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First Quarter U.S. Growth Set to Surge? MoneyNews
(Headlines - scroll down for full stories)
U.S. investors are plowing three times as much money into foreign mutual funds than they are domestic funds - and that spells both good and bad news. The Los Angeles Times reports that $23.6 billion worth of U.S. investor's money went into foreign stock funds in January. When it comes to people's money, at least, patriotism takes a back seat to profits. "Obviously this is in large part a matter of people chasing performance," Paul Merriman, head of Merriman Capital Management Inc. in Seattle, told the Times.
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International funds have outperformed domestic mutual funds for three years running, Morningstar reports. Since 2002, international funds have returned on average 29% for investors, while U.S. based funds have averaged 20% returns for their investors. Consequently, it's no surprise that Americans are, as Merriman says, "chasing performance." But the ramifications could go well beyond a simple rush for better numbers. It could spell disaster for investors who are too late to the party. "That is worrisome to some on Wall Street who recall the rush by small investors into technology stocks late in 1999 and early in 2000, at the zenith of the dot-com mania," says the Times. "As the shares collapsed later in 2000 and in 2001, the consequences were ruinous for some investors who were the last to buy in." Already, the trend of pouring more money into international funds is slowing. While the January numbers do show a 3-1 advantage over U.S. stock fund investments, domestic mutual funds are looking a bit healthier than they were in December. U.S. equity funds had a net inflow of $8.2 billion in January, compared with a net outflow of $2.5 billion in December, according to the ICI. Through February 2006, the average foreign stock mutual fund was up 7% year-to-date, compared with a 4.6% gain for U.S. funds. Editor's Note:
2. Consumer Spending Up in January Predicts Surging Q1 GDP Consumer spending and personal incomes were both on the rise in January, boding well for the performance of the U.S. economy for the remainder of 2006. According to the U.S. Commerce Department, consumer spending surged 0.9% for the month, while personal income rose by 0.7%, the largest increase since September, 2005. Still, Americans are spending more than they are saving. "Consumers spent even faster, notching the largest spending increase since July and producing a -0.7 percent saving rate," says Reuters. "It was the third straight month in which Americans have tapped savings to finance their spending. The personal saving rate - the proportion of money Americans sock away - has not been above zero since March 2005." Economic experts say that despite the spending/savings ratio, the January numbers could provide a strong platform for first quarter economic growth. "The first quarter is off to a very strong start. This will dominate some of the disappointing numbers we got earlier this week at least in terms of forecasting GDP. It's hard not to have a GDP forecast now that's not around 5 percent or higher," Cary Leahey, senior managing director at Decision Economics in New York, tells Reuters. Editor's Note:
3. American Homebuyers at Risk in Retirement, Survey Says More Americans may be forced to use their homes as a key part of their retirement income plan if they don't start aggressively saving for retirement. A Federal Reserve survey showed that overall wealth increased very little for most American families from 2001 to 2004. For the typical household, savings declined by 23 percent, while the value of their home rose 22 percent. Tony Proctor, CFP, founder of Proctor Financial of Wellesley, Mass., says Americans haven't traditionally used their homes to finance retirement, choosing instead to pay off the mortgage and leave the house to their children. "The increasing wealth from home appreciation during the last decade, along with dwindling pension benefits and lackluster market returns, means that many retirees will find that their largest source of additional income will come from their home," Proctor says. This trend also will have implications for Generations X and Y, who may not have access to the accumulated wealth from their parents' home like previous generations.
4. Could U.A.E. Port Issue Hurt U.S. Economy? No doubt the Bush administration has taken a public relations hit over its decision to allow an Arabic company to get involved in managing U.S. ports.
No matter how hard the White House explains the deal, most Americans (70% in a recent poll) don't want to hear it. But the ripples could go far beyond simple public relations. More worrisome could be that opposition to the deal in the U.S. could force wealthy Arab investors to steer their money into Asia and Europe. The United Arab Emirates (U.A.E.) economic minister certainly seems to think so. Sheikha Lubna al-Qassimi tells Reuters that while the Arab nation would press forward with free trade talks with the U.S. obstacles for commercial deals in the U.S. could make other markets such as India, China and some European countries more attractive to wealthy Arab investors. "There is no hesitation, [the ports deal] will not deter the U.A.E. from investing further," Sheikha Lubna said. "This is a business deal that somehow got politicized," she said. "[But] when you have deals that are prolonged by interference of a political nature ... it may encourage many countries in terms of going into investments in other places." "This [controversy] will affect not only Arab or Gulf Arab [investors], this can affect any country that wants to invest in the United States," Sheikha Lubna added. "This could also discourage investment in the United States or cause hesitation." The stakes are high for the U.S. economy. U.A.E. investors have spread $30 billion in trade dollars across the globe in 2005 - more than twice the number of the last five years combined. Editor's Note:
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