Commercial Opportunity?

Just when I thought the world was starting to make some sense, I read this article:

http://www.cnbc.com/id/27930515

The link to the article above will tell you why there are some really good investments in commercial real estate bonds right now.

THIS IS MADNESS!!! Whatever you do, DO NOT go out and buy commercial real estate bonds. This article would have millions of people buying the garbage because the yield is high.

Remember that a bond is just a loan. A commercial real estate bond is just a loan from private investors to commercial real estate thieves. These things are junk. The reason they are paying such a high rate of return is because if you invest in them you WILL NEVER SEE YOUR PRINCIPAL again. Don't do it - high yields often mean high risk. Have you driven around town lately to see what is happening to commercial real estate?

These guys are so desperate for new "investors" (i. e. "suckers") they will do anything to get your hard earned cash. The banks have already realized they are crooks - don't become the lender of last resort.

Also, please do not rush into stocks because the headlines are saying we are in for the biggest bear market rally since 1933. Stop and think about that for a moment. 1933! Where exactly were we bouncing from back then?

Please pull out your historical charts.

http://stockcharts.com/charts/historical/djia1900.html

If you are a trader, or an investment advisor with years of experience, you may be able to play this rally. If you are not, please don't buy all the bull shit you hear. These people have a vested interest in selling stocks.

I remember my days as an intern at a certain "financial planning" company. I worked as an assistant to financial planners. I decided NOT to be a financial planner because of what was going on there. (Granted, there are some very good financial planners out there, but they are not the flashy kind of guys and gals that most people gravitate toward.)

I also remember my days as an Investment Sales Representative (and later Supervisor) at your local community bank. I remember the feeling I got when I would put people in the appropriate product for their risk tolerance & time horizon. I knew I had done the right thing for the customer, but I knew I would soon be called in to my manager's office, after selling a boring CD or Annuity to an 70 year old lady. It was approximately 1997.

"Why didn't you sell them on mutual funds? You know you get a higher commission?" To which I would answer, "It didn't seem appropriate, given her risk profile." The boss would then say, but didn't you show her the CHART?" The "CHART" was a graph showing the S&P 500 and it's gains since 1955 or so. I would counter that it wasn't an accurate chart to show, because it did not accurately portray the risk associated with stock investments. It excluded the time period from 1929 to 1954. This woman was retired. She needed her last $200,000 in the world to live off of. I wasn't being a good steward if I put her in risky assets. My boss would act very irritated and make suggestions under his breath that I would be better in operations. And so it was, eventually I moved into operations, which I loved. Sales was not for me.

Now, this is not to say that if this woman would have been 30, 40, or maybe even 50 with a lot of assets, that I wouldn't have recommended mutual funds as part of her portfolio. I would have; IF her risk tolerance and time horizon were appropriate. But, you see, this wasn't very good for sales. I was too smart for sales, or to honest. I would do much better in operations. And I did.

I am currently reading a book by Aaron Clarey called, "Behind The Housing Crash". It reminds me of what I was experiencing back in the day. He was going through a very similar thing as a credit analyst not long after I was listening to my bosses tell me why mutual funds would always go up over time. Buy his book - it is worth every penny. I laughed out loud in several parts, probably because I could relate, although in a different time and place. I was worried about the dot-com bubble at the time, and how it had inflated stocks. A little while later, he was worried about the housing bubble, and he was right to be worried. Anyway, it is a great read, especially if you want to understand the nature of the housing bubble.

OK - that was a tangent. Goodnight.

Mumbai

Just more horrific evidence of what we are up against.
I am actually impressed with the statement from the Obama team. Surprised, but impressed. We'll see what more he has to say. I guess Biden was right, he is going to be tested. I hope it isn't as bad as I think it will be. I am sure he is starting to think a bit about how Bush felt when he was informed of the 9/11 attacks. Nothing like on the job training. It just reminds me we have to stand together as Americans to face this threat, no matter what our economic & political views.

http://www.politico.com/news/stories/1108/16020.html

The Power of Denial

Denial is hard to fight. The government and many in the media would have you believe that we can spend our way out of this mess. We can't.

The government would have you believe that inflation is better than depression. It isn't.

Stock brokers would like you to believe the market has bottomed. It hasn't.


If I hear the phrase "stimulate consumer spending" again I am going to puke. How the hell do people think this mess was created in the first place?


Unemployment, credit card defaults, more banks failures - eventually the government will run out of $. Well, then they will have to print it, lots of it. That means each of your hard earned dollars will buy less.

Right now the government is in the process of trying to stop a deflationary spiral. They are essentially saying they prefer inflation to deflation, when what we really need is to let the market reallocate resources from spenders to savers. The government simply won't let this happen. So instead we will have inflation. Here is a a brief explanation of deflation & inflation from Wikipedia:

"Deflation is generally regarded negatively, as it is a tax on borrowers and on holders of illiquid assets, which accrues to the benefit of savers and of holders of liquid assets and currency. In this sense it is the opposite of inflation (or in the extreme, hyperinflation), which is a tax on currency holders and lenders (savers) in favor of borrowers and short term consumption. In modern economies, deflation is caused by a collapse in demand (usually brought on by high interest rates), and is associated with recession and (more rarely) long term economic depressions."

What immediately jumps out at me is deflation is usually brought about by high interest rates. But real interest rates are close to zero, and have been held artificially low my the Fed since after 9/11. Something smells fishy. Hence, our government just wants to create more bubbles. I hope the American consumer will wake up and start saving more, paying down debt, and consuming less.

Isn't it ironic that the same leftists that so vilify rampant consumerism are fostering it with their economic policies? Isn't it even more ironic that the "conservatives" that have been in power for the last eight years have done the same thing. Think about it.

The market is having a very big bear market rally. If you were long you got lucky, sell the rip. If you were short & can afford to, stick it out, this market is coming back down. Do I know for sure? Of course I don't. But I believe this is what they call a "fally". (A fake rally caused primarily by short covering.)

Here is a funny article to read:

http://www.minyanville.com/articles/bailout-recession-deregulation/index/a/20072/p/1

Now, hang on, because I am going to totally shift gears. How does all of this doom & gloom fit into Thanksgiving? Well, "A Course in Miracles" says: Giving And Receiving Are One in Truth. So even if you are losing your home, have lost all your money in the stock market, and are truly depressed about the coming depression, here are some things you can give:

Love

Attention

Time

Presence

Understanding

Forgiveness

These things are free last time I checked. However, you cannot find them until you have gotten rid of the Denial that is so powerful in this world. Though physical things are important to our daily survival, you can't even really enjoy them until you realize how unimportant they are. If you can give on the physical level, do that too. If not, remember the "things" listed above are much more valuable than what you have lost.

I hope you all have a wonderful Thanksgiving.

Where Your Tax Dollars Are Going

I really wanted to focus on the more touchy feely things in my life today. I wanted to write a bit about parenting, why going to the dentist sucks, etc. etc.

However, I was watching CNBC and caught this. More pressing issues prevailed. This is the single largest shareholder in CITIGROUP. GOD HELP US.

I really want you to know where your extra $300 billion is being spent.

http://www.cnbc.com/id/27894331

I was hoping I could post the video, but you can't view it unless you have a subscription to CNBC Plus. If you do, please watch the video. If you don't, please read the text and then read the following about the Prince. Keep in mind he was playing with "worry beads" during the entire interview with the beautiful Maria Bartiromo. Perhaps he was afraid of her. If not, what was he so worried about?

http://en.wikipedia.org/wiki/Al-Waleed_bin_Talal

Am I crazy to be a little worried? I would love your input, so don't be afraid to post a comment. Be "anonymous" if you don't want to share your name or do not have a Google account.

Why Obama Can't Save Us

I was thinking about a little formula I and millions of others know and wanted to share it with the rest of you. I hope I can do it.

The formula is used to determine what a company's stock is worth. Here it is:

P (Stock Price) = E1Q + E2Q2 + ... + ENQN + ENQN x Q/(1 - Q)

where E2 is the earnings in period 2 (usually a quarter of a year) and Q is the so-called "discount factor" 1/(1 + R). The R represents the prevailing rate of return in the market place, or in layman's terms, the going interest rate during the time period in question. The "ENQN + ENQN x Q/(1 - Q)" part just takes the formula into the future.

OK, don't stop reading yet, it is OK if you don't get the math. The basic point is that a stock is only worth the sum of the company's EXPECTED future earnings. Where stock prices get really out of whack, is when people do a terrible job of predicting what the company is likely to earn in the future.

The tech bubble is the best example I can think of. Analysts, traders, and the guy next store all bought into the lie that dot com companies' earnings would continue to grow at a phenomenal rate, forever in to the future. So, the stock prices went up way too much. The truth was, the majority of these companies would not be able to generate earnings at all in the future. Once that reality was realized, the stocks came down accordingly. In other words - the E in the formula above fell, or in some cases never materialized at all. You have probably figured out by now that the word EXPECTED is key here. When earnings expectations fall - so do stock prices.

Currently, the stock market has realized that because or financial system is on the verge of collapse and we are entering the next Great Depression (or at least a terrible recession) companies are worth much less than Wall Street thought they were.

If stocks are overvalued, eventually they will come down. If they are undervalued, eventually they will come up. It is sort of like gravity, E=MC2, or centripetal force. You can't fight it. Or you can, but you will lose money.

Know, knowing this, do you still think Obama can create wealth? I read a ticker on CNN yesterday that said he is going to create 250,000 jobs. I would like to know how exactly he plans to do this. Is it possible that the expectations for your saviour are a little too high? You know what, I am going to create a job for you too. You can come and clean my house. I will pay you with fairy dust, because that is what our currency will be worth soon. Obama will have you building roads and bridges. To pay you he will take it out of your paycheck. Better yet he will take it out of the profits of the company who still employs your wife until they go under and she can help you build the roads and bridges. GOD - it is insanity!

Now, here is another formula I have learned over the past 8 years or so. It is even more difficult to grasp than the first, but it is essentially the same.

WORLD PEACE = IP 1 + IP 2 + ......... IPN;

where IP 1 equals inner peace for person 1. IP 2 = inner peace for person 2. N is the number of people in the world.

I am sure Obama can fix this too. Once he convinces the rest of the world that we, too, are cool.

Look, no one else can bring you peace - you have to find it within yourself.
Look, no one else can bring you wealth - you have to work to create something of value.

Obama can't bring about world peace and prosperity any more than extracting equity from a house or racking up credit card debt to buy consumables can create wealth.

Sickness does not create health. Dependency does not create wealth.

Sorry to burst your bubble.

Learn more at:
http://www.moneychimp.com/articles/finworks/fmvaluation.htm