Dear Mr. Berko: Just two simple questions: How do you view the economy and stock market over the next five or so years? And how would you invest a sum of $125,000 for that time period?
HR in Durham, N.C.
Dear HR: The most accepted school of thought on the economy/stock market over the coming few years is that the “economy is in a ‘sweet spot' right now.” This position is enthusiastically expressed by Allen Sinai, Ph.D., a global economist who enjoys a sterling reputation among his peers, few of whom would recognize a payroll from a Tootsie Roll. Media-savvy Sinai, who is as articulate as former Federal Reserve Chairman Alan Greenspan is unintelligible, insists that consumer spending is growing the economy fast enough to reduce unemployment, to keep the market moving higher, to avoid high inflation and to prevent interest rates from rising.
Sinai expects the U.S. gross domestic product to grow by about 2.75 percent this year and by about 2 percent in 2013. He also believes inflation, as measured by the consumer price index, will be moderate this year and next, averaging about 2.5 percent through next year.
He believes that the economy will create between 150,000 and 175,000 jobs per month and that the unemployment rate will end the year at 7.7 percent, be 7.2 percent by 2013 and continue to go lower.
Sinai thinks the Standard & Poor's 500 index will rise 13 percent in 2012 because our economy will continue to strengthen, surprising investors and encouraging consumer confidence.
His crystal ball reveals that corporate profits will grow at least four times as fast as our GDP because corporate America has learned how to cut and manage costs while increasing productivity. Sinai predicts that interest rates will remain stable in the low to mid-single-digit range and that the “possibility of a sharp rise is very remote.” Bless you, Allen Sinai. Ben Bernanke has nominated you for an Oscar.
Steve L. is a second-generation owner of a four-store appliance/furniture business in Ohio. Steve is 54. Two years ago, he came within nine inches of declaring Chapter 11. Steve notes that his middle-class customers, who accounted for 70 percent of revenues, are disappearing and that those who remain standing have lower incomes and higher debt than they did five years ago. His ticket size is lower; his customers can't get credit; and good jobs are scarce.