Household Savings Rate: Germany vs. USA

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The  household savings rate in Germany is much higher than in the US. In fact, the German rate is one of the highest among the OECD countries, according to a report by the OECD. The average household savings rate in Germany is 16.7%. In the third quarter of 2015, the savings rate was 16.9%. The German rate is also relatively stable and varies the least when compared with other OECD countries.

The Household Savings Rate in Germany:

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Germany Household Savings Rate

Source: A dash of data: Spotlight on German households, OECD

Compared to Germans, Americans save very little. In fact, the personal savings rate in the US is in the single digits.

The Personal Savings Rate in the US:

US Personal Saings Rate

Source: FRED, Federal Reserve of St.Louis

At the end of last year, the rate stood at just 5.5% according to Federal Reserve data,  Americans save about 1/3rd of the savings than Germans. In the US, the savings rate was nearly half the current rate before the global financial crisis of 2008-09.

As a socialist country Germany offers many benefits such as free healthcare for all, free college, pension, etc. to its citizens, So Germans could spend more and save less. But due to cultural reasons, Germans are traditionally risk-averse and debt is considered as a negative or a bad thing to have. Hence Germans tend to save more and pay with cash for purchases as opposed to using credit cards or take on home loans.

Americans on the other hand get limited benefits from the state and fund themselves for much of the needs such as education, healthcare, retirement, etc. So it may seem prudent for Americans to save more for the future. But due to cultural and other factors, Americans save less as evidenced by the very low savings rate and consume more goods and services, Much of the economy in the US is driven by credit and taking on debt is almost considered as a  right rather than a bad thing or a privilege Other factors such as heavy marketing at all levels by companies encourages people to spend than save.

Bloomberg BusinessWeek: Oil and Stocks Have Developed An Unhealthy, Codependent Relationship

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Happy Valentine’s Day !

Bloomberg BusinessWeek magazine has the following cool cover:

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Date with Oil

Source: Oil Is the Cheap Date From Hell, Bloomberg BusinessWeek

Here is an excerpt from the article:

Just in time for Valentine’s Day, it appears that oil and stocks have developed an unhealthy, codependent relationship. They’re way too deep into each other. Where one market goes, the other follows. If they were people, a counselor would be urging a trial separation. “This is highly unusual,” Torsten Slok, chief international economist at Deutsche Bank, wrote to clients in late January. “Call it the oil correlation conundrum.”

The full article is worth a read.

As equities of all sectors are getting thrashed due to oil prices, plenty of attractive opportunities are popping in the markets. Investors with cash to deploy can take advantage of the current chaos. Just because oil prices have collapsed doesn’t mean people will stop using less electricity or natural gas or stop brushing their teeth, stop or reduce buying groceries, stop buying cereals, etc. Or for that matter people are not going to stop doing things that some may consider sins such as drinking alcohol, gambling in lotteries and casinos, smoke cigarettes, etc. Generally sin stocks tend to perform well in both good times and bad. For example, during economic expansions consumers drink more beer to enjoy life and celebrate the good time. But at the same time, when they are depressed they also drink more to bury their sorrow and escape from pains at least temporarily. Hence wise investors with a long-term outlook can pick up stocks in many of these sectors that are on sale now.

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Knowledge is Power: Stocks Sale, Contrarian Investing, European Banks Edition

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Price Return and Dividend Return Of S&P 500 By Decade

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In equity investing, dividends are an important and substantial component of a total return.This is true especially in the long-term due to the volatile nature of stock price gains and the compounding effect of dividend re-investments on returns.

In the early 20th and entire 19th century, people invested in stocks mainly for dividend returns and not price appreciation. In the 1800s investors bought stocks mostly for earning periodic dividend payments. This practice continue well into the early 20th century. During those time, unlike today, investors did not invest in equities with the aim of selling them at higher prices.

In fact, over the past 130 years thru 2014, dividends contributed more to total returns than price appreciation as shown in the table below:

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SP500 Dividend and Price Returns by Decade

 

Source: Cultivating the Growth of the Dividend, Thornburg Investment Management

Though the average dividend yield of the S&P 500 is around 2% it is still important to pay attention to dividends. In addition, investors should be highly cautious of non-dividend payers as investing in them is purely for price appreciation which may or may not occur. So investing in non-dividend paying stocks is not suitable for most investors.

In the “lost decade”of the 21st century, stock prices actually was flat with a loss of 0.5%. But dividends contributed 1.9% turning that loss into a net positive return for the decade. This shows the significance of dividends.