Are The Bull Markets Back?

After the biggest surge in the stock markets since 2009 this late November 2012, I’m left wondering whether we’re back to bull markets or whether now is a ripe time to sell.  Although it shouldn’t matter, the answer depends on how well your portfolio has done.  If you’ve been 100% invested in equities since the beginning of the year, you are likely only up 11%. If you’ve got a 50/50 mix of equities and bonds, you’re likely up in the mid single digits.

It’s always a good time to reassess one’s portfolio once a quarter, especially towards the end of the year. One should take a view on the markets in 2013 and rebalance accordingly.  If you’ve been following my site for a while, you know that I have a very optimistic outlook on many things.  Perhaps it’s because things are so robust in San Francisco thanks to so many great companies like Apple, Facebook, Google, YouTube, Twitter, and eBay all thriving.  Then again, I’ve always been very upbeat.

Below are some positives and negatives I can think about that will help in the thinking process.

The positives: November Chicago PMI at 60+ indicates an expansion.  Record high Black Friday and Cyber Monday retail sales demonstrate consumers are cashed up and positive about their jobs.  Low interest rates increase cashflow for property owners and anybody with revolving debt.  Pending home sales in November are up 10% MoM vs. +2% MoM expectations.  Private sector hiring continues to trend up with unemployment levels falling to a 2.5 year low of 8.6% as of November, 2011.  WTI oil is back over $100, signifying higher demand.  Corporations have the largest amount of cash on their balance sheets on record, signifying a potential unleashing of buybacks, increased dividend payouts, and M&A.  Markets have historically rallied during an election year on false promises.  Valuations are reasonable and the S&P500 dividend yield is more than the 10-year risk free yield of 2%.

The negatives: EuroZone debt crisis, US state budget woes, political gridlock, and unemployment rate still above 8%.

Positive anecdotes: Raised rent by 10% in one of my rentals this fall.  Vacation rental pre-bookings to Lake Tahoe have been the strongest I’ve seen in years.  Buses are so jam packed they skip stops, necessitating I walk three stops away to get on.  I have to call at least a week in advance to get reservations at a restaurant that averages $75 a person.  Zynga is looking to go public with a US$10 billion valuation in December.  Facebook is looking to raise $10 billion with a $100 billion dollar valuation in 2012.  Google had blowout 3Q results, even at its large size.  Online advertising income has been consistently on a stable to upward trajectory all year.  A friend went from an average $3,500/month two bedroom rental and bought a $3 million house out of the blue due to a liquidity event.  A couple friends are finding jobs and leads again when they couldn’t this summer.

Negative anecdotes: Compensation firms think bonuses will be down 20-40% in the financial industry on average.  Mass layoffs at companies such as American Express and the US Postal service seem inevitable.  The vacation property market is still quite weak.


The Top Reasons To Buy Gold

Imagine a tennis court.

Now, imagine a cube with sides that are slightly shorter than the length of a tennis court. No, this isn’t some sort of New Age meditation. This is, in fact, a way to visualize all the gold that has ever been mined since the beginning of time.

Most people are shocked to discover the relatively small amount of gold that exists above ground. Indeed, if all that gold was evenly divided between each person on Earth, each individual would only be entitled to a mere 23 grams.

Let’s examine some of the best reasons to purchase this rare chemical element that has captivated humans for thousands of years.

The Economy Hedge

You don’t need to be a financial expert to know that we are currently at the brink of a recession that is bringing the world to its knees. The U.S. debt-ceiling debacle led to the country’s first-ever credit downgrade, while smaller countries like Greece have found their debt so unmanageable that their economy is about to enter the Death Star.

Gold is known for being relatively dependable in the darkest of times, with the price of gold still up over 30% in 2011 despite the recent pullback.  The S&P 500 meanwhile, is down about 10% and the US dollar continues to be weak.

Reduce Volatility & Protect From Inflation

“We Are Wall Street” E-mail Fights Back Against Main Street

We have a culture of blaming others for our problems and Main Street is now on a tear with this “Occupy Wall Street” movement that’s gathering steam.  The thesis is that financial institutions and anybody who has anything to deal with financial institutions are bad.  The government and the media help fuel the fire against Wall Street and make them scapegoats for the economic decline.  That way, they’ll hopefully deflect the blame away from themselves.

One man from one Wall Street firm stood up and had enough.  In 2010, he penned this letter below which started slowly circulating the web until it finally caught my eye.  The letter is just as appropriate today as it was last year.  He probably had nothing specifically to do with credit default swaps and other exotic instruments that helped cause our decline.  “Wall Street” is a catch-all phrase that leads to a lot of unwarranted stereotypes.

Just because you work at Bank of America as a teller doesn’t mean that you are to blame for Ken Lewis’ empire building when he bought Countrywide Financial and Merrill Lynch for prices nobody in their right mind would pay, which is now leading to massive layoffs.  Just because someone is a Latin America investment banker at Goldman Sachs doesn’t mean they are responsible for you buying 3 condos with minimal money down in Florida to try and get rich.  No, the guy buying the 3 condos is responsible………… or is he?

Just because you have massive student loans and can’t find a job, that doesn’t mean the US economist working at JP Morgan had anything to do with your situation.  Maybe it’s because you borrowed more than you could afford?  Or maybe it’s because you didn’t do well enough in school or go to a better school for that matter.  Why protest an irrelevant economist when you could protest right at your very own school!

If you are a raging populist, who is easily offended, and complains a lot, perhaps you shouldn’t have a read.  But, if you’re a normal rational person who likes to see both viewpoints, take a look and let’s discuss!  Remember, this letter is a retort against the media and the protesters who’ve attacked him, his family and his industry for months.


How To Drastically Increase Your Betting Odds And Help Others Too

Confession. I’ve been a bad boy for a long time.  It all started when my parents gave me 5 bucks to exchange for quarters at the arcade when I was 8 years old.  This was the most amount of money I ever held in my entire life.  My parents figured it was enough money to hold me over for a couple hours as they went to lunch.

I was with my buddy and we took turns playing various games such as Pacman, Galaga, DigDug, Zaxxon, BurgerTime, and Frogger.  About 45 minutes in, I had spent $4 of my $5 dollars and was worried my remaining $1 wouldn’t be enough to last me until my parents came back.

At this moment, my buddy bragged a lot about how good he was at my all-time favorite game 1942; the one where you fly a 1942 war plane and do 360 flips to avoid gun-fire.  I let him keep talking about how great he was until I challenged him to a bet to see who could last longer for my last 4 quarters.  He obliged, and I not only won $1, but won another $2 as he doubled down.

Little did he know that I had just finished the entire game last week and had been practicing for months on end before.  Ever since that day, I’ve developed a system to increase my betting odds and make plenty of side money.  This is an unusual post for me, since my tag-line is “Honorable Personal Finance.”  As you read on, you’ll realize that perhaps winning money off willing participants who have big heads is not so bad, especially if the proceeds go to charity.


The Economy Will Be Just Fine: 40,000 People Can’t Be Wrong!

As the markets were melting down this past week I decided to go watch the World Champion San Francisco Giants beat up the lowly Arizona Diamondbacks in the middle of the day.  It’s quite a treat to watch every game this season because of our current world champ status.  Next season, we’ll be just another team, trying to figure out our way back to glory.

At $80 a ticket, access doesn’t come cheap, but with the ticket comes all you can drink cervezas.  Besides, 1pm games are the best on sunny days.  Might as well go!  When my friends and I got there, we were shocked.  The stadium was absolutely PACKED!  We are talking 40,000 people enjoying a baseball game in the middle of a work day.  See picture above.

I thought about it for a second and came to the realization that the reason why 40,000 people can spend on average $50 per ticket during the middle of the day is because despite the market meltdown, we all have job security or don’t need to work because we have the disposable income to spend.   With a sample set of 40,000, it’s obvious that the economy will be just fine and that unemployment is actually better than what the media drones on and on about.

Think about it.  If you were broke, you’d just stay at home or go to a bar and watch the game on TV for free.  If you were worried about your job, you wouldn’t ditch the afternoon to go watch a game.  You’d be working your tail off and trying to add value.  If you were unemployed, you aren’t sweating it because you’re getting $1,450/month in unemployment income for 99 weeks.  Spending $50 might be more wisely spent elsewhere, but it’s sunny, and it’s the SF Giants we’re talking about!

People have more money than you know.  Why else do you think companies like Apple, Prada, and Tiffany’s are doing so well?  I went to visit my friend’s new place this past weekend and it was awesome!  They had been living in a quaint 1,300 square foot apartment for the past several years and now own a 5 bedroom, 4,600 house on a half acre in one of the most prime areas for $3.3 million!  He said he wasn’t looking to buy, but couldn’t pass up such a good deal when he was able to sell some of his start-up company shares.  Not bad for a guy in his mid-30s just 5 years out of business school wouldn’t you say?

Don’t listen to media schadenfreude about how bad unemployment and the economy are.  They are just bitter they are tied to their desks and can’t come out and play.  I’ve got my finger on the buy trigger come flash crash, Moody’s/Fitch credit downgrade, banishment of US treasuries by foreigners and political gridlock.  And, I’ll bet you a hundred bucks that the rest of you are thinking the same thing as well.  Why?  Because you’ve got the cash baby!


Invest In Ideas Not Stocks: Motif Investing is a terrific company based right here in the San Francisco Bay Area. They’ve raised over $60 million dollars from smart investors such as JP Morgan and Goldman Sachs because they are innovating the investment landscape with their “motifs.” A motif is a basket of 30 stocks you can invest in, which are aimed to profit from a specific idea or underlying theme. Let’s say you think new housing construction is going to quicken in the US next year. You could buy a housing motif which might contains Lennar, KBH, Home Depot, Bed, Bath, and Beyond, Zillow, and more in various weightings.

You can buy a basket of 30 stocks for only $9.95, instead of buying them individually for $7.95 through a typical broker. You can build your own motif, buy one of the motifs created by Motif Investing, or buy a motif by a fellow Motif Investor with a great track record. You can even buy retirement motifs, much like target date funds, except you don’t have to pay the 1% management fee. You get up to $150 free when you start trading with Motif Investing. Given my focus on buying winning long-term ideas and ignoring the short-term volatility, I really like Motif Investing’s value proposition for retail investors.

Updated on 12/1/2014. The bull market is alive and well. Don’t forget to rebalance and manage your risk exposure. Everybody feels like a genius during good times.