Steve Keen and the price of fame

After becoming a celebrity economist down under as a result of being one of the few dismal scientists to see the global financial market meltdown coming a few years back, Steve Keen has learned to take the good with the bad, that is, unless it crosses some sort of line, which, according to this entry at his blog, Jessica Irvine at the Sydney Morning Herald just did.

I normally don’t comment on articles about me, since I am aware that now that my views are part of the public debate, I have to take the good with the bad in coverage. I wouldn’t have written this either, were it not for the line “If only his predictions were so reliable” in Jessica Irvine’s piece in today’s SMH “Walking on a wire stretched between stimulus and debt“.

In a newspaper that sees itself as a paper of record, I would have expected a bit of context here–some acknowledgment of the fact that I was calling a serious financial crisis from December 2005, whereas conventional economic forecasters were predicting falling unemployment and rising inflation–rather than a throwaway line like that.

Here's the offending piece from today's paper:

You've got to hand it to Steve Keen, the mild-mannered house price Cassandra of Sydney's western suburbs: he knows how to get a headline and he sticks to his guns. If only his predictions were so reliable.

The 57-year-old academic will embark on a 224-kilometre hike from Canberra to the top of Mount Kosciuszko in April, wearing a T-shirt reading ''I was hopelessly wrong on house prices. Ask me how!'' He lost a bet against a Macquarie Bank economist, Rory Robertson, that house prices would fall.

In fairness to Keen (and while acknowledging that I'm far from an expert on the local economy), conditions in Australia would undoubtedly be much different if not for the fact that they are a natural resource rich country located close to China where stockpiling commodities financed through one of the most rapid expansions of bank credit in history appears to be a national obsession.

Read more...

The return of "subscription walls"?

It wasn't too hard to figure out that more traditional news media outlets are having a hard time making a go of it (bankruptcies were the first sign) following a couple of years of capitulating to "all free content" models after prior versions of "subscription walls" resulted in customers turning away in droves. This New York Times report tells of the difficulties currently being faced by an industry that continues to struggle with the new realities thrust upon them by the internet and high speed connections to it.

Over more than a decade, consumers became accustomed to the sweet, steady flow of free news, pictures, videos and music on the Internet. Paying was for suckers and old fogeys. Content, like wild horses, wanted to be free.

Now, however, there are growing signs that this free ride is drawing to a close.

Newspapers, including this one, are weighing whether to ask online readers to pay for at least some of what they offer, as a handful of papers, like The Wall Street Journal and The Financial Times, already do. Indeed, in the next several weeks, industry executives and analysts expect some publications to take the plunge.

Well, I just got my renewal bill from the Wall Street Journal and was rather shocked at the number of digits that were involved in the check they were wanting me to write to repeat the deal that was done two years ago.

Things must be going well over there but, apparently, they are the exception to the rule.

Media companies of all stripes built their business models on the assumption that advertising would continue to pour into their coffers. But with advertising in a tailspin, they now must shrink, shut down or find some way to shift more of the cost burden to consumers — the same consumers who have so blissfully become accustomed to Web content that costs nothing.

So will future consumers look back on 2010 as the year they finally had to reach into their own pockets?

Industry experts have their doubts, saying that pay systems might work, but in limited ways and only for some sites. Publishers who sounded early this year as though they were raring to go have not yet taken the leap, and the executives who advocate change tend to range from vague to cautious in making any predictions about fundamentally changing the finances of their battered businesses.
...
Arianna Huffington, co-founder and editor in chief of The Huffington Post, predicted that much of the talk of media’s mining the Web for new revenue would never become reality — and that if it did, free sites like hers would benefit. Some of the plans now being laid might work, she said, but many of them would just alienate the Internet users who click from one site to another, wherever links and their curiosity take them.

“I’m not minimizing the fact that there’s a need to experiment with multiple new business models,” she said. “I just don’t believe in ignoring the current realities.”

The current realities must be daunting for the big, traditional media companies (except for the Wall Street Journal) where new competition sprouts up every day and this new competition works on weekends, holidays, and all hours of the night.

Having slowed down here considerably over the last few days, I continue to be amazed at how much content continues to flow from the Blogosphere while you might go to an RSS feed from, say, CNN/Money and see that they've all taken the last three days off.

Read more...

A bear shows up on CNBC

Another classic moment on CNBC as an independent financial adviser is sandwiched between Melissa Francis, Larry Kudlow, and a JPMorganite, all of whom look aghast as Dan Deighan tells viewers that stocks will retest their March 2009 lows next year.

It probably didn't help Dan's chances of getting invited back anytime soon when he advised investors to buy gold on the dips. Then again, if CNBC is anything like Fox, they've probably seen an increasing amount of ad revenue coming from the many companies selling the metal.

Read more...

Goldmansachs666 on Bloomberg

An interview with Matthew Lynn related to this morning's article at Bloomberg that some thought was advertising the sale of the hottest new financial blog - goldmansachs666.

Read more...

Money Magazine recommends commodities

The current issue of Money Magazine is quite shocking. I've railed against what they've been writing for years now about conventional investment advice and, from the looks of the latest issue, you'd think they saw Jim Cramer on the Daily Show and figured they'd better get out ahead of the curve.

As the cover story is not yet on line - The 7 New Rules of Financial Security - there's something else in the April issue that is online that is well worth sharing, the equally shocking recommendation to buy commodities in this report by senior writer Janice Revell.

In fact, a case can be made for commodity-based investments now. But just as important, you should know you really don't have to go there. Chances are, you have exposure to commodity prices in your portfolio already. For those with the stomach for a roller coaster ride, though, an investment of 5% or so of assets in a commodity-based mutual fund could give your portfolio extra pop.

What's more, because commodities don't usually move in sync with stocks and bonds - the past few months notwithstanding - they are good diversifiers. They may lower your overall portfolio risk in the long run.

Old habits die hard...

There are probably a lot fewer individuals looking for "extra pop" in their portfolio today than a year ago, but still these old phrases get trotted out.

Recommending commodities as a mostly non-correlated asset class, however, is a very big first step for the nation's most popular personal finance magazine.

For that they should be commended.

More good advice is forthcoming about ETNs (Exchange Traded Notes) - I've never really liked them much, even before the credit crisis.

Your best strategy: Avoid the "exchange-traded notes" that track futures. They look a lot like exchange-traded funds, but they are backed only by the credit of the issuer. That's not a risk you need these days. The better play: Harbor Commodity Real Return Strategy (HACMX), which uses financial contracts to track the Dow JonesAIG commodity futures index. It too is a complex investment, involving derivatives, leverage, and inflation-protected bonds. If you prefer to just keep things simple - hey, life is short - stick to the stocks.

Alas, they are still a bit stuck in their "stocks only" thinking, but they do recommend a new commodity fund that happens to be run by Pimco (same as PCRCX or PCRDX).

Why they picked a fund that is only six months old when there are about 70 others to choose from, many of these offerings having been around for years now, is a mystery.

This is, however, a big step toward mainstream investors including commodities as an important part of their asset allocation strategy, something I've recommended for many years now.

Full Disclosure: Long PCRCX at time of writing.

Read more...

You're Bankrupt!

The phrase "too big to fail" has taken on an entirely new meaning on the East Coast over the last year or so and that new meaning is not likely to work in favor of the Donald Trump empire, a small portion of which went belly-up the other day for the third time in four years.

Fortunately, Celebrity Apprentice kicks off in about ten days or so and if there's one good thing about a high unemployment rate, it's that there are lots more people with lots more idle time on their hands and, as never before, we Americans just love being distracted from an increasingly complicated world out there.

The Donald's Prime Time show enters its eighth season after being nixed by NBC a couple years ago only to return as a celebrity-train-wreck sort of format, an idea that is apparently being built on this year with an even more volatile cast of characters including Dennis Rodman, Andrew Dice Clay, Tom Green, Joan and Melissa Rivers.

If ever there were a metaphor for the American Empire, it is the Trump Empire and the eighth season of The Apprentice.

Here's the report from Reuters on the casino:

Trump Entertainment files for bankruptcy
Trump Entertainment Resorts Inc, the casino operator named for Donald Trump, filed for bankruptcy protection on Tuesday as recession and declining gambling revenues battered the company and its rivals.

The Chapter 11 filing marks the third plunge into bankruptcy for the company, which was created out of a restructuring in 2005. It also underscores the struggles facing the casino business as recession squeezes casino gambling.
...
Trump, a very public and flamboyant figure in an industry filled with colorful, headstrong executives, said the company represents less than 1 percent of his net worth, and that "my investment in it is worthless to me now."

No stranger to bankruptcy, Trump Entertainment Resort Holdings went into Chapter 11 in 2004, from which it emerged a year later with Trump having relinquished the position of CEO.

He seems to have learned a thing or two since the early 1990s.

According to Wikipedia, his business went bankrupt in 1991 after the last real estate bust and he barely escaped filing for personal bankruptcy at the time.

It will be interesting to see how he does this time around.

ooo

Read more...

Set your watch to Super Bowl Sunday

This blast from the past couldn't come on a better day, it being Super Bowl Sunday and all.

When trying to think of something appropriate for what is, essentially, another national holiday, the name Barbara Corcoran came quickly to mind and long time readers will surely appreciate this short stroll down memory lane.

For those of you unfamiliar with Ms. Corcoran, she is a New York real estate commentator who, decades ago, founded the real estate firm The Corcoran Group which she then sold in 2001 for some $70 million.

Since that time she's written a number of books, authored various real estate columns, and served as a speaker at many venues around the country, often times appearing on major networks as a "real estate expert".

As one of the perma-est of all housing perma-bulls, Ms. Corcoran was one of the many housing bubble "deniers" a few years back, going so far as to lock horns with Jim Rogers on a particularly entertaining edition of Fox's Cavuto on Business which is excerpted below.

This item originally appeared in November of 2005...

Corcoran: It's funny what's happening right now - there's so much uncertainty in the market, and everybody's been spooked by all the media coverage that's out there that it really is a great time to buy. It's a great opportunity right now, and I don't think it's going to last very long.

I think come January, everybody who doesn't buy the house right now for the price that they could afford is going to wish they had because they are going to be paying more in January.

This "bubble babble" is baloney, and it's scaring people away and making buyers "think about it", and while they're "thinking about it", the house prices are going to go up, and I truly believe that.

Rogers: But Barbara, what's going to make them go up in January? Why are buyers coming back in January?

Corcoran: In January, you can count on it. You can set your watch to Super Bowl Sunday.
[...]
Stein: And as to why you can set your watch to Super Bowl Sunday, I'm totally mystified. Usually, people have to have a reason for something. I'm not quite sure what Barbara's reason is. Are interest rates going to suddenly turn down on Super Bowl Sunday?

Corcoran: Can I address that? First of all interest rates are not high, they're low. Even though we've had five big hikes by the federal government, what has it done to mortgage rates? Barely nothing.

But about Super Bowl Sunday, what I mean is by Super Bowl Sunday, this whole media "babble stuff" that's out there is going to get old, boring - the media is going to move on to something else, and guess what? People are going to be back in the market in droves.

Well, it turns out the housing bubble talk didn't get either old or boring in 2006 and people didn't come back to the market in droves, except as sellers, that is.

Here are a couple follow-up pieces on Ms. Corcoran from later in the year:

• March 13, 2006 - Bubble Sitting
• September 19, 2006 - Barbara Corcoran: Then and Now

As for home prices, we all know what happened in 2006. That was the year of the price peak in many markets, the red line in the chart below indicating the date of the 2006 Super Bowl as a handy reference.
Ahhh... memories.

ooo

This week's cartoon from The Economist:

Read more...

Money Magazine and your "risk need"

It will be interesting to see how things play out over at Money Magazine in the next year or so, particularly if 2009 turns out to be anything like 2008, a development that, unfortunately, appears to already be well underway.

While it looked as though they were toning down the whole "stocks for the long-run" thing late last year when, along with nearly every other investment approach, their advice was producing monstrous losses, with the dawn of a new year they seem to be back at it with their "stocks are the only asset class" meme that served them so well during the last stock bull market - that is, the stock bull market that ended about nine years ago.

This was noted on a number of occasions earlier this month:

• Jan. 8th - The losses of a Money Magazine portfolio
• Jan. 15th - Let Money Magazine fix your portfolio?

Of course, eventually, they'll be correct again in their unwavering dedication to equities in general and U.S. stocks in particular - it might just take another nine years.

With the exit of Managing Editor Eric Schurenberg a couple months ago, right as things were slowing down enough so that readers could tabulate their losses - seriously, he said "what once sounded apocalyptic is now routine" and then advised buying stocks immediately to rebalance decimated investment portfolios - you'd think that there might be some developing caution, a re-assessment of their overall approach, or at least a new-found understanding and appreciation of risk, but, apparently not.

Quite the opposite, actually.

Whatever is going on at Money Magazine these days, they seem to have reached a new low in this article penned by "The Mole", Money Magazine's undercover financial planner.

Question: I'm 57 and planning to retire at 66. Before this year's stock market turmoil my 401(k) was balanced at 70% stock mutual funds and 30% bond funds. Now it's 59% stock and 41% bonds. To take advantage of very low stock prices I was thinking about re-balancing to 75% stocks and 25% bonds. Does this sound like a good plan or should I just re-balance to 70% and 30%?

The Mole's Answer: Well, you're doing two things right already:

* You are not in a panic mode, as many are, and haven't sold your remaining stock.
* You are going against the herd and considering buying when others are selling.
...
My advice is to stick with your target and I'll tell you why.

First of all, I think it's critical to develop an asset allocation target. The portion of your portfolio that should be in equities depends on two things - your willingness to take risk and your need to take risk.

You clearly have a willingness to take risk, as demonstrated by your interest in buying more stocks after this rather dismal bear market. I happen to think that this is a good thing. But I don't know your need to take risk.

One's need to take risk is driven by how close you are to achieving your goals. If retirement is your goal and you have a lot saved up with low living expenses, you probably want a very conservative portfolio of, say, 30% in stocks. But if you are far from this goal, then you will need to take more risk and may need 70% of your portfolio in stocks.

Your "need to take risk"?

Is this something new?

Like doubling down in Vegas?

Since you are far away from achieving your goal of winning $1,000 so you can take everyone out to a nice dinner, you should start upping your bets - take on more risk.

Maybe this is a new concept that the editors of Money Magazine figured would be a good follow-on to the great "risk wake-up call" of 2008. An idea that, perhaps, might be making its way around financial planning circles in a similar manner as when car salesmen are trained to ask how large a prospective car buyer's family is so they can determine how many seats they need - two, five, or seven.

Mr. Jones, "When are you planning to retire? We have to know your "risk need" before we can formulate an appropriate asset allocation."

If this kind of thinking hadn't produced such disastrous results in recent years, it would actually be quite funny.

Read more...

A rogue editor at the Help Desk

The subject of Money Magazine's advice to their retail investor readership regarding the critical question of asset allocation has come up on a number of occasions recently, so this may be overdoing it a bit, but, then again, why stop talking about it now?

Shown below is the first entry in the Help Desk section of the February issue of the nation's most popular personal finance magazine.
Hmm... what might happen if some pragmatism is applied to the matter?

Here's an alternate answer that might be provided by a rogue Help Desk editor at Money Magazine who, perhaps, had some great revelation one day about how the world really works and isn't afraid to share it with readers, up until the time he or she is asked to pack up their belongings and head for the front door:

Robert,

Short-term, long-term - it really doesn't matter what type of investor you consider yourself to be these days.

You see, the asset allocations that our magazine have provided won't help you much for at least a few more years, maybe as much as another five or ten years. That is, until we get through this long-term bear market in stocks that, to be honest, we really should have caught on to by now.

But no, we keep telling people that they need to have a healthy allocation of stocks even when they're well into retirement because, even though things changed dramatically in equity markets back around the turn of the century, readers still believe us when we show those historical return charts with average annual gains in the double-digits.

People actually think that they'll get the returns of a stock bull market during a bear market, so we keep tellin' em do load up on stocks.

Truth be told, you'd have been much better off with an all-cash investment portfolio for almost the last ten years and if my employers weren't so obsessed with pleasing their advertisers who are peddling their stock funds for 401k plans (the bulk of our readership) maybe some of us would have told you that years ago.

Geez, you could have tripled your money in gold since the stock bull market turned into a bear - some of us here have been invested in gold for years now, but telling readers to do that would never pass muster with the boss.

Anyway, this might be my last bit of writing for MoneyMag. I hope it helps.

- Rational Roger, Staff Writer

Read more...

Let Money Magazine fix your portfolio?

Money Magazine has some new pie charts in their February issue and, since these images have been few and far between since the stock market meltdown last fall, it seemed like a good idea to have a close look at their latest offerings.

Recall that, in The losses of a Money Magazine portfolio last week, an August 2008 recommendation was examined and found wanting in historical performance - it had produced a cumulative gain of just four percent over a period of eight years with things looking only marginally better depending on which year in the current decade you began.

Well, the latest pie charts are a little better, but not much.

In Fix your portfolio, the staff at CNN/Money offer three new pie charts and "advice on how to craft an asset allocation that will best position you to make up your losses".

Hmm... make up those losses - let's have a look.

The first offering labeled Scenario 1 comes under the heading, "YOU DID IT RIGHT", a characterization that, more than anything else, speaks to the fact that conventional wisdom is often wrong.

"Doing it right" in the current decade would have you invested exclusively in mutual funds from Vanguard in the traditional mix of about 60 percent stocks and 40 percent bonds with a REIT fund thrown in for good measure.

Over the last eight years, you would have had an average annual return of 3.5 percent with a cumulative gain of 23 percent which works out to a very "money market-like" 2.7 percent average return after accounting for compounding.

As shown below, a starting portfolio value of 100 would have climbed to almost 160 at the end of 2007, only to plunge 22 percent in 2008.
One could argue that, starting at different times during the decade would have produced a different result and, while that would be true, it also wouldn't make a big difference.

Anyone able to summon the courage to invest at the depths of the last stock market bottom, as 2002 was changing into 2003, would now be the proud owner of a 38 percent gain and a 6.3 percent average annual return.
Beginning anytime later would have produced a less desirable result, both the total return and average return getting worse during each of the last five years.

ooo

For the more speculative investors in the Money Magazine readership, there is Scenario 2 which pushes the equities weighting from 55 percent to 70 percent through the addition of small cap U.S. stocks and more foreign stocks.

This sort of approach is intended for those who are willing to "take some risk in the pursuit of market-beating returns" and that was indeed the case.

Unfortunately, the results you would be looking at today are highly dependent upon when the investments were made, there being only a tiny window to "beat the market", but a much bigger window to "lose to the market".

Going back to an initial investment on January 1st, 2001, Scenario 2 bests Scenario 1 by 13 percentage points - cumulative gains of 36 percent versus 23 percent.

While, at first glance, a 36 percent return may look good, over a period of eight years, that works out to be the equivalent of one of those stable value funds you find in your 401k, the ones thta earn about four percent, year after year.

As shown below, Scenario 2's gain of almost 100 percent at the end of 2007 turned into something much, much less after the steep fall in 2008.
Here's where the timing gets difficult. An average return of more than eight percent over seven years could have been achieved by waiting one year to invest in early 2002 and waiting another year would have produced something akin to those "historical stock market averages" we've all heard so much about - an average return of 8.1 percent.

However, those who waited any longer, as we are all sometimes wont to do in order to assure ourselves that the bottom really is in the rear view mirror, would have experienced less desirable results.
Those waiting until 2005 to commit to this approach would not have made any money at all, and then it's all negative numbers from there on out.

Scenario 3 is about a 50-50 mix of stocks and bonds and, while my curiosity was piqued, wondering how it might look up against Scenarios 1 and 2, that will have to wait for another day.

The moral of the story?

After the damage of 2008, about the only way you could have made money in this decade with asset allocations advocated by the nation's number one personal finance magazine is if you invested at the bottom of the last bear market in late-2002/early-2003.

Given the aversion to stocks at the present time by your typical retail investor, it is unlikely that very many readers made such a commitment earlier in the decade.

ooo

Read more...

A sloppy 60 Minutes segment on oil prices

I happened to catch this 60 Minutes segment last night on the subject of the role speculation played in oil prices over the last year and kept waiting for them to tell something other than the Michael Masters version of the story.

They never did.

In what was just an awful omission of critical elements of a major story (including the fact that their key "expert" has a major conflict of interest), this is just one more example of how the mainstream media has utterly failed to provide anything of real value in their reporting and why, increasingly, those seeking information are turning to alternate news sources.

At The Big Picture, a dismantling of the report has already been completed by the ever-alert Barry Ritholtz, in whose estimation, about 90 percent of the story remained untold.

Here's what was left out:

1. Oil is priced in US Dollars. Since 2001, the Dollar fell 40% (from 120 to 72); Oil rise nearly 5 fold over the same period. And Oil’s collapse occurred over a period when the dollar formed a short term bottom; it has certainly had its most significant rally in years (72 to 88).
   
   
2. Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan. These impact prices via psychology and risk of supply disruption — especially at a time when producers were running flat out.
   
   
3. Energy prices rose during an economic expansion (fueled by low rates and cheap money); Oil fell during a period of US recession and a global slowdown.
   
   
4. Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on?
   
   
5. Since the 1% Fed funds rate of 2003, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part.
   
   
6. Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks. These got appreciably worse gas mileage, as the total US miles driven rose. Hence, increased US demand for energy accompanied increasing prices.
   
   
7. Since gas prices hit $4 a gallon and the recession began, total US miles driven fell significantly, by several billion miles. As expected,t he drop in driving was followed by a fall in prices.
   
   
8. 60 Minutes interviewed Mike Masters, a hedge fund manager who had testified before Congress that speculation was driving prices. They omitted to mention he was talking his book. His holdings in energy sensitive stocks — with large positions, the vast majority in call options, in AMR Corp (AMR), the parent of American Airlines, Delta Air Lines (DAL), General Motors (GM), UAL Corp (UAUA) and US Airways (LCC) — were responsible for his fund losing 35% of its value before the Fall 2008 market collapse.
   
   
9. China boomed, they also spent a ton of money building out the nation leading up to the Olympics. (India boomed too). China, like the US, also began filling its Strategic Petroleum Reserves.
   
   
10. The rise of extremist terrorist groups like al-Quada, the hostility of Iran towards the West, supply and political disruptions in places like Nigeria, and overt hostility to the US by oil producers like Venezuela President Hugo Chavez also contributed to drive prices up. The poltiical factors were also omitted.

To this could be added the very real supply/demand picture of early-2008 in which, every day, world-wide inventories were being drawn down by two million barrels a day because the world was consuming more than it could produce.

The 60 Minutes segment kept saying that there was no "fundamental" reason for rising prices, but, until the wheels fell off the global economy, there was a major fundamental reason.

Steve Kroft might also have consulted with the International Energy Agency, the Paris-based energy watchdog group, that recently issued their 2008 World Energy Outlook in which they "sounded the alarm", characterizing current production trends as "unsustainable" and called for action in the form of an "energy revolution" to offset the expected declines in output.

The group predicted that the oil price will quickly "shoot back through $100" when the world economy returns to normal, going on to note that the "era of cheap oil" is over.

How could the 60 Minutes crew have missed all of these things?

-----------------------------------------

UPDATE: Tuesday, Jan. 13th, 5:20 PM PST

Fox Business News sent me a link to this YouTube clip where Eric Bolling is in something of an agitated stated due to the 60 Minutes piece.

Read more...

The losses of a Money Magazine portfolio

Today's front page WSJ story Big Slide in 401(k)s Spurs Calls for Change is yet one more milestone in the ongoing "401k Deathwatch", an issue that began simmering shortly after equity markets peaked back in 2007, now apparently coming to a boil in 2009.

Something that I've been wanting to do for a long time now is to put together a historical return graphic for the current decade based on one of those Money Magazine investment portfolio pie charts. You know the ones - 65% U.S. stocks, 15% foreign stocks, etc.

The miserable results are shown below.
Four thousand dollars in eight years is what you'd have to show for your efforts if you'd followed their advice back on the first day of 2001.

This is based on the last asset allocation provided by the nation's most popular personal finance magazine (with a circulation of about two million) from this article back in August for a 35-year old single mom as shown below.
I had to go flipping through about the last five issues as, for some reason, these pie charts don't show up in any of the more recent ones...

Admittedly, if you'd started back in the 1980s or 1990s, you'd still be way ahead, but the results from starting anytime in this decade are pretty pathetic.
If you'd piled in when there was "blood in the streets" back in 2002 or 2003, you could have bested that stable value fund in your 401k plan by a percentage point or two.

Conventional wisdom has failed your typical investor in this decade and no longer can it be legitimately argued that we're just in a little bit of a bad stretch.

Amazingly, nearly everyone continues to think that we are stuck in a 26-year old bull market in stocks rather than being about 8 years into a long-term bear market that is likely to persist until sometime well into the next decade.

Yet, in our "ownership society", where individuals have become responsible for their own retirement planning, people have continued to plow money into the investments recommended by the likes of Money Magazine.

Four thousand dollars in eight years!

ooo

Read more...

"Millionaire" means something again

One of the many deleterious effects of the many recent financial market bubbles was that the meaning of the word "millionaire" was severely diminished.

The efforts of Regis Philbin and crew notwithstanding, the word had maintained the same weighty connotation early into the new century as gains in stock market wealth, while significant, were not nearly as broad based as what was to follow - housing market wealth.

A few years back, virtually any long-time homeowner in one of the housing bubble states who had also squirreled away a decent sum in their retirement savings could legitimately call themselves a millionaire, though, the value of one's primary residence is typically excluded in the official definition by those who study millionaires.

No matter.

All of that has changed so much over the last two years that, today, few argue that the definition of the word should be expanded to include home equity since there is so much less of the stuff today than there was back in 2006.

Combined with the more recent plunge in equity markets, it seems that one of the few bright spots in the current downturn is that some of the cachet of the word "millionaire" is being restored.

This report in CNN/Money explains:

Millionaires? More like $700,000-aires
While it may be hard to feel sympathy for America's millionaires, they're feeling the economic crunch, too - nearly a third of their assets have disappeared in the downturn, according to a consulting firm's report released Tuesday.

Spectrem Group said U.S. households worth $1 million or more - excluding their primary residence - have seen their assets decline by 30% during the financial crisis.

Almost one-fifth of the asset declines were greater than 40%, the report said.

"There's a huge amount of anger," said George Walper, president of Spectrem Group.

Nearly all the millionaires surveyed - 90% - said they "fear a prolonged economic downturn," the report said. On average, they believe it will last for another 22 months.

Maintaining their current lifestyles is also of concern, as 55% of respondents said they are worried they will not have sufficient assets to do so.

Don't let that last part about the lifestyles of millionaires throw you.

Despite what you may have been led to believe by Robin Leach and his ilk, it's not all "champagne wishes and caviar dreams".

One of the most important books out there, a book that every high school student should be required to read, is "The Millionaire Next Door". You can get the gist of the entire work simply by reading the first two pages that are conveniently reproduced below:
Ironically, this book was first published in the year 1998, the same year that the popular game show "Who Wants to be a Millionaire" debuted.

Read more...

Who's Ronny Cedeno?

The inimitable staff at The Onion takes the pulse of the public on the Tribune bankruptcy.

ooo

Read more...

Media appearance: Financial Lifeline Radio

I'll be appearing on Financial Lifeline Radio at about 12:30 PM PST today and, as I understand it, this will air live in the Los Angeles area on AM830.
I think the topics are going to be the election, the economy, and precious metals.

The segment will be available for download later today or sometime tomorrow - as soon as I see the download available, I'll post a link.

Read more...

While waiting for the Fed...

The new look of the online Wall Street Journal is pretty neat - with a "Comments" tab next to every story, you'd think they were going after one particularly fast growing segment of the internet (i.e., blogs) as MarketWatch and a few others have.

Read more...

Rick Santelli is making sense

This was up at Barry's Big Picture blog earlier today. It is well worth four minutes of anyone's time to better understand the current market environment.

The money quote by Santelli, directed toward CNBC's "Senior Economics Reporter" Steve Liesman appears about three minutes in, "The reality of making money is different than what you write in a textbook".

This is an all too common problem for economists and those pretending to be economists (i.e., the important differences between the real world and textbooks/models), which inadvertently begs the question, "Could there be anything worse than pretending to be an economist?"

Read more...

Ambrose piles on

Is there any U.S. equivalent to the U.K.'s Ambrose Evans Pritchard? Nouriel Roubini is certainly more bearish, but he's an economist, not a writer for a major news organization.

Floyd Norris perhaps? Somebody at MarketWatch, Barrons?

Anyway, in his never ending quest to instill fear into the global economy and raise questions about the longevity of the late 20th century American financial juggernaut that went stumbling into the new century and which, according to Ambrose and his interview subjects, may have just taken a big step away from hegemon toward world pariah, we get the image of the once-mighty U.S. dollar going down the drain in his latest offering.

Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst.
...
Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.
...
Hiroshi Watanabe, Japan's chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.

But the lion's share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.

Everyone knew that, one day, foreign investors would cool to the whole idea of buying even more U.S. debt, purchases to date having enabled hundreds of millions of Americans along with its government to spend beyond their means for so long.

That day seems to have drawn a bit nearer since the Fannie and Freddie problems began to flower just a couple weeks ago.

Read more...

Money Magazine recommends commodities (kind of)

It's only six percent and it's not really commodities, but commodity stocks instead, however, it is indeed one giant step forward for the nation's number one magazine on personal finance - a magazine that, to date, has generally been pretty clueless about investing in natural resources.

Now about seven years into what will likely be a 10 or 15 year secular bull market in commodities, Money Magazine has finally produced an investment portfolio pie-chart with a slice labeled ... wait for it ... Commodities.

Perhaps the editors were asleep or away on summer vacation already.

And were Jason Zweig and Michael Sivy consulted for this issue?

This report in Money Magazine came years earlier than anyone could have reasonably expected, though, since it technically falls short of recommending the purchase of commodities themselves and the allocation really is pitifully small, it can't really be interpreted as a "magazine cover" indication of a top.

Inflation: 4 ways to protect your assets
No matter how bad it gets, the same investing rules always apply: don't put all your nest eggs in one basket.
...
2. Commodities: Profiting from rising costs

One way to beat inflation is to own the stuff that's going up in price. Between 1973 and 1981, when inflation averaged 9%, the Goldman Sachs Commodity Index, which tracks oil, metals and food futures, averaged a 13% annual return. In just the past five years, commodity-driven mutual funds have gained an annual average of 30% vs. 10% for Standard & Poor's 500-stock index.

But those sizzling performance runs are matched by long periods of lousy returns - during the '80s and '90s, for example, returns were flat. And today these assets are trading at or near historically high levels.

"There are signs of a speculative bubble," says Jeremy DeGroot, chief investment officer at Litman/Gregory in Orinda, Calif. It's difficult to time when such a bubble might burst, but anyone who buys commodities should be prepared for steep setbacks. In 1998, when markets were hit by the Asian currency crisis, natural-resources funds lost an average of 25%.

Still, by gradually building up a 5% stake in commodities, you can lower your overall portfolio risk, says Lou Stanasolovich, a financial adviser in Pittsburgh. That's because commodities move out of sync with stocks, smoothing out your returns.

How to invest: The best approach is to buy funds that hold shares in energy companies and other stocks that benefit from inflation, such as T. Rowe Price New Era. You can also consider an ETF such as iShares S&P North American Natural Resources (IGE), which tracks an index of commodity-producing firms.

Treasury Inflation-Protected Securities (TIPS) topped the list with real estate and blue chip stocks placing third and fourth in what is generally a good first step in addressing how the investment climate is rapidly changing.

Of course, recommending a much bigger slice of natural resource investments a few years ago would have served their readers much better.

When Money Magazine starts talking about commodities like they talked about real estate back in the summer of 2005 (see Money Magazine Does Real Estate and don't miss the cover story about San Diego's hot market - Boomtown USA), then you'll know it's time to start thinking about paring your positions in natural resource investments.

To learn more about investing in natural resources using commonly traded ETFs, stocks, and mutual funds, see this description at Iacono Research. Or, sign up for a free trial.

Read more...

Look for a new "Business" section in the WSJ

Maybe passing on that recent offer to extend my Wall Street Journal subscription for two more years at the current rate will turn out to be a good decision.

By then, who knows what the paper will look like.

The political content moving forward in the first section of the print edition over the last few months was something that was eventually going to be mentioned here. It's kind of like a game now - count the business articles in the first part of the paper and see if you have to use one hand or two.

The next thing you know they'll just have a separate section titled "Business".

And that could come sooner than you think according to this report in, well, the Wall Street Journal:

Editor Out as Murdoch Speeds Change at WSJ
By JESSICA E. VASCELLARO, MERISSA MARR and SAM SCHECHNER
April 23, 2008

Four months after buying The Wall Street Journal, News Corp. is poised to choose its own person to run its news pages.

Marcus Brauchli, who took over as Journal managing editor less than a year ago, confirmed Tuesday he was stepping down. "Now that the ownership transition has taken place, I have come to believe the new owners should have a managing editor of their choosing," he said in a note to the staff.

Mr. Brauchli's departure likely heralds a more dramatic shake-up at the Journal, which has seen a shift in focus since News Corp. bought the Journal's parent, Dow Jones & Co., in December for $5.16 billion. In recent months, the paper has begun putting more emphasis on shorter news stories and more general news, as part of a push by News Corp. Chairman Rupert Murdoch to broaden readership and to compete more directly with the New York Times.

Mr. Murdoch was impatient with the pace of change, say people close to the situation, and whoever takes over is apt to speed up the change process. The identity of the next editor isn't clear. Dow Jones said in a statement it would "begin a search for Mr. Brauchli's replacement immediately."

Current Journal publisher and former Times of London editor Robert Thomson isn't expected to take the title of interim managing editor, but he may take a more active role in the newsroom in the meantime.

About 10 days ago, Mr. Thomson and Dow Jones Chief Executive Officer Leslie Hinton summoned Mr. Brauchli to a meeting about his future, according to people familiar with the situation. They suggested it might be better to have their own person running the newspaper, these people say. He agreed, these people say, and the two sides began talking about his next step, and about a financial package.

It must be weird writing about the company you work for when the company you work for is a major newspaper. In this case, "people familiar with the situation" could be anyone hanging around the water cooler with a juicy rumor.

Read more...