December has historically been one of the strongest months of the year for equities. The Economist wrote the U.S. economy is improving and we could see growth next year. I bought a little AMZN and GOOG on Friday. But my “big” (it’s not so big) positions are in mortgage REITs, SGOL and TIP. I’m still heavily in cash. Despite the better news, I’m still skittish.
Call options get more expensive when markets rise. That’s good if you’re selling covered calls — which is one of today’s better strategies. Carefully pick stocks you want to own.
The voice of pessimism. From Richard Russell’s latest newsletter:
December 2, 2011– The world’s major central banks launched a joint action to provide chief emergency US dollar loans to banks in Europe and elsewhere.
In a desperate effort to raise stocks the central banks of the world coordinated by forcing more money into the world system. The obvious result was a surge in stock prices with the Dow rising almost 500 points. This is exciting for now but it will result in inflation within 6 months to a year. Along with rising inflation will be its cousin, higher interest rates. This will impact everything from commodity prices to the rising cost of financing the federal debt. Right now the federal debt is being rolled over at extremely low interest rates, but as rates climb, compounding will occur and the cost of rolling over the federal debt will become a critical problem.
Remember, 40 % of the federal debt matures in less than one year and the average rate of the entire federal debt is 4.3%. This is when compounding of the federal debt becomes poisonous. The problem of borrowing to finance the federal debt becomes prohibitive. For now the act by the federal bank of flooding the market again with cash acts as a stimulant, but the same stimulant becomes, in a matter of years, inflation poison. The first bubble to be crushed will be the ridiculous federal debt. The second crushed will be the US dollar. The compounding federal debt will act as a steam roller, rolling everything in its path. The island of safety will be pure wealth, better known as gold. Patient subscribers will be rewarded for their patience. The great enemy will be the act of compounding pressing its weight of the US debt. Just as compounding turned rising money supply into fortunes, compounding the rising interest rates will turn fortunes into shoestrings.
His traditional recommendation: Buy gold (which has done well this year). Look at this chart and the two lines I drew.
The bottom line shows the trend from earlier this year. Note that we’re still on trend. What happened in July is that the rise went bubble-like. It started going through the roof. I’ve noticed this before — especially with stocks (e.g. 1999). It always signals an early and abrupt correction. Good idea to draw lines when we start to get too enamored with our own briliance.
It’s been a semi-awful year. Equities are back where they started. Worse was the volatility from end-June on. Many investors dumped shares, then bought them back, then dumped them. The losses for many were horrendous.
The S&P 500 showed the same volatility. It’s down, so far. At least the Dow is up, slightly.
Compare their performances to Vanguard’s high-yield tax-exempt fund — VWALX. Including its dividend, it’s up about 8% this year.
Look at NXC — a tax-free bond fund if you live in California. It pays nearly a 5% dividend. Bond funds are doing well.
60 Minutes did a piece on corporate fraud.
It wondered why there had been no convictions fromthe sub-prime bust. It focused on Countrywide and Citigroup and found compelling evidence that fraud had been committed. 60 Minutes interviewed a Justice Department spokesman who squirmed but could give no plausible reason why Justice had done nothing. He denied that the White House had called and suggested that Justice go easy on the financial community — Obama’s single biggest contributor. Watch it here.
Amazing chart on on youth unemployment. From the Economist. These are average numbers. Unemployment in specific communities — e.g. Muslim enclaves — is much, much higher. It’s very sad.
Screwless wallplates. I’m a bit obsessed with ugly wallplates with ugly screws. It turns out that both Leviton and Lutron make attractive screwless wallplates. I prefer the Lutron design, which consists of these two plastic pieces. One piece screws into the switch. The other piece simply clips on top. The Lutron version tends to be cleaner. It holds the wall better. Fewer gaps.
Lutron and Leviton screwless wallplates are expensive. Amazon has the cheapest prices, not Lowes or Home Depot.
Three truths
+ Give a person a fish and you feed them for a day. Teach a person the Internet and they won’t bother you for weeks, months, maybe years.
+ All of us could take a lesson from the weather. It pays no attention to criticism.
+ In the 60’s, people took acid to make the world weird. Now the world is weird and people take Prozac to make it normal.
Whom would you marry next?
One lazy Sunday morning the wife and I were quiet and thoughtful, sitting around the breakfast table when I said to her unexpectedly, “When I die, I want you to sell all my stuff, immediately.”
“Now why would you want me to do something like that?” she asked.
“I figure a woman as fine as yourself would eventually remarry and I don’t want some other asshole using my stuff.”
She looked at me intently and said: “What makes you think I’d marry another asshole?”
Harry Newton who is often asked why New York City is doing so well. One big reason: New York is now the number one tourist destination in the U.S. It ‘s actually unusual to hear English on the streets. Europeans love shopping in New York. It’s so much cheaper than back home. Europeans are also buying apartments in New York. Many are fearful of the Euro — with reason.
The Wall Street Journal is blaming the FCC for AT&T’s lousy service, for blocking the merger with T-Mobile. The Journal’s headline:
Dropped Call? Blame the FCC
Regulators quash a merger that AT&T needs to improve its wireless service in congested areas.
It’s nonsense. Verizon just spent $3.6 billion on new bandwidth it bought from cable companies. That’s less than AT&T is paying as a record penalty for its merger with T-Mobile not going through. Sometimes you wonder about the intelligence of boards of directors, especially AT&T’s.
harry..the real criminal here is eric “place” holder, our alleged AG. When is he going to go after wall street and their washington enablers?
Why is New York doing so well?……..simple, how about one gigantic screaming “THANK YOU” to Rudolph W. Giuliani. I think that about covers it……..but unfortunately in presidential terms he's considered “unelectable.” Hey Harry did you also work for the David Dinkins campaign?
Can your well informed readers help me answer this: If I am in Treasury or Muni bond funds and I don't need the cash, when inflation is RECOGNIZED (it's here now, baby!) can't I just ride out the dip in the fund price caused by inflation until the fund re-balances with higher rate bonds? Why do I have to liquidate now, run to cash, and then plow back in when bond fund yields rise. Why not just sit through it?
“Europeans are also buying apartments in New York. Many are fearful of the Euro — with reason.”
Wealthy folks from Europe and from Central and South America are buying high end properties in S. Florida as well. Good weather and, as they say, “An abundance of inventory.” I've been told that these buyers want a big airport. After a long flight they want to be at their destination.
I guess when people are running TO you, things can't be all bad! I note that is probably the most optimistic thing I've said since Obama took office.