HOW ECONOMIC DATA & THE HYPE CONFUSE
I am sure that many of you have heard that gold was a great investment, and that investors like gold as a hedge against bad economic news. Since gold is now experiencing its best year since its last peak in January 1980, it is a good time to review the reality. On December 3rd, gold reached a record high, exceeding $1,225 an ounce. A gold investor who purchased gold during the last peak at $850 an ounce, has seen a return of approximately 44 percent. To put that into perspective, if one reinvested dividends, the Standard & Poor 500 stock index multiplied approximately 22 times. Even Treasury vehicles rose more than ten times, and interest-bearing bank accounts (not including Certificate of Deposits) almost doubled! When one factors in inflation, gold investors are still VERY far away from breaking even on their investment! Am analysis of gold investing leads one ro realize that gold is NOT a good long-term investor, and that the security of owning something tangible for "peace of mind" can be very costly.
Similarly, the originally cost of the TARP bail-out has been recalculated because many banks have repaid the loans much earlier than forecast. The cost of the TARP bailout has therefore been recalculated downward by approximately $200 billion (over 10years). The Government has actually made money on many of the TARP loans repaid. Does anyone think they know why these companies are repaying early? Could it have anything to do with not wanting to have the government have the "leverage" over them?
Several months, the politicians and the media were celebrating what they referred to as landmark legislation regulating the credit card companies. However, the law that was passed would not take place for nine months after enacted. So what have the banks done? They've configure themselves to make significant moves ahead of the deadline, so they are in the most advantageous position possible. Many of the banks have raised their interest rates; many others have arbitrarily and across the board lowered credit limits. And to make the system even more ludicrous, the way credit scores are calculated, the banks lowering of credit limits causes many people's credit scores (FICO, etc.) to go down!
So, what did the banks do with the monies they received to bail them out? Wasn't the public led to believe that it was necessary to bail out the banks, so that credit would be available for purchases, mortgages, etc? Well, what most of the banks did was use the funds to make their own bottom line look better, while tightening credit more and more!
President Obama called a huge jobs summit, which appeared to accomplish less than a typical jobs fair! The President then made a speech that addressing jobs was a priority (then where does it go on the priority list with his other stated priorities?), but that it needed to be a combined government- private sector approach, because the government has to be mindful of the growing US deficit and its inherent problems, and that the government isn 't in a position to spend all the needed funds. Yet, if this is a priority, it must be treated as such! Since Mr. Obama took office, the U.S. deficit has grown from a ridiculously high $400 Billion, which he inherited, to over $1.4 Trillion today. We have been told that the Afghanistan surge will cost $30 billion (but that number is only the additional funds we are told will be spend over the next 18 months). Will anyone be surprised to see that number grow exponentially! On the Sunday morning shows, Secretary of Defense Gates and Secretary of State Clinton kept saying that basically there would be a slight first pull-out of some troops, beginning in July 2011! Haven't we heard before that there was "light at the end of the tunnel," as LBJ used to say?
Beware the jobless/ unemployment figures! I am always wary when the government produces "better than expected" figures, right before the President's big speech tomorrow night on jobs. Factoring in those that are counted, those that are working part-time instead of full-time, those that have given up looking, and those who have, out of desperation taken significantly lower paying positions, the joblessness and employment/ unemployment issues should the U.S.' number 1 priority! The U.S. must seriously address this issue for our economy to fully recover.
Are things a little better? Yes, I don't think we are getting worse, and I do believe there will be improvement. It is rumored that the Federal Reserve is already discussing when (not if) they will begin to raise interest rates. So, the one thing that any consumer who is in a position to - - who can afford to - - should do, is seriously consider purchasing real estate now! Mortgage rates are historically low, home prices are low, and qualified individuals with reasonable credit who can put 20% down, can get a mortgage on a properly priced home! Those considering it, but waiting are most likely going to be very disappointed when sometime next year, mortgage rates go up, housing prices begin to rise, and the Housing Credit expires! This may be the best real estate buying opportunity in some time!
Nobody can foresee the future, and nobody can pinpoint the precise low point of a market. Those than panicked and sold off stocks at their low, and did not step in when the Dow was about 8400 because they were waiting for the low, missed an opportunity to take some advantage. The ideal stock-buying strategy over time has always been dollar-cost averaging. That strategy has worked in up markets, down markets, and do-nothing stock markets. It takes dicipline, but averages out purchase prices so that the market swings are not catastrophes!
Patients, being wary of the hype, and understanding that all markets are cyclical is the best long-term strategy. Nobody ever makes a profit unless they sell, so one should be much more interested in a long-term, successful approach.
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HOW ECONOMIC DATA & THE HYPE CONFUSE