Dollar soars almost a percent to close at 91.15, highest close since December 2005

Grand Rapids, MI, finishes 2014 with a total temperature anomaly of -30.3 degrees F

December was 2.7 degrees F above normal and nearly snowless with just one inch, most of which came on December 31st, a welcome respite from the all-time record snows of November at 31 inches, accompanied as those were by below normal temperatures totaling 5.8 degrees F.

The temperature deficit from normal through November of 33 degrees F was thus reduced to 30.3 degrees F total for 2014, for a monthly average deficit of 2.525 degrees F.

Collapsing oil prices will blow a $1.4 billion hole in Canada's tax revenues, wiping out the projected surplus

So says Garth Turner, here, at The Greater Fool:

Fully 30% of the pump price is federal and provincial tax, of which 12% goes to Ottawa. It’s now clear that with buck-a-litre gasoline that Canadians will spend about $12 billion less filling up in 2015 than last year. There alone is $1.4 billion Joe Owe won’t have to play around with – and he was forecasting [a] surplus of less than a billion.

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Nice nuts on the truck, Garth.

Market valuation in 2014 is 15% above the 2007 level

Average market cap to GDP in 2006 and 2007 came in at 1.23, and then fell to 0.74 by the end of 2008.

As of the end of 3Q2014, the ratio has risen to 1.415, which is 15% above the level seven years ago before the stock market crash, and 91% above the 2008 level.

Current valuation is about 17.5% below the stratospheric level of 1.715 reached at the end of 1999, and almost 195% above the 1981 level at 0.48, the mother of all buying opportunities in our lifetimes.

Buy and Hold: Why bother with Bridgewater's All Weather or with a simple global market portfolio?

Meb Faber compares the returns from behemoth Bridgewater's All Weather portfolio to a simple global market portfolio (GAA) here, acknowledging that the leveraged version of the latter which beats All Weather is probably too expensive for individuals to implement:

All Weather, 1996-2014: 6.34% net of inflation

GAA (unleveraged), 1996-2014: 5.23% net of inflation.

I say, why bother?

You can invest very cheaply in a low-cost S&P500 index fund and do very nearly just as well on the stock side: The average annual return from the S&P500 net of inflation, 11/'95-11/'14, has been 6.23%.

And for the bond portion of your portfolio an investment in a low-cost long term bond index fund like VBLTX has yielded 7.89% since 1994. Net of inflation at about 2.31% this must come in in the neighborhood of 5.4% per annum.

Which begs the question, Why not just pick a decent low-cost balanced fund?

Actively managed Wellesley Income, VWINX, has yielded 10.09% per annum since 1970, with inflation annualizing at about 4.17%. And the traditional Balanced Index, VBINX, has yielded 8.38% since 1992, with inflation annualizing at about 2.38%. Either fund puts you in the vicinity of 5.9% to 6% per annum net of inflation. Expense ratios for these funds are less than a quarter point.

Just sayin'.

Tonight's S&P500 level is 0.8% above the inflation-adjusted August 2000 level, the previous high

2058 vs. 2041.

Mario is dead: Long live the Mario

Mario Cuomo (1932-2015)

Happy talk from Robert Lenzner of Forbes misses the 180 month bear market in performance

Robert Lenzner of Forbes, here, is only off by an order of magnitude (18 months vs. 180):

Bull markets last on average about 97 months each and gain an average of 440 points in the Standard & Poor’s 500 stock index. By comparison bear markets since the 1930s have an average duration of only 18 months and an average loss in value of about 40 percent.

Let's talk the most recent bear market in performance.

If you invested your nest egg in the stock markets fifteen years ago in a total stock market index fund, your average return annually, say in VTSMX, would be 4.75% through 2014, per Morningstar.

On the other hand, if you had taken the safe route and invested everything in an intermediate term bond index fund, say in VBIIX, your average annual return would be 6.52% through 2014, also per Morningstar.

DESPITE THE PHENOMENAL PERFORMANCE OF STOCK MARKETS SINCE 2011, WHEN THE S&P500 REVISITED THE 2008 CLIFF LEVEL BEFORE THE BOTTOM IN 2009, STOCKS ARE STILL IN A BEAR MARKET. NO ONE REALISES HOW BAD THEIR CONDITION STILL IS.

Only fools are investing in the stock market today. Returns from stocks 10 years from now will be similarly disappointing as they have been since 1999. If you have physical gold, keep it, imho. And if you can, raise cash, imho. Opportunities for riches to agile investors who are prepared to scoop up bargains as in the 1930s are in the offing.

As everyone should know by now but doesn't, 1999 was a blow off top period leading up to the previous inflation-adjusted stock market peak of August 2000.

Valuations today have still not reproduced themselves in comparison to the end of 1999 on a total market cap to GDP basis, but they are way above the 2007 levels and represent an historically exceptionally rarefied level of valuation. Valuation at the end of 2014 based on total stock market cap to GDP will be relatively certain with the second report of 4Q2014 GDP at the end of February.

Stay tuned.

Erick Erickson asserts a difference between libertarianism and libertinism

Today filling in as guest host of the Rush Limbaugh Show in response to a caller recommending the Republican Party move in a more specifically libertarian direction.

The comment was more diplomacy than wisdom.

In the Molly Ball feature on Erickson for The Atlantic here, Erickson more than once eschews libertarianism, let alone libertinism:

“Nationally, people think of me as a Tea Party person, and I am,” Erickson told me. “But in Georgia, the Tea Party can’t stand me.” The local movement, he explained, is dominated by libertarian followers of former Congressman Ron Paul, and Erickson has opposed many of its chosen candidates. Erickson’s conservatism is of a more traditional bent, deeply informed by his evangelical faith. He believes Republicans must not yield in pursuit of small government, strong national defense, and the primacy of the traditional family.

Erickson sounded almost gleeful as he told me about the Tea Party hating him. He seems to delight in confounding expectations, and in almost every way, he refuses to be pigeonholed: he is a southerner who defines himself by his small-town sensibility, but he spent most of his childhood in Dubai. He speaks for the conservative grass roots, but he pals around with cable-news regulars and Beltway elites. He’s a strict no-compromises ideologue, but during his one foray into elected office, he was a model of bipartisan cooperation. ...

When I pressed him on whether his zeal for regulation while on the city council was at odds with his less-government philosophy, he said he believed human trafficking was a problem that government should have a role in solving. “I’m not a libertarian,” he said. Even small-government absolutists, after all, can agree that sexual slavery ought to be prevented.

Index fund flows in 2014 may indicate the top is in, or nearly in

Seen here:

The impact of index funds has been revolutionary. When John Bogle, the founder of Vanguard, introduced the first vehicle designed to passively track the performance of a stock index about 40 years ago, it was derided as “Bogle’s Folly.” Today the fund’s successors, at Vanguard and elsewhere, hold $2 trillion in assets. ...

Actively managed funds still hold a majority of total stock fund assets, 63% at the end of September. But in the first nine months of 2014, actively managed stock funds attracted $2.5 billion, while $173 billion found its way into index funds, or 98.6% of the total.

This flood of money into index funds came after the market already had recorded substantial gains. [James] Stack contends that such lopsided affection for passive investing — and the lack of concern for risk that he infers from it — hints at an approaching top, as does the evidence of history.

“Generally, the times when index investing reaches the highest popularity are in aging bull markets or near market peaks,” he says.

Social Security disability rolls are growing annually 9.1% more on average under Obama than under Bush

The average annual addition to the disability rolls under Bush, who added 2.7 million over eight years, was 342,000. Under Obama, who has added 1.9 million over five years through 2013, the average annual addition has been 373,000. The current program total is 12.156 million through 2013. If the 2014 addition rate is similar to the immediate past, the program total is probably close to 12.5 million as of December 31st.

The latest statistical report for the program, released in December, may be viewed here.

Figures cited above are derived from Table 1, page 17, disabled beneficiaries and their non-disabled dependents. Table 66 figures are higher and include the disabled aged 18-64 who also get Social Security and/or Supplemental Security Income, the average cost for all of which in 2013 came to $161 billion. 

Total stock market capitalization through 12/31/14 is $26.004 trillion

Wilshire 5000 level X 1.2

Updated: Global middle class hits one billion in 2014, but has actually declined since 2010

So reported the Times of India here in October:

Credit Suisse's Global Wealth Report 2014 released on Tuesday says that there are one billion adults at present who belong to the middle class - with wealth anywhere between $10,000-$100,000 range.

The Global Wealth Report 2014 itself may be viewed here, from which the pyramid at the left.

Notice the relatively small size of the global middle class, just 21.5% of the world's adults, with the vast majority of these coming first from China, and then second from the Asia-Pacific region, followed by Europe, Latin America and North America in that order, according to the details on pages 24ff.

Update: The inaugural Global Wealth Report in 2010 here actually showed a LARGER global middle class adult population of 1.045 billion then vs. the 1.01 billion today, a 3.3% decline. As a percentage of the world's adult population, the middle class share also has declined, from 23.5% of all adults in 2010 to 21.5% in 2014, a decline of 8.5%.

22 States and DC raise minimum wage this year: Expect teen employment to remain in depression or decline further

Teen employment levels today at 4.6 million are still 2.9 million below their 2006 peak of almost 7.5 million.

This is not just an artifact of the 2008 Panic.

The Federal minimum wage was increased nearly 41% over three years beginning before the panic began, from $5.15 to $5.85 in July 2007, to $6.55 in July 2008, and to $7.25 in July 2009. It is noteworthy that teen employment suffered almost immediately with the first increase in 2007, not reachieving the 2006 peak teen employment level in July of 2007 even as full-time employment hit an all-time record high. Teen employment continued to decline each summer through 2011 before stabilizing at the new low level, averaging about 4.4 million now vs. about 5.9 million previously. Raising the minimum wage has effectively sidelined 1.5 million teenagers permanently.

Raising the minimum wage now in 45% of the country only means inexperienced people like teenagers will find it even more difficult to find that first job going forward.

This is not free-market economics. It is crony capitalism which redistributes income to low-wage-earning adults at the expense of the young.

Call it part of the liberal war on children. Hey, if you forgot to abort 'em, impoverish them!

Healthcare spending through three quarters of 2014 has been only average

Healthcare spending through three quarters of 2014 has been only average, despite what you may have heard about a government conspiracy trying to hide massive spending for political reasons.

Healthcare spending's contribution to GDP in 1Q was -0.16, in 2Q +0.45, and in 3Q +0.52, for an average of three final quarterly reports of healthcare spending on an annualized basis totaling just +0.27 in 2014.

This number is completely within the historical norm for the previous four years, 2010 through 2013, when we had positive contributions of 0.15, 0.28, 0.37 and 0.24, averaging 0.26.

Expect to hear alarm bells sounded again if the 4Q number is high in the first estimate at the end of this month, but you should ignore them. The only proper comparison is with the third and final revision, for which we will have to wait until the end of March 2015.

That's just the way it is.

15-year total return from popular Vanguard index funds through 12/31/14 shows bonds beating stocks since 1999 except on the short end

Per annum return per Morningstar tonight:

Total international stock index, VGTSX = 2.96%

Short term bond index, VBISX = 4.05%

S&P 500 stock index, VFINX = 4.13%

Total stock market index, VTSMX = 4.75%

Total bond market index, VBMFX = 5.45%

Intermediate term bond index, VBIIX = 6.52%

Long term bond index, VBLTX = 8.37%

US could join this list of the world's top oil exporters thanks to relaxation of 1974 oil export ban yesterday

Export of up to 1 million barrels per day could put the US in 16th or 17th on this list from the US Energy Information Administration by the end of 2015.

Jobless claims finish December averaging 362,000 per week, 2014 ends at 15.9 million total first time claims for unemployment

All figures are raw, not-seasonally-adjusted.

The 15.9 million figure is now the lowest in the 21st century, beating the heretofore best level achieved under Bush, which was 16.2 million (but when the participation rate of the labor force was much higher than it is today, 66.4% in November 2006 vs. 62.8% in November 2014). Previously I had expected claims to total 15.7 million in 2014, but first time claims for unemployment ramped up a little higher in December than they had been averaging through November.

Here's the historical record:

2001 20.9 million

2002 20.9 million

2003 20.8 million

2004 17.7 million

2005 17.7 million

2006 16.2 million

2007 16.7 million

2008 21.6 million

2009 29.5 million

2010 23.7 million

2011 21.7 million

2012 19.4 million

2013 17.8 million

2014 15.9 million.

Conditions remain very favorable for making continued progress on a recovery of full-time jobs, which are still 3.8 million off their 2007 peak, over seven years ago.

The global oil war just got even more interesting: Dept. of Commerce relaxes export ban

With a tip o' the hat to Andrew Critchlow at the UK Telegraph, Reuters reported just a couple of hours ago that the US Dept. of Commerce has announced relaxation of some parts of the 1974 US oil export ban, here:

(Reuters) - The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world.

The Department of Commerce on Tuesday ended a year-long silence on a contentious, four-decade ban on oil exports, saying it had begun approving a backlog of requests to sell processed light oil abroad. It also issued a long-awaited document outlining exactly what kinds of oil other would-be exporters can ship. ...

... the impending swell of U.S. petroleum into global markets may intensify what many analysts say is a pivotal oil market war, with Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) unwilling to yield ground. Now they will face even greater competition beyond U.S. shores.

Alan Greenspan is expecting mediocre GDP in 4Q, says housing and investment must recover to fix it

Quoted here at Bloomberg:

Greenspan said the economy won’t fully recover until American companies invest more in productive assets and the housing market bounces back.

“Almost all of the weakness in the last four, five, six years has been in long-lived investments” in capital goods and real estate, Greenspan said. “Until these pick up, we’re not going to get the kind of vibrant growth that everyone is hoping for.”

Greenspan, who retired from the Fed’s helm in January 2006, said he expects growth to dip below a 3 percent annual rate in the fourth quarter of this year. His forecast is in line with the estimate of 2.5 percent in a Bloomberg survey of economists.