Category: Money & Finance

Earnings Stagnation: How Will People Cope?

IMG_4579

Since the Great Recession of 2008, the U.S. economy has struggled to regain full momentum. This is most evident when you examine the earnings of most middle-class Americans. And a recent report by the U.S. Department of Labor seems to suggest that this trend shows little sign of abating.

The findings of this employment cost index report suggest that paychecks of U.S. workers grew at a very tepid rate this summer, rising a paltry 0.6% during the July-September period, compared to the April-June period. Overall during the past 12-months, pay and benefits have risen only 2%; well below the 3.5% to 4% that most labor economists feel is indicative of a healthy economy.

What all of this signifies is that there’s still an ample supply of workers for businesses to hire at much lower pay rates; an indication that the job market has yet to return to full health. Over the past year, employers have added 2.2 million new jobs which has resulted in a decline in the unemployment rate from 5.9% to a seven-year low of 5.1%. Nevertheless, wage advancement remains sluggish.

There is also the issue of the 6.5 million (at last count) Americans working part-time who really wish to work full-time. That accounts for about 2 million more workers than prior to the recession. And it is important to keep in mind that the unemployment figures have been skewed even further because millions more Americans have ceased looking for work altogether, even though they would take a job if offered one.

Federal Reserve officials view wages and salaries as the key metric in assessing the economy’s true health, because a sustained uptick in wages would signify a leveling out of the unemployment rate. As unemployment drops, businesses are often forced to increase their pay in order to attract and retain talent.

Unfortunately, according to many economic analysts, there are no signs of this trend occurring in the foreseeable future.

Upping The Minimum Wage: Help or Hindrance?

There has been a ton of media chatter this year about efforts by several states to boost the minimum wage. And for good reason, since wages are a hot issue, particularly among those Americans working in service-related jobs.

Unfortunately, the collateral damage is starting to rear its ugly head in states that have recently boosted the legal minimum wage. Take Seattle for example, which has been a hotbed of talk on this issue. According to the St. Louis Federal Reserve, which has been monitoring this development, the Emerald City began to experience declining numbers of restaurant employees around the first of the year, when the minimum wage increased to $9.47 per hour. This represents the highest minimum wage in the nation. The reported loss of 1,300 jobs between January and June is the largest drop off since the Great Recession of 2008. Moreover, 1,000 restaurant jobs were lost in May, following the minimum wage increase in April, the largest one-month job decline since a 1,300 drop during that recessionary period. This is in contrast to a national increase in restaurant jobs to the tune of 130,700, an overall 1.2% increase in employment in the Seattle area and a 3.2% restaurant employment increase in the State of Washington (excluding Seattle) – all during this recent period.

The bottom line is that small businesses like mom-and-pop restaurants and coffee houses lack the greater profit margins needed to withstand the expenses associated with a minimum wage increase. So they resort to cutting staff and reducing hours, paying fewer workers more money. Even well-funded enterprises like McDonald’s are reportedly pondering labor-saving methods like self-checkout kiosks, robots on the food production line and robots to manage expenses, all of which would lead to an overall reduction in staff numbers.

FacebookTwitterGoogle+PinterestRedditShare

Crowdfunding – Free Market Solutions for Social Causes

crowdfundingpicIf you’re like me, you’ve probably contributed to a couple of crowdfunding campaigns before. I love the idea of crowdfunding. It feels great to direct your support to projects in which you are interested, and to be able to contribute an amount that works for you. It’s like a more visible and interactive way of fundraising and donating. Crowdfunding started out mainly as a platform used for deliverable content like films and music but recently, it has expanded to include personal and cause-oriented projects such as helping victims of natural disasters or supporting the adoption of a child. Essentially, crowdfunding has become a free market solution for social causes.

GoFundMe seems to be the premier platform for cause-oriented crowdfunding, but IndieGoGo can still claim it’s place as the first personal and non-profit funding platform. IndieGoGo recently decided to make a move for GoFundMe’s crown by building

Harriet Tubman: New Face of the $20 Bill?

IMG_4526

The abolitionist Harriet Tubman has long been admired for her civil rights legacy. And if a grassroots organization has its way, she will one day adorn the front of a $20 bill.

The group, Women On 20s, recently asked the public to vote to get Tubman on U.S. printed currency. She garnered nearly 34% of the vote, edging out former First Lady Eleanor Roosevelt for the distinction of replacing Andrew Jackson. If this is codified by the Department of Treasury, Tubman would make history as the first woman and the first African-American to be represented on American paper currency.

A little history about Tubman. She was arguably the most influential figure in the Underground Railroad Movement, a network of routes that facilitated slaves fleeing to northern free states as well as Canada. Tubman, who herself escaped slavery in Maryland, made it her personal cause to free hundreds of slaves out of bondage. In addition to her work to free slaves, she was a passionate advocate for women’s equality and suffrage.

As she noted about her abolitionist work, “I was a conductor on the Underground Railroad, never running my train off the track and never losing a passenger.”

This campaign to highlight women via U.S. paper currency has gained a ton of political support, including U.S. Senator Jeanne Shaheen (D-New Hampshire), from a state that has a prominent history in the freedom movement. Women on 20s has delivered a petition to President Obama, asking him to instruct Treasury Secretary Lew to circulate these bills in anticipation of the women’s suffrage centennial in 2020. This will be an unprecedented move if executed; one with rich historical significance for the cause of liberty.

 

 

The Auto is “On Auto”

google-driverless_3147440bOver the better part of the last seventy-plus years, passing the driver’s license exam was a rite of passage. Teens longed for the day when they could get behind the wheel of Dad’s old Mustang and leave behind a cloud of dust as they raced towards the horizon. Sitting in the driver’s seat with a parent alongside yelling “Hands 10 and 2… eyes on the road… use your turn signal!” became quite the typical family outing. Eventually, that driver’s license brought you freedom and responsibility – road signs for an ‘Adult Life Ahead’. 

A Path to Riches or an Alluring Trap?

image

 

I vividly remember a house in the neighborhood where I grew up as a kid. My friend Tony lived there. It was a massive structure, likely over 5,000 square feet, dwarfing all others in the area. This residence boasted a huge swimming pool (rare in Columbus, Ohio), a fish tank that took up an entire wall, and a foyer staircase that rivaled that of the von Trapp family mansion in the movie ‘Sound of Music’.

Because the property’s stature and opulence seemed an oddity for a lower middle class African-American community, I asked another neighborhood friend what Tony’s parents did for a living. “Oh“, came the response, “they’re involved in something called Multi-Level Marketing. I hear you can become quite rich in that business.”

So What the Heck is Multi-Level Marketing?

Just the other day, I mentioned to a friend of mine, who happens to be a millennial, that I was writing an article on Multi-Level Marketing. “What’s that? Never heard of it,” she retorted.

As a boomer, my awareness of MLMs is quite extensive. Back when I was young and impressionable, it seemed like profiteers in this industry were seeking me out on a regular basis. I was told that they were attracted to my gregarious personality and vast network of professional connections. Yet to this day, my understanding as to how it really works is shrouded in mystery.

Here is my own simple definition of MLM. Having signed up for the MLM of a certain product yourself, you then contact everyone you know – starting with family and friends – to persuade them also to sign up for the same MLM product (with you as the referring representative, of course), in the hope that they will sell enough product for you to be able to sit on your couch and watch tv while you reap the rewards of all their referral commissions.

I know, I know… .my definition is a bit warped. But consider it an honest portrayal of my experience with this over time.

My first direct exposure to MLM, a.k.a network marketing, was back in 1995 while I was living in Chicago. I got invited to one of those infamous events that was clouded in secrecy where what you’ve gotten yourself into isn’t revealed until you are seated with coffee and donut in hand. It was a cheesy print publication, a subscription report that featured randomly aggregated research information on society and the world. Surprisingly, tons of unsuspecting folks bought into it with the hope of accelerating their knowledge to become better informed citizens. Me? I attended a couple of meetings and had an uneasy feeling about what was about to go down. On my third visit, I was greeted by a sea of dour faces; they had all been taken financially by the founder.

My brief dalliance with this particular MLM company is not intended as a broad indictment of the entire industry. In fact, I’ve been involved with a wide spectrum of other MLM companies – primarily in the wellness products realm – that had a modicum of integrity and transparency. Some folks I know who were involved with these companies even saw success. But in my estimation, this success scenario was quite rare.

Good Intentions or Taking Advantage of Others?

An acquaintance of mine works with a very profitable MLM company called Vemma Nutrition. She’s a person with integrity who has worked hard to achieve success within the company. Sadly, the Federal Trade Commission just put a temporary strangle-hold on the company’s operations for operating what they deemed to be an illegal pyramid scheme. Company assets were temporary seized by an Arizona federal court. The primary charge against them hinged on their promising college students untold financial returns while selling nutritional drinks. According to the FTC, Vemma earned $200 million in 2013 and 2014. And the students? Well, they were not so lucky, as most were unable to even recover their initial investment in the company.

My Take on MLM Investment Opportunities

In short, if you are considering joining a MLM, I encourage you to tread slowly and keep your wits about you. Have some people seen a ROI in building a profitable business clientele? Certainly, there are some examples. But is it a path to riches? Personally, I believe that’s likely to happen less than 1% of the time. “

Patience Tames the Beast

 stock market crash illustration with graph going down and bear As a child, I often recall adults saying “Patience is a virtue,” or “Good things come to those who wait.” Living in a society whose zeitgeist revolves around the individual and instant gratification, patience tends to fall by the wayside. While there is inherent importance in risk-taking in order to achieve greatness, sometimes simply biding your time is the best thing to do. One of the caveats of playing the stock market is its incredibly volatile nature; you mess with the bull, you get the horns. To become a wise investor, you need an equal measure of risk-taking and knowing when to be patient. 

What Causes Volatility?

In terms of a volatile market, we have to look at both the short and long-term fluctuations of market value. The simplest way to address short and long-term volatility comes with an understanding of supply and demand. Prices are driven up when demand is higher than the amount being sold; inversely, prices drop when more people want to sell than buy. The effects of supply and demand on the market can be seen daily in the market’s closing numbers.

Many believe that a company’s valuation largely determines the stock price, but many are wrong! A company’s value (price multiplied by outstanding shares) does not determine the stock price; rather, it is the opposite. Another important key concept is a company’s earnings. In theory, earnings should be the limiting factor for why a stock rises or falls. Au contraire, mon frère. The earnings determine the ability for the company to turn a profit, while the stock price is determined by the interest placed in the stock by investors.

Long-term stock fluctuation (positive or negative) relies on supply and demand principles, as does short-term stock fluctuation. However, there can be factors outstanding as to why a market would go through a period of intense highs or lows. During times of war, low economic prosperity due to unemployment, or periods where foreign trade decreases, the market (usually) tends to take a decline due to investors not putting money back into the market. On the flip side, periods of intense prosperity seem to drive market values higher, due to investors having more money to spend.

How Do We Counteract Volatility?

Short-term volatility really has no way of being stopped or counteracted. The market will always undergo some type of decrease, increase and leveling out, stemming from fickle investors just like ourselves. We all try to increase our profit margins in the long term through wise investing, but short-term money can be made through incremental buying. If you don’t have a broker and rely solely on your own wisdom and whatever you can glean from your TV financial news channel, incremental buying should be the ace up your sleeve. As the market ebbs and flows from hour to hour, buying one-hundred shares per hour (more or less, depending on the current price) allows you to increase your chance of making larger gains. Buying stocks hourly allows you to decrease the overall money spent per stock when price decreases and increase overall profit per stock when price increases.

Incremental buying works nicely for the long-term effects of a volatile market as well. However, the best tool you can use to curb the effects of long-term volatility is patience. When experiencing a difficult market similar to the one we have now, sometimes the best thing to do is just wait. I would personally advise taking the incremental route, primarily as a mid-risk/high-reward option. There’s always the chance of catching the stock at a low point, right before the soar. But patience is one of the greatests tools in a good investor’s arsenal. I stress the importance of patience for two reasons. First, history shows that markets trend toward stability. Second, rash decision-making backed by poor market understanding makes you no money. Riding the wave to shore works better than fighting the current.

When Will It Stop?

BlackRock Inc. has called for a halt on the market if volatility increases. A halt on the market would cause a temporary cessation of trading in order for investors and companies to get things figured out and back on a stable track. This would include a ‘limit-up/limit-down’ clause where the market would be halted if securities drop or rise above a certain threshold. Experts are saying that the market should calm down once the Federal Reserve raises interest rates. An increase in interest rates would benefit those so-called thoroughbred stocks due to the sense of surety that investors attribute to them. The market beast may be wild right now, but it won’t stay that way forever. Starting this fourth quarter and looking towards the end of the year, keep an eye open for the market to be tamed.