When the Oil Price Portends Recession
What a nuisance! Our laptop computer collapsed this morning. Hours were wasted trying to revive it. We were like a carpenter without a hammer…a clown without a red nose…an idiot without a village.
Meanwhile, the financial world seemed to be on the verge of collapse too. Stocks rose 161 points on the Dow yesterday…after a big drop the day before. Gold rose a bit too.
This is the kind of market nervousness that usually resolves itself – in a big drop. Yes, our “Crash Alert” flag – tattered, faded, and frayed – is out. Ignore it at your peril!
…..read more HERE
Housing Prices Still the Bane of Economic Recovery
Whoa…this looks bad too.
In the housing sector, the fed’s ultra-low interest rates are supposed to make it easier to refinance…which is supposed to help firm up prices. But prices haven’t firmed. They’re still giving way.
he latest numbers show prices falling, hitting post-bubble lows in 11 cities. Of the 20 major cities in the survey, only two of them had positive price movements last year. No surprise, only one – Zombietown itself, Washington, DC, home of the feds – showed an increase of more than 2%.
Worst hit were the sunshine states – California, Florida, Nevada, Arizona and Georgia. Along with Michigan, more than a third of homeowners in these states have negative equity in their houses…with 70% of them underwater in Nevada.
Wealth effect? Not in housing. According to the Case/Shiller numbers, homeowners saw their net housing wealth decline by $650 billion in the last quarter of 2010. And since many more households own houses than stocks – 66% are homeowners – falling housing prices has a much bigger effect on the economy than rising stock prices.
And it gets worse. The big wave of resetting (and recasting) ARM loans begins to crash into the housing market next month. There are about $700 billion worth of loans in this group. Many will not be successfully rewritten. Falling housing prices will make it impossible. Homeowners will prefer to walk away, rather than be shackled to a long- term mortgage 30% to 50% higher than the value of the house.
Says housing expert Robert M. Campbell:
“I continue to believe that the second downward leg in house prices that began in 2010 will likely take US housing prices to a point that is 15% to 20% below current levels.”
*** And what’s this…
“This is great…it’s down 35% since we bought it.”
This is not the kind of message you usually get from your financial advisor. But this was no ordinary advisor…and no ordinary advice.
Rob Marstrand advises our Family Office on what to do with money for really good, really long-term returns. He was speaking about a Chinese food producer; he thinks this is one of the greatest opportunities to come along in many years.
“Doesn’t sound so great to me,” we responded. “We’ve lost a third of our money.”
“You don’t understand Bill, this is not the same sort of investing most people do. We let time work for us. The average guy would be petrified. He’d be looking at his retirement account…and wondering how he would make up for a 35% loss. He’ll need more than a 50% gain to get back to even.
“But we’re not concerned about retirement. The key to family office investing success is to find the right positions…get in them at the best prices possible…and stay in until they go where they ought to go. This is a stock that is debt free…and it is trading at less than 3 times this year’s earnings.
“This is an almost unbelievable gift…but only if you’ve got the time to take advantage of it. If China blows up…or the world sinks into another big slump…this could stay down for years. But over the long run, this is likely to produce huge gains. If it just went to a ‘normal’ P/E of 10…you’d quadruple your money. But this is a company whose revenues are growing at 20% per year…so you might expect a P/E more like 20 – which would be about a 700% gain.”
Will Rob be right about this? We don’t know. But our family office investing strategy is a little like the advice we gave to Edward. In the short run, you can’t know what will be a big winner and what won’t. So, you invest in the things that deserve to be winners in the long run.
for The Daily Reckoning
P.S. We don’t invite anyone and everyone to participate in our Family Office project. And, to be frank, we can’t accept everyone who applies. That said, long suffering dear readers get first dibs, if they’re interested. Here’s an invitation from our son, Will, in case you want to learn a bit more about it.