I went through all the investment ideas at Play the Annual Invest Lazy Man’s Money Game and Win $25 and found nothing that stood out as what I was looking for.
I thought that the single stock suggestions a little too risky… blame Worldcom 10-12 years ago. I haven’t fully recovered for it.
I’ve historically been against gold, because of its lack of intrinsic/practical value. Tommy Z made a case, but Kosmo’s response matched my own thoughts, except that I, and everyone I know prefer the look of silver/chrome/titanium to gold in jewelry. My wife was willing to get me a wedding band of whatever I wanted, but the $99 titanium looked the best and was the strongest and cheapest. Gold loses in every way.
In the end, I think Contrarian made the most sense. His words were exactly what I’ve been thinking with the following, “Our economic recovery and subsequent rise in stock prices has been on the back of a toxic brew of $7 trillion in reckless government debt, ZIRP, Bank bailouts, QE1, QE2, Operation Twist, periodic massive liquidity injections and ultra low interest rates.” In fact he’s added a few more thing that I had missed like Operation Twist. I can’t use his suggest to buy put options on SPY, because I don’t have options trading for my SEP-IRA. For this reason Contrarian wins the $25.
However, recognizing that, I would have hoped that there was a better suggestion than holding cash. That’s especially true if that currency is the one that was propped up by all the above things. I was thinking that maybe investing in foreign stocks could be the answer, but if the US economy gets sick they’ll probably catch the sniffles as well.
In the end, I think I’ll just keep the SEP-IRA in cash and buy on market dips.
Thanks for the mention, LM!
Value Indexer says
I was hoping to see some more good ideas too! In the end there’s nothing to get excited about but I can’t make a move with 100% of the portfolio because that means taking only one side of the bet :)
Lazy – Thanks for the contest and the award! I’m almost embarrassed to have won on the ultra-boring suggestion to just hold cash. It’s never sexy or exciting to sit on the sidelines and just wait in cash for the fat pitch, but In the end if our huge 15 trillion dollar debt-Ponzi collapses, we will all be glad we didn’t take the bait and buy into this artificially inflated rigged market. Once the house of cards crashes there will fantastic buying opportunities for those who kept their powder dry. You can call and thank me later when you will be able to snap up real-estate at 30% off current prices and buy stocks at the bargain basement 50% sale. This is when we will want to swing for the fences!
Lazy Man says
I’m hoping that real estate doesn’t crash too much. I’ve got a good portion in that. We took advantage of the good prices and the low interest rates and bought last year.
However, if stocks drop 50% like they did in 2008, I would be happy to put that cash to work to capitalize on the rebound.
Value Indexer says
Contrarian: in the stock market, would you say the artificially inflated market is affecting valuations or corporate profits? Lower valuations would be great but they don’t look extreme yet.
@ V-Indexer – Who knows what the markets are going to do in the short run. What we do know is central banks and governments in the western world have staved off system-wide collapse by artificaillay inflating asset prices, so naturally people and the markets happy. If you give a bar full of drunks alcohol they will be happy too … for a while. But what are the long term implications force-feeding a drunk more alcohol to stave off a hangover? We all know the answer to this question. You cannot fix a debt problem with more debt anymore than you can fix alcoholism with booze.
To your question of valuations, if this is a typical cyclical rebound, we should all be buying stocks hand over fist right now, but I don’t believe the old rules about buying stocks coming out of a recession doesn’t apply. You cannot look at PE ratio’s, which are historically low comparatively speaking, because the “e” is all wrong. Value in the PE assumes our problems are cyclical and we will grow our way out of them, but our problems are not cyclical, they are structural and the “e” is not coming back any time soon. Look to Japan over the last 20yrs for an example of what we are in store for in the next 20.
Also let us not forget that we’ve taken all the bad assets and debt off US company balance sheets and shifted them onto the pubic sector balance sheet, so of course earnings look good right now, but what happens when the balance sheet musical chairs stops and the phantom profits disappear?
Value Indexer says
So you’re looking at the corporate earnings being abnormally high? They do seem to have risen quickly although that alone doesn’t mean they will never go any higher. And low valuations are justified when earnings will decline. In Japan I believe valuations fell a lot (“we have a new way of valuing stocks so we can pay 100x earnings” from the 80s). Do you know what happened to the corporate earnings over that time? Did they fall as well?
I’m not making a bottoms up call on individual stocks nor am I trying to win the fools game of timing the market, I’m only looking at the macro-economic environment and have determined it’s inevitable that we must, whether we like it or not, atone for our sins of the past.
I’ve made my case and expressed my fears in previous comments about our unsustainable debt levels and that there is ZERO chance we can print, spend or stimulate our way out of this mess, therefore I won’t re-hash that sad story. I will only say that it is beyond silliness to propose more credit and more money will cure for a problem caused by too much money and too much credit. I am patient with stupidity but not with those who are proud of it – and it seems to me most people suffer extraordinary delusions about what government and central bankstrers are capable of doing … this defines stupid and ignorance to me. We are way beyond the point of no return, and there are no good choices left to make – only really bad and less bad ones. Even if the Fed and government smartened up and began slashing entitlement spending, stopped bailing out failing “too big to fail” private and public enterprises, and implemented across the board austerity, our fragile economy would immediately sink into a severe recession or most probably a deflationary depression without the government propping it up.
With your monicker I assume you are a value investor? Well so am I, and over the years I’ve done very well buying “ick” stocks that were unloved, out of favor, and nobody else would touch. In a normal economic cyclical environment (if you have a long enough holding period) when everyone else is selling, when blood is running in the streets, holding your nose and buying almost always serves you well. The simple reason I’m not buying now when there are historically low valuations, is I refuse to buy the BS and propaganda about a recovery. Any real growth has been artificially stimulated or is nothing but a statistical mirage propagated by the Fed and large institutions with a big stake in the Ponzi scheme.
The problem we face today is NOT cyclical nor is it typical, the problem we face today is structural, therefore familiar metrics and models for valuing companies don’t apply and won’t apply over the next 10-20 years. Everything is going to get crushed when there are hard defaults and the entire system gets reset. Time honored theories about “buy and hold” and bottoms up stock picking will be severely tested over the next 10-20 yrs. Again, if you look to Japan you will see a country with a GDP/debt ratio of over 310% and a stock market that has fallen over 70% from its high. Many stocks in Japan are very cheap … selling for liquidation valuations, but guess what, they’ve been very cheap for over 10 years!!!!