In order for the current U.S. economic recovery to continue, people are going to need to spend. But in April, consumer spending had its weakest showing in the past seven months.

Consumption was flat for the month, despite rising incomes, as consumers opted to stash away their money in savings instead of running out and spending it. The savings rate jumped to 3.6% for the month, up from 3.1% during March.

According to the Commerce Department, consumer spending increased in March by the largest amount in five months.

Consumer spending increased 0.6% in March, which matched expectations. While this is the good news, the bad news is that the gains appear to have been driven by a depletion of savings, which dropped to the lowest level in 18 months. The personal savings rate fell to 2.7% of post-tax incomes, the lowest level since September 2008. Personal incomes increased a mere 0.3%, which presents concern about minuscule income growth.

Wells Fargo (NYSE: WFC) announced on Thursday that it will eliminate fees on customer overdrafts of $5 or less and is going to limit overdraft charges to a maximum for four per day.

This move follows similar moves from other large banks, prompting some to ask what took so long. In addition, Wells Fargo customers will be allowed to opt out of automatic overdraft coverage. Doing so would mean that debit card and ATM transactions would not be allowed to go through if your account is overdrawn.

Under the radar: Some trends are obvious enough and visible to all investors. Others are more subtle, but are just as potent, and these often slip "under the radar."

Case in point: Almost every investor and citizen knows that Americans are saving more. But do you know the economic implications of that higher savings rate?

General George S. Patton was attributed with saying: "No poor bastard ever won a war by dying for his country. He won it by making other bastards die for their country." This was played out to perfection by George C. Scott in the Oscar winning 1970 movie 'Patton'.

I feel the same way when I hear and read about how we need to spend more to revive the economy. You should let the other poor bastard spend for his country -- you should be saving!

Reuters reported earlier in the month that consumer spending continues to fall and savings are increasing. That's a good thing. The public gets it, the government does not.

e won it by making the other poor dumb bastard die for his country."
- Attributed to General George Patton Jr

Frustrated with poor returns from the stock market, investors are increasingly turning to a conventional strategy that can promise security at 0 percent interest rates. I am talking about piggy banks.

According to Reuters, sales of the novelty banks are rising as the economy continues to worsen. Exact figures are hard to come by but several retailers report rising demand. Piggy Bank World.com reported a strong holiday season, according to Michael Gehi, one of the owners. Companies are also increasingly using the banks for promotions.

Though my wife and I don't own a piggy bank, we have taken our loose change to Commerce Bank (now owned by TD Bank (NYSE: TD), which for years has counted people's spare change for free in a nifty computerized machine.

In case you had not noticed, the brokerage industry, whose survival depends on keeping you in stocks and mutual funds, has a well-rehearsed series of talking points designed to keep them in business by siphoning fees and commissions from you.

Now that stocks have lost 40% of their value in the last year, they are trying to convince you not to panic. That translates into 'don't sell' -- and 'stocks are a bargain now so buy, buy, buy'. I've suggested that people who need their money in the next six years should use yesterday's 11% rise to cut their losses in stocks and put their money somewhere safer like an FDIC insured bank account or a money market fund.

But the financial services industry doesn't want you to do that since the profits from such a move would be small. So they will try to convince you that putting money into a bank account puts you at an enormous risk of falling behind inflation. But let's take a look at reality. Earlier this year, I was paying $4.20 a gallon for gasoline and today I can pay $2.63 -- that's not inflation, it's deflation.

Bloomberg columnist Caroline Baum gently reminds us that not every tax cut achieves its intended effect.

Case study: The 2001 Bush Administration federal income tax cut, which included a cut in the marginal tax rate to 35% from 39.6%. The Bush Administration touted it as a tax cut that would increase incentives to invest, save and work.

The result? The tax cut didn't work: saving and investment have been "anemic" during the Bush years, Baum said, citing data provided by Paul Kasriel, chief economist at Northern Trust Corp. in Chicago. Business investment is down, the savings rate is at a post-World War II low. Further, the labor participation rate has declined.

No guarantee tax cut would be invested in U.S.

But why didn't cutting the top marginal rate do all of the good things the Bush Administration touted? Economist Peter Dawson said the reason is the tax cut's inherent flaw.

"The tax cut contained the mistaken belief that rich taxpayers would invest their money and invest in the right way, in the U.S., to increase GDP," Dawson said. "There was no guarantee that they would do that. Someone who is rich could invest the money in Brazil or India, with little benefit for the United States."

For the first time ever, the number of millionaires in the world broke through the 10 million mark last year. All said and done, the total number of people who can claim to have $1 million in the bank grew to around 10.1 million people, and on average, these lucky few boast around $4 million in net worth.

While the number of people in the "millionaires club" is definitely impressive, they still do not have to worry about the clout of their $1 million claims being diluted just yet. Ten million people may sound like a lot, but when you consider the world's total population is currently running at around 6.7 billion, you find that the percentage of all people on the planet who can claim to have $1 million is less than 0.2%. So don't feel too bad if you are not part of the club just yet.

As in the past, the majority of millionaires have an American address, with one out of every three millionaires being American. But there are a few other areas of the world where growth is out-pacing the United States. Developing economies in India, China and Brazil resulted in huge growth in those countries, especially in India, where the number of millionaires rose by about 23% last year alone.

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Among those who study the financial markets, Eugene F. Fama, the Robert R. McCormick Distinguished Service Professor at the University of Chicago, Graduate School of Business, is an icon.

He is a major proponent of the "efficient markets" theory which holds the well documented view that stock prices are random and efficient.

Professor Fama believes that analysts are unlikely to find profitable anomalies in stock prices on any consistent basis and he rejects the notion that past performance is a predictor of future performance.

Based upon his exhaustive research, Professor Fama believes investors would be well advised simply to capture market returns, by investing in low cost index funds, rather than paying brokers and advisors to select stocks or actively managed mutual funds, in an effort to "beat the markets."

At the other end of the investing spectrum is Morgan Stanley (NYSE:MS), a purveyor of the daily Wall Street grist, which advises its clients to rely on the expertise of its analysts in making decisions about what stocks to buy or sell and which actively managed mutual fund---and fund manager----is likely to outperform the markets or other funds.

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Question: Dan, Have you looked at the Monetta Young Investor Fund? It combines the use of ETF's with kids-themed investments. It has a financial literacy component for young investors.

Answer: I am all for financial literacy--for adults and for children. Unfortunately, this fund educates its young investors in the wrong way to invest.

The fund invests 50% of its assets in "other funds" that seek to track the performance of the S&P 500 index. The balance is invested in stocks that the manager believes will beat the index. It has an expense ratio of 1.00%.

The best way for all investors to capture the returns of the S&P 500 index (or any other index) is to buy a low cost index fund that tracks that index. For example, the Vanguard S&P500 index fund has an expense ratio of only 0.15%. It will always capture the returns of the index, less these low costs.

The risk of attempting to beat the markets is nicely illustrated by the performance of the Young Investor fund. In the past year it has under performed the index by 0.88%. This is not surprising. Only one in three actively managed funds equals or exceeds its benchmark in any one year, and less than 5% of them do so over a 10-year period.

Parents should educate themselves about investing before they start educating their children. A good place to start, and a very easy read, is John Bogle's excellent book, The Little Book of Common Sense Investing (Wiley 2007).

Perhaps he would consider writing a book for young investors!

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.


Tags: Dan Solin, DanSolin, Naked Truth Investing, NakedTruthInvesting, retirement

In another nod to a slowing economy, consumer spending slowed in January, while income growth sputtered as well. The Wall Street Journal reported recently (subscription required) that the Commerce Department said "personal spending rose 0.4%, but was unchanged after adjusting for inflation. Such spending was also flat in December and October."

It seems to be a perfect storm of sorts. Consumers are cutting spending as they face dropping home prices, high energy prices, tightening credit markets, and a more limited job market.

As consumers spend less, they may be forced to dip into the proverbial cookie jar and start spending rainy-day savings. The same article said, "Rising prices may be prompting consumers to dip into their savings. The personal saving rate fell 0.1% in January, repeating December's performance."

While economists and politicians debate whether the U.S. has dipped into a recession, consumers are already feeling the pinch.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

American consumers, the pivotal factor in the consumer-dependent U.S. economy, may have modified their spending philosophy, The New York Times reported Tuesday.

Stung by the housing market correction, stagnant wage growth in certain job segments, above-average debt levels, and a slowing economy, Americans are saving more and using credit less -- a shift that some analysts argue is a cultural inflection point of sorts, with huge implications for the economy.

Economist Steve Affinito told BloggingStocks Tuesday that while The Times' interpretative report did not "cite a large enough sample size to meet my fancy," it nonetheless provided data points that support what macroeconomic indicators are saying about consumer choices.

"We know that the savings rate has increased in the last six months, and retail sales are sluggish, at best. Take these and combine them with much tighter credit terms for home equity loans and other credit and what you get is a pull back in purchases, particularly purchases on credit," Affinito said.

The stock market's recent run-up in the face of concerns about a recession could be driven by the Federal Reserve lowering of interest rates.

Usually, rate cuts are seen as boosting economic activity down the road, and hence cause stock markets to rally. But the reason behind this recent run-up may be different. The Wall Street Journal reports [subscription required] that "Despite recession fears, slowing profits and signs the credit crisis isn't over, the stock market is attracting a new wave of buyers: investors who are escaping pricey, low-yielding bonds."

It's true -- a 10-year treasury note that yields under 3.7% is a pretty good incentive to dive into the stock market. With concerns about a weakening dollar, investors will be lucky if that 3.7% is anything after inflation takes its bite.

But a run-up that's driven by investors fleeing from bonds and savings accounts might not be sustainable, and certainly doesn't reflect a lessening of concern about economic weakness.

With just ten more shopping days until Christmas, it's time for a stocking stuffer wish list. With the recent market selloff, bargains are abound. If you think the 15% off sales in your favorite department store are interesting, here are stocks that are REALLY on sale, and would make the perfect stocking stuffer.

For American Express (NYSE: AXP), the shopping season is going better than all the pessimists thought it would and the credit card company should stand to gain. In addition, since the market tends to be a leading economic indicator that looks out six months into the future, I would expect a strong pickup in growth in the second half of '08, which should also help earnings. With this stock trading down to levels not seen in 15 months, the stock is looking attractive for a turnaround.

ClickSoftware (NASDAQ: CKSW) is the leading provider of mobile workforce management and service optimization solutions. With mobile applications just starting to come online into the market, this company could be a real winner. This stock isn't for the weak of heart, having dropped 43% from the 52 week-high. That being said, business is shaping up to be really strong for '08.