By: Thomas and Alix Cloud

 

If you’re the Miami Hurricanes you know what it is like to get unexpectedly stung. For those of you that follow college football you know that the Georgia Tech Yellow Jackets beat the #3 rated Miami Hurricanes, on November 19, 2005, in a game they were supposed to lose by more than 17 points. Have you ever been stung by a yellow jacket? I am not going to ask if it was unexpected because no one plans to get stung. When you do get stung what happens? Do you immediately hurt? I begin to feel pain, redness and followed by swelling around the sting mark. Next comes the swelling where my skin expands and finally my throat starts to close up as I begin wheezing a little. The month of October was a time where most every asset class experienced an unanticipated time of reduction.

Let’s review how much each asset class went down, in October only, from its YTD return through 9/30:

·        US Bonds â.8%

·        Crude Oil â14.08%

·        US Stocks â1.95%

·        Gold â.58%

·        Foreign Stocks â3.19%

·        Hedge Funds â.35%

·        US REITS â2.92%

·        Commodities â8.04%

I thought this wasn’t supposed to happen. Even if you would have been diversified into each of the above asset classes you still would have had a miserable October. I believe this occurred for 2 reasons #1 – low interest rates. When we have low interest rates many of the asset classes seem to act the same way. However, with interest rates going up recently, it is not wise to believe this will continue to happen. #2 – this is only one month and when looking at every asset class on a monthly basis we are going to have a much higher chance of finding a month where several of the asset classes perform poorly than if we were to look at things on a yearly scale.

Investments

Right now I am still iffy on US bonds. I would not still stay away from the longer term and intermediate term US bond mutual funds as long as the Fed is in this “prevent inflation mode”. I feel pretty good about gold, especially rare coins. Please call me if you would like help diversifying into these liquid coins. I am not real confident in the US dollar but I like the Australian and Canadian $, along with the Sweedish Kroner. I always like being in fundamentally sound stocks. Even when value stocks have a bad quarter or year it is not that bad, which still gives you a chance to enjoy the big years and have better long term returns. I have the least amount of confidence in real estate right now for the amateur investor. Now is not the time, in most every part of the US, to buy a home and try to “flip it.” Please do not be foolish and tell yourself that your part of the country is different, or that there is no way to lose in real estate, or that this deal is a “can’t lose situation”, or some other variation.

Quick Facts about Home Prices

1. Last week, the National Association of Home Builders reported that its index of sentiment among builders slipped to its lowest level in more than two years.
2. The Commerce Department reported that October building permits, considered a good indicator of where construction activity is headed, saw their sharpest decline in more than six years.
3. The two year and ten year treasury are starting to get closer to each other. The two year treasury typically reflects what the market believes the Fed is going to do with short term interest rates in the near future. As you can see from the two year treasury bonds’ performance on the graph below, the market believes the Fed is going to continue to raise short term rates. The ten year bond usually reflects more about what will happen in the future specifically about the housing market. This is because most people take out long term loans. Long term interest rates affect the price of housing. What this graph is telling us below is that the market is concerned about the cooling off of the housing market and therefore wants to keep long term rates down while at the same time the market believes that the Fed will continue to raise short term rates in the short term. If this belief/trend continues, we will have an inverted yield curve. And as we have looked at before, an inverted yield curve is an excellent predictor of a recession. The bottom-line: the market is worried about housing prices dropping but the Fed is not!     

As far as the economy goes I am totally neutral right now. I have written in the past when I felt as though a recession was coming and when I felt an expansion period was on the way. Maybe it is because I am excited about Thanksgiving or the UGA vs. GT football game this Saturday. I am not trying to give the typical economist’s answer that has a bunch of clichés phrases and really never steps out and says anything. I am waiting on an opportunity for my clients right now. I am hoping something comes available really cheap, soon, so I can go in and buy it for my clients and hold for a little while.

Until then, I will continue helping my clients to maintain diversification only for the purpose of achieving the highest consistent returns with the lowest amount of risk. I hope that you and yours have a safe and happy Thanksgiving as you thank Jesus (God) for all the good and perfect things He has given you. After all, “thank you” should be a natural response of our love for Him.  

 

The 4 Year Old “Club Scene”?

By Alix Cloud

So what if she still wears diapers at night uses a binkie and thinks that Barney is a real dinosaur? This is 2005 and if you’re going to be living in the U.S., today you better hurry up and get your daughter with the program-even if she is only 4 years old. She should understand that she can’t settle for an existence of “homemade play dough mediocrity” when there are books she’s expected to know how to read, Britney dance moves to master and $79 jeans she should be begging you to buy her. Gone are the innocents of yesteryear, content to play with the one canister of Lincoln logs (with missing pieces) every afternoon, replaced by throngs of Firefly[1] holstered preschoolers who may have better social lives than their parents. Play-dates, makeover parties, various lessons and engagements fill the pages of their Hello Kitty agendas.

            The BBC World Edition (Sunday, 15 May, 2005) informs us that “in the western world there is much evidence children are reaching puberty at younger and younger ages - some girls at the age of seven.” Although we don’t know the true causes (environmental/chemical, or biological) of this medical phenomenon, does it fuel a trend in America that removes the “child” from “childhood”? If kindergarten is the new 1^st grade, then where did kindergarten go? Will our daughters leap straight from Baby Eistein to Oprah-is it possible that Sesame Street is passé?

            I contend that we as parents are to blame for this noticeable trend in our society. Slowing down for the sake of our children so that they may enjoy a true childhood should be our mantra. Let’s give our precious little Caitlin’s and Jennifer’s the sweet relaxation of 5 or more years of true youthful innocence. Barbie can be the only one dressed too provocatively in our households and we should guard our wards against the “new” maturity of their elementary contemporaries. So, the next time you’re dropping her off at the pre-school dance in her stiletto’s, remember it’s not too late to introduce her to the type of childhood you had.

[1] http://www.engadget.com/entry/1234000207047134/, Firefly-the cellphone for kids reviewed Posted Jun 18, 2005

     

Thomas Cloud, Jr., ChFC, CSA, is founder of Golden Rule Financial, Inc and is a columnist for PurePolitics.com. For investment advice please see Golden Rule Financial.

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