Economics must adapt to structural deficiencies affecting both businesses and workers; Deficiencies that itself created.

This was written in May of 2020, at the heights of the pandemic – certainly things have changed:

Friday morning, May 8th the Labor Department released its monthly employment data. It was the darkest monthly employment figures on record. Through the March and April job reports, 21.4 million Americans lost their jobs¹.Between 2010 and February of 2020, the United States created almost 22.7 million jobs². With many continuing to file for unemployment, the decade plus of job creation following the 2008 financial crisis will be wiped out in a little under 3 months. To visualize this, The New York Times ran their frontpage section showing the monthly employment figures. April’s 20.5 million lost jobs runs the entire length down the paper. An important statistic to you, the reader; 1 in 4 people between 20 to 24 years old are unemployed³. This pandemic has a disproportionate effect for many Americans across the income spectrum. The vast majority of Americans that work in the services industry have either felt the brunt of a layoff or been furloughed, or fortunate to continue working, but in an ongoing and ever elusive health crisis that’s evolving faster than employers can prepare. Many are worried about unpaid bills, job security, or fighting the labyrinth of our country’s antiquated welfare programs. For the few in the top percentile of the income bracket, whose pay is tied more to the stock market, the story is much different. Snap Inc., the parent company of the popular social media app worth approximately $20B, rose almost 10% in value the week before the horrific data was released by the Labor Department⁴. That week, Evan Spiegel, the co-founder and CEO of Snap Inc., sold almost 4 million shares, worth $55 million⁵. Evan owns over 10% of the total company, and through a dual share-class ownership structure similar to that of Google or Facebook, Evan owns 54% of the voting-rights (actual decision-making rights of a company). His co-founder, Bobby Murphy, owns the other 46% of the voting rights⁶. I hope you go back and re-read those two sentences. Note that a company worth $20B owned by many individuals fortunate enough to have a 401K, or dumb enough to trade the stock on Robinhood, or engineering and software developers at his company, have 0% right or say in the company’s business. You can spend billions of dollars trying to buy the company outright, but even then you can’t change the policy that notifies users on Snapchat when their snaps are screenshotted. You would need Evan’s shares to do that. This goes against what you are taught in undergraduate economics. If you buy a company, you control it. The unique dual share-class structure arising in tech companies blows this idea out of the water. Instead, one individual, like Evan Spiegel, has essentially the entire say of what goes on at the company; complete power.

The vast majority of us make our living off of wages. Wages that were created by jobs, like those who were hired in the last decade. The jobs created were waiters and waitresses paying off student loans. Some are trying to support their family through unforeseen circumstances. Others take on jobs in the summer to gain life or career experiences and move out of their hometowns. These jobs, albeit lower-pay, have evaporated. This eliminated a way for them just to make ends meet. Meanwhile, the Evan Spiegel type makes a living off of selling his company’s stock, to the tune of millions of dollars. That is how he, along with others in an exclusive slice of the top 1%, make a living. According to a study conducted by the Congressional Research Service, real wage trends (wages adjusted for inflation) for the median worker has increased just 6.1% cumulatively over the course of nearly 40 years, from 1979-2018⁷. Over that same time period, the real S&P 500 return (adjusted for inflation) is 2,005.5%⁸. That means the majority shareholders of companies, the wealthy, and a small slice of the population, have gotten exponentially more wealthy in the past 4 decades. While the vast majority of Americans haven’t. You can dive deeper into these trends, slicing data by demographics, by age, by zip code, etc. You will find even more worrying problems. This topic, inequality, has been covered at length by many labor economists. Notably, Raj Chetty, a distinguished young economist at Harvard. His work has covered “The American Dream” that is, upward economic mobility. Paul Krugman, the Nobel prize winning economist and columnist, won his Nobel prize covering international trade. He helps breakdown attributes like technological innovation and globalization as factors that have both benefited consumers, but also contributed to income inequality. Thomas Piketty, the Nobel prize winning french economist, wrote “Capital in the 21st Century” which was an immersion and historical analysis based on European and American inequality since the 18th century. Despite the economists like Raj Chetty, Paul Krugman, and Thomas Piketty contributing mightily to the economics profession, their influential work on their respective subjects isn’t disseminated to the masses. Meanwhile the influential economists like Milton Friedman, Paul Samuelson, and Eugene Fama have had their work circulated and carved into the founding frameworks of Economics 101 and courses taught at almost all education levels. Whether you paid attention in class or not, these economists’ work were what you were learning. 

This isn’t to knock against capitalism, it’s worked great to build America, employ millions, and lift everyone’s standard of living. This isn’t an ode to communism either, labor needs businesses to succeed too. Company’s earnings haven’t kept pace with their own valuations in the stock market. Corporate earnings since 1989 have increased 592%, far better than median worker, but keep in mind S&P 500 returns have increased almost 4x that amount⁹. It is more pronounced when you look at the last decade. Corporate earnings have increased 30%, that is in comparison with the 192% increase in the S&P 500¹⁰. Before 1989, the trend was flipped; corporate earnings far outpaced stock market returns. The company that Evan Spiegel runs, Snap Inc., hasn’t been profitable its entire existence¹¹. There are plenty of companies out there where this is the same case. It is easier for labor to demand a fairer share of corporate profits when they have increased dramatically. But they haven’t, it is much harder for labor to argue for better wages, which remain stagnant for decades when shareholders’ gains have outpaced our own economy. This is what the Occupy Wall Street movement should’ve been about. And companies’ management teams’ explanations are understandable. They are doing what they were taught in business school; maximize shareholder’s wealth. As pointed out, they’re doing an extremely good job of that. That’s how they retain their job. It’s what was taught by the works of Milton Friedman, Paul Samuelson, and Eugene Fama. If only they were taught the lessons of Raj Chetty, Paul Krugman, or Thomas Piketty, that the data on inequality wouldn’t be so stark. 

___________________________________________________________________

References:

Historical employment information was obtained by the Bureau of Labor Statistics. 

https://www.bls.gov/news.release/empsit.nr0.htm

https://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth

The New York Times front page for May 8th, 2020 can be found here, this is also where the unemployment data by age can be found. 

Data referencing Snap Inc. can be found below:

Click to access gll.pdf

https://otp.tools.investis.com/clients/us/snap_inc/SEC/sec-outline.aspx?FilingId=14124208&Cik=0001564408&PaperOnly=0&HasOriginal=1

The congressional research report covering stagnant wages can be found here. 

S&P 500 return information and corporate profit information can be found below:

http://www.econ.yale.edu/~shiller/data.htm

https://fred.stlouisfed.org/series/CP

Guiding Articles

https://www.theatlantic.com/business/archive/2016/09/why-so-few-american-economists-are-studying-inequality/499253/

How the stock market is fueling the wealth gap: Q&A with Prof. Martin Lettau

https://www.axios.com/most-jobs-created-since-recciu-1536269032-13ccc866-5fb0-44e8-bd14-286ae09c296f.html

Bye Alleyway Investing,
I started Alleyway Investing in 8th grade, I wrote about the market, recent news and developments and portrayed my learning and passion for investing. So after more than 6 years I’ll be shutting it down. The plan comes after I’ve been abroad and will be taking this semester from school off to focus on my new endeavor. 
Alleyway Investing provided me a way to express my opinion on the market and deliver market commentaries when I could. Over the years and primarily in college I began to take a more research oriented approach. It was after a discussion with a friend of mine that I realized the market commentary I was use to producing along with the weekly forecasts and stocks of the week posts were more useful than I thought. So I’ve been reconsidering in my new endeavor going back to this. For my readers from all stages of Alleyway Investing, from the .webs.com in the early days, to .blogspot.com to just alleyway investing, I thank you. And I hope you will enjoy and follow my new site, as I’ll combine the basics that I grew up writing about, with the new developments and advancements I’ve been learning about.
Starting this Fall I am opening up a new blog and fund under the umbrella of Stochastic Management. Through Stochastic’s Blog and the Stochastic Fund, I will be delivering my take on the markets blogging about what’s on my mind and my interests, along with a fund I’ll be managing that’s objective is to track my ever growing investment philosophies that are portrayed through my thoughts and reasons on the blog. It’s open to outside investors and for more information, it would be worth checking out http://www.stochasticmanagement.com

From Day 1 Readers to Newcomers and All In Between,
Thank you. 

Jon Morris 

Here’s an interesting piece of information regarding Warren Buffet’s investing style.

For the uninitiated of ultra-Warren Buffet fans, his investing style can be described as a much more polished version of Benjamin Graham’s value investing. If Ben Graham played basketball he’d be Dr. J, while Warren Buffet would be Michael Jordan. Now in this analogy I can’t tell you how to perfect Michael’s signature turn-around fade away, but I can tell you a sneaky dribble move he use to pull to get open.

Warren Buffet believes in fundamental investing, something that these days of computer algorithms and index investing is becoming out-of-style and prehistoric. But hear me out on just one example.

I think Warren would like this one:

Target

The timeline for Target Corp. imploding data breach of over 40 million Americans phone numbers, addresses, credit and debit cards was around late November of 2013.

In the aftermath of the data breach Target met with state attorneys and the justice department and did internal evaluations on just how much from a monetary value did Target customers lose in fraud.

The fraud couldn’t have come at worse time, late November/December or the end of Q4 is crucial time for retailers to ramp up sales in time for the holiday season. Depending on the retailer, this time period can make or break a companies yearly revenue stream.

Sure this will hurt Target in Q4 of ’13 and you can see that as transactions fell 3-4% compared to the holiday season a year earlier. But this is Target, a massive grocery store chain that consumers rely heavily on for day-to-day shopping needs (my dad as an example). So looking at this from an investors point of view a promising time to invest in Target may have come up with the great power of hindsight.

So how did the stock react during this time?

In clarification, the time period is from the time Target announced the data breach publicly (December 19th, 2013) to when their CEO Steinhafel resigned (May 5th, 2014)

The S&P 500 as a benchmark during the time period produced a 4% return while Target produced a -3% return, under performing the benchmark by 7%. 

So where does Warren Buffet play in all of this?

A part of value investing that can be intuitively inferred is the value part. The data breach for target was unfortunate and the timing of it gave the company bad publicity during the holiday season. However what fundamentally changed in the stock? 3-4% transaction loss, which did fundamentally hurt the company, but is that a sustainable (or permanent) loss?

Sure, this hurts Target’s brand (which is apart of its value) its just hard to put a monetary amount on it, wait why not? Lets put the value at however much sales it lost as a result of the subsequent reaction to the data-breach. The reaction of its stock price (a 7% under performance) Buffet would argue does not correlate with the fundamental loss of the company.

Remember, this isn’t a company heavily reliant on 4th quarter sales (although it is a factor) I would consider Target up there below Dollar Tree as a non-cyclical consumer staple. 

So the question is, if you invested after CEO Steinhafel ‘s resignation, how would you have done?

Quite well.

The S&P 500 has produced a 13% return to-date from CEO Steinhafel’s resignation

Target has produced a 28% return to-date from CEO Steinhafel’s resignation

That is an out performance of 15%

Warren would like this kind intuitive investing a lot. Value Investing Is Not Dead.

 

Last summer I created a portfolio that in my belief would benefit from or in particular outperform set of benchmarks from an interest rate increase by the Federal Reserve. After 9 months I’ve decided to revisit and touch upon the current market environment.

 

An Ill-Advised Stone Cold Monetary Policy

This project was to test how a chosen portfolio will react to an increase in interest rate hikes and since none has come the projects timeline will have to change. The environment around the world has been one of perplexity. So obviously the portfolio is not poised to perform well in low-interest rate environments. The Federal Reserve has constantly been saying over the course of Janet Yellen, the Federal Reserve Chairwoman, tenure that the their are two data-driven economic stats that the “transparent” Federal Reserve uses to help determine changes in the federal funds rate. The Dual Mandate is what was passed in the 1970s for the Federal Reserve’s dual purposes:

Full employment

Inflation target at 2%

These two pieces of economic data were to be monitored carefully and were made known through the Federal Reserve’s meeting minutes and statements and Janet Yellen’s testimonies that an interest rate movement would be dependent on these two factors. I am well aware other factors come to play, especially other central banks monetary policies, but by emphasizing full employment (which according to a post by the Federal Reserve of Cleveland is around 5-6 percent unemployment) and an inflation target of 2% it has mislead the general public to perceive these two factors were the leading pieces of economic data to go by for an interest rate increase.

According to a U.S. Bureau of Labor Statistics news release, unemployment levels have steadily decreased to 5% and even below 5% at the end of 2015.

According to a U.S. Bureau of Labor Statistics news release, the Consumer Price Index (CPI) widely known as the best tracker of inflation, has risen over 2% starting the beginning of 2016.

If you were to isolate these two pieces of data for making interest rate decisions, the federal funds rate should have moved up in the start of 2016. It is when you take a look at two other factors that have the Federal Reserve in a troubled spot.

Financial Markets

Global Interest Rate Environment

The general financial market downturn in late January to start the year in 2016 I believe was a mistaken motive or factor that drove the Federal Reserve to hold off raising the federal funds rate. The cardinal rule in economics is to not make monetary policy decisions based on the general market movements. This I believe was broken and caused a loop reaction that does not fair well for general economy. This terrible decision-making has led to the situation we currently have; the market is looking to the federal reserve for guidance, while the federal reserve is basing its decisions off of the market (in part).

The global interest rate environment has been unprecedented in the levels of extremely low interest rates and the innovations of negative interest rates in countries like Denmark, Sweden, Switzerland, and Japan. This has caused a strengthened dollar against many global currencies that has caused multi-national corporations trouble turning revenues from multiple currencies back into U.S. dollars. By the devaluation of many nation’s currencies along with the complexities of quantitative easing and negative interest rates in the global market place, it has driven the Federal Reserve to rethink raising the federal funds rate.

While this has fixed-income markets, it can be argued that the low-interest rate environment has led to inflated equity prices.

Looking Forward

Before going over the portfolio’s performance, I’d like to write a few words on what is expected for the portfolio looking forward.

This portfolio was passively managed. Meaning that after the weighting was set, there was no change in the portfolio’s weights. The portfolio will be reevaluated in the summer regarding weighting of the portfolio.

While this has been a medium-term project and my time-horizon was mistaken, I still am in firm belief that this project is still relevant. It may be a farther horizon date than previously stated, but will be updating from time-to-time on this project. Once the project hits a year old, there will be an update along with what is expected moving forward.

9-Month Performance

Here is how the portfolio has performed over the 9-month period:

 

Company	% Of Portfolio	Performance*
Regional Financial Corp.	12%	-9%
East West Bancorp, Inc.	12%	-14%
The Allstate Corporation	3%	-3%
Commerce Bancshares, Inc.	6%	-1%
Prudential Financial, Inc.	6%	-11%
Marsh & McLennan Companies, Inc.	23%	6%
M&T Bank Corporation	35%	-9%
BB&T Corporation	3%	-12%

TOTAL PORTFOLIO 9-MONTH PERFORMANCE: -6%

*Dividends not included

Performance vs. Benchmarks

As stated in the Interest Rate Project, there are 3 benchmarks that this portfolio will be put against.

S&P 500

Leading Regional Bank ETF

Leading Regional Bank Mutual Fund

Here is the performance of the portfolio against the chosen benchmarks.

Portfolio	Time Period	Return**
Alleyway Investing Portfolio	July 20th – April 22nd	-6%
iShares U.S. Regional Bank ETF (IAT)	July 20th – April 22nd	-9%
John Hancock Regional Bank A (FRBAX)	July 20th – April 22nd	-6%
S&P 500	July 20th – April 22nd	-2%

**Dividends not included

It is understandable for this project to underperform the S&P 500 on measures that the low-interest rate environment, but outperformed the chosen regional bank ETF, and tied the chosen mutual fund, (but if include the mutual fund fees the chosen portfolio probably outperformed this benchmark as well).

For any questions, comments, concerns please email alleywayinvesting@gmail.com for more information.

 

 

 

I am excited to announce some episodes from my radio show Finance Talk at San Diego State’s very own KCR radio will be posted along with show notes, summaries, and about the guests I am interviewing.

Click here to listen to the archive!

Forbes posted an article on Twitter in December of 2012 titled “12 Stocks to Buy in 2013” but unlike normal spammy titles, it offered up the ideas of top advisors and today I take a look at how they did.

The Financial Markets in 2013

Its important to realize financial how financial markets did in relation to the ideas each investor states. So lets see just how good some of the top financial markets in the world faired in 2013:

Selected World Financial Markets	2013 Performance
Dow Industrials	26.50%
NASDAQ	34.38%
S&P 500	29.09%
FTSE 100	14.13%
DAX	24.22%
Shanghai	-7.88%
Nikkei 225	53.63%
Hang Index	1.68%

The first takeaway from this is if each advisor indicates a certain stock simply put its returns against the average of the market it is in. That way a fair conclusion can be drawn. This is because if an advisor chooses a stock that returned 28% in the S&P 500, that return may look robust but compared to the markets return, the S&P 500 did better, in which case you would have been better off investing in an index fund.

The second takeaway is in 2013 a majority of the major financial markets showed strong performances. The average of the selected financial markets listed above is 26.23% (excludes the Shanghai Index) even with the underperforming Shanghai Index, the average is 21.97%.

The Financial Advisor’s Selected Stocks Performances

The average return of these advisors (which included a currency, and ETF recommendation) was 17.12%, without the currency or ETF returns the average would be  19.38% still underperforming the financial markets.

The Results

James O’Shaughnessy, O’Shaugnessy Asset Management

• Northrop Grumman 70.40% vs. S&P 500 29.09%

The article states fundamental components why Northrop Grumman would have a successful year and proved right, outpacing the S&P by 41.31%

Jim Oberweis, Oberweis Funds

• HMS Holdings Corp. -14.32% vs. NASDAQ 34.34%

A company that provides cost avoidance services to government healthcare programs wouldn’t fair well in the environment under the Affordable Healthcare Act.

Ken Fisher, Fisher Investments

• Pfizer 22.17% vs. S&P 500 29.09%

A logical investment with such a large pharmaceutical and a good dividend yield, although it underperformed the market and there are other more names in the healthcare field (like biopharmaceutical) Pfizer would be a longer term holding.

Dan Chung, Fred Alger Management

• The Fresh Market -12.29% vs. NASDAQ 34.38%

With such a competitive marketplace, high-end specialty grocery stores that don’t have a strong presence (like The Fresh Market) will have a hard time gaining a percentages of the market share.

Ryan Crane, Stephens Investments Management

• Acacia Research -44.17% vs. NASDAQ 34.38%

Don Yachtman

• Procter and Gamble 22.38%  vs. S&P 500 29.09%

A predictable business model with long standing products and a good dividend yield, like Pfizer a good dividend yield and although another underperforming stock, a better long term investment.

Berry Ritholtz, FusionIQ

• Healthcare SPDR 9.85% (Symbol XLV)

Investing in healthcare ETF in 2013 only makes sense intuitively because of the industry, but with a fund holding Johnson & Johnson, Pfizer, and other large pharmaceuticals  doesn’t truly divert the risk, only limits the returns. Investing in a household pharmaceutical company would be able to obtain a better return at almost the same risk.

Robert Kleinschmidt, Tocqueville Asset Management

• Microsoft 43.70% vs. Apple 7.86%

The reason why the comparison is Apple is because Kleinshmidt was quoted in the Forbes article saying, “I’d rather own Microsoft, which is sort of the opposite of Apple. It’s just as cheap from a valuation perspective.” And he was right, Microsoft outperformed the market, and Apple by solid numbers.

Chuck Royce, Royce & Associates

• Ethan & Allen Interiors 14.15% vs. S&P 500 29.09%

Martin Sosnoff, Atalanta Sosnoff Capital

• GM 36.28% vs. S&P 500 29.09%

Sosnoff stated that the government still owned a significant stake in the company and that they weren’t looking to sell anytime soon. Government’s ownership in equities can help put a bottom to a stock, for example the Federal Reserve bailed out AIG and from March 9th, 2009 to now the stock price is up 1,016% according to Yahoo Finance adjusted historical prices.

Guy Spier, Aquamarine

• Fiat 55.49% vs. S&P 500 29.09%

Jens Nordvig, Nomura Securities

• Mexican peso 1.79%

Takeaway

The takeaway isn’t to automatically discount the financial advisors and just invest in an index fund, because you don’t know when the index fund will deliver solid gains, and some of these fund managers had better results with their stock picks than the market. Also it isn’t too fair to judge an advisor based off of just one pick, their investments could be sound and their entire portfolio could have beat the markets. When choosing a financial advisor, it comes down to their complete performance just as much as their approach.

Historical data gathered from Yahoo Finance, advisor & stock predictions gathered from Forbes.

Using the data from the U.S. Bureau of Economic Analysis on gross output per industry, a deeper understanding of government as an economic sector and its investments and has been conducted.

The Government as an Economic Sector

In an excerpt of the Bureau of Economic Analysis paper “Measuring the Economy”, they define the government sector as:

“General Governments. This sector receives revenues from taxes and other sources and uses these revenues to provide public goods and services, such as education and defense, and transfer payments, such as social security or Medicaid benefits. The sector includes Federal, state, and local government agencies, except for government enterprises.”

Deciphering this definition leaves us with what the exact sources are for the government revenues and expenditures listed are classified by the national income and public accounts.

• Current taxes (Includes licensing fees like business licensing, drivers license)
• Social insurance contribution (Includes social security, medicare, unemployment insurance, and other smaller programs)
• Income receipts from government assets (Includes interest, dividends, and rental income, such as royalties paid on drilling on the outer continental shelf (deep-water drilling). Also, governments earn interest and dividend income on financial assets.*
• Current transfer receipts (Includes grants, fines, fees, donations, unclaimed bank deposits, deposit insurance premiums, and tobacco settlements)
• Current surplus (or deficit) of government enterprises (Government-sponsored enterprises or GSE are financial service corporations that attempt to increase the flow of capital to systems such as housing, veterans, farming, and education. They consistently run on a deficit.)

Here are the four main categories of expenditures.

• Consumption expenditures (Including compensation, fixed capital, intermediate goods and services purchased among others)
• Current transfer payments (Include social security, medicare, other income providing support such as Medicaid and food stamp benefits. Also includes federal aid to foreign countries and payments to international organizations like the United Nations)
• Interest payments (interest paid to borrow their capital and operational costs)
• Subsidies (Includes payments to businesses, homeowners, and government enterprises)

Commentary

I think it is important to show how our government operates financially. It may seem daunting and slightly paradoxical but our government is actually very transparent with its reports especially compared to other governments. Yet, as transparent as it is, it may seem pretty confusing. The NIPAs (national income and product accounts) released by the Federal Reserve shows in detail the revenues and expenditures of the government each year. And as important as I think it is, I only want to draw a couple conclusions from it so I can move onto the important piece I found from reading through the NIPAs.

Takeway

Kind of obvious, but the federal and states revenues and expenditures do not differ in percentages too much from each other, although the local governments do. Local governments revenues include larger portion coming from state government grants-in-aid and property taxes. On the expenditure side, consumer expenditures count for the vast majority of spending compared to the federal governments social benefits as the biggest spending unit. I do ask the question where is the military spending in all of this?

The Government Investments

This section I will go over what I found in the NIPAs and from a Janet Yellen testimony, as well as trying to confirm the hypothesis between a correlation in government’s gross expenditures and government issued investments.

The * explained.

If you read through the NIPAs in the above section you came across a * in the revenue section of income receipts on government assets. I believe this asterisk is important in determining the level of some investments in the financial markets. This may be common sense to some but is worth clarifying to show its importance.

The Federal Reserve holds securities in the financial markets.

That list of securities held by the Federal Reserve (should be released to public knowledge) is a key tool to use when investing. During the 2008 financial crisis the Federal Reserve, treasury, and bank leaders scrambled to put a relief to the financial industry in the form of cash into the financial markets. This liquidation which then came in the form of quantitive easing, gave the financial markets a safety net. The point is one of the largest held securities by the Federal Reserve must have been during the quantitative easing period (and possibly after) high institutional banks, or in other words, banks that have access to the overnight rate (federal funds rate). This list is available here.

What does the Fed invest in?

The Federal Reserve invests in low risk assets that are mostly held by government sponsored agencies, treasury notes, and TIPS. It is held by the Federal Reserve and managed in the System Open Market Account for the purpose of liquidity and essentially is the Federal Reserve’s emergency money.

A deeper look at the Fed’s portfolio including the investment banks that underwrite their securities will be mentioned in an article later, for now lets continue on our journey through government investments.

The Hypothesis

For those of you who did not read my Economic Statistics by Industry I showed the gross output by industry through statistics from the BEA (Bureau of Economic Analysis) and made a hypothesis stating the gross output of the government is related to government issued investments. So the point of this article was to test this hypothesis. After some background into the government as an economic sector, and some introduction into government’s investments lets define what I’ll be using as a “government issued investment”.

 The gross output provided by the BEA divided government into two subcategories; federal and state. I will be doing the same for their government issued securities.

Federal

Treasury bills, notes, and bonds are the most common securities that to me are defined as “government issued investments” and will be used to analyze the government’s gross output to the returns represented by the T-bills, T-notes, and T-bonds. It is important to realize I will not be taking into account another form of government issued investments in the form of GSE’s. The securities listed as agencies will not be used in this project because defined by the BEA’s definition of government as an economic sector they do not include GSE’s as part of their definition. I’m also not including government savings bonds.

State and Local

The way I define “government issued investments” for state and local governments is simply municipal bonds. Municipal bonds are the most direct way to invest in state and local governments. I will be using muni bonds against the state and local gross output for my project.

Conclusion

After giving some time to define the government in depth as an economic sector, and preview what I will be using to correlate the government’s economic output vs. the government’s investments, the only thing left to do is retrieve the data, punch some numbers and I will be reporting to you the results in the near future. This preliminary search was conducted to clearly define the project and hopefully give some insight and knowledge into the government from a financial perspective. During my findings I found some sidetracked search involving the Fed’s holdings and will also deliver an article diving deeper into that portion. Feel free to email alleywayinvesting@gmail.com for any questions and inquiries.

All data for this project was retrieved from the Bureau of Economic Analysis, Federal Reserve, and the Federal Reserve Bank of New York.