August 2012 Thoughts
Owners’ Equivalent Rent (OER) is the amount a homeowner would pay to rent his or her home and thus is the proxy the Bureau of Labor Statistics uses for the housing portion of the CPI. According to the forecasts of the Cleveland Fed, the Owners’ Equivalent Rent could cause the Core CPI to rise by at least 0.5 percent in each of the next three years. Why does this matter? The Federal Reserve has undertaken significant monetary infusions in order to attempt to jump start the economy. Because inflation has remained tame, the Fed has continued to engage in various programs. If inflation were to pick up because of a rise in the OER, the Fed might have to think twice before opening up the monetary spigots again.
In the United States, the average consumer spends approximately 10-14 percent of his or her budget on food. In comparison to many individuals in the rest of the world, food is a relatively small portion of an American’s budget. Because of this fact, the average American has been relatively immune to the soaring prices of corn, wheat and soybeans. Prices for these commodities have been pushed up by more than 25 percent in the summer of 2012.
“Sell in May and Go Away” is an adage that is commonly stated in financial publications during the spring time. This saying stems from the belief that if an individual sold his positions in May and remained on the sidelines until October, he or she could beat the overall market. This did not hold in 2012 (at least not as of early September). However, according to studies anyone who sold the S&P 500 index stocks in May and bought back in October would have averaged an annual return of 8.4 percent over the past 86 years (versus a gain of 5.1 percent if you did the opposite). Over this time, an individual would have achieved annual returns of 10.0 percent though if he or she just held onto the index stocks for the entire year.
*The opinions and forecasts expressed are for informational purposes only and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. The representative does not guarantee the accuracy and completeness, nor assume liability for loss that may result from the reliance by any person upon such information or opinions. All investments involve the risk of potential investment losses and no strategy can assure a profit. Past performance is not indicative of future results.
Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group, WRKO, and the Securities America companies are unaffiliated. Barry Armstrong is a representative of Securities America. Representatives of Securities America, Inc. do not provide legal or tax advice. Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. 9/12
Meyer, Brent. Do Rising Rents Complicate Inflation Assessment? 23 Feb 2012. Cleveland Fed. 5 Sept 2012.
Typical Percentages for Household Budgets. Budgeting Money. 5 Sept 2012.
Corn, soybean prices shoot up as drought worsens. 20 July 2012. CNN Money. 5 Sept 2012.
Fingleton, Eamonn. Sell in May and Go Away? Not! 1 May 2012. Forbes. 5 Sept 2012.
Securities offered through Securities America, Inc. Member FINRA / SIPC. Advisory Services offered through Securities America Advisors, Inc., an SEC Registered Investment Adviser. Armstrong Advisory Group and the Securities America companies are unaffiliated.
We are licensed to sell securities in the following states: AZ, CA, CT, FL, GA, HI, MA, ME, MO, NH, NJ, NY, PA, RI, SC, SD, VA, VT, WA. We are RIA licensed in the following states: MA, NH. We are licensed to sell insurance in the following states: AZ, CT, FL, ME, MA, NH, NJ, RI, VT. Securities America and its Representatives do not give tax or legal advice. Please consult an appropriate professional regarding your particular situation.