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.