It looks like JP Morgan is going to buy Bear Sterns for $235 Million dollars. I put the question mark above because I can’t it would drop that much – Bear Sterns closed on Friday at $30 a share. It seems that JP Morgan is getting Bear Sterns at more than 90% off. Even more amazing the stock’s 52 week high is over $159. That means if you invested a million dollars in the company last May, you’d have around $12,500 today.
This is another great reason why it’s important to diversify. I’m sure there are people who were heavily invested in Bear Sterns and not properly diversified. These people would have watched a lifetime of investing disappear in less than a year.
In other related news, the Federal Reserve dropped the interest rate a quarter point – quite a rarity on the weekend. From the report, “The ‘discount’ rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn’t apply to individual borrowers.”
If the Bear Sterns news came out a couple of weeks from now, I would have pegged it for an April’s Fool Day prank.
Last October I asked, where would you put money now. I noted that quite a few things were expensive. Investments that were at full time highs were: Oil, the Dow, the price of gold, emerging markets, and China. I finally decided on a regional banks ETF despite the sub-prime mess. At the time, the price was around $40 a share. It’s a little lower now – I’m happy I didn’t move any money.
I decided to back at some of the comments made to see if anyone was wiser than me. Almost everything has gone down, so I can’t be too hard on suggestions. A few people suggested buying VMWare. I hope they didn’t buy that themselves as it’s way down about 40-50% since October. There were some good recommendations in there as well. One commenter mentioned that you couldn’t go wrote with First Solar. If you listened to him you could have doubled your money – provided you sold at the absolute top.
Enough of dwelling on the past, let’s look to the present and future. The Dow is has dropped from 13892 when I wrote the article to 12192 as I type this. Many China stocks are down from their high. Vanguard’s emerging markets ETF is down. Oil went back down, but close again to it’s highs. This gold ETF just keeps going in one direction – up.
So what do you do now? Do you go buy more gold? Do you buy something that mimics the US stock market now that it seems to be cheaper than it was in October? I’m a value guy and hate paying for things at the top. Here are two places that see possibly making some people a lot of money. You might have to buy and wait 5 years, maybe 10-20, but I feel that they’d pay off quite well in time.
- Technology Stocks – The Amex Technology Spider ETF is down from around $27.75 to around $22.50, making it seem like a solid choice since earnings have been fairly good in the area. Its odd for me to believe, but Apple, Google, Microsoft, and Cisco as value plays? It’s true. It’s very rare that you get to buy market leaders at a discount. Though some of them have shot up in price over the last year or more, I believe that now is a chance to get them and hold them.
- Real Estate – This one depends on where you are looking. In northern California home prices haven’t come down much. However, in Boston where I’m originally from, it seems you can find some home prices off as much as 30-40% from two years ago. Like tech stocks, the price may have been inflated in the first place. However, discounted prices combined with extremely low mortgage rates, makes this very tempting. I have a friend who knows he wants to settle down in a Boston suburb in 2-3 years. Due to some life circumstances, he can’t live there until then. He’s thinking of buying a home now and renting it out until he can live there. He reasons that if he just breaks even (or loses a little) with rent, it’s better to get this price than pay 15% more and a higher mortgage rate. This seems like an extremely smart plan to me.
I’ll leave you with the best call of the comments from that October post. The Div Guy said, “I think the Sox can win the next 3.” He wasn’t quite half right, they won the next 7.
Portfolio magazine is reporting that Britney Spears is worth 120 million dollars worth of business to the United States. When she is touring it goes up from there. Here’s their breakdown of costs:
- Promoters/Licensers – 30-40 million through endorsements
- Paparazzi – 4 million peddling photos
- Print, Web, and Video media – 75 million
- Federline Factor – He gets 1 million a year from her
While I recognize all these things as being true, it’s clearly not as exciting as the magazine makes it.
So my question is, if Britney continues her downward spiral, would the US workers lose the money? I don’t think so. If anything the tabloids and paparazzi will see record earnings.
I say it shouldn’t matter and we should focus on more important things – like who has better hair, Britney or Paris? I say Britney in her heyday couldn’t be touched. However, now that Britney wears a wig, I’m going with Paris.
David at MyTwoDollars asks if we can stop complaining about gas prices. I’m not so sure that complaining helps, but in my opinion it’s very understandable considering the circumstances.
Americans typically drive a long way to their jobs and public transportation isn’t common in much of the area. We are also denied many of the smaller, more fuel-efficient cars. Where is the Smart Car version in the US? The Mini comes close, but isn’t quite there. Plus it wasn’t an option in 2001 when I bought my last car. My next car may be small or a hybird, but it’s hopefully going to be a long time before that happens.
Other countries have different economic climates – it’s really impossible to compare. Housing in the UK is smaller (from what I’ve seen) and people live closer together leading to what I’d expect to be smaller commutes. I also hear a lot about Europe’s amazing train system that can take through many countries very affordably. If they don’t have to drive as much due to the layout of their country the higher gas prices are not going to be as big a deal.
You also have to factor in the psychology of the rising rates. We had become conditioned to paying under $2.00 a gallon a few years ago. The price of gas has doubled when adjusted for inflation in California in 8 years! See $1.40 adjusted for inflation in that chart and the 2.80 for 2006 prices. I think the current California average gas price is probably over $3.00 adjusted for inflation today. Have our salaries, adjusted for inflation, doubled? Thus gas is eating up more of our (Americans or at least Californians) budgets than ever before.
The reality is that any time any necessary expense inflates more our paychecks there will be complaints. That’s why you see it housing. You see it with college as it’s largely considered a necessary expense by many nowadays. That’s a topic for a whole other day, though.
Update: As I finished up this article, I noticed that Flexo at Consumerism Commentary wrote about gas price complainers as well.