Have to Admit It's Getting Better (Really!)

There's a problem with good news: it tends to be boring. No wonder the evening news features images of houses burning down; watching houses being built is only slightly more exciting than watching grass grow. A major principle of behavioral finance reinforces that bias. According to "prospect theory," and confirmed in numerous experiments and real-life investing mistakes, we feel the pain of loss more intently than we feel the pleasure of an equivalent gain.

So if my goal is to keep as many of you reading as possible, which of course it is, I'll tend to write about how the economy and financial markets are in bad shape and poised to get worse. If I start describing how things are improving, you're likely to click the return button and look at the weather report. In one of my talking-head stints on business TV a while back, the anchor actually cut off my segment when I suggested there might be good news about the economy in a modest uptick in interest rates. "We'll talk about good news some other time," I recall her saying.

Bad economic news hasn't been hard to find for the past five or six years. Many economies, especially in the U.S. and Western Europe, have been suffering from the lingering aftereffects of a major, debt-fueled asset bubble. The economically and financially depressing effects of such a bubble bursting take years--on average about seven--to dissipate. Like the biblical seven lean years, a bursting bubble can badly punish those who don't treat it with considerable caution. But unlike the Pharaoh's wheat crop, the unwinding of an asset bubble doesn't show up as a bumper harvest in the eighth year; its effects fade and results gradually improve.

Take one of the victims of the 2007-2008 financial crash, the household balance sheet--the balance between what we own and what we owe. The ratio of U.S. household liquid assets to liabilities fell to a bit more than 1.5 times in October of 2008 (it had reached twice that level at the height of the dot-com bubble), but has recently returned to its 30-year average with liquid assets more than double household debt. In mid-2007, household debt reached 130 percent of disposable personal income almost 1.7 times its 30-year average of 76.5 percent. Currently that measure of the household debt burden stands at 107 percent and may not fall much further since, thanks to extremely low interest rates, the average cost of servicing that debt is at a 31-year low.

At once a cause and an effect of improving household balance sheets is an improving housing market. According the S&P/Case-Shiller 20-city composite index, U.S. home prices rose 5.5 percent during the 12 months ended November 30, 2012, setting 2012 up to be the first year of significant house price appreciation since 2005 (2006 showed a barely noticeable increase). Slowly rising home prices have several implications. In June of 2008 nearly a third of home mortgage balances exceed the home's value; as of September 30, 2012 "only" 28.2 percent of mortgages were underwater--not great but considerably better. A bit of home equity might make a homeowner eligible for a bit of credit and, more importantly, it erases the feeling that I'm waking up every day poorer than the day before. If I need to sell my house to take a job somewhere else, I can do it without a bank agreeing to a short sale.

Feeling a little wealthier also means we might risk a major purchase we've been putting off. In December 2012 Americans bought 15.4 million cars at a seasonally adjusted annual rate, down from 20.7 million in July 2005, but up significantly from 9 million in February 2009 at the nadir of the Great Recession. Retail sales, in general, improved in 2012 and even appear to have held up in January of 2013, despite a payroll tax increase that affected almost everyone's paycheck.

Our willingness to buy a few things seems to influence what businesses spend as well. Tracked over many years, businesses' investment in plant, equipment and software shows a tight relationship with their cash flow. No surprise here, businesses tend to expand when the cash register is filling up and hold off investing when cash is scarce. The ratio of corporate cash flow to non-residential investment hovered around 80 percent from the late 1940s right up to the point when the bursting bubble threatened to take down the financial system. The ratio breached its long-term average--meaning that businesses were holding more cash relative to their investments--in September of 2008 and kept growing to almost 140 percent in March of 2010. But from that peak, the relationship has moved back toward its long-term average. Businesses are still generating cash, but more of that cash is finding its way back out from under the corporate mattress and back into growing the business. If history is a guide, there's fuel for more growth.

While the news focuses on our fiscal challenges, employment lags, and political confrontations, the U.S. economy, like a house boringly under construction, is quietly laying the foundation and raising the frame of an expanding structure. That combination is constructive for investors, at least until the next time good news actually becomes popular again. When we've all gotten excited about the easy money to be made in flipping dot-com stocks or golf-course condos, we'll only hear the good news. That's the time to worry. If no one is telling you how bad things are, sell.

Jerry Webman is the author of MoneyShift: How to Prosper from What You Can't Control and Chief Economist at OppenheimerFunds.

More From US News & World Report


Get stories like this on the Yahoo app and discover more every day.
Download it now.
  • European, US equities dip awaiting Fed
    European, US equities dip awaiting Fed AFP News - 13 minutes ago

    European stocks slid Thursday in choppy trade as investors eyed poor German data and recent oil price falls, on the eve of a speech by Federal Reserve boss Janet Yellen. Mid-afternoon, Frankfurt had shed 0.9 percent, London lost 0.3 percent and … More »

  • Stocks waver between small gains and losses in midday trade
    Stocks waver between small gains and losses in midday trade Associated Press - 18 minutes ago

    Stocks are wavering between gains and losses in midday trading Thursday as investors sift through a handful of earnings reports. Drug company Mylan rose, but Signet Jewelers and Dollar General fell after ... … More »

  • TABLE-INDONESIA KPB NUSANTARA PALM OIL PRICES - Aug 25 Reuters - 22 minutes ago

    Aug 25 (Reuters) - Following are Indonesian prices for crude palm oil (CPO) quoted at an auction by PT KPB Nusantara (formerly known as the state marketing centre) on Monday. Buyer Volume Price Terms (tonnes) ... … More »

  • RUBBER-Tokyo futures prices after evening session Aug 25 Reuters - 23 minutes ago

    Following are prices for Tokyo rubber futures at the end of the Tokyo market's evening session on Aug 2016. Contract Day Volume Evening Volume * Aug 161.3 5 155.0 5 * Sep 156.2 45 156.5 12 * Oct 155.3 ... … More »

  • Japan's ANA finds problem with Boeing 787 Rolls-Royce engines, cancels some flights Reuters - 30 minutes ago

    TOKYO/LONDON (Reuters) - Japanese carrier ANA Holdings needs to replace damaged compressor blades in the Rolls-Royce engines powering its Boeing 787s, it said on Thursday, forcing it to cancel some Dreamliner flights over the coming weeks. The … More »

  • German prosecutors review stolen Bosch data for VW dieselgate clues Reuters - 33 minutes ago

    Prosectors in Stuttgart, Germany are examining a trove of stolen Bosch data to see whether it contains clues about how Volkswagen cheated diesel emissions tests. "We are reviewing it to see if it is relevant," a spokesman for the Stuttgart … More »

  • Turkey sends more tanks to Syria, warns Kurdish militia
    Turkey sends more tanks to Syria, warns Kurdish militia AFP News - 37 minutes ago

    Turkey sent more tanks into Syria on Thursday and sternly warned a Kurdish militia to withdraw from frontline positions, a day after pro-Ankara Syrian opposition fighters captured a key border town from jihadists. The tanks joined those which … More »

  • In euro zone first, Finland could sell syndicated bond with negative yield Reuters - 38 minutes ago

    Finland could launch a new bond as early as next week, three banking sources said on Thursday, a deal that could mark the first euro zone sovereign syndication with a negative yield. The country is believed to be considering whether to issue a … More »

  • Markets Right Now: Stocks waver in late morning trade Associated Press - 39 minutes ago

    The latest on developments in global financial markets (all times local): 11:45 a.m. U.S. stock indexes are wavering between small gains and losses as a late summer lull on Wall Street continues. Several ... … More »

  • Asia’s Biggest Container Shipper Posts Loss After China Merger Bloomberg - 41 minutes ago

    China last year merged China Ocean Shipping Group and China Shipping Group to form China Cosco Shipping Corp. as part of the government’s efforts to shrink industries plagued by overcapacity while creating globally competitive businesses. China … More »

  • Russia to work with US on response to Syria gas attacks probe
    Russia to work with US on response to Syria gas attacks probe AFP News - 54 minutes ago

    Russia will work with the United States on a response after UN investigators found that the Syrian regime had carried out chemical attacks, Moscow's UN Ambassador Vitaly Churkin said Thursday. An investigative panel set up by the UN Security … More »

  • Hedge Funds Are Suddenly Winning on China’s Most Dangerous Short Bloomberg - 55 minutes ago

    After suffering through a 953 percent rally in shares of Yirendai Ltd. since mid-February, hedge funds and other bearish speculators were rewarded over the past four days as the Chinese peer-to-peer lender sank 35 percent in U.S. trading. Holding … More »

  • FTSE retreats as pharma stocks fall
    FTSE retreats as pharma stocks fall Reuters - 56 minutes ago

    UK shares fell on Thursday, extending losses from the previous session as healthcare stocks dropped, though CRH rose after well-received results. The blue-chip FTSE 100 index was down 0.3 percent at 6,816.90 points by the close. Healthcare stocks … More »

  • Biden warns Europe against Russian energy reliance
    Biden warns Europe against Russian energy reliance Associated Press - 1 hour 35 minutes ago

    U.S. Vice President Joe Biden says a new natural gas pipeline planned to stretch from Russia to Germany "looks like a fairly bad deal" for Europe because it increases its energy dependency on ... … More »

  • Average US 30-year mortgage rate unchanged at 3.43 percent Associated Press - 1 hour 40 minutes ago

    Long-term U.S. mortgage rates didn't budge this week, remaining at historically low levels that continue to lure prospective home buyers. Mortgage giant Freddie Mac said Thursday that the average for the ... … More »

  • Oil prices up nearly 1 percent on soft dollar, OPEC speculation
    Oil prices up nearly 1 percent on soft dollar, OPEC speculation Reuters - 1 hour 43 minutes ago

    Oil prices rose nearly 1 percent on Thursday, bouncing back from a selloff in the previous session, on expectations the dollar would weaken ahead of a key speech by U.S. Federal Reserve Chair Janet Yellen on Friday. Crude futures also saw support … More »

  • Obama administration pushing state-run retirement plans Associated Press - 1 hour 45 minutes ago

    The Obama administration has finalized a new rule intended to encourage states to set up their own retirement plans. The Department of Labor rule is designed to clarify how voluntary, state-run retirement ... … More »

  • Spain revises Q2 growth estimate upward to 0.8 percent Associated Press - 1 hour 48 minutes ago

    Officials have revised Spain's quarterly economic growth figure for the April-June period upward, from 0.7 percent to 0.8 percent, welcome news for a country in its eighth month without a fully functioning ... … More »

  • Grain mixed, livestock mixed Associated Press - 1 hour 57 minutes ago

    Grain futures were mixed Thursday in early trading on the Chicago Board of Trade. Wheat for Sept. delivery was .50 cent higher at $4.0460 a bushel; Sept. corn was .50 cent lower at $3.27 bushel; Sept. ... … More »

  • Iran will join OPEC meet in Algeria: minister AFP - 2 hours 13 minutes ago

    Iran will take part in an informal meeting of OPEC countries in Algeria next month, state media reported on Thursday. "I will take part in this session," Oil Minister Bijan Zanganeh told the ... … More »

  • Deals of the day- Mergers and acquisitions Reuters - 2 hours 25 minutes ago

    ** British broadcaster ITV said on Thursday it would not bid for Entertainment One after failing to persuade the owner of the children's TV character Peppa Pig to enter into a formal process. ** Berry Plastics Group Inc said it would buy AEP … More »

  • Chinese military will train Syrian troops: govt
    Chinese military will train Syrian troops: govt AFP News - 2 hours 36 minutes ago

    China's military will provide training for Syrian armed forces, a spokesman for Beijing's defence ministry said Thursday, adding it would take place on Chinese soil. Beijing is a longstanding backer of the Syrian government of Bashar al-Assad, … More »

  • Gold edges off 4-week low, awaits clues on Fed policy
    Gold edges off 4-week low, awaits clues on Fed policy Reuters - 2 hours 43 minutes ago

    Gold edged off the previous day's four-week low on Thursday as the dollar retreated, but prices were rangebound ahead of a speech by Federal Reserve Chair Janet Yellen this week which will be watched for clues on monetary policy. Investors are … More »

  • Oil prices fall as production freeze expectation fades
    Oil prices fall as production freeze expectation fades Reuters - 2 hours 44 minutes ago

    Oil prices slipped on Thursday as the market focused on oversupply and fading expectation of a production freeze. U.S. light crude oil was down 15 cents at $46.62 a barrel, after dropping 2.8 percent on Wednesday. Oil prices rose more than 20 … More »

  • Bold moves, tepid gains: Have central banks met their limit?
    Bold moves, tepid gains: Have central banks met their limit? Associated Press - 2 hours 44 minutes ago

    The world's key central banks have worked themselves into contortions to try to rev up economic growth, raise inflation and coax consumers and businesses to borrow and spend more. They've pumped trillions ... … More »

Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
to view quotes in your portfolios.


  • Most Actives
    Most Actives
    NamePriceChange% Chg
  • % Gainers
    % Gainers
    NamePriceChange% Chg
  • % Losers
    % Losers
    NamePriceChange% Chg

Market Data

  • Currencies
    NamePriceChange% Chg
  • Commodities
    NamePriceChange% Chg
  • Bonds
    TreasuryYield (%)Yield Change