Howard Simons
Eat more spinach.
Not wear dark socks with sneakers and Bermuda shorts.
Enjoy soccer as much as the rest of the world does.
Save more. Because this is a financial Web site, let's focus on the last point, especially why it may not be the right cure for what ails us. The definition of what does and doesn't constitute saving is knottier than it may appear at first blush. The Commerce Department defines it as the difference between personal income and personal outlays. The former doesn't include unrealized capital gains on real estate or financial assets. The latter includes taxes, some of which go toward public investment in capital projects. The failure to include unrealized capital gains in the personal savings rate ignores actual economic behavior. If we compare the reported savings rate with the deflated S&P 500 presented on a logarithmic scale, we find that personal saving is almost a mirror image of the stock market.
This inverse relationship should surprise no one. Households have a demand for savings, and when one portion of their total portfolio surges, the need to maintain a certain growth rate to meet definite life-cycle targets such as education, housing or retirement, falls.
The relationship between the savings rate and real estate, here represented by the logarithm of nonseasonally adjusted median sale prices for existing homes as reported by the National Association of Realtors, isn't quite as direct. After all, several million new homes are built each year, and real estate markets are local in nature.
In addition, the demand for real estate is far more stable than for equities. You don't have to own stocks, but you do have to live somewhere (please, no emails telling me that homelessness is a viable housing alternative).
Not wear dark socks with sneakers and Bermuda shorts.
Enjoy soccer as much as the rest of the world does.
Save more. Because this is a financial Web site, let's focus on the last point, especially why it may not be the right cure for what ails us. The definition of what does and doesn't constitute saving is knottier than it may appear at first blush. The Commerce Department defines it as the difference between personal income and personal outlays. The former doesn't include unrealized capital gains on real estate or financial assets. The latter includes taxes, some of which go toward public investment in capital projects. The failure to include unrealized capital gains in the personal savings rate ignores actual economic behavior. If we compare the reported savings rate with the deflated S&P 500 presented on a logarithmic scale, we find that personal saving is almost a mirror image of the stock market.
| Saving for a Rainy Day Stocks and savings have been at opposites |
 |
| Source: Bloomberg |
| A Roof Over Your Head Real estate was stagnant for years |
 |
| Source: National Association of Realtors |
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