Sunday, February 03, 2013

We Haven't Hit Bottom Yet

I was listening to Suze Orman the other day. She was advising retirees to buy stocks with dividend yields to supplement their retirement income, since the bond market is returning so little interest. It kind of caught me by surprise. To paraphrase her, you need to take some risk on stocks because the return on bonds coupled with inflation forces the retirees to dip into their principle for living expenses.

The real estate market kind of bit the dust a while back, and there are still millions underwater wishing to unload their burden on some greater fool. I’ve mentioned before that rich people don’t have to wait for a good economy to buy a home, so no wonder home prices are rising. These people aren’t buying starter homes either (which would lower the housing price average).

The bond market has gotten so risk-less, that investors are almost paying borrowers to borrow money. Kind of reminds you of that company Solyndra that went BK, even with a Presidential endorsement. They didn't run out of money, they ran out of ideas on how to spend it.

The only real investment game left to play is the stock market. Our market in six years has risen up from 7,000 to 14,000. You kind of have to ask yourself, “Where’s all the good news that made this happen?”

In the 1929 crash, we had new and growing companies on the horizon, the light bulb (GE), radio (RCA), the automobile, the airplane, electricity, indoor plumbing, washing machines, cash registers, telephones (ATT) and more. RCA went from $18 dollars a share in 1924 to over $500 in 1929 and back to less than $3 per share in 1932. And that was when $750 dollars was a year's wages.

The years 1926 thru 1929 were miserable years as far as our economy was doing, but yet the stock market went up. Reality finally set in unannounced. See below graph for stock performance in the 1930’s.

Our present economy is a mess while the stock market is hitting new highs. Several countries are repatriating their gold stored abroad. Kind of makes you wonder what to expect even if things start to improve.

The really big thing to watch this year is the tax increases. Will they bring in the expected revenue? The answer is probably a big NO. That's what happened in the 1930’s when taxes were raised. So we get to experience what our grandfathers lived through. And remember, this time it will truly be different; it’s me, not my grandpa paying the bills.

Priceline looks like a good buy, 100 shares is only $68,000 and that's cheaper than 100 Google at $78,000. Maybe I should wait awhile; they could drop a bit like RCA did, way back when.


dearieme said...

Here's an invigorating source of gloom I've just discovered.

Jim in San Marcos said...

Hi Dearieme

Thanks for the link, he had a lot of good points.

No one would accuse him of being a man of a few words.

Anonymous said...

"and don't be surprised if oil drops to $60..." said jim.

you sure are the person to listen to when it comes to markets and prices....

Jim in San Marcos said...

Hi Anon 2:36

The neat thing about being anonymous is that you can say anything and fade into the woodwork. If oil did drop to $60, your not going to wave your hand and point out that you were wrong, are you?

The premise for that statement was the fact that Arab countries need $100 oil to finance the way of life that they have gotten used to.

If consumption were to drop because of economic hardship, the Arabs would end up pumping more oil to make up the shortfall, that in turn could drop prices even further with more product on the market.

It only costs the Arabs about a dollar fifty to pump a barrel out of the ground. The present cost of gasoline is subject to supply and demand. Right now Europe is willing to pay more for gasoline than we are in the US. Hence, we are exporting gasoline.

Anonymous said...

Alarmists are infecting readers and listeners with the assertion that... "you must buy gold now because any day the USD will become totally worthless paper". IMHO, It isn't ok to scare and de-stablize people regarding their income, wealth and future.

Those of you who have been reduced to a state of worry and trepidation by these assertions, please read the Martin Armstrong article cited below for some economic history and logic on this matter.

The USA is the largest economy that there has ever been in this world. And has the most powerful military. It has been the capital of the financial world for a significant amount of time. The world has been "dollarized". These conditions just don't go away over night. They decay slowly. It doesn't matter if other currencies are used for trade. The USD will still be the reserve currency and the destination for any "flight to safety" whenever there is a global or domestic crisis or scare. The USD is all over the world and in the coffers of all major countries, and USTs form a large part of most country's reserves. All this current CB printing is being offset by the deflationary trends and de-leveraging that is going on, and the velocity of money is very low as a result.

The US government and The Fed work for the bankers and the big multi-nationals: if the USD turned into toilet paper over night, all bank assets (loans) would become more worthless than they already are. Do you think that would be allowed? If interest rates soared as a result of high inflation, the US government would not be able to service the debt. Do you think that will be allowed to happen?

The only reason Weimar, Argentina and Zimbabwe had hyper-inflation was because they didn't have bond markets (and they had currencies that had no significance to the rest of the world). The value of the USD will just continue to erode on a protracted path. It will go out with a wimper, not a bang—similar to how the British pound sterling lost its reserve status before the USD took over.

Owning tangible assets such as income properties, farm land, stocks/businesses, and gold is the investor's protective mechanism to offset inflation.

We're even moving another step away from real money by going from paper to digits: all currencies will soon be electronic and we'll be doing all of our consumerism, business, trading, tax paying, etc. electronically. But, we'll still be dealing in and with the USD in electronic form.

Yet, as Armstrong says, the USD won't be replaced until countries stop using debt for their reserves. I believe it's gonna be a long time coming before that happens.


michael said...

Anonymous February 08, 2013 3:58:00 AM:
First you say it's not ok to scare people into buying gold, but later you state
"Owning tangible assets such as income properties, farm land, stocks/businesses, and gold is the investor's protective mechanism to offset inflation."

So what is it?

Anonymous said...

anon 2:13

jim, time and time again you make predilections based on free market principles...
my dear friend, wake up and realize that interest rates, prices, and so much is all controlled.

if demand and supply where the only variables you would have a point but those are not the only variables, that's the point, wake up and see the truth and include it in your perspective,

im anon bc we are all anons on the internet or do you think you are the only jim in san

Jim in San Marcos said...

Hi Anon 10:41

I think you need to realize that government controls in no way repeal the laws of economics. Its like squeezing on a balloon, it bulges out somewhere else and if you squeeze too hard, you have no balloon.

The present world approach to preserving wealth is kind of like building a sea wall in front of your sand castles on the beach when the tide is coming it. The sea wall will buy you time, but the outcome is inevitable.

As for me being anonymous, scroll down a few articles and you'll see my real name next to the copyright.

As for you being anonymous, scroll down to the site meter at the bottom of my blog and click on it. Your not as anonymous as you think. I even posted a screen shot of a visitor you may know, if you click here click here and scroll down to the bottom, its worth a laugh.

dearieme said...

Ahoy, Jim, this report - especially chapter one - may interest you.

"We have estimated that over the next 20–30 years, global investors, paying low levels of withholding tax and management fees, can expect to earn an annualized real return of no more than 31⁄2% on an all-equity fund and 2% on a fund split equally between equities and government bonds."

Jim in San Marcos said...

Hi Dearieme

Thats horrible news, but I will read that article. Credit Suisse reports tell it like it is. 20 years of 2% returns kind of sucks. The rule of 72 says that it would take 36 years for your nest egg to double. I'd better get a second job just to keep up

Thank you for the link