Speculation is speculation
I don’t give investment advice anymore since everyone stopped paying me for my advice. But I used to give advice to people for a living, it was a tough living, though. Many people thought they knew more than I knew because of the popular culture of investing. In fact, I spent my evenings and weekends reading and watching the garbage on magazine racks and on the pop-culture CNBC to be able to counter prospective clients’ know-it-all-isms. Many (many, many, many) never became my clients because it’s nearly impossible to overcome the twaddle that passes as investment advice, especially in the 90s when the Democrat Administration announced that they’d done away with down strokes in the business cycle.
The know-it-alls were buying stocks on their margin accounts, paying 9-13% in interest in hopes of turning a huge profit in stocks that were selling at 85 times earnings – the same stocks everyone else was buying. It was a fine strategy for a while, but then when stocks melted down in the Spring of 2000 and margin accounts came due, investors had to pay the accounts by cashing out stocks for which they had paid a lot more – which drove stock prices down even further.
One of the first things I read about the history of investing was a story about how Joe Kennedy knew there was an impending stock market correction in 1929 because he listened to his shoe-shine guy running down the list of stocks the bootblack owned and many matched Kennedy’s portfolio. I guess the lesson is that you shouldn’t be investing with the crowd.
For about four years now, I’ve heard about the “housing boom”. It became the barometer of the economy on pop-culture CNBC (yes I still watch it – for reasons that will become apparent, if they haven’t already) – the welfare of companies building multi-million dollar houses drove the excitement on those ridiculous programs. Ray Charles could’ve seen this one coming. When housing starts and existing home sales dipped last year, CNBC and $400 haircut guys warned that a new recession was coming. A few years before that, it was the consumer confidence reports that rocked the market (while we were inundated with reports from retailers) after years of pinning the hopes for the market to B2P (business to people sales) while the tech-boom had been tied to B2B sales.
But this year, it’s the mortgage/housing market that is causing fear among investors. Bond yields have been fairly depressed the past several years and it was inevitable that yields would begin to rise pretty soon, especially since all of those “savvy” investors who listened to CNBC and used their homes like ATMs while they refinanced for lower variable rate mortgages – but what goes down (interest rates) must go up and the interest rate chickens are home to roost. Everyone was doing it, new mortgage companies sprang up overnight to handle the business. Didn’t they see it coming?
No, they pooh-poohed the doomsayers in favor of the blatherskites who promised instant cash at low interest rates – especially the jabberwocky that CNBC was pushing on people daily. Â
The Wall Street Journal reports what happened in case you missed it last week;
The drop in U.S. government bond prices this past week is expected to cause pain for some homeowners and mortgage shoppers, and bring fresh opportunities to income investors.
The yield on the 10-year Treasury note, which moves in the opposite direction to the price, jumped above the psychologically significant 5% threshold, ending Friday at 5.119%, up from 4.955% a week earlier. The 10-year’s yield is now at its highest level since July 2006.
In fact, when the 10-year note jumped above 5.2% early Thursday morning, I actually heard Michele Caruso Cabrera squeal with delight on CNBC’s pre-7 am international market program (whatever clever moniker it has been christened this week).
Well, anyway, it’s affected all of those savvy investors who re-fi’d their homes and spent the cash on remodeling their homes to improve the value – so they improved the value of a home that they can’t sell. Like owning millions of dollars of Confederate money or Enron stock. One mortgage company, Counrywide, had a default rate near 20% in April mainly from people who refi’d to varibale rate mortgages who’s payments creeped higher with interest rates.
So here comes the Democrats. Hillary came out in March and called for a revision of government programs to bail out these “savvy” investors;
The presidential candidate also said she will soon reintroduce legislation to modernize the Federal Housing Administration (FHA). Clinton said she also favors raising FHA loan limits for high-income areas to help more low-income home buyers.
“I also propose a stop to prepayment penalties designed to trap borrowers,” Clinton said in a speech to the National Community Reinvestment Coalition.
But the Bush Administration was already on the job;
Federal banking regulators are negotiating with lenders to restructure high-interest rate mortgages given to home buyers with poor credit.
The effort by the Office of Thrift Supervision is aimed at softening the impact of the housing market’s slowdown and bolsters the argument of lawmakers who say mortgage reforms may not be needed.
While it may also result in accounting charges on quarterly earnings reports of public companies with mortgage lending units later this year, it could limit any broad economic damage from the risky mortgage practices of the past few years.
So, homeowners might get a break from the government for being so damn stupid that they they listen to the morons on CNBC. They don’t deserve it. Easy money is never easy forever.
Not that he gave any advice to invest in mortgages, but why anyone listens to that Jim Cramer, I’ll never know. He had as much to do as anyone to do with the losses from Enron’s collapse. Still thousands invest using his one-size-fits-all prattle everyday.
But, here’s the only investment advice I’m ever going to give you. Print it out if you need to remember it; there’s no easy way to make millions, unless you’re a crook (ex. Hillary Clinton, Terry McAuliffe, Kenneth Lay). Invest only that which you can afford from your earnings (notice I didn’t say savings) and don’t chase returns. Slow and steady wins the race; develop an investment strategy (with a professional if you need one) and stick to it – avoid investing in trendy investments. With a proper diversification of your portfolio, you’ll be in the “trendy markets” before everyone else. Keep your savings separate from your investments – that’ll keep you from dipping into your investments at inopportune times.
And most importantly; borrowing money is never any part of sound investment strategy.
