wearmanyhats

The home nestled in the Chicago suburb hadn’t seen such a housefull of noise in a long time.  Wine and beer flowed freely as the kids played video games and the adults chatted.  After the family gossip had died down and opinions had been offered about Obama, the talk turned to the economy. One nephew, a machinist, explained that 24 of the people in the machinist plant where he worked had been laid off,  over 50% of the workforce in his division.  “We lost good and bad workers,” he said.  “Some of them I trained myself and I didn’t want to see them go.”  He smiled over the thoughts of a contract that a large company had made with them.  “Three years,” he said.  “They have to buy these things from us for three years.  By then the economy should be on the road to recovery.”

They talked about how stores were closing down in one particular suburb.  “People are saying that this is not the year to buy gift cards,” said one niece.  “There’s no guarrantee the business will be open after the New Year.” The conversation trailed off as people sat and thought about how these cuts would affect their lives in the different ways.  One way was that it would take them a bit longer to get to certain stores.  Neighborhood stores were closing, and some weren’t even going to stay open for Christmas.  Yes, Christmas in Chicago, according to them, looked a bit duller this year.

Yesterday, sitting around the dinner table with nephews from Minneapolis was completely different. Like their cousins in Chicago, these men were not the college graduates.  Like the Chicago cousins, these folks working in blue collar and white collar jobs.  But unlike the discussion around the Chicago dinnertable, their words were more upbeat.

“I don’t know how businesses are doing,” confessed the oldest of the nephews.  “I see some laying off people but yet others are expanding.”  As an electrical worker for a utility company, he doesn’t worry about his job.  “We got to put in utility lines whenever new businesses expand,” he explained.  “So I kind of get a feel for what companies are growing.” 

 His brother, an insurance salesman, shared his brother’s optimism.  “I’ve had the best year ever,” he declared proudly.  He has done it by expanding into niche markets, and following through with his clients needs.  Other people who started in the insurance business when he did are no longer selling.  “You gotta be able to make it through the lean years and then follow up on clients as their lives change,” he said.  “Those other folks just never did that.”

Though no one that shared a dinner with us was facing a job cut, and all were optimistic for the future, each were secure in the knowledge that their hard work ethic is what kept them employed.  The truth is, America has not yet seen the worst of this unemployment issue.  After Chriistmas, the layoffs will get worse, and then we shall see the steel of our nation.

For the first time in three years, my family decided to take a vacation for a week.  As a writer and investor, I use the internet as often as I can during the day.  As a RCI member, (timeshare), I take whatever unit I can get closest to my desired destination: Chicago, in this case.  My dismay was difficult to put into words when I discovered that they did not offer wireless internet or even a regular hookup in the room in which we were staying.  Since we had already paid for the week, cancelling was not an option.  This is not to complain about RCI, since they have a fine facility.  However,  vacationers like me  have the need for timely information, plus the ability to do a job, even when on vacation.  No doubt about it, times, and vacations, have changed.

The gold market is the one that is needing special attention these days.  While the prices has gone up $50 an ounce recently, I think now is the time to buy back in.  It doesn’t look as though the price of gold is going to fluxuate dramatically after this.  There are few  financial writers out there that do not agree with me on this.  Sometimes it pays to be a contrarian, but often there is a period of time when most financial analysts can see a trend clearly.  This is such a time.

It is also a perfect time to take a vacation.  Due to the economy, vacation spots are a little slower than usual.  There are only a few kids at the pool today, a strong indication of the quiet economy.  Normally peope from Chicago or Minneapolis or Madison would be crowding this place.  But it is quiet,  partly because of the economy and partly because of the holiday.  What a great time to travel.

And since money is only means of exchange, and since investing isn’t nearly as important as those we love, let this blog depart from analysis long enoguh to wish all of you a wonderful holiday.  Perhaps this bear market can finally let all of us concentrate on being grateful for the things money can not buy.

Friday I released a note saying that I thought that gold probably had found its legs in the mid 730 range.  This morning I looked at the numbers and it went up $55 in one day.  Good going, Gold!

There are some important reasons this is all happening now.  Most people who have fled out of the market and into American dollars or Treasuries are now realising that the US is completely standing on a foundation of sand.  The debt on our nation’s books is almost mindboggling:  $10 trillion acccording to National Public Radio on Friday.   Add on to that the debt that millions of Americans now have on their credit card and suddenly our nation looks like a bunch of irresponsible teenagers. 

Saudia Arabia, according to Mile Larson of Weiss Management Group, has been buying gold like crazy, and Larry Edelson of Real Money Report, indicates that the Chinese government, too, has been buying.  The Chinese people buy strands of gold and wear it in necklaces, that’s how much the common person chooses to interact with the yellow metal.

While I think it is possible that the gold will move back up, and strongly, I can’t look at the one year chart of gold and feel good about the direction it is going to take.  In fact, it looks more like it is in a downward trend than an upward trend. And although all economic indicators point that gold will climb, I don’t know if this rally is temporary.

Let’s talk for a second about those economic indicators.  First, the unemployment number sin the US have risen in the past month.  Consumers have tightened there wallets and as a result, the demand for oil has dropped, hence the price has, too.  One would think that there is nothing but gloom and doom on the horizon. 

The problem is that local economies don’t bear out.  This area of the Midwest, for example, still has work, still needs people to fill positions.  Truck driving firms are still looking for drivers, factories are still looking for people to fill the midshift timeslot, farmers say they still can’t get good hired help.  What has left are the better paying jobs,  not all jobs.  Underemployment threatens the US more than lack of employment.

Gold responds to doom and gloom, and some of the perception provided by the media is that there is no hope for a better tomorrow.  The reports of job layoffs never take into account the number of positions that are still available.  And that is a heartening thought in a time of increasing unemployment.

British Petroleum  (BPT) has been good to us, but since we are close to our buy in and it seems to be falling like a rock, we might as well preserve a little capital out of our big losses and sell on any rally.  We’ve gotten a nice dividend, but let’s save the buy in for later after a larger drop in share price.  If the price of oil starts to go back up, we can look in to buy in again at a new low. The good return on the dividend that was paid after this buy should soften the blow of any loss.  I’d feel better about keeping this stock if oil were even moving in an upward direction.  But I think we’ll have time before that happens and we can releverage ourselves.

The loss on many portfolios is now starting to cut into the meat of the initial investment.  It’s a shame, but we’ll have to just wait it out and hope for the best in terms of being able to buy in later.  There is no end in sight for the drop in this market and no amount of hope seems to rally it up.

A report on Tech Ticker today talked about the terrible drubbing even famous investors are taking, including the most famous, Warren Buffet.  It was a report designed to make us feel better about our own losses.  However, the frustrating thing about this investment situation is that all investments across the board have either gone down: bonds, metals, stocks, and real estate. So where is a person supposed to put his/her money?  Treasuries.  TIPS, specifically, if you need the money soon.  Most big investors are riding out the storm.

Gold has not gone down enough or sat enough to make a truly worthwhile correction.  Having said that, it has sat in the $700 zone long enough to look as though these are the legs of the bottom.  Financial gurus are saying that they are hearing through the grapevine that China and Saudia Arabia is buying huge amounts of the yellow metal.  Lots of these financial advisors are saying to pick it up now.  That would be $150/oz under where I said to sell.

I don’t know if I agree.  The price of oil should start to creep up first before gold going up is justified.  Right now the dollar is running strong, but watch these markets closely.

 Financial action around the world seems to be holding its breath, waiting for a new President to take office.  If gold begins to rally with large jumps in the price, it’s probably time to get on board.  The last time a correction in gold and oil took place together, the lows lasted fourteen months.  That is plenty of time to gather cash and metals of all kinds.

Good stocks to grab when oil begins to ease upward:  XLE and BPT.  This blog will keep you posted.

Royal Bank of Scotland (RBS) is probably one of my favorite stocks to watch these days, probably because it was offering a good dividend, then stopped, which is smart whenever a business is in trouble.  It’s one of those companies that prides itself in being able to figure out problems, if you believe its advertising.  But most of all, it has been acquiring new accounts like crazy.  All that advertising pays.  The problem: subprime mortgages and derivitives are practically killing it.

So what does a company do when the stock gets so low it looks like it’s involved in a limbo competition?  Simple.  It reverse splits!  Now this is painful to any stockholder who had even the most remote faith in the company because, in simple terms, 100 shares are suddenly hacked to 50.  That isn’t a problem, but what was once $1.92 is now at $19.50 and falling.

There are a certain number of “I told you so!”s that would be well deserved here,  except that it isn’t against the law to believe in a company that has had a temporary setback.  While I said RBS looked like a good buy, then told folks to drop it after some really bad news, I kept it.  I’m ever the optimist.  In payment for my loyalty, I’m going to lose more money up front.

Delisting would have been less favorable, though.  Now I have at least some hope in the future of this turning around.  In a perfect world, the stock will go up like crazy, split, and bring me back money by the trainful.  Since I no longer have a great amount stuck into it, I’m going to wait for that sunny day.

Now the moral of this story is simple:  be prepared to either get socked with a reverse split, or watch out for a company being delisted.  The latter of the two is absolutely fatal to anyone who wants to recover their money.  I’ll take the reverse split any day.  It stings, but ten years from now, I may be glad for my optimism.

Retiring young really isn’t a secret, though from an e-mail I got from the Motley Fool this morning, I could buy a whole bunch of advice on how to do it.  There are many ways in which you can secure an early retirement, or even a good retirement at that.  It’s not really a secret, it’s just that you have to do all the right things to make it happen.

First, you can invent something and it can go big.  Think of Micheal Dell or Bill Gates and you’ll understand this concept immediately.

Not your thing?  Well, you can start a business that everyone needs.  I have a good friend who did just that and could have retired at 35 with lots to spare.  Why didn’t she retire?  She had no idea what she would do with her day if she did!  So, she still works part-time there, but plays around with the idea of giving it all up.

Is that still not for you?  Not a problem.  Get a job, cut up your credit cards, and do nothing but put hundreds away a month into your Roth IRA and 401k (or 403b for the public sector employees.)  Keep an eye on it, and if all goes well and your investments are good, you should have an excellent return to take care of you.

So does that mean you have to be in a well paying job?  Not necessarily.  You can also use small amounts of money to pick up undervalued properties, especially now, and rent them out to make a portfolio of a million or so by the time you retire.  The key is to start young, be handy, let your renters pay down your mortgages, and when you get older and times are good, real estate is up, then sell and put your cash in some good paying monthy investments. 

These are the easy ways to do it, but the trouble is, not everyone can take the money out to do just exactly what is required to fund their future.  The good news is, especially with real estate, you can even get started in your fifties and make that dream come true.

It’s not tricky to be successful, but bad health, big unexpected bills of any kind, problems with family or unexpected disasters can derail any successful plan.  That’s a part of living.  But it’s critical to plan out that future, to give it the best shot possible, because a comfortable retirement is what we all want.

On Thursday morning, Sarah Palin addressed the Republican Governors as they met early in the morning.  Although glib about all of the things she had been doing recently, including traveling, meeting some VIPs and “buying some clothes,” she continued on to intelligently challenge the governors to rise up and reform the party from within.  She asked them to consider taking care of the health care situation state by state rather than involving the Federal Government. Most of all, she condemned the national debt of “10 trillion dollars,” after recognizing that even though national securtiy was importatnt, spending had gotten out of control.  She acknowledged that it was her party to have blown that  debt to its current level.

While it is refreshing to see Palin without the guard dogs that ineptly maneuvered her around the campaign, and it is wonderful that she squarely puts the credit card spending of the government right on the shoulders of the culprits, there was a vital piece that Palin overlooked.  There must be more than one disgruntled investor out there, more than one “Millionaire Next Door” that feels disenfranchised from the binge buying of both political parties and other ridiculously over-paid, opulent people in this nation who can not or will not comport themselves with any amount of class.

Take the average “pull-youself-up-by-the-boots” American that has become wealthy either by luck, ingenuity, or hard work.  The majority have no problem spending that kind of money on whatever pleasures in life is well deserved.  But what about someone who barely works for a million dollar an episode on television, or plays baseball for a couple of million a year?  Certainly they deserve the fruits of their talent and labor. The problem comes when people begin to waste their money on crazy things; snorting away millions in cocaine, spending taxpayers money on hookers, or sending an aide to buy hundreds of thousands of dollars worth of clothing with the political donatins of  hard working Americans.  It adds insult to injury to have conservative talk show hosts come on and explain it away that Palin didn’t have the right clothes for the climate, or she could dress down a bit for Alaska but needed to look glitzier for the Big Time.  Good, hard working Republicans who trusted their party suddenly were shafted.  Let’s not forget the Democrats.  How many were disenchanted with Jonathon Edward’s $400 hair cuts or his affair?

Investors wrestle with this problem every day when they have to choose into which company they wish to put in their hard earned dollars.  There is no shortage of multimillionaires at the heads of any American business, and the rewards reaped by those on top have often been labeled “obscene.”   It is especially insulting when a company president throws the company into bancruptcy, then leaves with his ”golden parachute.” 

The executive director of Moneyshow.com recently commented on why he believed Barack Obama won the votes of most of the American investors.  It wasn’t capital gains, for too many people lost this year to worry about that.  It wasn’t taxes.  It was, he said, change.  People needed to feel as though the country would turn around.

Let’s challenge that notion to go one step further.  Obama was, perhaps, the only candidate that saw the complete divide between the people with BIG money and those with just average money or no money at all.  He saw the anger of those who watch the wastefulness while others go hungry, the outrageous antics of spoiled persons who show nothing short of complete lack of judgement by throwing their opulence in the faces of the needy.  The overlooked, disgruntled investors spoke loudly by asking for change, not just because of the economy, not just because of foreclosures, not just because of the drop in their 401k or their lack of health care coverage. There are those investors who are tired of seeing money being spent foolishly, especially other people’s money.  These are the investors that take care of other people’s money when it works for them.  They sometimes ARE the other people giving the money.  And they want change.  

In 2000, I sat explaining two charts to my husband.  One was of the crash of ’29, followed by a more dramatic tumble that took place in ‘31.  The other chart showed a similar pattern in the Nikkei starting in 1987, and then another, final downturn before the big bear market in the 1990’s.  ”See,” I said. “It seems to happen in a similar pattern.  First the market drops, then it goes back up, and then it plummets to earth.

He nodded, and said, “That’s when we should be in money markets then, right?”  I agreed.

But hindsight has the best vision, and here I am, riding through the very event I knew would come.  Why on earth would I have let that happen?  The answer is simple:  no one knows the timing of such events.

Mike Larson, a financial writer, wrote recently about his trip to the DC Money Show.  In it, he said that the talk was about “dumb money and smart money.”  The idea behind this is that the first time the market crashed, the average investor, or the “dumb money” got caught and sold out.  Then comes the demise of the “smart money,” or the guys who do this kind of thing for a living,  the more skilled investors.

I can’t exactly say as I agree with this label of dumb or smart.  First off, most people know darned well they have to invest in something because inflation will rob their away their cash.  Most go with financial planners, who better be trained to deal with this.  Finally, is it smart to pull your money out right away during the first drop and avoid that common aftershock?  Maybe the dumb ones were the smart ones after all?

Most “smart” investors are hedging their portfolios with shorts or inverse ETFs, and that’s okay.  However, most “smart” money are staying invested in some way.  And that has to make a person wonder, if those of us who are still invested -me included- are truly deserving of that “smart” label.

“What on earth are you still doing in town?” I asked a friend of mine one day last week.  “Aren’t you out driving for the beet harvest?”

“Too wet,” he said, mornfully.  It’s a loss of money for him, but worse than that, two to three million dollars worth of sugar beets sit in the field, the ground too soggy to handle the equipment to harvest.  “Bad for them,” he said, shaking his head.  “That’s not covered by insurance.  The crop isn’t ruined.  You just can’t harvest it.”

He then proceeded to tell stories of what happened a farmer and his regular crew tried to harvest.  Big rigs stuck in the field, axles broken when they got stuck and a bigger vehicle tried to pull them out.  “What a mess,” said my buddy. 

Of  course, you know what that means:  higher sugar prices in the future.

It doesn’t stop there, though.  When I stopped in at another retailer downtown, we visited about his corn stove.  “Well, the price of corn is so high now that you have to wonder if there’s any kind of savings,” he said.  “But worse than that, have you seen the fields?  I heard on the news today that only a third of the corn in Minnesota had been harvested.”

I had a hard time believing that.  Perhaps a quarter of it remained in the fields locally, too wet to take out.  But here in central Minnesota, many of the fields are emptied and the work to prepare them for spring has already started.  Still, the rest of the state, especially out west, could be in trouble.  The longer they have to wait for the ground to freeze, the longer it will take to get the corn out.  Then there is always predator damage; the longer it stands out there, the longer the deer and racoon have their fill. 

You know what that means:  higher everything in the future.  Corn is just about in every product you see on your kitchen table.  Not only is corn used in the sweetners, but I was surprised to learn that even apples have corn in them….or should I say, on them.  Wax to keep the apples shiny have corn in it.  Who would have thought such a thing?

The news on the radio farm networks said the same thing this morning. Farmers are waiting for a freeze before they can harvest. Let us hope it will be successful.

So how to protect yourself from all this inflation?  Well, consider stocking up now before next spring’s prices.  Extra sugar and other food items that can be stored will help you stave off higher food prices and provide a good economic basis should you be laid off from your job.  And buy things you like to eat.  Don’t load up on green beans if you don’t like them. 

The big thing is to be armed with knowledge that these prices will go up. That helps you manage your finances better.

One of the hot new buzz phrases in investing is the concept of Modern Portfolio Theory.  This counters the idea that the fundamentals of your portfolio is only in stocks, bonds, and cash.  Instead, the theory is that if you enter another component to the mix, a certain percentage that holds investment items such as broker traded Forex accounts, real estate and other assets to your portfolio, the stability of your portfolio will be enhanced.  A very nice bunch of mathmatical formulas can be seen on Wikipedia concerning the background research and analysis that has gone into this.

In this blog, I have long advocated a variety of investment strategies be in your portfolio, particularly real estate.  Investments and “assets” are terms that are sometimes used too losely when it comes to discussions with some investment advisors.  I prefer to use the School of Common Sense, the one advocated by Robert Kyosaki, of the Rich Dad, Poor Dad  series.  This is a simple:  if it puts money into your pocket, it is an asset.  If it takes money out of your pocket, it’s a liability. That said, some things take money out of your pocket initially, but put money in later.  Gold coins, silver bars, high denomination bills, signed rare baseballs could all be considered assets.  Remember, it should only be a limited section of your overall portfolio.  The problem is collectors often become totally obsessed with a collection regardless of its worth and then forget to keep the whole of it in perspective.  That’s when it moves out of asset, and into clutter.  Nothing is worth a dime unless you can sell it and get food on your table.

I have other concerns about the Modern Portfolio Theory.  The fact that something as unpredictable as the stock market or Forex investments can be somehow explained mathmatically reminds me of the derivative equations that were put together to advocate it as an investment vehicle.   The stock market can’t be predicted by math formulas because it’s often moving on human emotion.  I understand there are sound studies behind this theory, but no one should use math strategies to legitimitize investment strategies.

I have other concerns about this theory.  Wall Streeters who advocate this, are using it to create all new investment brokers who will do the trading for you, ever mindful that most investors like you and I can only keep our mind on a few areas of investing.  The money made before the internet leveled the playing field for the average investor was mind boggling.  I remember an investment forum where one woman lamented the $120 going in and going out of a stock in her Merril Lynch account. Those were the days of the dinosaurs, and now Wall Street suits are advocating going back to the days when brokers again make you money and the ripe commissions this will generate must make these people salivate.  Not only that, some broker that lives thousands of miles away from you has his own pockets to worry about, not yours.  Unless s/he are making you over 30% returns, I would question why anyone would sit and just pay commissions.

All investments must be entered into prudently.  If it is going up, up, up and has your attention through the media, then it is probably time to not buy in.  If you can see stress in the market, that’s probably time to buy.  It doesn’t matter if it is real estate or rare gold coins.  But read, read, read.  Analyze, analyze, and then get more data to analyze.  Know the investment before you jump into it.  Don’t get more than an opinion from a salesman. Check with a few other salesmen or women after that.  There is enough information on the internet now that you can follow up to find out if those opinions have merit. 

Don’t worry about chasing the newest theory.  Chances are if you are a long term investor, you’ve already been doing that anyway.