Thursday, April 17, 2014

Are you earning a living wage?

The following interactive tool allows you to determine how many hours per week you would need to work at different wages to earn a "living wage".  A living wage is the amount of money needed to maintain a standard of living that is not considered within poverty or minimum wage ranges. The wage and hours requirements to meet living wage standard of living varies from state-to-state as the tool illustrates. For example, in Virginia a single adult would have to earn $25.69 per hour for 40.1 hours per week to earn the minimum living wage, but in Wyoming the hourly pay would only have to be $20.86 to maintain the same minimum standard of living.

The results can also be compared with MIT's Living Wage Calculator; the differences are substantial. Moreover, in Fairfax County, Northern Virginia, where affluence is quite high, the MIT calculator states minimum living wage to be only $13.22 per hour or almost half of that indicated by the Accounting Schools Guide calculator. To evaluate which calculator is accurate check your own area and see if the minimum living wage is enough to pay for average housing, food and transportation costs. If it falls below that amount, then chances are the calculator is inaccurate giving more of a minimum wage.

Financial news: 04/17/2014

Bloomberg: Wage pressures in metro-areas suggest improving economy
Fox: Google is designing smart contact lenses per patent filing info.
Reuters: BofA had a Q1, '14 loss after paying $6 bln in litigation costs
BI: Celgene is the best U.S. company to work for per BI/PayScale
CNN: IRS tax refunds are sometimes stolen via identity theft
DOL: Jobless claims 104/12 304K ↑2 K; average 312K ↓4.75K
CB: Building permit issues fell 2.4% in March, yr-over-yr starts ↓5.4%
AP: France to lower debt via $29 bln in pension, social & healthcare cuts
BBC: China's GDP growth was 7.4% annualized in Q1, 2014
NYT: Tighter credit in China is pressuring small to mid-size businesses
CNBC: The world's third largest economy is struggling per Jim Cramer

Wednesday, April 16, 2014

Financial market conditions

Knowing how to interpret economics signals is sometimes more art than science. First, there is no magic or commonly known formula that takes so many variables in to account that it can determine the direction of markets or economies with 100 percent or even 95 percent accuracy. If there was, the Great Recession would have been far less likely to have occurred. Secondly, the relationship between economic and market variables is so complex and elaborate that it would not only require a perfect formula, but also access to a large amount of timely data and a lot of computing power. These are not things every or even the majority of investors has available to them.

Having recognized the shortcoming of financial analysis reports, market information releases and economic forecasting formulas, they are not without their uses as they do have some evaluative accuracy and predictive capacity. Efforts are constantly made to understand, report about and forecast the future direction of prices. The following Accuvest slide show is one such attempt and includes 64 slides covering recent market, industrial and economic data. It is divided in to several sections including financial conditions, fixed income and credit, global equity, the economy and currencies and commodities.
Chart Book and Financial Market Update (4/14/14) from advisorshares

To illustrate how economic signals conflict, consider slide numbers 19 through 30. They detail information about fixed income and credit. Of these the break even inflation rate on slide 24, investment grade bond prices on slide 25 and the investment grade vs 10 yr-Treasury spread on slide 26 seem to stand out. This is because the economy is supposed to be improving per the Federal Reserve Bank. Moreover, if economic growth is accelerating, why is inflation declining? Monetary policy is one explanation as it affords low-cost debt at the moment. This can be interpreted as meaning the Federal Reserve Bank is still trying to accelerate economic growth.

The reason why the investment grade bond prices on slide 25 are interesting is because their prices are rising. Rising bond prices typically means higher demand and lower yield. Moreover, bond demand rises along with economic or market uncertainty. This seems to suggest that equity holders  and/or bond purchasers are sensing market risk therefore demanding more bonds, thus driving the price up and the yield down. High yield bond prices have also risen per slide 27. 

Treasury yields also indicate a rising demand as prices have been rising for them. Yet, the source of demand is more likely to be at least partially attributable to monetary policy.  Furthermore, according to Zero Hedge, the Federal Reserve Bank was the largest holder of U.S. Treasuries toward the end of 2013 and held $2.16 trillion worth of them, up $517 billion from a year earlier. In addition, many countries excluding China have been investing a greater amount of U.S. Treasuries per the U.S. Treasury Department.

Just based on the information discussed in this post, and not the entirety of the information within the slides, it is difficult to say where the economy is actually heading. This is because the Federal Reserve Bank is supporting and/or stating growth is on the rise, yet investment bond prices indicate otherwise. Equity markets, especially Japan, have also slipped recently and gold prices have been rising. So, there is conflicting evidence, which can mean more due diligence and research would be needed to develop a more accurate evaluation or that economic recovery is not too steady as the Federal Reserve Board Chairwoman has already stated.