As contrarian investors and students of group-think crowd psychology, we look for investment opportunities in the way news is framed. There is an old Mark Twain saying, “Lies, damned lies and statistics.” We believe investors are getting misled by statistics surrounding the U.S. economy and we will seek to dispel erroneous assumptions in search of long-term gains in the stock market.

The Middle Class

A recent CNBC website article reported an interesting statistic. It explained that 70 percent of Americans believe they are part of the middle class. Pew research indicates that family income levels show that 50 percent of the population is middle class, down from 61 percent in 1970. How does the media frame this information?

First, the nationwide income levels don’t take into consideration where in the U.S. people live. An upper-class income in an expensive coastal city could result in a much lower-quality lifestyle than the same income does nationwide. An income at the top of the lower class in an extremely inexpensive area could throw off a middle class living style. Also, some people with higher incomes and higher savings rates live way inside their means, a spending pattern similar to those in the middle class. Hence, the mental classification.

Second, the media and political class have viewed the loss of 11 percent of the families out of the middle class as an indictment of our democratic capitalist economic system. What they fail to mention is that 7 percent of the 11 percent  went to upper class and 4 percent were added to lower class. We are in the camp that abhors anyone being left out, but this shouldn’t be framed as a negative overall.

The U.S. Birth Rate

In a surprise to demographers, total U.S. births have been flat for two years, despite a significant increase in birth rates among women 30-45 years of age. The framers of news are starting to question if our national birth rate will ever break away from the patterns of other industrialized nations like a Germany, France and Japan, whose rates are way below the replacement level needed to maintain population. The crowd is bearish on household formation and industries affected by the statistics.

The truth is we have seen births of women under 25 years of age fall off a cliff in the last 25 years. In other words, the United States has gone from birthing children into homes that can least afford them to birthing them into above-average income homes of people 30-45 years of age. These are men and women much deeper into their career path. It means the spending on kids should explode as the largest population group moves firmly into their 30s. It also means first-time and second-time homebuyers are purchasing much nicer homes than prior generations.

Mortgage Rates, Home Prices And Affordability

There is a spectacular outpouring of news lately that frames a housing slowdown nationwide because of a pullback in the most expensive coastal cities like New York and Seattle. This framing proposes that mortgage interest rates of 4.6 percent and the average nationwide price of $302,000 for a newly built home will lead to a cyclical downturn in the publicly traded home builders.

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