We have had a ton of economic statistics out over the last week from the month of September. What has all of this data told us? Nothing new. Unemployment is still above 9% and even though some said it was better than expected, they are wrong; it was what was expected as 45,000 Verizon workers parked their picket signs at the door and went back to work. Retail sales were good, but not blowout. Costco did not meet projections, so can you take anything away from this? Probably not because they have missed earnings from time to time over the 20 years I have been shopping there. It’s always a circus at that place. Trust me with seven family members we know it all too well.
Mortgage rates are at all-time lows but this means little. Refinancing an existing mortgage is difficult enough given income and equity requirements. If you don’t have a house, you are most likely a career renter or have lost your job and house and will not get one again for a few years. Bank lending needs to be loosened up again for that industry to begin to grow, but isn’t that what got us in trouble in the first place? I heard a speech by a manager than manages a real estate fund for a local pension fund and he stated that if we didn’t build another house, we have enough empty houses on the market to last 26 years at the current uptake. Not sure about the math, but the point being home ownership rates just got too far ahead of reality.
What is going to cause this new normal to drive demand from the consumer? Where will this come from? If Washington would give some clarity on taxes, debt or regulation you might see some more spending, but it’s not likely to happen until after the 2012 election. Europe is trying to figure their mess out and it will eventually happen because it has to. They may have a few banks follow Lehman and Bear Stearns, but it will not end the world.
What needs to happen is people need to forget the tech and housing bubbles that created a lot of fictional wealth for people that normally would not have it, as their jobs don’t afford that possibility. Those assets have been spent, lost and given back. We are not in a new normal, but an old normal where you work for a paycheck, spend what you earn and save for college tuitions, weddings and retirement. If you are really driven and hungry the American dream is still alive; you can become anything and own anything, as America is still a free enterprise country. Well, kind of.
With that said we all still have issues to figure out and financial goals to achieve. The question is what is that goal or hurdle you need to get over or what is that liability that has to be met every month? Where do I put my assets so they meet those things I just laid out? You have choices, and with those choices you have to decide at what time do I start this process because making $0 from my assets will not get me there. The clock stops for no one. I look at it this way, we work an hour and make X amount of money or we work X amount of time and close a deal and make X amount and then on to the next deal, if there is one. Investing is no different. You have a choice to have cash in your hand every day or you can wait to be paid down the road in the hope that it will be higher. Math has taught us that a dollar today is worth more than a dollar down the road and history has taught us that yield generation matters. If your employer wanted to pay you cash every day, would you take it? I can bet you’d much rather have that than be paid once a year.
In the investing world you risk your cash to make a return as you need to meet a goal or a liability. Why would you not take your cash return daily (weekly, monthly, or semi-annually) if math and history tells you it is a better option? Humans by nature think they can time the market and get in and out at the right times. How many of the wealthiest people in the world have done this? None I can think of. Bill Gates collected cash every day by selling something as did Warren Buffet with the businesses he owned and pocketed the cash. The Middle Eastern countries became wealthy because they collected cash every day buy selling liquid gold (oil).
Peritus manages client assets in the high yield fixed income market. If you bought one bond that yields 10% and one stock that has no yield, and over the next year the bond drops by 10%, as does the stock, where would you be with each investment? You would be breakeven with the bond, as you were paid 10% in cash and still own the bond with a maturity date coming up in a few years where the company is obligated to pay you your principal back, whereas with the stock you are down 10% and left wondering when and if you are getting your money back. Simplistic, but the math is the math.
RSS Feed