Investment Guy

Many people are drawing parallels between this current market selloff and the credit crisis that nearly ended in depression a few years ago.  I don’t see any.

The downgrade of the US AAA rating is nothing like the collapse of Lehman Brothers, Bear Sterns, or any of the other firms that went under.

The credit crisis of 2008 was systemic.  It was the culmination of the housing bubble and the realization that that every bank had been lending gobs of money to absolute idiots in order to fund the purchase of houses they couldn’t afford.  And this had been going on for years.

The entire world suddenly woke up and found that there were bonds rated AAA but comprised of junk quality mortgages.  Nobody knew which investment was quality and what was toxic, and nobody wanted to own anything-  At all.

The market crashed.  Business, and the economy, nearly came to a complete halt .

Corporations laid off 3,000,000 people in 2008-09.      Then came Tarp, QE1, QE2…the economy was on life support.

Flash forward to today: 

If you want to buy a house in 2011 you need to have sparkling credit, 10 years of income history, 20% down, and the ability to lend the bank more money than you are trying to borrow.

Corporate America cut every wasteful expense, reduced inventories, curtailed spending, and today’s companies are lean operating machines.  That is why earnings beat expectations in the first 2 quarters of 2011.

Today we are adding 150,000 jobs per month. True, it will take a long long time to gain 3 million jobs back at that rate, but we are going in the right direction.

Additionally, interest rates are still low and inflation is still relatively tame.

This market selloff/crash is all about fear.  There is no more stimulus- zero – and that is scary.  But zero stimulus is a good thing; now we get to see the economy stand on its own.  Couple the removal of stimulus with several other potential bogey monsters that loom on the horizon (Greece, inflation, rising interest rates) and fear is understandable.

But these monsters are not new. Things are not substantially different than they were 2 weeks ago.  Fear and greed are what make the markets move, and right now fear is winning.  In 6 months this market swoon will be a distant memory.

On June 15^th we hosted an event presented by Special Agent Duffey of the FBI about preventing Identity Theft and safeguarding confidential information.  Special Agent Duffey talked about a real life case involving a national department store; the recap is below.

DID YOU KNOW?

Most of your information is already online.  Google, zabasearch, and a variety of other places can provide your name, address, phone number, d.o.b., and more, for FREE! 

Armed with this information a clever criminal can pose as a trusted representative from a company that you do business with.  If a criminal gets a hold of the list of clients who have credit cards from that company, a simple non-threatening phone call might go something like this:

Hello Mrs. Smith, I am calling from [NATIONAL DEPARTMENT STORE].  Your credit card was flagged for fraudulent activity.  Do you still live at [THE ADDRESS I JUST GOOGLED] and have [THE SAME PHONE NUMBER I JUST ZABASEARCHED]?  Great, now that you trust me…Can you please confirm your social security number? 

And…BAM!  Kiss your credit history goodbye.

• It takes the average victim 170 hours and $1,000 to correct their stolen identity.
• Today, nearly 1 in 5 Americans have been victims of Identity Theft.

Here are 8 tips I learned from Agent Duffey that might help you avoid becoming the next statistic:

1. Protect your Social Security Number. Never give it out to anyone you don’t know…Ever!  Ever, ever!  Your SS# is your identity.  In a situation like the one described above, hang up the phone and call the national department store at a number listed in the yellowpages.
2. Check your Credit!   Stolen information can lay dormant and resurface 5-10 years later.  Annualcreditreport.com will check all 3 reporting agencies and is FREE once a year. *Note: This is not the one you hear advertised on the radio, DO NOT USE Freecreditreport.com, which is not free.
3. Shred Everything with personal information. 
4. kEEp a S@fe c0mputeR.  Passwords should not be words from the dictionary.  Substitute $ymbol$, num6ers, and rAndom upperCase letters.  Antivirus software and Firewalls are your friend and there is no such thing as being overprotected.
5. Know your Surroundings. Supermarket and convenient store ATM & Debit Card machines are targets for cloning.
6. Don’t open email from an unknown sender.  Regardless of how enticing the subject line is, delete unknown emails immediately.  These are scams and phishing attempts.
7. Laptop Security. Never keep any personal or business information on a portable device.
8. Talk to your Family.  The elderly are often targets.  They are friendly, love to talk to people, and not tech savvy.  Criminals will contact them posing as officials or a family member in need late at night when they are disoriented.

              Remember that you are only as strong as your weakest link, and I hope that these points have helped you discover where to find yours.  For more information…

call 1-877-IDTHEFT

   Visit this website: http://www.ftc.gov/bcp/edu/pubs/consumer/idtheft/idt08.shtm

   Or contact your local authorities.

Thank you Special Agent Duffey for an entertaining and terrifying presentation.

We work with a lot of small business owners. A popular topic of conversation lately has to do with the fact that the markets have recovered so fast over the last few months yet their business has not improved nearly as much. Business owners just don’t get it, and find it hard to believe in this market. There is a divide between Wall Street and Main Street, and it is growing.

On Wall Street, companies are much larger and have the ability to trim inventories and personnel more efficiently than many of these small businesses. Trimming these excesses squeezes every juicy penny out of every last dollar and it all drops to the bottom line. The market sell off was extreme, outlooks became dire, and earnings expectations from Wall Street were drastically reduced. It has become easy for companies to meet and even beat such a low earnings bar.

Main St is a very different picture. Unemployment is still high and budgets are still tight. People are learning what it is like to live within their means for the first time in a very long time. Most are adjusting- frivolity is out, and bag lunches are in. It is not an ideal world, but there is a sense of comfort and confidence now that talk of an actual depression is a fading memory.

In our opinion, market levels are hardly excessive, and the outlook continues to improve. We are still 25-30% off of the highs of 2007. I think we may be at a comfortable place for the market, with some continuing upside due to excess cash and high levels of money market balances. Profits could and should continue to surprise to upside and credit conditions are still below ‘normal’. Additionally, policy makers are continuing a supportive monetary environment.

This is the concern going forward; when this loose monetary policy starts to tighten and dollars are slowly vacuumed up from the economy…then what? Will the fed get it done before inflation runs where the wild things are or will it put a new stranglehold on the economy. Addition concern lies in the comfort with riskier investments that is sought by investors in a zero interest rate environment.

It is easy to forget how scared everyone was of any kind of risk back in the 1st Quarter of this year. Where do you think we are now?

A good friend of mine recently bought a house that was built in 1909.  There have only been 3 owners of the house in the 100 years of its existence, and in the interest of [very] long term investing, I began wondering what sort of returns this house would have yielded over a century. Read more…