patrick.net

Wine

One of my questions/concerns is that none of the asset classes I mentioned appears to have particularly stellar returns in general. Of course, exceptions can probably be found, but I wonder if any of this will even keep up with inflation. At least it's safe to say real estate valuations will NOT keep up with inflation. It's in the bag...

I don't have a horde of money, but I've been parking a lot in CDs (plastic disc thingies) lately.

How about a nice Ginnie Mae fund?

IMO Every portfolio should start with a heart of gold! I'd go with some bullion and some equities totalling around 10 - 15% of your portfolio!

That said, the other 85-90% needs to go someone. I've been enjoying putting together a portfolio of ETFs that hold corporate and sovereign fixed income. There are some trading at a discount such that the yield is about 8.6% and they pay distributions monthly. I use www.etfconnect.com to find these funds.

In addition, there are some common stocks that are paying nice dividends these days. Understanding the risk of common stock, I always try to insure most of or all of the position with options. I bought PCU, it's currently at 51.38 and has a 10.7% yield; I've sold the June 45 calls for about $8. Another common stock I bought is NAT for it's 12.4% yield. I put a collar on that one as I don't trust the day rate for shipping oil all that much. So by giving up the upside in the stock price selling the April 35 call I now own the 30 puts for free.

I also have some foreign equity mutual funds, money market, CD's and I-bonds (I'm disappointed with these I-bonds).

It’s risky to move funds from FDIC insured to non-insured overseas funds, but if the dollar really does take a hit, than what good is the FDIC in the first place?

How about keeping cash in FDIC accounts and hedging them with futures?

NOT INVESTMENT ADVICE

Peter,

Which futures? Long gold, Canadian dollar, Aussie / NZ dollar, BP, Euro or just short the dollar index?

Paul

Which futures? Long gold, Canadian dollar, Aussie / NZ dollar, BP, Euro or just short the dollar index?

Probably Euro and Yen. Other currency futures may not be as liquid.

Anyone tried dollar index? Is there any liquidity at all?

NOT INVESTMENT ADVICE

If you want the returns big, quick, and low risk, go to bed and dream on. :)

K-Y jelly futures (think Casey Serin in an orange jumpsuit) ?

OT, but I (like many here) have tried to swear off Casey's site and his narcissitic BS gets repetitive, but watching him lurch from shady scheme to scheme is kind of mesmerizing. Amazingly, he actually scored an audience with the primal "rich dad" himself: Robert Kiyosaki. And get this: he even conned some sympathetic Phoenix area women investors to pay for his hotel, food & transportation.

I and others long suspected this kid's much smarter and calculating than he portrays, using the "dumb kid in distress" as a ploy to score all that free media coverage, leading up to the juicy book/tv deal he so desperately craves. Who knows? He may actually be able to pull it off.
Perhaps we underestimated his abilities as a natural born con-man. Looks like he's well on his way to pimpin' his ride to fame!

(Note: there is year-to-year risk, but almost all the time over 20 years the return will be the highest.)

If you bought Japanese stocks in 1989...

Who makes breast implants and botox? If OO's observations about Hong Kong (recession drives women to spend more on cosmetics in hopes of bagging a rich husband), then the American equivalent will probably be plastic surgery.

I'm Michael Holliday and I endorse the following message:
WARNING: *NOT INVESTMENT ADVICE*

Thank you!

About 20% in high grade FX-denominated bond, 50% in gold and energy stocks (oil and natural gas), 10% in agricultural stocks, the rest in European and Japanese stock market through ETFs.

And keep about 6 months runway cash in USD for daily use.

FDIC only insures you for the nominal amount up to 100K. So if USD tanks by half, you are only insured for the buying power that is halved.

I just have a hard time seeing USD going any direction but down. But if USD does go down, then some USD stocks will benefit from it, we shall see a record high in DOW again.

Most of mine are in index funds or HSBC savings accounts. They're not very exciting and barely beating inflation.

*Very bad investment advice*

As someone who thought that buying SGI was a good idea, perhaps it's time for me to get a financial adviser. I'd especially like someone to examine my 401k and clean it up.

Any recommendations for one on the Penninsula? or... recommendations on how to pick one?

I'd prefer a fee based one.

Allah,

that's what I am saying, FDIC sounds great, except that it just makes sure that I don't lose my nominal amount of USD, which is of no use to me because I know this is a currency on the verge of dropping like a rock. Therefore I attach too much of a premium to FDIC insurance.

Did I say hyperinflation? Hyperinflation never happens in a country with dominating military power. We won't see hyperinflation, but we will see double digit inflation YOY. Hyperinflation Weimar style is hard to repeat in history. If Hyperinflation were to happen in the US, money would be the last thing I worry about, I'd be worrying about another world war.

Well, the account I pay the most attention too is maybe 20% cash, 4% gold ETF, and a mixture of equities for the remainder (mostly domestic, but a few ADRs like CTRP).

My current plan is to accumulate more cash, and likely some put options against SPY, DIA, etc.

I'm slightly bullish on the dollar for the next 2-3 years. Keep half in usd demoninated securities with a major portion of that in short term cash. Diversify the heck out of the remaining half. After 3 years, if our national deficits haven't improved, make sure you learn to speak at least one foreign language fluently.

SFWoman,

oops, you are right, I just looked it up on BBC news
http://news.bbc.co.uk/2/hi/africa/4665854.stm

OK, let me try to back pedal and rephrase, I think hyperinflation is hard to repeat for more politically stable developed countries like UK, Germany, and the US. At least we have enough gun power to go around to rob whatever we want, if necessary. ;-)

EURBED contact be offline if you want a recomendation regarding advice from a Financial Adviser

And just how am I supposed to do that? How about you contact me? burbed@burbed.com

Why do I have a bad feeling about this?

it's 'hoard'... oh stinge just got in ahead of me at post 47 ;)

great news about casey :?

Completely agree with Neil. Ben needs to temper the speed of the printing press with keeping the dollar attractive to our foreign financers. If he increases his helicopter trips, he'll have to raise interest rates.

hyperinflation erodes mortgages very quickly ;)

more from the casey front (somehow he keeps jumping sharks):

"I have always been entrepreneurial and had a dream to retire young and use my money/time to do good works. But I didn’t know what I didn’t know. Reading Robert Kiyosaki’s books and playing the CASHFLOW Board Game cleared things up and showed me the way to get there. I just picked up the latest one he wrote with that other guy… It’s awesome!"

rr-i-i-ght...

so he read the books (as per the picture of his 'library') and failed to understand anything. Notice how he has an instinct for gladhanding and viral marketing tho... who woulda thought a little boy from uzbekistan would pick up american "values" so quickly?

"Upon consideration I am struck with the hopelessness of your situation, despite today’s revelation of your audience with R. Kiyosaki. Here you are, gamely holding out hope under circumstances that would have given the Light Brigade or the drunken gunslingers of the Alamo pause, while disaster veers ever closer in the form of an unholy stew of foreclosure notices, bills, tax assesments etc. all of which was built on a foundation of loan applications of a somewhat, shall we say, unsavoury, nature, and in the back of which loom a few burly young men with badges, truncheons and handcuffs and *no* I am not referring the rather vulgar works of Tom of Finland (look it up, out of sight of children.) Yesterday I took solace in the zaniness of you clinging to the thin reed of somehow finding a ‘creative’ solution (word to the wise: strictly speaking ‘creative’ is a word most properly reserved for God, if you believe in the angry old goat, or in a stretch Beethoven, Mozart etc. etc. - it does *not* apply to finagling mortgages.) Today I am struck with the realization that soon, I fear, it may be necessary to turn out the lights on this whole enterprise. You don’t need Kiyosaki, you need divine intervention, or at least a note of support from the papacy."

Hyperinflation is 1% per day. That's an order of magnitude per year. That means you can measure it by the minute.

I'm taking bets. Anyone here really worried about USD hyperinflation can deposit their funds with me for a fixed term. I'll agree to secure those funds in a deposit account. At the end of the term, if we have crossed the real definition of hyperinflation during that period, then I'll agree to return to you the full real value of your deposit.

If we don't, then I get to keep the interest I've earned on your deposits. You can choose the index, so long as it's an independently verifiable and reviewed index. Any takers?

And DS, by the way, if there ever were hyperinflation, then fixed rate mortgage debt would be among the most valuable instruments one could hold. Remember that inflation increases the value to fixed rate debt holders and punishes savers.

I've noticed in several posts a general sense of unease with the current state of affairs in US markets. That's o.k ( I have a fair amount of skepticism my damn self). Previous market highs were built on speculative excess and cooked books that are still being re-stated. What's different about 12K in 2006 and 12K in 2000 is that when we really look at it, the industry has been completely revamped!

Many of the abuses and issues have been addressed. While it did take several years (and industry that fought kicking and screaming) insider trading, late trading market timing and numerous accounting issues have been confronted. While by no means perfect, all of us should be able to invest with a higher degree of confidence in "the system". The obvious exceptions to this are of course Fannie and Freddie (both REIC related btw).

When the REIC Cartel (TM) has been through a similar re-tooling we can feel more confident that we will be treated fairly in our real estate transactions. Until such time I have NO objections to any of the above startegies (with the exception of the poor chap @ 2.5% yield).

eburbed,

While I am licensed to conduct "fee based" business, I'm not a fan of it. It totally takes the "profit motive" out of the equation. Once they have you "on contract" you're basically just indexing and at that point it's more about going on to the next referral and gathering more assets to put "on contract".

Many of these "converted CPA firms" got tired of living off of referral stipends and decided they are AT LEAST as smart and could do as well for their clients as any damn stockbroker! Well o.k, whatever. These guys LOVE having initials after their names and are in an endless pursuit to add more. They even create new organizations of which they can become chairpersons. "The Oregon and Southwest Washington Society for Financial Planning and treating recently divorced wealthy clients ethically and fairly Association/Organization" (or something like that). Dude......WTF?

As I've said previously, with so few choices in the avg. employer sponsored 401K plan analysis takes about 15-30 minutes. Anyone offering to "manage" your choice of 4 Fidelity funds is just looking for more AUM (assets under management) on which they can charge a fee! These guys LOVE financial software programs and spare no expense (yours of course) to get new ones! Just post the link to your plan provider, we'll look at what's available, your comfort zone and make suitable rec's. Sheesh, it's not that big a deal.

Allah,

Please educate me as to how RISING inflation, and thus REAL interest rates, can ever be NEGATIVE for holders FIXED RATE debt.

Only a fool would take that bet! You’d be broke so you wouldn’t be able to pay back.

Why would I be any more likely to "go broke"? I think what you're trying to say is that you wouldn't take the bet.

I'm just testing rhetoric versus resolve.

News flash: Per talksport.net/BBC, there is a bill proposed in england, ushered by the mortgage industry to stimulate sales, that would allow people to borrow 5 times their income to obtain a mortgage. This considered tobe quite speculative in the UK.

Dang it, it’s HOARD.

Thanks. Changed.

Now, "I" never said any of us would walk away from this thing "unscathed"...... There will be some pain to go around but certainly not on the scale realtors would love to see. Misery loves company and that's why we've gotten so many "be careful what you wish for" type comments from realtors.

It seems we often go back to the tech wreck for the most current model and my example will draw from it as well. When we look back at the popularity of "on-line brokers" it certainly does look silly. Imagine cold calling from coast to coast and finding that three of the most commonly held issues at the time were ETrade, Ameritrade and Charles Schwab!

Well, it's only too obvious that had it not been for the outrageous run-up in tech stocks and the notion that tow truck drivers could become zillionaires these stocks would have been trading on the pink sheets, if at all. They began by coat tailing on the success of a legitimate bull market and then created a momentum all their own. (Now they've had to consolidate and revamp their business models just to survive).

No one cares! Neither should you. Housing has gone from being a legitimate core industry to just another momentum player! So some 3rd. tier furniture retailer w/a market cap. of $300m goes belly up! Other than the people that worked there, why would any of us give a rip? So some "mortgage firm" w/10 buddies goes "tango uniform" who cares?

On Topic:

If you need your money liquid, then you don't have really any choices other than CDs, Money Markets, and bond funds which allow withdrawal without penalty.

At first, when I wasn't sure how long the bubble would last, I put our cashed out equity into primarily fed/state tax free muni bonds which earned slightly under money rates, but higher returns net of taxes for our bracket.

That configuration was 100% liquid but barely matched inflation + the remaining bubble gains (what I was losing being out of the market).

I have since rebalanced to a 25% liquid portfolio, with 75% redeemable in progressive steps. This has allowed me to allocate some to international growth, indices, and corporate bond funds. Boring, typical low risk diversification. A market risk of about .35 (the market is 1.0).

This configuration has returned well above real-estate returns + inflation.

I'm not an investment advisor, so do your own homework. I use Vanguard for funds, which has both traditional and ETFs available free of load. Many funds do have redemption fees for early withdrawal, though.

Two things I avoid:

1. Currency related bets. I don't care about the USD's strength because I don't own any foreign property, derive foreign income (anymore), or need to spend USDs in foreign places in any large number.

Betting currencies is very difficult. All large-cap funds and major indices are comprised of international/multinational corps that already do major currency hedging. So trying to hedge yourself against USD drops may actually have the opposite effect on your total portfolio.

2. Commodities bets. Some of my funds have small commodity positions, but I avoid these where possible. They are a bad bargain for anyone who doesn't own a red or yellow jacket with arcane patches on the front. High volatility, not high-enough return for the risk. Not a place to park your home-equity-in-waiting.

Randy H,

The other benefit (in spite of a slightly lower rate) is that the muni's can make filing less of a pain too! Also there are certain ETF's which actively seek "qualified dividends" that are taxed at the lower rate. I believe on the 1099 you rec. it will be in box 15 (b) not 15 (a)? I know it sounds trivial but your accountant will applaud you!

DinOR

You and I are of the same mind when it comes to protecting "the family jewels". Some folks seem to want to treat their equity savings the same way they treat their "play" money.

I want this money to be simple, easy to manage, well protected, and largely self-managed (rebalance quarterly). I'll play with shorting options on ETFs on commodities correlated to currencies in my E-Trade account, which is not money intended to buy our next house.

Randy H,

The other great thing about muni bonds is that they have really somehow remained something of a "mom and pop" shop. There hasn't been huge foreign or hedge fund interest in them and for liquidity that may be called upon in short order they make a lot of sense.

Where I'm a little more cautious is in the scale of the "down payment" when one finds a suitable home. None of us have been on the other side of a bubble of this magnitude and really have no idea how easy it will (or won't) be to get cash out if you want/need it? Most here have decent fico's and something of a cash reserve but I still wouldn't put any more down than is needed to close the deal or put the payments where you're comfortable. Just b/c you can put 40-60% down may not mean it's in your best interest to do so.

DinOR

You raise a point that has been troubling me.

There are two competing factors that are at odds with one another. The first is what you point out: credit crunch, liquidity, etc. may make it unwise to put any more down than absolutely necessary, while still holding back the remainder somewhere safe like munis so long as they return higher than your interest burden. This way you get the benefit of fixed rate debt without the risk of financial distress -- as long as you really leave those munis alone and don't dip into them.

But there's a catch. Crunches like this are usually accompanied by high interest rates. If you _know_ that rates will keep going up or stay high for a while, then you might do better earning return by buying down your mortgage debt (assuming your fixed rate loan is a high rate).

There really is no way to time this effectively because there are too many major variables, any one of which can shift your pay-down versus hold-back decision.

CG

With regard to your banned addresses: don't push your luck. You haven't been unbanned officially, just no action has been taken to ban this address. We'll see how it goes.

With regard to shorting oil stocks. Anyone who does something like that with their home-equity/home-savings cash deserves to never own a home after they lose their $ to the pros in those markets.