National Pi Day #MoneyConscious Mash Up

Econ 

Happy Pi Day! Happy Pi Day!

Today is National Pi Day because it’s March 4th (3/14). Pi is an irrational number and this is an appropriate analogy for the stock market performance of recent years. Regardless of the world around it, the stock market has been resilient up until yesterday when news about Ukraine and China apparently caused the market to become as skittish as Piers Morgan talking about why America doesn’t like him.

Who says Americans don’t care about geopolitics?

As we’ve been saying for months, the economy continues to show signs of slow and steady progress. Jobless claims dropped from 324,000 to 315,000, its lowest number since November 2013. While it’s, also, good news that retail sales were up 0.3% in February relative to January, it’s concerning that consumers are increasing credit card debt like it’s 2008. Albert Einstein had a word for this.

Shiny Disco Balls

It’s concerning that consumers in 24 of the 25 largest metropolitan areas are overextended on auto-loans. Cars are a depreciating asset. We understand that shiny cars are, to many of us, like disco balls to a ferret, but extending the term of an auto loan out to 72 or  96 months is ridiculous. If you can’t afford to put 20% down and keep the term of your loan to a maximum of 36 months, you should probably reconsider the car you want to buy.

As we said earlier this week, we believe the economy is a bit rigged as modern day Monopoly. The growing 1%, however, don’t put up to 50% of their annual income into depreciating assets. Regardless of what we think we deserve, we shouldn’t either.

Americans are doing something right, though, as the home foreclosure rate reached its lowest level since 2006. Don’t start your St. Patrick’s Day celebration too early, as those who were provided mortgage relief in 2008 will see their mortgage payments increase by as much as $1,000. This is why being overextended on auto and home-loans is a bad investment. If the government continues to give everyone who made poor financial decisions a “Get Out of Jail Free Card”, though, the fiscally responsible will continue to look more and more fools.

Another growing concern is income inequality. More and more people are acknowledging that the game is rigged and that isn’t good for a true free-market economy. We think, however, that the answer to this American and global problem is to even the playing field and not increase social safety nets, as Orin Hatch (R-UT) seems to suggest. Most days we can’t tell one party from the other.

Ice Ice Baby

Another concern to keep your eye on is inventories. Business inventories were up 0.4% in January. Though that was a slower pace than December 2013’s 0.5% pace, it is still a two-month trend of a leading indicator suggesting which way the economy may be headed. We believe the economy is making slow and steady improvements, but it’s on thin ice and not as pretty as Elsa’s, princess of Arendelle, castle.

Our final concern this week is the bifurcation of the economy into two, those with a job and those who have been without a job long-term. If wages continue to stay stagnant in 2014, as they did in 2013, it will suggest the bifurcation is real and continue the growth of income inequality in America. The haves and the have-nots will soon be defined as the have-a-jobs and the have-not-a-jobs.

PF

The good news is that millennials are as optimistic as Olaf on a sunny day, but the bad news is that they feel alienated from the rest of us like, well, Piers Morgan and America. There are so many ways to abuse that analogy.

Millennial alienation could, in part, be due to learning that where they went to college and amassed a fortune of debt may not mean as much as they thought it would. In hindsight, they may have wished they crunched the numbers a little more thoroughly, especially because there’s a good chance a robot will steal their career as surely as Coldplay and any song they hear.

Alien Nation

Not to fret, for them and those overextended on auto and home loans, there are ways to calculate when they’ll achieve financial independence from banks, but that requires being fiscally responsible, of which millennials are proving to be.

As we’re all learning in this new economy, long held beliefs may need to be reconsidered. Even the truism of keeping your emergency savings in cash is a house of cards with interest rates staying as low as Frank Underwood’s morals.

So stay #moneyconscious and know what’s going on in the financial world around you. If money and finance bore you as much as listening to John Kerry draw red lines in sand, we’re here to help. Come back every Friday for The Debt Free Guy’s #MoneyConscious Mash Up.

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