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Make More $, Feel Better?? Not necessarily.

by Ed Leventhal

I'm not a regular reader of the official journal of the US National Academy of Sciences, known as the PNAS (Proceedings of the Nat'l Academy of Sciences). 
In fact, I'm not a reader of PNAS at all. 

But a recent study that they published is getting a good deal of press and it's worth some consideration in an absolute sense, and in terms of its implications for the economy and the markets. (Various papers have reported on it.  Have a look at )

Two Princeton professors studied over 450,000 responses over a 2 year period to a survey focused on the relationship between income levels, on the one hand, and 'emotional well-being' and overall 'life evaluation' on the other.  In layman's terms, emotional well-being refers to how one feels in everyday, day-to-day life situations.  The life-evaluation metric refers more broadly to how one feels generally about life.

The study concluded, as summarized well in INC. magazine:$75,000-can-buy-happiness.html

With every doubling of income, people tended to say they were more and more satisfied with their lives on a 10-point scale – a pattern that continued for household incomes well above $120,000.

But when asked to assess the happy hours of the previous day – whether people had experienced a lot of enjoyment, laughter, smiling, anger, stress, worry – money mattered only up to about $75,000. After that, money didn't buy more (or less) happiness. (About one-third of U.S. households had incomes above $75,000, according to the U.S. Census Bureau's American Community Survey. The average household income was $71,500.)

How each of us analyzes the conclusions and draws comparisons to our own situations is, in many cases, a matter of great personal interest.  But what matters more broadly as it relates to markets is more easily evaluated when considering the study's outcomes in the face of headlines like today's on  "Unemployment in US May Rise Toward 10% of 'Feeble' Growth", or in the context of a recent survey reported in the WSJ of economists done by the National Association for Business Economics which showed: 

At least 60% of economists surveyed by the National Association for Business Economics said lower tax rates on capital gains and dividends should not be allowed to expire as provided under current law. Another 22% said the lower rate on capital gains and dividends should be preserved for middle-income taxpayers, but not for the wealthy.

The findings point to increasing nervousness about the impact the expiration of tax cuts could have on the struggling recovery, as Congress gears up for a fall debate on how to deal with the tax cuts.


And that's the segue from the PNAS study to today's markets....As each investor weighs all available information into the mix in order to determine the most appropriate course of action with regard to his/her portfolio and financial profile, consideration of how the US consumer 'feels'....using either metric from the PNAS worthy of a significant place in the process.

With close to 20 million Americans either un- or under-employed, the real power booster to the US economy likely won't fire up until we get a big percentage of those folks back to work.  Putting political views aside, a raw assessment of the state of play in Washington does not auger well for the President's most recent initiatives to be passed before Congress leaves town to return to the campaign trail. 

Today's market price action, DJIA down over 85 points at this moment, I believe, is reflective of that gloomy sentiment.  And the likelihood of the debate in Washington continuing after the elections, regardless of the 'regime change' that many pundits are envisioning, also appears to be viewed by markets as increased likelihood of policy paralysis rather than both sides moderating towards the center.

Having said that, as a global portfolio manager, and again, not recommending personal advice in any way, while increasing the risk factors for the US economy, I'm not allowing that to cloud the vision of what is going on elsewhere around the globe.  For sure, Europe remains in a precarious situation as evidenced by today's return of the spotlight onto the health (or lack thereof) of the banking sector.  But should we assume that China's growth will slow from double-digits to zero?  Will India's?  Has Australia tightened so much this year that their economy will grind to a halt?  Will Canada's?  How about in Latin America?  How about countries in Africa where infrastructure construction is going on and increased private equity is finding its way to new opportunities?  What about the hoards of cash that investors, both retail and institutional, and even corporations, have standing on the sidelines in search of yield and growth?

As an American and as a global investor, I remain frustrated by the inability of our political representatives in Washington to collectively  come up with job-creating policies already.  And I'm likely to remain frustrated as the campaign season unfolds, rhetoric becomes more partisan, and initiatives remain on the "wishful thinking list".  But at the same time, I'm scouring the globe for investment opportunities that appear to have the risks priced appropriately (again, each investor has to do his/her own due diligence and assessment relative to his/her financial profile. This is meant to be a thought-provoking article, not personal investment advice).

In recent articles I've noted some compelling examples...INTC, EXC, NLC, CPB and in coming days I'll add some other thoughts.  But the main message remains one of global diversification, proper evaluation and pricing of current risks, and a "what-if" scenario game-plan that is dynamically assessed and updated regularly.

The PNAS study is noteworthy, and probably very relevant to readers who have jobs right now, especially those with incomes above the $75k level, and I do hope they're more happy than the study suggests.

That said, I for one, without the higher level academic credentials that are needed to produce such a study, don't think I'm going too far out on a limb by stating that the 10% of the American workforce that is currently OUT of work, would be VERY happy with any increase in income!  Markets would be too!


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