BY THE NUMBERS...SURPRISING STATISTICS IN BUSINESS & FINANCE

Our final blog posting for 2014 will explore surprising statistics which help explain our business and financial world. The theme of these numbers is to demonstrate how trends can be surprising, that predictions are worthless, “experts” usually have it wrong, and things that are not supposed to happen sometimes do. These concepts drive some of Downtown Investment Advisory’s key investment themes: create an allocation plan, stick to this plan for the long term, do not time markets, chasing the hot fund or stock usually leads to poor performance, and diversify. We have been collecting these figures for the past few months and hope you find them as compelling as we do:

• 0% --> Interest rate set by the central bank in Sweden in October in order to combat deflation (consumer prices in Sweden dropped by 0.4% in September). This is a part of a trend in many nations of lower rates and fears of deflation. For example in Germany some banks are applying a negative interest rate to savings accounts, effectively charging customers to hold their cash.
  

• $4.80 --> Average price of a “Big Mac” in the U.S. as of August 2014, up from $1.60 in 1986. From 1986 to 2002 the government reported inflation rate (CPI) closely tracked the price change of a Big Mac. Since 2002 the cost of a Big Mac has risen far ahead of the CPI, evidence to some observers that the reported CPI understates reality. To match reported inflation, a Big Mac should cost $3.67 today, 25% less than the actual cost.

• 11.2% --> Percentage share of total national wealth held by the top 1/100th of 1% in the U.S., representing fortunes exceeding $100 million. Their share of national wealth has doubled since 2002, evidence that wealth is becoming significantly more concentrated in the U.S., with potentially major implications for our economy.

• 13 --> Russia’s current ranking in world economies measured by GDP, down from #8 in 2013. Western economic sanctions, the decline in oil prices, and the collapse of the Ruble has decimated Russia’s economy and it now ranks roughly equal in size to Spain and South Korea, even though its population is about 3x greater than each of these two smaller countries. 
  

• 22 --> The number of years from 1935-1956 that the benchmark 10 year U.S. Treasury interest rate remained below 3%. The rate has been below 3% for the last four years and many observers are absolutely sure they will rise simply because they can’t stay low for this long. From the 1880s through the 1960s, the rate remained between 1.5% and 4%.
  

• 36% --> Percentage of law school grads who cannot find a job as a lawyer (requiring passage of the Bar exam), according to a June 2014 report. 
  

• 37 --> The number of months in which the Dow Jones stock market index has not had a correction, defined as a 10% decline (it came very close in October). The average is 12 months. The longest span without a correction was from 1990-1997.
  

• $46 --> Price of an ounce of silver at its peak in 2011. The price has dropped by 2/3 since then to about $16 per ounce. Many economists believed that TARP and the Fed’s “money printing” program would lead to massive inflation and commodity price increases. The opposite occurred.
  

• 47 --> Number of square feet of retail space per capita in the U.S. This is double the amount in the U.K. and 3.5 times the amount in Canada. Retail oversaturation has hit many retailers like Sears, Radio Shack and Staples. 
  

• 49% --> Percentage of all US stock market shares traded by High-Frequency Trading (HFT) programs (i.e. computers rapidly trading stocks). While down from its peak in 2009, it’s still double the level from 2006. It is unclear if and how this affects the average investor but half of stock market activity cannot be characterized as “investing.”
  

• 50% --> Percentage decline in retail foot traffic during the holiday season from 2010 to 2013 as shopping has shifted online. This does not bode well for the 47 number described above.
  

• 50% --> Percentage of hedge funds that have closed shop in the last five years, almost in all cases due to poor performance.
• 88 --> Current value of the U.S. Dollar Index (DXY) which measures the strength of the U.S. dollar versus a basket of leading currencies. The index is now at a four year high, despite the warnings of many pundits that the dollar would decline or even collapse due to Fed actions.
  

• $200 --> Additional value of an ounce of gold attributed to the gold ETF (ticker symbol: GLD) that first opened in 2004. Prior to this ETF, investors who wanted gold had to physically buy and hold the metal, which was costly and cumbersome. The ETF allowed anyone to invest in gold, and today an estimated 750,000-1 million people own shares in GLD, which in turn holds 720 tons of gold. This is one example how ETFs transformed investing.
  

• $2,100 --> Amount in which median inflation-adjusted income is lower today than when Obama took office. The amount is $3,600 lower going back to 2001 when Bush took office – it has gone down regardless of President and highlights how American incomes on average have declined even as unemployment rates have improved in the past few years.
  

• $10,400 --> Median net worth of Americans under the age of 35. This figure is near the lowest in history on an inflation adjusted basis. Younger people are having a harder time than ever saving money for various reasons, such as higher student debt.
  

• 244,000 --> Japan’s population loss in 2013, the third year in a row of losses. Japan is in a population “death spiral” with projections showing a 50% population decline by 2060. As the 3rd largest economy in the world, this has significant implications for world economic growth.
  

• 11 million --> Barrels of oil equivalents produced by the U.S. per day, surpassing Saudi Arabia as the #1 producer in the world. The energy industry has been a key growth driver of the U.S. economy. This success has backfired a bit, as an oil glut has led to a recent crash in oil prices.
  

• 16 million --> Current annual number of auto sales in the U.S., an 80% increase from the low point in 2009. Auto sales in 2014 finally returned to pre-recession levels.
  

• $110 million --> Winning bid for the luxury Revel Atlantic City casino and hotel which filed for bankruptcy in September 2014 after opening in 2012. The hotel cost $2.4 billion to construct, resulting in a $2.3 billion loss for investors. It now appears that the winning bidder may not close the deal.
  

• $437 million --> Amazon’s reported loss for Q3 2014, on sales of over $20 billion. The continued lack of profitability has strained the patience of investors and the stock is down 20% in 2014. Someone has to pay for free shipping.
  

• $7.5 Trillion --> Total amount of savings Americans are holding in cash at banks and other depository institutions. This amount has doubled in the last 5-6 years. With bank interest rates below 1%, this has significant implications for retirement savings growth. Cash holdings are not keeping up with inflation, eroding savings.
  

We will be back in early 2015 with an analysis of 2014's market performance. Happy holidays and happy new year.


Note that this article was written to provide information and education, and is not intended to be considered investment advice, which can only be provided by DIA following a consultation and execution of an Investment Advisory Contract.