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Investment advice for Ron Paul
Rocky never provides investment advice. But for once he’ll violate this rule and offer some advice to Congressman Ron Paul.
Members of Congress must file financial disclosure forms which show all of their assets and investments. Rocky studied Rep. Paul’s portfolio from 2003 to the present.
http://www.legistorm.com/memberdisclosure/413/Rep_Ron_Paul_TX.html
Ron Paul’s portfolio violates every principle of sound money management. It is not prudent. It is not sensible. It is volatile. It is speculative. And it may give a window into Ron Paul’s perspective on the economy and free enterprise.
From 2003 to the present, Ron Paul’s stock portfolio owned only gold stocks. He owned some real estate. He had some cash. And he owned mutual funds that make money ONLY WHEN the stock market declines. He did not own any gold bullion. And more recently, he purchased more gold mining stocks and added to his bearish bets on the stock market using leveraged bearish funds.
In 2003, the value of his portfolio was between $860,000 and $2,300,00. (The disclosure form only provides a range of values.) In 2010, his portfolio grew to $2.4 million and $5.5 million. (Gold stocks have declined between 15% and 30% in 2011, so his portfolio has declined commensurately. He will declare that loss next year.)
So, over an an 8-year period his portfolio has appreciated by about 12%/year. (And after this year’s losses for gold mining stocks, it will be a bit less than that.)
Not so bad, eh?
Nope!
If, instead of being such a wiseguy, he had instead just purchased gold bullion, his return would have been 55% better — returning an impressive 18.5% per year! (It’s very strange that Ron Paul doesn’t own any bullion. And a skeptic might wonder whether he owns bullion, but failed to disclose it.)
[Disclosure: If one extrapolates the profile of his portfolio, one must conclude that he either nailed the bottom of the gold market, or he has really lousy long term performance. Remember that (even after this 10 year old rally) gold has appreciated at only about 5% for the past 30 years, while stocks have returned about 11%, and long bonds have returned high single digits. More troubling, however, is the notion that a President of the United States would personally profit from a DECLINING stock market and a declining economy! Even Barack Obama's assets include some S&P Index Funds....]
Rocky’s (latest) view on gold
Knowing that he’s been a gold bull for years, Rocky’s friends keep asking: “What you do think of gold, NOW?” (These people actually think that Rocky and certain other TV commentators can predict the future.)
Rocky’s answer: “I have no idea, and have NEVER had any idea about what the price of gold will do tomorrow.”
But does he still own gold?
“Yes, and I also own some stocks. And I own some real estate. And I own some bonds. And I own a copy of last week’s People Magazine. And I have no idea what the price of these will do tomorrow either. My experience has been that pundits who claim perfect knowledge of the future are generally either liars or idiots. (Whoopi Goldberg is the exception to this rule.) What I’m doing is called diversification.”
But when will he sell gold?
“The PRICE of gold is irrelevant. As I’ve written on this blog, I will sell gold when the gold story (or more accurately, the market’s perception of the gold story) changes! Gold’s ascent is a confluence of negative real interest rates; undisciplined central bank behavior; a growing loss of confidence in government policies and financial systems; loss of Swiss bank secrecy; an accumulation of economic wealth by individuals in parts of the world without stable property rights and rule of law. Can gold drop $100 tomorrow? Sure it can! Can gold drop $300 next week? Sure it can! Can gold drop $1000 next year? Sure it can! But so long as these FUNDAMENTAL factors remain in place, the underpinnings and demand for hard assets that are beyond the reach of governments will remain.”
“Almost all of my really smart friends are very bearish right now. They all think this move is idiotic. Many think this is a bubble. And eventually they will be right. But eventually could be a really really long time. And it could include a trip to unimaginably higher prices first. Their skepticism is not predictive of anything. And importantly, they are not betting that gold will decline either. All it tells you is that they aren’t long gold and missed this move. I’ll admit that I get nervous when prices rise quickly. And historically, buying after a sharp rally isn’t a good idea. But why should any of this market chatter affect my long-term porfolio construction/diversification? After all, I’m not afraid to admit that I have absolutely no idea what prices will do tomorrow.”
[Disclosure: Rocky NEVER gives investment advice. He's owned gold for a long time. And he owns some hedges that will protect him if gold drops sharply while he's asleep. And some day, he will sell his gold. But whether it's at $2,000/oz or $10,000/oz is out of his control. It's in the control of millions of other investors around the world, and how they react to the policies of their central banks and governments.]
David Hasselhoff, Baywatch & California finances
A recent article in the Orange County Register reminded Rocky of the glory days from Baywatch , (the most-watched TV show of all time.)
The newspaper article explained that being a REAL lifeguard may be a better gig than being a TV lifeguard!
From the newspaper story: “According to a city report on lifeguard pay for the calendar year 2010, of the 14 full-time lifeguards, 13 collected more than $120,000 in total compensation; one lifeguard collected $98,160.65. More than half the lifeguards collected more than $150,000 for 2010 with the two highest-paid collecting $211,451 and $203,481 in total compensation respectively. Even excluding benefits like health care and pension, more than half the lifeguards receive a total salary, including overtime pay, exceeding $100,000. And they also receive an annual allowance of $400 for “Sun Protection.” Many work four days a week, 10 hours a day.
The article continues: “On face, the compensation packages for these guards are staggering. But take into consideration the retirement benefits being paid to currently retired lifeguards and lifeguards who will retire at these pay levels in the future and the problem is further compounded. Lifeguards are able to retire with 90 percent of their salary, after only 30 years of work at as early as the age of 50.”
The entire story can be found here:
http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/44783/
[Disclosure: Although Orange County generously provides a $400 "sun protection" allowance, Rocky notes that they do not yet provide a plastic surgery allowance. Pamela Anderson wannabes should take note...]
The Billion Price Project @ MIT : A real-time CPI
Inflation, says Rocky, are rising prices for the things that you WANT to buy. Deflation, says Rocky, are declining prices for the things that you DON’T WANT to buy.
Although it uses a more analytically rigorous definition, there are many problems with the government’s Consumer Price Index (CPI).
It’s exciting to announce that MIT has gone live with it’s “Billion Price Project” (BPP) — which monitors daily prices of 5 million items sold by 300 online retailers!
Here’s the link to the Billion Price Project:
http://bpp.mit.edu/
[Disclosure: It costs the Labor Department $234 million each year to calculate the CPI, and it's only reported once each month. For more details, see:
http://www.slate.com/id/2278623/
]
$7.2 Billion — This does not compute!
Mrs. Picower voluntarily agreed to return $7.2 Billion to the Madoff Trustee Recovery Fund. As one of the largest beneficiaries of the fraud, she made the correct moral choice — but what was her real motivation?
Rocky figured this out!
He discovered that Mrs. Picower’s copy of Quicken Personal Finance Software crashed.
Quicken cannot handle dollar amounts larger than $99,999,999.99. Hence the $7,200,000,000.00 sitting in Mrs. Picower’s account was causing her computer to crash!
Rather than rebooting the computer, she decided to boot the cash to the other victims. For technical details, see:
http://quicken.intuit.com/support/articles/using-quicken/reports-and-graphs/483.html
(The technical term is “maximum supported value.”)
[Disclosure: It's difficult to imagine a checking account balance of $7.2 Billion. It's even more shocking to realize that at 1% interest rates, she's accruing interest at $200,000 per day! It's worth noting that TurboTax does not list a "maximum supported value" so Internal Revenue Service Agents can relax...]
Don’t spend that penny all at once!
Real returns turn positive by one basis point.
When Rocky was a little kid, his miserly Uncle Scrooge would hand him a shiny penny, and intone, “Don’t spend it all at once!”
The mathematically-proficient, (but economically ignorant) child would reply, “But Uncle, how do I get change back from a penny?”
After a trip to negative 0.62%, the 5-year Inflation-Index Bond (“TIP”), closed yesterday at a whopping, positive, (drum roll please): 00.01% yield! That’s ONE BASIS POINT positive yield. Break out the champagne! Savers can now retire early! Not.
When Rocky lends money to the US Treasury, he likes to receive more money than he lends (after inflation). He’s excited that Uncle Sam will be handing him a shiny new penny!
[Disclosure: Rocky is less bearish on Treasuries. But he's not bullish on Treasuries. He also notes that his bond market strategy discussed in this post is working nicely at the moment.
http://onehonestman.wordpress.com/2010/11/22/less-exposure-same-return/
]
Less exposure, same return
The bottom green shows the 30yr/10yr yield curve steepness since 1980. It's a 3-sigma event.
For long-term investors with a dedicated portion of their portfolio in bonds, Rocky believes that there’s currently an opportunity to reduce exposure — without reducing return.
The “trick” is to extend maturities with a portion of their bonds, and to put the balance of their exposure in cash. This is called a bar-bell trade (named after the exercise equipment) — and the steepest yield curve in 30 years (see chart) provides a rare opportunity to do this trade.
Here’s an example of the mechanics.
An investor has $100,000 in the Vanguard Intermediate Term Investment Grade Bond Fund. This fund yields 3.1% and has an average duration of 5.3 years.
If the investor sells that fund, and buys $58,000 of the Vanguard Long Term Investment Grade Bond Fund which yields 5.4% with a duration of 12.9 years and puts the other $42,000 in FDIC insured money market funds yielding 1.0%, a number of virtuous things can happen:
1) If nothing happens, the cash yield of his portfolio has increased by a little bit. Before the re-allocation, his portfolio was producing $3100 in income, and now it’s producing $3500 in income.
2) The investor has increased his cash balance, and since no one really knows what the future will hold, it’s always good to have lots of cash. If interest rates rise , the investor will be able to put the cash to work at higher yields.
3) If interest rates rise, the yield curve is likely to flatten (based both on history and standard economic theory). That is, short-term rates ”should” rise more than long-term interest rates. So, even though the re-allocation results in a longer duration (7.48 versus 5.3), in most scenarios this risk is overstated. Also, the risk is lessened due to the 42% cash cushion. So the practical increase in duration should be less than the theoretical increase.
4) The investor has sold the portion of the bond market that is being levitated by the Federal Reserve and purchased a portion of the bond market which is being set by market forces. (Most of the Fed’s purchases are under 7 years in maturity.) So, when the Fed stops buying or reverses its purchases, the re-allocation should have less market risk in the short maturities that usually rise the most during tightening cycles.
5) With short rates at zero, there’s nowhere for rates to go except up. However, if the USA is in a Japanese-style depression, the only yields that can still decline are the ultra-long maturities, and one might experience a “bull market flattener”. (This is a low probability event.) Due to its modestly increased duration and position on the yield curve, the re-allocation would likely outperform nicely during a bull market flattener. Additionally, the stock market will be weak in this scenario, and the 48% cash balance might be useful for purchasing some stocks at much lower prices.
Where does this strategy look worse? If all interest rates across the yield curve move higher by the same amount , then the modestly increased duration can cause an underperformance, and if the yield curve steepens even more, there can be an underperformance. Remember: Rocky isn’t suggesting to just move out the yield curve with the same amount of money… It’s important to tuck about 48% of the portfolio away in safe money market funds . Remember also that when rates rise, bond prices decline. So if interest rates rise a lot, all bond investors will lose money. The underlying theme to this re-allocation is “less exposure — same return.”
[Disclosure: This is NOT investment advice...see the Disclaimer at the top of this page! It's just something that Rocky noticed and investors should think about. It's also an observation that the yield curve is steepest its been in 30+ years. If the 30-year bond keeps rising in yield -- and the Fed keeps rates at 0%, then this strategy will not be attractive. There's no reason to think that today marks the maximum steepness. Lastly, Rocky doesn't have an opinion about when rates will rise; but they eventually will. But as Keynes supposedly said, "In the long run, we're all dead." ]
What is QE and what it really means to me
Rocky’s read a lot of information and mis-information regarding Quantitative Easing. This may be the best and clearest discussion of the issues and is worth a read:
http://www.thebigquestions.com/2010/11/18/qe2/
[Disclosure: Rocky rarely agrees with Professor Landsburg, and finds some of his philosophies to be morally objectionable. Nonetheless, the Professor does a good job explaining the pros and cons of QE2 in his article.]
Bubbles, bubbles, everywhere…
Google Hits on "Bubble"
Rocky noticed that his friends see bubbles in bonds, in gold, in stocks, in cotton, sugar and grain prices. In fact, his friends see bubbles EVERYWHERE!
It appears that there may be a bubble in bubbles. And a look at “Google Trends” confirms this bubble. However, this bubble-in-bubbles popped early in 2010 — on the 50th Anniversary of Bubble Wrap!
See:
http://www.washingtonpost.com/wp-dyn/content/video/2010/01/25/VI2010012500977.html
[Disclosure: Rocky never gives investment advice. When asked if or when the current "bubbles" will burst, he started foaming at the mouth.]
Gold: Manic Parabolic Blow Off Time
As regular readers know, Rocky has held a bullish speculative position in gold for many months. If today’s behavior continues for a few more days, Rocky believes that gold may be finally entering the Manic Parabolic Blow-Off Phase “MPBOP.”
The MPBOP is the most profitable phase of any bull market, and despite what experts on CNBC say, it’s impossible to know how long it will last — nor how high prices can go during the terminal stages of a MPBOP. Rocky speaks from experience having been on the wrong side of the internet MPBOP. (He was an avowed hater of the Pets.Com puppet, but he got revenge when the stock eventually went to zero.) This experience means Rocky wouldn’t scoff at $1500/oz or even $1800/oz gold by year-end.
Sadly, after the parabolic blow-off phase comes the “gravity still exists” phase, where people re-discover that gold is just a shiny piece of metal that makes an excellent dental crown. Which means prices will decline. By a lot.
Many people party on New Year’s Eve without worrying about how they feel on New Year’s Day. But not Rocky! Rocky remains long gold, but he’s beginning to think about his ultimate exit strategy. Parachutes? Ejection seats? Hari Kari? Here’s his latest thinking (posted on the blog Daily Speculations):
http://www.dailyspeculations.com/wordpress/?p=5344
[Disclosures: Rocky really has no clue what gold prices will do tomorrow or the days after tomorrow and his ruminations are not investment advice. He does, however, believe in the Laws of Gravity and the First Law of Rocky: In every “macro market” (indices, bonds, commodities), all prices WILL be seen at least twice. The only unknowns are: (1) how long it takes and (2) how far prices go, before the price is re-visited. Additionally, while Rocky currently remains long gold, he also owns hedges against the proven risk that he's more-than-occasionally wrong.]
The Undertow Bank
Rocky received an email that Shore Bank had been seized by the FDIC, and his account had been safety transferred to “Urban Partnership Bank.”
Rocky previously sang the praises of Redneck Bank which sends new depositors a free beer can holder, pays 2% on its money market account, and has NOT been seized by the FDIC. Redneck Bank is from a “red” state.
In contrast, Rocky surmises that Chicago-based Shore Bank got “in too deep” with the loan “sharks,” and was eventually was swept out to sea. Some news reports even suggest that the Chicago-based bank had questionable ties to President Obama and other pols. See:
http://biggovernment.com/centralillinois912project/2010/08/05/shorebank-now-under-scrutiny-by-the-feds-federal-bailout-also-unlikely/
The email from Urban Partnership Bank isn’t too promising either. It begins:
It has been a very busy Monday here at Urban Partnership Bank, formerly ShoreBank. We are pleased to share with you that our new bank remains committed to meeting your banking needs and to the mission of serving low and moderate income communities. We will also continue to support energy efficiency and environmentally-friendly development.
[Disclosure: Rocky wishes that the "mission" of taxpayer-funded FDIC-insured banks was to lend money only to credit-worthy individuals and businesses. Instead of focusing on energy efficient lightbulbs, perhaps checking the loan documents should be a higher priority? Rocky also notes that without FDIC insurance, he would not have an account at Shore Bank. This is an example of "moral hazard." ]
Balloons and bonds
Rocky observes that when he pinches a balloon on one end, it expands on the other end. This simple revelation has implications for his friends who continue to buy corporate bonds at ever lower yields, while ignoring the effects that it has on the stock prices of the same companies.
Bill Miller writes in his latest commentary, “US large capitalization stocks represent a once in a lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951. I was 1 year old then, but did not have then sufficient sentience or capital to invest.”
See:
http://www.leggmason.com/individualinvestors/documents/economic_perspectives/D9368-Bill_Miller_Commentary.pdf
Rocky doesn’t remember 1951, so he ran some tests on Dow Jones Industrial Average stocks and bonds to test Mr. Miller’s hypothesis, and found that the conclusions are impressive — even if one makes the improbable assumption that there is ZERO real earnings growth over the next ten years.
(During the 2008/2009 financial crisis, corporate bonds were getting hammered too, so one could not have done this analysis in 2008. Also, so long as the US population continues to grow, it’s extremely difficult to have zero economic growth, so this is a very conservative assumption.)
Rocky’s choice : (1) Buy an equal-weighted basket of the 10-year debt of “quality” companies or (2) Buy an equal-weighted basket of the stocks of the same companies. Buy and hold for ten years.
Analysis of choice #1 (bonds):
The average return is 3.9%. This is the best case and assumes no defaults, leveraged buyouts, or other credit events.
Analysis of choice #2 (stocks):
The current average dividend yield is 2.9% per year on the stocks.
The current average earnings yield is 6.3%.
So if one owns this stock basket and there is no earnings growth and no dividend growth, and the economy is Japanese-like, with intermittent recessions and growth, the return is 2.9% + 6.3% = 9.2% per year for the next ten years. (Which is remarkably close to the long-term average return for stocks.) Here Rocky assumes no bankruptcies and assumes a terminal p/e which is unchanged. But it also ignores the possibility that the economy could do much much better (or much worse).
Some might quarrel that Rocky is double counting … when he includes the dividends. So he says, “ok, let’s forget about the dividends.” Then, the stock basket’s earnings yield is 6.3% and the bond basket yield is still 3.9%, so it’s a pickup of 240 basis points per year for the risk/reward of owning stocks. Or, put another way, over a 10 year period, 10 x 2.4 = 24% … which means that the earnings yield could decline by more than 20% over the next decade and Rocky would still be better off in the stock market than in the bonds of the same companies.
None of this is making Rocky rush out to buy oodles of stocks tomorrow morning — because it’s certainly possible that stocks AND bonds may decline over the next ten years. However, for an investor in corporate bonds, this is an important result — particularly since in a SEVERE deflation or economic crisis, corporate bonds can get hurt badly. Note that Rocky did not include government bonds in this analysis — only corporate bonds.
Lastly, if stocks keep declining and corporate bonds keep rising, the relative values will become more attractive, however, at some point, corporations will issue new debt and use their cash to repurchase shares … and that’s what will keep the relationship between corporate bonds and stocks in line. Perhaps not at these relative valuations … but at some point.
Column1 = stock ticker
Column2 = dividend yield
Column3 = earnings yield. That is, earnings/price for the trailing 12 months.
Column4 = that company’s yield-to-maturity on its 10year corp bullet bond.
Column5 = earnings yield minus bond yield.
[There is a bit of fudging because Intel has no debt, so Rocky arbitrarily gave it a 3.2%. And he extrapolated some companies who had debt maturing in 8 years or 12 years.]
Data source: Bloomberg
| Dividend | Earnings | 10 Yr Corp | Earnings YLD | ||
| Yield | Yield | Yield | minus 10 Yr Bond Yld | ||
| AA UN Equity | 1.1 | -5.6 | 5.7 | -11.3 | |
| AXP UN Equity | 1.7 | 3.7 | 4.5 | -0.9 | |
| BA UN Equity | 2.7 | 3.5 | 3.3 | 0.2 | |
| BAC UN Equity | 0.3 | 2.5 | 5.8 | -3.3 | |
| CAT UN Equity | 2.6 | 3.8 | 3.9 | -0.1 | |
| CSCO UW Equity | 0.0 | 5.6 | 3.6 | 2.0 | |
| CVX UN Equity | 4.0 | 7.4 | 4.5 | 2.9 | |
| DD UN Equity | 4.5 | 6.0 | 3.6 | 2.4 | |
| DIS UN Equity | 1.1 | 6.7 | 3.2 | 3.5 | |
| GE UN Equity | 2.7 | 8.2 | 4.9 | 3.3 | |
| HD UN Equity | 3.4 | 5.9 | 3.2 | 2.7 | |
| HPQ UN Equity | 0.7 | 8.1 | 3.2 | 4.9 | |
| IBM UN Equity | 2.1 | 7.6 | 4.0 | 3.7 | |
| INTC UW Equity | 3.0 | 6.0 | 3.2 | 2.8 | |
| JNJ UN Equity | 3.8 | 7.2 | 3.7 | 3.5 | |
| JPM UN Equity | 0.5 | 6.5 | 5.1 | 1.4 | |
| KFT UN Equity | 4.0 | 7.5 | 4.3 | 3.2 | |
| KO UN Equity | 3.3 | 5.4 | 3.3 | 2.1 | |
| MCD UN Equity | 3.1 | 6.4 | 4.2 | 2.2 | |
| MMM UN Equity | 2.6 | 5.7 | 3.2 | 2.4 | |
| MRK UN Equity | 4.3 | 8.8 | 3.4 | 5.4 | |
| MSFT UW Equity | 2.1 | 7.3 | 3.0 | 4.3 | |
| PFE UN Equity | 5.0 | 11.1 | 3.1 | 8.0 | |
| PG UN Equity | 3.2 | 7.2 | 3.4 | 3.8 | |
| T UN Equity | 6.7 | 7.6 | 4.5 | 3.1 | |
| TRV UN Equity | 2.9 | 12.6 | 4.2 | 8.4 | |
| UTX UN Equity | 2.5 | 6.6 | 3.5 | 3.1 | |
| VZ UN Equity | 7.2 | 7.2 | 4.8 | 2.4 | |
| WMT UN Equity | 2.4 | 6.9 | 3.7 | 3.2 | |
| XOM UN Equity | 3.0 | 5.9 | 4.1 | 1.8 | |
| Equal Wgt Avg | 2.9 | 6.3 | 3.9 | 2.4 | |
[Disclosure: Rocky is not recommending that anyone do anything that involves money or bonds or stocks or shoelaces. But he's watching this relationship and has started to gradually move some of his "high quality" corporate bonds into the stocks of the same companies -- as the relationship becomes ever more attractive. He also notes that if you pinch a balloon TOO hard, it will burst. ]
Free Food! Free Food!
Panera Bread just opened a a new restaurant where customers “pay whatever they want.”
From the Associated Press: CLAYTON, Mo. — Panera Bread Co. is asking customers at a new restaurant to pay what they want. The national bakery and restaurant chain launched a new nonprofit store here this week that has the same menu as its other 1,400 locations. But the prices are a little different — there aren’t any. Customers are told to donate what they want for a meal, whether it’s the full suggested price, a penny or $100.
The full story can be found here:
http://www.google.com/hostednews/ap/article/ALeqM5g__EQ-OG9DhU1YwC4Fo4s5QREdbgD9FPBIMG0
This bizarre business model has Trophy Wife jumping up and down with excitement as she hopes that Tiffany’s jewelers may adopt a similar pricing policy. Additionally, if Panera succeeds in this approach, it will be bullish for textbook publishers, as it will require a re-write of every college economics textbook!
[Disclosure: Rocky doesn't own any shares of Panera Bread (PNRA), but if he did, he might be tempted to sell them before he lunches at Panera for a penny.]
Best four years of your life
College years are sometimes referred to as the “best four years of your life.”
Whether or not this is true, they sure beat the last four years of life for a Sallie Mae shareholder. (negative 76% total return).
And the next four years don’t look good either.
From Bloomberg: “SLM Corp, the biggest US student loan company, tapped the bond market for the first time in two years, paying more in interest than it charges [college students for their loans.]“
SLM sold $1.5 Billion of 8 percent notes due in 2020 at a yield of 8.25%. Stafford federal studen loans have a fixed interest rate of 5.6%.
Bright college years … ahh.
The hardest investment
One year ago, Rocky was diligently “dollar cost averaging” in stocks, corporate bonds and other “risky” assets.
See:
http://onehonestman.wordpress.com/2009/03/05/sp-500-target-price-zero-on-11109/
It was painful at the time, yet his models, reason and experience suggested an extremely high probability of double-digit returns over the ensuing five years. (Rocky neither predicted nor expected a 70% rally in only twelve months.)
After this historic rally, Rocky’s estimate for stock market returns over the next five years is back towards the low single digits. What’s Rocky doing? He’s not betting that the stock market will decline, but instead, he’s pruning back some exposure (with long term capital gains tax treatment) and building his cash balances. The most difficult investment today: cash yielding zero.
Rocky’s a terrible market predictor and he readily acknowledges that the stock market could easily rise another 10% over the next six months. However, Rocky notes that the most difficult investment is often the best investment. And that painful investment is now “cash.”
[Disclosure: Rocky doesn't provides investment advice. He always buys early, sells early, and goes to bed early.]
Take your money — please!!
Rocky enjoys receiving free toasters and other perks when he opens a new bank account. But for the first time ever, he found a bank that offers a bonus for CLOSING a bank account!
The Nevada Federal Credit Union announced that they are paying savers a $25 bonus if they withdraw $25,000, and a $75 bonus if they withdraw $75,000. The full story is here:
http://www.lvrj.com/business/credit-union–pul-lease-take-your-money-86320527.html
Rocky wonders whether this is the beginning of a nationwide trend? Will his local Exxon station will pay him $25 if he goes across the street to Texaco? Will Verizon Wireless pay him $50 to switch to AT&T?
[Disclosure: Zero Percent Interest Rates seem to be causing unexpected consequences.]
Wardrobe decisions for congressional testimony
Rocky lacks any substantive insights on today’s AIG grilling of Treasury Secretaries Geithner and Paulson by the House Oversight and Government Reform Committee. So he’ll instead focus on the important stuff.
Rocky notes that both Geithner and Paulson appeared to be wearing waterproof scuba diving watches.
Geithner’s watch came before the camera as he was pointing his index finger at the committee in a Clintonesque “I did not have sex with that woman, and even if I did, it was in the best interests of American Taxpayers” moment.
Paulson’s watch came before the camera when the Committee ran over Paulson’s self-imposed time limit, and he “graciously” agreed to stay for an extra eight minutes. The eight minutes ran to ten minutes, and Paulson objected. The Committee Chair graciously acknowledged Paulson for providing an extra two minutes.
If Paulson and Geithner had been Secretaries of the Navy, the waterproof watches would make more sense.
Perhaps Geithner chose a waterproof watch to protect against a waterfall of tears. In contrast, Paulson was probably enroute to a flyfishing date with Robert Rubin, Tiger Woods and Dan Rather at “The Perfect Cast,” a resort who’s list of celebrities is a who’s who of the morally challenged.
Infinity times zero = zero
Ally Bank sent Rocky a letter apologizing for failing to pay interest on Leap Day 2008. Rocky grew excited at his unexpected windfall, until he sadly realized that anything times zero is still zero. And bank interest rates are extremely close to zero!
Rocky was also surprised by the Leap Day interest because his trusty Monroe Bond Calculator (vintage 1986) always assumed 30/360 for interest calculations.
Perhaps the biggest riddle is why the calculation error affects accounts “that were opened or matured between March 1 and December 31, 2008″ — since Leap Day was February 29, 2008.
Ally Bank, the retail banking subsidiary of GMAC, last week received an additional $3 Billion in US Government bail-out funds….perhaps for leap day interest payments?
Dick Clark and the long bond yield
A popular investment platitude is “The trend is your friend, until it ends.”
The above chart shows the yield of the US 30-yield treasury bond. For the past twenty years, buying the bond as its yield approached its 100 month moving average has been a winning strategy. Right now, that strategy demands a purchase of bonds — with a stop-loss a little bit above. (Remember that bond yields and bond prices move in opposite directions.)
However, if the bond yields more than 4.75% when Dick Clark rings in the New Year, this long-term “secular” trend will have ended. Historically, broken secular trends are dangerous beasts, and the first leg of the reversal can be violent.
[Disclosure: Rocky is agnostic about whether Dick Clark should have retired 20 years ago. He is also agnostic about the short-term direction of the bond market. Because he accepts that "the trend is his friend," he may buy a few bonds -- before he leaves his office to buy his New Year's Eve party hat. When Rocky wakes up in 2010, he'll find out whether the 20-year-long bond bull market remains alive -- or has joined Guy Lombardo in heaven. See:
http://www.last.fm/music/Guy+Lombardo/Christmas+Through+the+Years/Auld+Lang+Syne
]
