In the politics of the United States, a "gang of six" is a bipartisan group of Senators, consisting of three democrats and three republicans. In 2009, during the 111th United States Congress, a gang of six focused on health care reform in the United States. In 2011, a different gang of six is focusing on the public debt crisis and debt ceiling in our country. As an investment guy, I'd like to propose my own gang of six for our economy. It's not made up of democrats and republicans—it's made up of the six reasons why our economy may surprise to the upside by the end of this year. Let me introduce all six members of my gang of six for our economy, beginning with the stock market rally.
Sometimes we lose sight of how a stock market rally can impact our economy. Remember that our stock market (as measured by the Dow Jones Industrial Average)1 is up almost 1000 points so far this year (as of July 20, 2011 the Dow stood at 12571 and it began the year at 11578). Also, on a year-over-year basis, the Dow1 is up even more. On July 20, 2010 the Dow Jones Industrial Average1 stood at 10229; one year later on July 20, 2011 it was 2342 points higher at 12571. Now think about this for a minute. Since 1900 (actually year-end 1899) through 2010, the Dow Jones Industrial Average1 has averaged 9.4% on an annual basis, which includes both price appreciation and dividends. Through July 20 of this year, the Dow1 is already up 8.6%, while on a year-over-year basis, it's up a whopping 22.9%.
Now let me circle back and explain to you why this is so important for our economy. Stock market rallies like the one we've just witnessed may create a positive wealth effect. In other words, when the stock market goes higher, consumers' balance sheets may get stronger because their stock market portfolios may be worth more. When net worth improves, it can drive consumer confidence higher, which in turn, may drive consumer spending higher as well.
Up next at number two in my gang of six for the economy is an auto sales rebound. The short-term disruptions brought on by the disasters in Japan combined with banks not willing to lend any money nearly brought auto sales to a complete stop. Now, the disruptions in Japan are a thing of the past, and Japanese auto companies are looking to make up for lost time the world over—especially here in the U.S. Meanwhile, banks are finally starting to loosen up the purse strings and have begun to lend again. Big-ticket items such as automobiles can have a bigger impact on our economy than most investors realize.
Number three in my gang of six for our economy is falling gasoline prices. Gasoline prices are continuing to trend lower, and are well off their peak. Falling gasoline prices, in my opinion, are even better than a tax cut. You see, with a tax cut you first have to wait for the year to end. Then you must gather up all of the forms and paperwork to actually file your taxes. Then you have to prepare the taxes and send them in. So what you really do is hurry up so you can wait. You wait for that refund check that you hope will come in the mail because of a tax cut. Never mind—by the time you actually receive the money, our economy could have slipped into a recession and back out again while you filled out your tax paperwork and waited on your tax refund check.
Not so with falling gasoline prices. If the prices fall tomorrow, for example, and you pull into the gas station to fill 'er up, the money you save with lower gas prices goes right into your pocket that very minute. The good news is that the money often doesn't stay there very long because lower gasoline prices are a great boost to consumer confidence, and to spending as well.
Fourth up in my gang of six for our economy is exports, which continue to trend higher. This one's pretty easy to understand. The global economy may be poised for a stronger second half of the year as global central bank interest-rate hikes are at the end of the cycle. The Central Bank of China is at, or near, the end of their rate-hike cycle. The Bank of Korea just keeps interest rates alone as they monitor the European debt crisis. Add to this the fact that by the end of the year we'll probably see the European Central Bank actually lowering interest rates to help jumpstart the fragile European economy. I think the worst of the global slow down is now behind us.
Meanwhile, I believe that the U.S. dollar will remain weak against almost every currency in the world with the exception of the euro. Since the dollar is weak and the global economy is strong, everything we export in this country is suddenly on sale, which puts us at a competitive advantage the world over. Want a little proof? In March of this year, exports in this country hit the highest level ever recorded, fueled by the strong global economy and our weak dollar. This trend may get even better for exports as we march toward the end of the year.
Fifth up in my gang of six for our economy is low mortgage rates. While every one knows that mortgage rates are at record-low levels, we sometimes forget that when rates stay low enough for long enough, eventually housing tends to pick up. While no one knows for sure just when housing will pick up, the fact remains that mortgage rates are at record lows.
While there are numerous measures that we can consider to illustrate just how low mortgage rates are, let me give you my favorite example. Because I'm a long-term-investor type of guy (more about that later), I like to look at longer-term economic trends. With that in mind, my favorite mortgage rate indicator is the 20-year average of 30-year mortgage rates. I call this taking a long-term perspective (20-years) on the bellwether of all mortgage rates: the 30-year. The 20-year average for 30-year mortgage rates is 6.81%. Since July of 2006, we have been BELOW that 20-year average level. Currently, we're well below, at 4.81%, which is almost too good to be true at 200 basis points, or a full 2 percent, below the 20-year average. Based on mortgage rates, this just might be the single best buying opportunity of the past decade.
The last member of my gang of six for our economy is the most important one: corporate America will spend. Maybe the most amazing fact to me that most investors seem to overlook is the amount of cash sitting on corporate balance sheets. Forget about how many hundreds of billions of dollars, and forget about the fact that this is the highest level in a half a century. Instead, focus on what will happen when they spend it.
Corporate America has their own little gang of six ways in which they can spend all of that money, and all six of them may be good for our economy and our stock market. First, they could spend it on large-ticket capital items such as technology. Second, they could pay down debt, which would make them stronger and more likely to spend in the future. Third, they could increase or establish dividends, putting more money in the pockets of investors to spend. Fourth, they could buy another company (merger & acquisition), a trend that almost always leads to a major upgrade in technology spending. Forget about the typical merger & acquisition question of "I wonder if the cultures of these two firms will be able to work together?" Instead, the question should be: "I wonder if the computers of these two firms will be able to talk to each other?" That question, by the way, is always answered "yes" at first, and the long-term answer is almost always "no." Fifth, they could buy back shares of their stock which, in turn, may move the stock price and market higher, creating a positive impact on net worth, which leads to spending. Sixth, and finally, in corporate America's gang of six, they could hire some employees. I don't need to tell you what that could do for our economy and for our housing market as well.
I'll take my gang of six over any gang of six that's ever come out of the beltway in Washington D.C.! So, the next time you think that we're on the verge of collapse, just think about my gang of six for our economy.
As always, let me bring this commentary to a close with one of my pearls-of-wisdom quotes. I know that you're going to really love this one. It comes from Nobel Prize winning economist, Milton Friedman: "If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand." Hopefully, you will not have a shortage of confidence in our economy when you realize that the most important gang of six is the gang of six that I just highlighted for our economy.
One more thing—remember that I told you that I'm a long-term-investor kind of guy? Well, I want you to be a long-term investor as well. In order to get all of you to think that way, here's my personal closing quote that will become a mainstay tagline in all of my future commentaries: Have a great day, keep a positive attitude, and please join me in resolving to remain a long-term investor in a short-term world.
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The views expressed here are those of Dr. Bob Froehlich. Dr. Bob Froehlich's views are not necessarily those of The Hartford and should not be construed as investment advice. They are subject to change. All economic and performance information is historical and does not indicate future results.
Dr. Bob Froehlich's sources of information include Bank of Canada, The Bank of England, Bank of Japan, Bloomberg News, Business Roundtable, China Investment Corporation, CIA. World Fact Book, CNBC, Congressional Budget Office, Deutsche Bank, The European Monetary Union, Federal Reserve Board, The Financial Times, Freddie Mac, FOX Business, Goldman Sachs, International Monetary Fund, International Strategy & Investment, Journal of Commerce, Merrill Lynch, PIERS Global Intelligence Solutions, Strategas Research, Thomson Reuters, Union Bank of Switzerland, U.S. Census Bureau, U.S. Department of Commerce, U.S. Department of Labor, U.S. State Department, U.S. Treasury Department, The Wall Street Journal, and The World Bank.
PAST ECONOMIC PERFORMANCE DOES NOT ENSURE FUTURE RESULTS.
Distributed by Hartford Securities Distribution Company, Inc.
1The Dow Jones Industrial Average (DJIA) is an unmanaged, price-weighed index of 30 of the largest, most widely held stocks traded on the NYSE.
“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company. Variable annuities are issued by Hartford Life and Annuity Insurance Company and by Hartford Life Insurance Company, and are underwritten and distributed by Hartford Securities Distribution Company, Inc. The Hartford Mutual Funds are underwritten and distributed by Hartford Investment Financial Services, LLC.
You should carefully consider investment objectives, risks, and charges and expenses of The Hartford Mutual Funds before investing. You can find this and other information in the Funds' prospectus, which you can obtain from your investment representative or by calling 888-843-7824. Please read it carefully before you invest or send money.
You should carefully consider the investment objectives, risks, and charges and expenses of The Hartford variable annuities and their underlying funds before investing. You can find this and other information in the prospectus for the variable annuity and the prospectuses for the underlying funds, which you can obtain from your investment representative or by calling 800-862-6668. Please read them carefully before you invest or send money.
401 retirement programs (excluding 401(a)) are funded by group variable annuity contracts (countrywide: HL-14991; NY & FL: HL-14973) and group variable funding agreements (HL-16553 and HL-16553 (NY)) issued by Hartford Life Insurance Company (Simsbury, CT), or by The Hartford Mutual Funds, which are underwritten and distributed by Hartford Investment Financial Services, LLC. 401(a), 457, and 403(b) retirement programs are funded by group variable annuity contracts (HL-15811, HVL-11002 and HVL-21002 series, HVL-14000, HVL-14001, HVL-20000, HL-17402, HL-14848, HL-17402 and HL-15420 with Rider HL-16957) and group variable funding agreements (HL-16553 and HL-16553 (NY)) issued by Hartford Life Insurance Company (Simsbury, CT). Group variable annuity contracts are underwritten and distributed by Hartford Securities Distribution Company, Inc. where applicable. Retirement programs can be funded by group fixed annuities (HL-19799) issued by Hartford Life Insurance Company (Simsbury, CT) and can also invest in mutual funds through custodial accounts. Hartford Securities Distribution Company, Inc. (member FINRA and SIPC), a registered broker/dealer affiliate of The Hartford, has established certain service programs for retirement plans, including defined contribution employee retirement benefit plans, through which a sponsor or administrator of a Plan may invest in mutual funds on behalf of Plan Participants.
You should carefully consider the investment objectives, risks, and charges and expenses of the mutual funds or The Hartford's group variable annuities, group variable funding agreements, and their underlying funds before investing. You can find this and other information in the fund's prospectus, which you can obtain from your investment representative. You can also find this in the disclosure documents (whichever is applicable). To obtain the applicable product prospectus or disclosure documents and the underlying fund prospectus, call 1-800-528-9009. Please read them carefully before you invest or send money.
“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries.
Distributed by Hartford Securities Distribution Company, Inc.
All information and representations herein are as of 7/11, unless otherwise noted.
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The views expressed here are those of Dr. Bob Froehlich. Dr. Bob Froehlich's views are not necessarily those of The Hartford and should not be construed as investment advice. They are subject to change. All economic and performance information is historical and does not indicate future results.
Dr. Bob Froehlich's sources of information include Bank of Canada, The Bank of England, Bank of Japan, Bloomberg News, Business Roundtable, China Investment Corporation, CIA. World Fact Book, CNBC, Congressional Budget Office, Deutsche Bank, The European Monetary Union, Federal Reserve Board, The Financial Times, Freddie Mac, FOX Business, Goldman Sachs, International Monetary Fund, International Strategy & Investment, Journal of Commerce, Merrill Lynch, PIERS Global Intelligence Solutions, Strategas Research, Thomson Reuters, Union Bank of Switzerland, U.S. Census Bureau, U.S. Department of Commerce, U.S. Department of Labor, U.S. State Department, U.S. Treasury Department, The Wall Street Journal, and The World Bank.
PAST ECONOMIC PERFORMANCE DOES NOT ENSURE FUTURE RESULTS.
Distributed by Hartford Securities Distribution Company, Inc.
1The Dow Jones Industrial Average (DJIA) is an unmanaged, price-weighed index of 30 of the largest, most widely held stocks traded on the NYSE.
“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company. Variable annuities are issued by Hartford Life and Annuity Insurance Company and by Hartford Life Insurance Company, and are underwritten and distributed by Hartford Securities Distribution Company, Inc. The Hartford Mutual Funds are underwritten and distributed by Hartford Investment Financial Services, LLC.
You should carefully consider investment objectives, risks, and charges and expenses of The Hartford Mutual Funds before investing. You can find this and other information in the Funds' prospectus, which you can obtain from your investment representative or by calling 888-843-7824. Please read it carefully before you invest or send money.
You should carefully consider the investment objectives, risks, and charges and expenses of The Hartford variable annuities and their underlying funds before investing. You can find this and other information in the prospectus for the variable annuity and the prospectuses for the underlying funds, which you can obtain from your investment representative or by calling 800-862-6668. Please read them carefully before you invest or send money.
401 retirement programs (excluding 401(a)) are funded by group variable annuity contracts (countrywide: HL-14991; NY & FL: HL-14973) and group variable funding agreements (HL-16553 and HL-16553 (NY)) issued by Hartford Life Insurance Company (Simsbury, CT), or by The Hartford Mutual Funds, which are underwritten and distributed by Hartford Investment Financial Services, LLC. 401(a), 457, and 403(b) retirement programs are funded by group variable annuity contracts (HL-15811, HVL-11002 and HVL-21002 series, HVL-14000, HVL-14001, HVL-20000, HL-17402, HL-14848, HL-17402 and HL-15420 with Rider HL-16957) and group variable funding agreements (HL-16553 and HL-16553 (NY)) issued by Hartford Life Insurance Company (Simsbury, CT). Group variable annuity contracts are underwritten and distributed by Hartford Securities Distribution Company, Inc. where applicable. Retirement programs can be funded by group fixed annuities (HL-19799) issued by Hartford Life Insurance Company (Simsbury, CT) and can also invest in mutual funds through custodial accounts. Hartford Securities Distribution Company, Inc. (member FINRA and SIPC), a registered broker/dealer affiliate of The Hartford, has established certain service programs for retirement plans, including defined contribution employee retirement benefit plans, through which a sponsor or administrator of a Plan may invest in mutual funds on behalf of Plan Participants.
You should carefully consider the investment objectives, risks, and charges and expenses of the mutual funds or The Hartford's group variable annuities, group variable funding agreements, and their underlying funds before investing. You can find this and other information in the fund's prospectus, which you can obtain from your investment representative. You can also find this in the disclosure documents (whichever is applicable). To obtain the applicable product prospectus or disclosure documents and the underlying fund prospectus, call 1-800-528-9009. Please read them carefully before you invest or send money.
“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries.
Distributed by Hartford Securities Distribution Company, Inc.
All information and representations herein are as of 7/11, unless otherwise noted.
P6170_072511 106639 7/11
©2011 The Hartford Financial Services Group, Inc. All Rights Reserved
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