their disposal, the Fed has no other choice than to raise interest rates to keep inflation in check.

And that leaves you with two options…

Do nothing and suffer the agony of watching the profits you’ve accumulated over the years evaporate right before your eyes…

Or reposition your portfolio and invest in companies which prosper as inflation rises and interest rates soar.

I think the choice is clear. And I’ll show you the best new positions you can take if you click here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.