Newton’s Law of Economics: The Power of Sentimental Investors

Newton’s Third Law of Motion (for every action there is an equal and opposite reaction) may well apply to the correlation between investments and investor sentiment.


For example, the nation’s largest bank, JPMorgan Chase, recently announced that instead of posting $200 million in profit, as it had previously estimated, it had actually lost $2 billion. In a conference call to analysts and investors, CEO Jamie Dimon blamed the losses on a complex hedging strategy the firm had engaged in over the past six weeks and warned that the company could lose more.


[CLICK HERE to read the article,JPMorgan suffers big loss,” at, May 11, 2012.]


On the day of the announcement, the company’s stock plunged 9.3%, as you might expect. But the interesting thing is that other investment banks also took a hit – Morgan Stanley fell 3.7 %, Goldman Sachs fell 3.3%, and Citigroup dropped 3.8%. Why? Because investors are concerned that other large banks may have made the same mistake. When pressed as to whether the losses were due to flawed execution or if broader market forces may have played a hand (that could impact other firms), Dimon responded, “Just because we’re stupid doesn’t mean everyone else was.”


[CLICK HERE to hear the audio, “Miss Jamie Dimon’s conference call? Hear it here,” at, May 11, 2012.]


[CLICK HERE to view the video discussion, “JPMorgan discloses $2B in losses in ‘flawed’ hedging strategy,” at, May 11, 2012.]


If you apply Newton’s Third Law toward economics, investors ran in the opposite direction. It happens all the time.


In fact, new research from the Wharton School reveals that investor influence has a whole lot more impact on stock market pricing – and mispricing – than previously believed. The paper purports that investor sentiment influences stock prices up or down to a degree that cannot be explained by fundamentals like earnings and revenues. Furthermore, stocks are more likely to be overpriced when enthusiasm is high than underpriced when it is low – meaning that “irrational exuberance” has a more powerful impact than pessimism. Or, bulls can move market prices higher than bears can lower them.


[CLICK HERE to read the article, “Investor Sentiment and Stock Prices: Explaining the Ups and Downs,” at Knowledge@Wharton, May 9, 2012.]


[CLICK HERE to read the research paper, “The Short of It: Investor Sentiment and Anomalies,” from University of Pennsylvania – The Wharton School; National Bureau of Economic Research, March 12, 2012.]


Isn’t it interesting how investors as a group can have so much impact on market performance when investors as individuals have so little? If you could use some help devising a plan for the financial matters that you can control, please give us a call.




Financial Infidelity

Are you cheating on your spouse? Financial infidelity is another way of saying you spend household money without telling your other half about it. It happens all the time. In fact, according to a new survey by The American Institute of CPAs (AICPA)1, three in 10 adults who are either married or living with a partner admit to buying big-ticket items without discussing it first and stashing away purchases so their significant other doesn’t realize they’ve been shopping.

It’s understandable to want to go out and splurge without permission – particularly after operating under a tight budget in recent years. But spending an inordinate amount of money without your partner’s knowledge is not a great idea. Part of the reason is because household finances may continue to be tight and, even if they’re not, budgetary discipline is important for long-term financial security. But another reason it’s not a good idea is because of the damage it can do to your marriage.


About 27% of couples have outright arguments over money. According to the AICPA, money is the most volatile topic in a marriage, beating out other heated arguments over child rearing, division of chores, and time spent with and/or choice of friends. More than half (58%) of financial arguments are over how one partner’s definition of “needs” and “wants” differs from the other’s2. For example, some women can’t live without a new pair of shoes, while some men need to buy the newest cell phone the day it hits the market. Are these needs or wants?


The answer to that will vary in every relationship. Part of being in a relationship is negotiating what is acceptable and what is not – like flirting with a waitress or bartender. The same goes for money. As a couple, it’s important to sit down and define necessary versus discretionary spending. Be prepared to negotiate these points. Even set aside a specific amount of discretionary spending for each spouse to cover individual preferences like tickets to sporting events or a day at the spa. 3


1[CLICK HERE to read the article, “Lying to your spouse about money? Join the club,” at, May 4, 2012.]

2 [CLICK HERE to read the news release, “AICPA Survey: Finances Causing Rifts for American Couples,” from The American Institute of CPAs, May 4, 2012.]


3 [CLICK HERE to read the article, “Marriage Maintenance When Money Is Tight,” at The New York Times, March 30, 2012.]


Work Woes

Whether staying home by choice or not, nearly one in five (18%) Americans between the ages of 35 and 54 are not participating in the workforce. If a couple decides together that one spouse should stay home while the other one works, it can put a strain on the marriage but at least it’s a mutual choice. However, when this scenario is not by choice it can wreak havoc on the relationship.


According to the Brookings Institute, there is a strong correlation between changes in earnings and changes in marriage. In fact, men that experience the most adverse economic changes also experience the largest declines in marriage. The economy has not only increased stress and arguments among married couples, it’s contributed to many singles simply putting off marriage altogether until they are more financially secure.


No matter how you look at it, managing money when you’re in a relationship can be a difficult proposition. The AICPA recommends working with an advisor as a neutral third party to help you establish and reinforce financial goals, pay bills, monitor accounts and bring up the topic of unusual spending patterns. This might work better than a spouse having to broach the topic of excess spending – or worse yet – not bringing it up at all and stifling any feelings this scenario may ignite.


If we can help you in any way manage the financial situation in your household, please contact us.


[CLICK HERE to read the article, “The 86 million invisible unemployed,” at, May 4, 2012.]


[CLICK HERE to read the article, “The Marriage Gap: The Impact of Economic and Technological Change on Marriage Rates,” at The Brookings Institution, February 3, 2012.] 




We’ve been waiting so long for good news that we are expecting one day, one report or one leading indicator to come out that will announce: “It’s over! Prosperity is here! Go out and buy a home and ask your boss for a raise. The good times are here again!”


Much like your golf game doesn’t convert overnight, neither will our economy. It will take a lot of hard work on consumers’ part to diligently save for retirement and pay down debt. It will take fiscal austerity and enormous compromise between party lines to cut back government spending and keep taxes at a manageable level for middle Americans. It will take a lot of hard work, and it will not happen overnight. So much for the hole-in-one shot.


Which is perhaps why it’s so hard when we see the latest reports that the U.S. economy grew more slowly in the first quarter of this year compared to the end of last year. Once we get good news, we want it to continue, however slowly. These back steps are painful and it feels like we’re having an emotional roller coaster relationship with our own economy.


[CLICK HERE to read, “A Weaker First Quarter Doesn’t Mean a Weak Year,” at, April 27, 2012.]


Global Warming Is Doing Its Part

Interestingly, consumer spending managed to accelerate to an annual rate of 2.9% in the first quarter. The strength is largely attributed to the relatively mild winter that got people outdoors and casing car lots on Saturday afternoons – as apparently the greatest increases came from robust growth in auto sales.


One surprising highlight of the first quarter was spending on home construction and renovations – also attributed to the milder weather. Residents may be fixing up their homes in anticipation of a stronger real estate market, which certainly indicates renewed hope. Experts anticipate housing to contribute to growth this year for the first time since 2005.


Overall, most agree that the first-quarter slowdown is only temporary. Growth is expected to settle in at about 3% by the end of 2012, with expectations that stronger job growth will induce more consumer spending.


Facebook Is Doing Its Part

There’s a lot of press right now about the upcoming Facebook IPO. We’ve learned more about the company’s financials and plans for its future from its S-1 financial statement filed – and amended several times – with the SEC. For example, the company has added 1,500 hundred jobs in just the last 12 months – 43% of its current workforce (although many of those jobs are overseas). The satellite Facebook app industry, which has rapidly taken off during the course of this multi-year recession, employs between 129,000 to 182,000 workers.[1] The wages and benefits they earn range from $1.2 billion to $15.7 billion. Furthermore, Facebook has virtually doubled its spending in the last year thanks to hiring, acquiring and building data infrastructure.


[CLICK HERE to read the article, “Facebook Creates Jobs, Study Finds,” at Smith Business, Spring, 2012.]


[CLICK HERE to view the video, “Facebook Revenue Revealed: The Metrics That Matter,” at Yahoo Finance, April 24, 2012.]


[CLICK HERE to read, “Facebook Growth Stats for 2011-2012,” at Internet World Stats, April 24, 2012.]


You Can Do Your Part

If you’re worried that you’ve gotten behind on your retirement savings, a recent paper from Boston College’s Center for Retirement Research indicates that there are strategies you can employ other than taking on riskier investments to reach your goals. For example, working longer, using a reverse mortgage, or spending 5% less can all have about the same impact as investing your retirement assets in a higher risk, all-stock portfolio. In fact, simply delaying when you start drawing Social Security benefits can have a sizeable impact on your quality of life in retirement. Monthly benefits are more than 75% higher at age 70 than at age 62.


[CLICK HERE to read the article, “The top factors in retirement planning,” at, April 24, 2012.]


[CLICK HERE to read the working paper, “How Important Is Asset Allocation to Financial Security in Retirement?” at the Center for Retirement Research, April 2012.]


Please give us a call to help you devise a plan to potentially increase your economic security in retirement. After all, we should be doing something other than “puttering around” waiting for the economy to rebound.



[1] University of Maryland, Smith School Business, “Facebook Creates Jobs, Study Finds,” Spring 2012.


Moms, Work, and Money

The role of moms in American culture has received more attention lately after a CNN interview in which Democratic strategist Hilary Rosen said that First Lady candidate Ann Romney (mother of five) “never worked a day in her life.” The whirl of controversy that ensued included tweets from both Michelle Obama and Ann Romney reinforcing the hard work that goes into raising children.


With the women’s vote anticipated to be a huge factor in this year’s presidential election, this controversy has spawned a plethora of surveys and discussion regarding moms, work, and money.


[CLICK HERE to view the video, “Rosen comments spark flood of backlash,” at, April 12, 2012.]


The Economic Decision to Stay Home

While the number of moms who stay home has dropped in the last few decades, what’s interesting is that the face of this demographic is different than it was in 1979. Today’s average stay-home-mom does not, in fact, look like Ann Romney during her prime mommy years. According to the U.S. Census, today’s stay-at-home mom is more likely to lack a high school degree, have a lower household income than working moms, and 27% are Hispanic.


However, some moms are choosing to stay home because it’s the more economically feasible choice for the household. When you factor in the cost of childcare, commuting and related expenses, more and more women are realizing that, economically, the family comes out better if they stay home.


And then there are others who have lost their jobs due to the economy and haven’t been able to find work since. According to the Bureau of Labor Statistics, about 177,000 women left the labor force in March as a result of layoffs, dismissals or voluntary exit, compared to 14,000 men who found work. Interestingly, during the early phase of the recession, women seemed to hang onto their jobs longer than men, prompting many to call the lay-off component of the economy a “mancession.” Since then, however, more women have been laid off and the opportunities in “female-dominated jobs” (namely teaching and retail) have been slower to return.


[CLICK HERE to read the article, “The Real Face of Stay-At-Home Mothers: Those Who Have No Other Financial Option,” at, April 19, 2012.]


[CLICK HERE to read the jobs report, “Employment Situation Summary,” at Bureau of Labor Services, April 6, 2012.]


[CLICK HERE to read the article, “Where have all the women’s jobs gone?” at, April 20, 2012.]


The Plight of the Working Mom

Sallie Krawcheck, former CEO of Bank of America, recently offered this advice to working moms:


“I have a set of rules that I always enjoy sharing with women about working in business. The first is to choose your husband carefully. If you’re caught in a meeting and walk through the door late, what you want is a spouse who says, ‘Can I get you a glass of wine?’ versus ‘Where were you?’ with an eye roll.”


Pew Research recently recapped some of its research on working moms, including this interesting statistic: When asked in general how they feel about their time, 40% of working moms said they always feel rushed compared to only 26% of stay-at-home moms. In contrast, only 25% of working dads said they always feel rushed.


[CLICK HERE to read the recent interview, “Sallie Krawcheck on Taking the Fall – Again,” at Marie Claire, April 17, 2012].


[CLICK HERE to read, “Women, Work and Motherhood,” at Pew Research, April 13, 2012.]


Between (1) eye-rolling husbands, (2) rushing to fulfill both household and work responsibilities, and (3) not having the choice to work due to poor job prospects or simply because the family can’t afford it, it’s a tough road for women to establish a financial foothold in both today’s economy and culture.


Please give us a call to help you establish financial strategies and a long-term plan to put some control into your life as a working mom – whether inside the house or out.





Spending Behavior

A college graduate who recently got his first “real” job received this bit of financial advice from his mom: “Don’t spend your money on things; spend it on making memories.”


The gist of this advice stems from what people who live long lives say on their death bed – that the things they treasure most in life are the people they share it with and the experiences they remember. Consider for a moment that the memories we tend to value are unique vacations, the time we sat up the whole night talking to our future spouse, or the backyard barbeques we had one summer with our favorite neighbors before they moved away.


Occasionally we might hearken back to a favorite possession, such as a first car. But more often than not that first car was a clunker that enabled a lot of fond memories. By contrast, how often do you hear people say their favorite memory is the time they bought their first new car and its subsequent $350 monthly payment? Almost never. In fact, we tend to buy our most expensive possessions because we grow up and need certain things – such as a nice house near good schools and a reliable car to commute to work.


But high-tech gadgets? The notorious gourmet coffee fix? Multiple television sets that send family members scurrying to separate corners of our homes after dinner? These purchases frequently emerge due to external influences, such as the desire to have what our friends have, to make a good impression, or simply for convenience.


[CLICK HERE to read the article, “Why We Buy: The Psychology of Overspending,” at, February 1, 2012.]


[CLICK HERE to view the video, “Dr. Nancy Irwin on KCAL News: The Psychology of Overspending Shopping,” at, March 26, 2012.]


According to industrial psychologist James Dion, our basic human nature need for gratification often drives overspending. As an advisor to the retail industry, Dion starts with a deep understanding of what makes people do what they do and then advises businesses on how to capitalize on it.


For example, he cites the latest addiction to gaming apps for mobile devices. “Consumers enjoy and engage with games because they are fun and entertaining and satisfy a basic need for reward, status, achievement, self-expression, competition and altruism, among others,” Dion observed.


[CLICK HERE to read the article, “5 reasons for overspending,” at CashCourse, 2012.]


Perhaps if we consider our motivations behind “needing” a new smart phone or tablet (when our current device meets our needs just fine) we can work on curbing spending behaviors as hard as retailers work to exploit them.


[CLICK HERE to use the calculator, “How Much Am I Spending?” by CashCourse, 2012.]


Recently, the National Endowment for Financial Education and the Financial Planning Association compiled a list with input from more than 300 financial planners on how you should prioritize personal finances. Topping the list was living within your means – an exercise in self-knowledge and self-discipline.

[CLICK HERE to read the article, “32 top financial priorities,” at, April 9, 2012.]


It’s simple. Some people are thrifty, others like to spend money. These values and behaviors are often shaped by our social world – the way we were raised, the influences of our parents and peers, the economic state in which we live. Also, too, is our own innate nature. Consider: If you had all the money in the world, would you live a quiet, unassuming, non-material lifestyle? Or would you buy a lot of stuff?


Obviously, none of us has “all the money in the world,” so it’s important to follow the ancient Greek aphorism, “know thyself.” Understand when you tend to overspend – on vacation, when you’re stressed out, when you’re around certain people – and take measures to counter those behaviors. For example, plan to spend a day at a museum with your perennial shopping buddy instead of hitting the outlet malls.


Whether just starting out or re-evaluating lifelong habits to adapt to today’s economic scenario, it’s important to save and grow your assets wisely to ensure you can continue making memories throughout your lifetime. Please give us a call for support and strategies to help you do just that.




Are Aging Boomers Our Economic Lifeline?

Here’s a statistic that might take you for surprise: For every three older workers, a vacancy for a young person opens up due to the economic wealth older people create.1

That’s the word from Dr. Alexandre Kalache, an expert on the aging demographic and President of the International Longevity Centre in Brazil. According to Dr. Kalache, “Statistics show all too clearly why we cannot afford to stick our heads in the sand and continue to view older people as a sickly burden rather than a valuable resource.”

Kalache refers to “productive aging” as a means not only to emerge from our current economic setback, but as the only way we can truly prepare for the epidemic of aging populations on a worldwide scale. We already know that the generation nearing retirement age tends to have high educational levels and a lot more experience than their younger counterparts, thus maturity has an important role to play in the future of our economic growth.

[CLICK HERE to read the article, “What if we fail to provide for our ageing population?” at World Economic Forum, April 5, 2012.]


[CLICK HERE to read the article, “How the Baby Boomers Are Reinventing Old Age” at Huffington Post, April 4, 2012.]

In its global brief for World Health Day (April 7), the World Health Organization stated that good health must lie at the core of any successful response to aging. “If we can ensure that people are living healthier as well as longer lives, the opportunities will be greater and the costs to society less,” the report observed.

[CLICK HERE to read the World Health Organization report, “Good Health Adds Life to Years: Global brief for World Health Day 2012,” at]

Senior Income
The U.S. Social Security program was established 130 years ago, back when few people lived to age 65. Today, few people even expect to retire by age 65. In Brazil, where pension income has been available for only the last 15 or so years, seniors use their money to provide for their families. They buy food and resources (such as a sewing machine) to help their children make a living. Because of this, they are a critical resource to the family, which has a vested interest in keeping them healthy, happy and involved.

While not suggesting that seniors work 9-to-5 until age 95, Dr. Kalache suggests we modify the way we approach work and long-term careers. Workers who live long lives should not burn out, but rather remain productive, innovative, and valued.

Here in America, as well as all over the world, the youth culture is glorified and celebrated. Even in the workplace where experience should reign, youth has its advantages. A recent report by the Global Agenda Council on Ageing Society observed that, “in a society with fewer younger people relative to mature workers, an organization’s ability to succeed may hinge on whether it can attract and retain mature workers.” The publication offers the following recommendations to this end:

• Establish employment conditions and compensation terms that make it desirable to keep working
• Create age-friendly working environments
• Include flexible working practices, such as career breaks, part-time work and flexi-place working
• Encourage health and well-being promotion, such as supervised fitness programs
• Offer continuous learning opportunities to update skills

[CLICK HERE to read the report, “Global Population Ageing: Peril or Promise?” at the World Economic Forum website,, 2012.]


Whether you work well past traditional retirement age because you need the income or because you simply can’t imagine being idle and unchallenged for potentially another 30 years after you retire, it appears that productive aging is an inevitable part of our future. Articles are published every day about how there are currently jobs available, but employers can’t find qualified candidates to fill them. It just seems like perhaps some of the more valued qualities in older workers have been overlooked.

If you’re considering earned income as a valid component of your financial future after retirement age, give us a call to discuss how that strategy can compliment the rest of your portfolio.


1 Dr Alexandre Kalache, “What if we fail to provide for our ageing population?” April 5, 2012.




Headlines, Shmedlines

This headline recently caught my eye, “George Bush Sr. Rocks Purple Socks and Quotes Kenny Rogers in His Endorsement for Romney.” The brief article led me to a video at YouTube (linked below) of former senior President Bush’s recent endorsement of the Republican candidate. His wife Barbara sits in and reminds him of Kenny Rogers’ song lyrics, “You’ve got to know when to hold them, know when to fold them.” The former president also happens to be wearing lavender socks.


[CLICK HERE to view the video, “Former President Bush Backs Romney,” at, March 29, 2012.]


It’s kind of fun headline, and a good example of journalists using a quick soundbyte to get your attention, no matter how ridiculous it sounds. It’s not likely Walter Cronkite would have uttered “rocks purple socks” in his nightly newscast decades ago. But mass media has evolved over the last 15 years to become less formal and a tad more sensational. Today’s daily dose of news offers so many more mediums than the days of the morning newspaper followed up by 30 minutes of local news and the weeknight national newscast. Today, you can receive a 24/7 stream of global news by television, computer, or even your cell phone.


Silly and serious news stories intermix with unfettered ease. Type a few keywords into an internet search engine and you’ll receive (literally) millions of headlines with little distinction between credible news services and a tweeting 14-year old who reads The Drudge Report. Bloggers sometimes offer more insight and expertise than credentialed journalists, and uploaded videos capture everything from the President’s State of the Union address to Congressman Bobby Rush wearing a hoodie during his Congressional speech on racial profiling.


[CLICK HERE to view the video, “Congressman Bobby Rush Reprimanded for Hoodie Worn During Trayvon Martin Speech,” at, March 28, 2012.]


When was the last time you saw a headline that read, “Buy low, sell high!” or, “Invest for the long-term.” Those don’t make very compelling headlines. While you may agree with the strategy, you’re probably more tempted to check out the story with a headline that reads, “‘Buy Low, Sell High’ is a Lie” – just to see what’s up with that.


[CLICK HERE to read the article, “Headlines can cause more harm than good,” at, March 28, 2012.]


[CLICK HERE to take the quiz, “Decision Making and the Availability Heuristic,” at Annenberg Learner, retrieved March 30, 2012.]


But buried amidst breaking news headlines like, “Batman pulled over in Lamborghini,” you’ll find plenty of informational articles. Alas, they may have less dazzling headlines like, “Preparing for a Dividend-Tax Hike,” or an alliterative tongue twister such as, “Investors stick with stocks as stellar quarter ends.” Despite the tease, you’ll get an update on market news and perhaps a nugget of an idea to follow up on.


Ultimately, the news is good for learning about new trends and ideas, but less so for actionable advice. Working with an advisor is a far more personalized way to evaluate which financial moves are most likely to meet your unique needs, tolerance for risk, and timeline for achieving your goals. Please give us a call if you’d like to discuss your specific situation.




A Kinder, Gentler America

We’ve been through some tough years and many folks are still struggling. While recently we’ve seen signs of economic improvement and a decrease in unemployment, increased gas prices and little movement in home real estate values may still be weighing heavy on our minds.


So with this post we’re focusing on positive stories in the news lately. Some of these issues are highly controversial, but even in the wake of great debate, we should recognize the potential for what’s good and what’s possible.


Random Acts of Corporate Compassion

Corporations tend to give away money – at least partly for the tax deduction, but it’s appreciated nonetheless. And, most of the time, they’ll admit when they’ve made a mistake and compensate customers or shareholders in kind. So I enjoyed reading this news story about a compassionate clerk who works for bankrupt American Airlines. She realized a frequent flyer businessman would miss his flight – albeit by and large through his own fault. Regardless, she did some quick thinking to expedite his route to the boarding gate under the radar so as not to upset other customers. You can read about it here:


[CLICK HERE to read, “Is Kindness a Strategy?” at Harvard Business Review, March 22, 2012.]


Sure, her methods may be suspect, but her heart was in the right place. That might be something you could say about a lot of what’s going on in America today. Both the government and large corporations appear to be trying to balance the scales between helping people and still making a profit.


Take, for instance, Bank of America’s pilot plan to help curb the sting of foreclosure by renting houses back to their previous owners. On one hand, it may be aggravating to be a homeowner in this situation. But on the other hand – logistically – avoiding the expense of having to move, providing stability for a family to stay in its home, and the advantage of paying less each month than the previous monthly mortgage … that’s got to be worth something.


[CLICK HERE to read, “BofA Tests an Option to Foreclosure,” at The Wall Street Journal, March 22, 2012.]


Now let’s consider the greatly debated Patient Protection and Affordable Care Act (PPACA)–. The article below points out some interesting improvements underway regardless of whether or not the Act is repealed.


“This is probably the most transformative period I’ve lived through,” says Dr. David Longworth, chairman of the Medicine Institute at Ohio’s Cleveland Clinic. He was referring to the number of insurers, hospitals, and doctors forming alliances and adopting new procedures to provide higher quality care and reign in exploding health care costs. According to the chief clinical officer at insurer UnitedHealthcare, “This changes the business model, changes the reward and payment system for better care and better health at lower cost.”


Granted, for every pro-PPACA article there’s a scathing repudiation, but for now we’re seeking examples of what good can come from what’s generally considered bad – in this case, exploding health care costs. Indeed, if insurers are working with medical providers to bring costs down in the spirit of the current law, well that’s a good thing, right?


[CLICK HERE to read the article, “Obamacare Has Already Transformed U.S. Health Care” at, March 22, 2012.]


And finally, even the IRS is doing its part to become a kinder, gentler government entity. It recently announced penalty relief for qualifying taxpayers through its Fresh Start plan. This latest announcement on the heels of our depressed economy does give one pause to ask, will wonders never cease?


[CLICK HERE to read the article, “IRS cuts penalties; but don’t forget the forms,” at, March 13, 2012.]


Please contact us if you’d like to discuss ways to make the most of your money in 2012.




What Inflation Feels Like

If you exclude gas prices, recent data from the Labor Department reveal that inflation isn’t exactly taking off. In fact, food prices were unchanged for the first time in 19 months. The Labor Department reported that the Consumer Price Index rose 0.4% in February after advancing 0.2% in January. Gasoline accounted for more than 80% of the rise.


But because driving is such a pervasive part of American culture, we can’t ignore the impact higher gas prices have on our personal budget. This is one reason why consumer sentiment sunk lower in mid-March. Against expectations of a small increase, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 74.3 from 75.3 last month. That’s the lowest level thus far this year.


According to Bernard Baumohl, chief global economist at the Economic Outlook Group, gas prices play havoc on consumer sentiment more so than other inflationary signs. “Less than 5% of take-home pay actually goes to paying for gasoline,” Baumohl pointed out in a recent interview with Knowledge@Wharton, “But gasoline prices have a much greater psychological impact on consumers because they see on a daily basis how much the price of gasoline goes up. It’s advertised on so many signs.” The uptick in prices thus has a “palpable impact” on consumers.


[CLICK HERE to read the article, “Consumer Sentiment in U.S. Drops on Gasoline Prices: Economy” at, March 16, 2012.]


[CLICK HERE to read the article, “Beyond the Gas Price Blame Game, a Thorny Case of Supply vs. Demand,” at Knowledge@Wharton, March 14, 2012.]


Was Last Year Really That Bad?

The American Institute of Economic Research (AIER) recently published findings about inflation that may strike closer to home. The entity claims that annual inflation numbers appear more contained due to the impact that technology and globalization have on big-ticket items.


For example, the average inflation rate for 2011 was 3.02%.[1] However, check out the 2011 price increase of some of the every day items we spend money on, courtesy of AIER’s Everyday Price Index (EPI):


·          Ice cream, 9.0%

·          Peanut butter, 27%

·          Beef, 18%

·          Coffee, 19%

·          Video rentals, 15%


Somehow, while we notice we’re paying those higher prices in the grocery store, they don’t aggravate us quite as much as a twenty-cent increase in gas prices.


[CLICK HERE to read, “The EPI Reflects Basic Economic Change” at, March 1, 2012.]


On one hand, we don’t want to pay higher prices at the supermarket and gas pump, because that digs into our already strained household budget. But on a larger scale, we want to promote economic growth – which is why the Federal Reserve Board is keeping base interest rates so low – to help fuel new jobs in the country. Higher prices can at times be highly annoying and inconvenient, but in moderation it’s a good thing.


[CLICK HERE to read, “Gasoline lifts U.S. inflation, dents confidence” at Reuters, March 16, 2012.]


[CLICK HERE to check out an upcoming series of lectures by Fed Chairman Bernanke about the Federal Reserve and the Financial Crisis. You can find out more and access links to the live video at The live lectures are scheduled for 12:45 p.m. ET on March 20, 22, 27, and 29th, with transcripts and video recordings available later.]


The Federal Reserve has observed that the recent spike in oil prices will likely push up inflation – but only temporarily. As such, it predicts that inflation is likely to run at or below its 2% target over the “medium-term.”


Please contact us if you’d like to discuss ways to make the most of your money in 2012.




[1] Bureau of Labor Statistics, 2012.


The Scoop on Rising Oil Prices

Fidelity Investments is taking a positive view of the recent rise in oil prices – saying it’s due to the economic recovery. In recent years, soaring gas prices have often been blamed on rising military conflict in oil-rich nations in the Middle East. But according to Fidelity, recent activity indicates that the current oil rally has more to do with a global economic recovery.


Apparently, global dependence on oil has spurred innovation in new oil production techniques in the United States. In fact, these unconventional technologies (such as fracking) have helped the U.S. become the lowest-cost provider of oil and natural gas in the world, for the first time in 40 years.


[CLICK HERE to read the article, “What’s driving oil prices up?” at Fidelity Viewpoints, March 2, 2012.]


[CLICK HERE to view the video, “Dow CEO: U.S. can be an energy exporter,” at, March 2012.]


Other experts are keeping a closer eye on military turmoil, nonetheless. While there’s recently been an oil embargo on exports from Iran by Western nations, the general opinion is that this is unlikely to have a significant impact on price since other nations, such as China, are lined up to buy Iranian oil. However, since Iran sits on the most globally strategic supply route for oil supply (the Straits of Hormuz in the Persian Gulf), the threat of military conflict remains a huge issue.


[CLICK HERE to read, “Oil and Gasoline Prices Rise Again: How High and How Long?” at Advisor Perspectives, March 8, 2012.]


[CLICK HERE to read the report, “Oil Market Dynamics and the Fear Factor” at CME Group, March 2, 2012.]


Gas Taxes

As if rising oil prices isn’t enough, a new study reveals that some states could stand to update their gas tax to produce more revenue for state construction projects. The 50-state analysis report, conducted by the Institute on Taxation and Economic Policy, calls for some states to modernize their state gas taxes and peg those taxes to grow with the cost of transportation construction. States that were cited as remiss in updating gas taxes include Virginia, Maryland, New Jersey, Massachusetts, Iowa, Oklahoma, South Carolina and Arizona.


[CLICK HERE to read, “Study Sees State Gas Tax Rate Go Down 20%,” at, February 26, 2012.]


For now, it appears we could be in for another few months of more expensive gasoline, but the expectation is that prices will plateau later in the year. Please contact us if you’d like to discuss ways to make the most of your money in 2012.




1 Institute on Taxation and Economic Policy, “Building a Better Gas Tax,” 2012.