My Back Pages

Calling Out Your Broker

2009-07-06T18:22:00.000-07:00

"Trim your exposure to stocks when you feel the need but never get out of the market completely. You must have some exposure to the stock market at all times. The risk of being out of the market completely is just too great."

This is the gospel of the investment industry. This is what sells mutual funds. This is also how people lose money (sometimes lots and lots of money).

I call bullshit.

In fact, I believe the true investor starts with the opposite approach. The true investor begins by putting her hard-earned capital into risk-free t-bills or FDIC-insured CD's, etc. She looks for compelling investment opportunities. When she finds something that she understands to be a very attractive opportunity then, and only then, she commits capital.

It's not rocket science; it's just common sense.

The bottom line is this: if you don't have a very good reason for owning a particular investment you shouldn't own it. It's as simple as that.

The investment industry, however, wants people to believe it's much more complicated than that. The industry wants you to think you're not smart enough to decide what's worthy of your hard-earned capital. The industry wants you to pay commissions 24/7, 365 days a year in a zillion different markets around the world. The sales pitch (scare tactic): "you might miss out on a HUGE upside move if you don't own at least a piece of everything and stay invested at all times."

My counter-argument: you might also lose a boatload in the process (i.e. the stock market over the past decade). Plenty of people have made a fortune simply putting their money to work in t-bills and CD's, saving as much as possible and letting the compounding do the work. You don't need to do any more than this.

You can certainly do better if you can find a few great opportunities over the course of your investing career. But there certainly is no compelling reason to be invested in everything at all times.

Dont Believe The Hype - Public Enemy

SkyGrid: A News Junkie's Dream Fix

2009-05-20T09:47:00.000-07:00

I've been playing with a new news service called SkyGrid for the past few weeks. For news junkies like me SkyGrid is one of those apps that comes along and soon becomes an integral part of our daily routine. I put it up there with my Google Reader feeds and My.Alltop in terms of the benefit I get from it.

SkyGrid is currently in private beta right now so it's not easy to get access to it. However, the company has offered me the opportunity to invite a few readers to test it out. If news is as important to your business as it is to mine I highly recommend you check it out. Click here to sign up.

Revisionist History and the Rarefied Air of Bend

2009-05-10T19:22:00.000-07:00

"It used to be that when the state caught a cold, Bend caught pneumonia. I think because of our construction and our boom and our growth, we're a bit insulated from the rest of the state." -Oran Teater, June 2005

"It was a frenzy for quite a while. We knew it wasn't going to sustain." -Oran Teater, May 2009

What a difference four years make. In the former mayor and current city councilor's first quote, given to the Bulletin during the height of the real estate bubble, it certainly doesn't sound like he's saying, 'of course, it won't last' or 'the current frenzy is unsustainable' or, better yet, 'beware! Financial Armageddon is coming!'

No. It sounds just a bit more optimistic than that. It sounds as if he's telling Bendites there is really nothing to worry about. Bend is an economic island unto itself, an economic utopia.

Four years and the worst recession in decades later, however, and it seems he was much more prescient about the current "economic Pearl Harbor," as Warren Buffett has dubbed it. Mr. Teater is clearly taking a page out of Sir Alan Greenspan's revisionist playbook.

There were a few of us who actually did know that the real estate bubble and concomitant economic boom were unsustainable. There were even fewer of us who warned of the inevitable consequences. Mr. Teater was not one of us, though he now claims to have been. Politicians will be politicians.

This time Oregon hasn't just caught a cold. It's Oregon that has caught pneumonia and Bend has tuberculosis (or swine flu - take your pick). If the country has, indeed, witnessed "economic Pearl Harbor" then, in comparison, Bend has seen "economic Hiroshima."

Bend currently sports the 8th highest unemployement rate in the country out of 372 metropolitan areas surveyed by the Bureau of Labor Statistics. That's the top 2% in the country, putting us in a very rarefied air (obviously not the kind that the City Council and the Chamber like to brag about, however.)

It doesn't help that the politicians and other organizations that not only witnessed the bubble but encouraged it and actually helped inflate it are now focused on covering their behinds. If we are going to rescue the patient and turn Bend's economy around, it's going to take sober analysis and strong medicine. And I, for one, don't think this is too much to ask of our public servants.

So Many Rush Limbaughs

2009-04-28T10:59:00.000-07:00

A few months ago radio megastar (and megalomaniac?) Rush Limbaugh famously said he hoped to see Obama fail in his role as president. He was widely chastised for it and rightly so. The dictates of honor and class don't allow for such vitriol.

I recognize that the stock market is not the same as the office of the President but there is a very loud chorus of market watchers out there right now expressing a very similar discouragement of the current rally in stocks to that Limbaugh expressed towards Obama. "I hope the stock market fails," is now the unspoken mantra of many market pundits and amateur traders alike.

There are many different reasons, obviously, for the continued pessimism. Bears want to see their ultra-dire fantasies become reality so they can say, "i told you so." Bulls want a pullback to give them the opportunity to make purchases they were too scared to make a few months ago.

Politically, there are the Limbaughs of the world that would like to see the stock market validate their negative assessment of the administration. There are others who would like to see a bit more economic weakness to spur another round of stimulus spending.

These various justifications, however, are beside the point. The majority is still widely negative and that continues to give me hope. As I've said before, quoting Bob Dylan quoting Abe Lincoln, "all the people can't be all right all of the time."

In the spring of 2003, the beginnings of the last bull market in stocks, it seemed the market was fueled by skepticism as it rallied nearly 40% from its lows without a single, significant pullback.

This rally has the same feel to it: fueled by skepticism. The crowd may, indeed, get the selloff it's looking for but I wouldn't count on it.

Getting Extrinsic in 2009

2009-03-31T11:01:00.000-07:00

Early in January I wrote that "My Back Pages" was "Going Radical in 2009". The blog had become too disjointed with link dumps, charts and tangents that I wanted to refocus it on bigger ideas.

I haven't been totally successful putting this intention into practice so far but I think I've found some help. I've been using a few other services lately that are perfect for link dumps, chart and tangents.

First on the list is Twitter. I've been using it for a while now and I've written about it before. It's also getting a boatload of press lately. Twitter is a very good outlet, in fact the best I've found, for posting links to spark discussions on various topics I'm not eager to write a full blog post about. Join the discussion on Twitter @jessefelder

The second service I've found useful recently is Posterous. I've only been using it for a couple of weeks now but it's ideal for posting charts, photos and the editorial cartoons I love so much. My Posterous Blog can be found here: jessefelder's posterous

Finally, Chi.mp could be the next big thing in the world of social media. It basically works as an aggregator of social media services to create what I call the "poor man's home page." Check out http://jessefelder.mp to see my Chi.mp profile.

Banks Breakout With 70% Rally in 8 Trading Days

2009-03-18T14:04:00.000-07:00

The chart above is an updated version of the one I posted a couple of months ago under the title, "Fat Bottom Banks?" The banks rallied after that earlier post but not to the degree I anticipated they might.

Over the past week or so, however, the banks have rallied roughly 70% off their lows and have now clearly broken the downward channel on the chart. Amazingly enough, they are still 40% below the 200-day moving average.

The easy trade, the reversion trade, is now pretty much over, however (as we got the 50% move and then some). Still, the path they take from here will tell us much about the strength of the stock market's current rally.

"Dr. Doom" Does "Party Boy" - Nouriel Roubini and the Cult of Personality

2009-03-18T09:28:00.001-07:00

Economist Nouriel Roubini, aka "Dr. Doom," has become a full-blown celebrity since the financial crisis began over a year ago. His uber-bearish predictions have been borne out and then some causing the financial media to elevate him nearly to cult status.

Not only is Dr. Doom basking in the limelight, he's celebrating his success by partying like a rock star. Portfolio.com reports:

Bad times have certainly been good for Roubini’s social life. For years, he has been a manic host of everything from small dinner parties to big bashes. The soirees are more crowded of late, attracting everyone from members of the hedge-fund set to a former Miss Ukraine and propelling the bachelor economist onto the tabloid gossip pages. (He has become a New York Post regular, and CNBC often plays disco music when he appears on the air.)

It seems to me that the case of Roubini's celebrity is exactly the inverse of CNBC making celebrity bulls out of the likes of Mary Meeker, Abby Joseph Cohen and Joe Battipaglia late in the tech bubble. They have since been shamed back into obscurity.

So how long with the "cult of Roubini" last? Dr. Doom, obviously, isn't waiting to find out. He's going to make the most of his 15 minutes and who can blame him?

(Click for video)

Source:
The Prime of Mr. Nouriel Roubini
Helaine Olen
Conde Nast Portfolio.com
April 2009

Bear Stearns: Gone But Not Forgotten

2009-03-16T09:23:00.000-07:00

It was just about twelve years ago that I began my career in the investment industry at Bear, Stearns & Co., Inc. At the time, Bear was a behemoth in the industry, doing more business on the New York Stock Exchange than any other firm in the world. As a kid fresh out of college aspiring to an investment career, I was in awe and felt very fortunate for the opportunity to be a part of such a prominent Wall Street icon.

During my short tenure at Bear (I stayed less than a full year) I was fortunate enough to make a trip back east to the company's headquarters in New York. I saw the company's main trading desk where the now-former chairman and Wall Street legend, Alan "Ace" Greenberg, still works today (as part of JP Morgan). I took a tour of the New York Stock Exchange with one of Bear's top floor traders and witnessed the business of Wall Street first-hand. All in all, my experience at Bear was a great introduction to the industry.

Obviously, back then I never would have dreamed that Bear would eventually be wiped out, seemingly overnight, by what essentially amounted to a run on the bank. Above is a copy of the first trading ticket I ran at Bear (sell 50 shares of MRK at the market). I keep it because it reminds me of the feelings of opportunity and excitement that inspired me to pursue an investment career in the first place. And I won't forget them.

My My, Hey Hey (Out Of The Blue) - Neil Young

Stewart Versus Cramer

2009-03-13T09:31:00.000-07:00

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 1

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 3

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

(Click for videos)

Fortitude in the Face of Crisis

2009-03-12T08:28:00.000-07:00

The following essay was submitted to The Bulletin March 3 and published in today's edition:

To quote Charles Dickens, we are currently facing “the worst of times.” By any measure, this is the worst economy America has witnessed in decades. However, for prudent investors in both stocks and real estate, “it is the best of times,” as we are now faced with a once-in-a-lifetime opportunity.

The financial world has seemingly come crashing down around us. The current bear market for stocks is the worst any living professional investor has ever seen. Real estate prices have been in free fall for the past couple of years, and foreclosures are growing at a record pace. Employment and the general economy have suffered mightily as a result. Not surprisingly, consumer sentiment has never been more negative than it is today. I could name all the melancholy records the financial markets and the economy have set recently but I will refrain.

Rather than lament the past, I am more interested in appraising the situation we face right now. Warren Buffett, the most successful investor of the 20th century, once wrote, “We like pessimism, but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.” After the bursting of the real estate bubble of the past few years, Bendites should know this lesson well. The effects of the horrific performance of both stocks and real estate, combined with the concomitant economic malaise, have created an equally dramatic degree of pessimism pervasive among investors and consumers alike.

Boy has the rampant pessimism produced some attractive prices. The median price of a home in Bend is now roughly half what it was only a couple of years ago. It’s a 50 percent off sale! By my calculations, the after-tax mortgage payment on the median-priced home in Bend is essentially equal to the median rent here in town. This is not to say prices can’t fall further, but by my reckoning, they are no longer overvalued. There are many properties that now “pencil” for real estate investors.

Mr. Buffett has indeed lived up to his preference for pessimism. Back in October, Mr. Buffett wrote an Op-Ed piece for The New York Times titled “Buy American. I am.” In it he wrote that he has, in gambling parlance, gone “all in.” His entire personal, liquid net worth is now invested in American common stocks for no other reason than he finds them extraordinarily attractive at current prices.

I can think of one especially compelling reason for Mr. Buffett’s enthusiasm: For the first time in more than 50 years, the dividend yield on stocks is greater than the yield of the 10-year U.S. Treasury bond. In other words, for investors younger than 70 or so, this is the most attractive buying opportunity in the stock market of our lifetimes. (Please read that last line again and, when your friends speak about how horrible the current environment is, repeat it to them.)

Mr. Buffett’s fortitude in the face of crisis is a rare quality, however. It is just as easy to allow the pervasive pessimism to intrude into our psyches and prevent us from taking advantage of rare opportunities as it is for rampant optimism to inspire us to dive headfirst into an investment bubble. Great investors are thus great defenders of independent thought.

We currently find ourselves at an important inflection point in history. These are precisely the times fortunes are made and lost. We can react to the financial crash as victims do, with shock or fear, or we can view it as the greatest of investors do, as a rare opportunity. I strongly believe that the latter mindset must be the primary focus of those intending to prosper in the future. We should all be doing our best to channel the fortitude of great capitalists and great Americans like Warren Buffett in our business, investing and personal lives.

Source:
There’s money to be made during even the worst of times
Jesse Felder
The Bulletin
March 12, 2009

Cramer Creamed Again: Word to Your Madre, Dora!

2009-03-11T09:08:00.000-07:00

The Daily Show With Jon StewartM - Th 11p / 10c

Basic Cable Personality Clash Skirmish '09

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Economic Crisis

Now the financial blogosphere has largely come out in defense of Cramer but I have long agreed with John Stewart's notion that CNBC and Jim Cramer don't promote his show in a responsible manner.

The responsible thing to do would be to readily acknowledge that he is wrong at least as frequently as he is right. Instead they say, "In Cramer We Trust," implying that Jimbo the Clown is the God of the stock market, in other words, infallible.

I also have to heartily agree with Dora the Explorer. In the video she poignantly says that she has a problem with "him creating a false sense of urgency that helped hyper-inflate the bubble." Word to your madre, Dora.

TD Indicators: Another Tool for the Traders' Toolbox

2009-03-10T15:25:00.000-07:00

I first learned of Tom DeMark's indicators from Scott Reamer at Minyanville, an incredible community for students and teachers of trading and investing. Scott's "Applied Complexity Analysis" inspired me to study Tom DeMark, Elliott Wave, Fibonacci analysis and more.

I've recently written a bit about Elliott Wave and Fibonacci analysis. Current developments in the stock market compel me to write a bit about a couple of DeMark indicators. I won't attempt to explain all of the intricacies of the methodology (that would take much more than just one blog post - DeMark has written many books on the subject) only what it is currently showing us.

The chart below show the daily price movement of the SPY, the S&P 500 ETF:

As of Friday's close, SPY had completed a 9-13-9 TD Sequential Buy Signal (this one did "recycle" but there is some debate about how to treat that). Typically, the "13" marks the buy signal but DeMark has said that a subsequent 9 (setup) after a 13 (countdown) can be the most powerful buy signal of all. Also notice that all three 9's resulted in rallies, however short-lived.

This next chart is the weekly SPY chart:

Friday's closing price completed a TD Combo Buy Signal. Traditional technical analysis also shows that the oscillators are diverging, not confirming the new lows in price.

Finally, we have the monthly chart:

At the end of February, SPY completed a TD Sequential Buy Setup (HT, Randy). Hence all three time frames are now aligned with Buy Signals.

Now this is only one type of indicator. However, combined with all the other factors currently aligning I would be surprised if we didn't see a major stock market rally over the next few months and, perhaps, the beginnings of a new bull market.

For more information on Tom DeMark's indicators read his book, "New Market Timing Techniques."

Jimmy the Clown Still Wearing a Frown, Part Deux

2009-03-10T08:36:00.000-07:00

I think it's safe to say this "fair-minded, reasoned critique" of Jim Cramer is flashing another "Sad Clown Indicator"(TM) buy signal:

The Daily Show With Jon StewartM - Th 11p / 10c

In Cramer We Trust

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

A Bird's Eye View of the Bull and the Bear

2009-03-06T10:01:00.000-08:00

The other day I wrote an Elliott Wave analysis of GE. The chart below is an Elliott Wave analysis of the S&P 500.

As you can see, today's trading took the index very close to retracing 61.8% of the 1982-2000 bull market. In addition, the bear market of the past 9 years, has now retraced 50% of the 18 year bull market that preceeded it:

Aside from the technical picture, sentiment has recently set a historic extreme. AAII announced this week that in the history of their sentiment survey there have never been more bears than there are today (this has historically been an accurate contrary indicator):

In stark contrast, corporate insiders, aka the "smart money," have been net buyers in size of their own stock lately:

All in all, there are many signs that the indexes are close to forming a major market bottom.

Sources:
The Running of the Bears
Bespoke Investment Group
March 05, 2009

Insiders Are Starting To Wade In
Jason Goepfert
SentimenTrader
March 6, 2009

CNBC Gives Financial Advice

2009-03-05T06:22:00.000-08:00

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

(See CNBC Separated at Birth? for more business-pundit-related humor.)

UPDATE

3/6/09 - Stewart pulled a similar routine on Letterman last night.

Cheapest Stock Market In Decades, Part Deux

2009-03-04T11:23:00.000-08:00

It's now been a couple of weeks (and almost 1,000 points on the Dow) since I wrote "Cheapest Stock Market in Decades." Obviously, stocks are even cheaper today.

I found a few more charts that show how rare the current valuation situation really is. Below is a chart from JP Morgan (HT, Dave) that shows the price-to-book value of the S&P 500. By this measure, stocks haven't been this cheap in over 20 years.

This next chart (HT, Barry) shows that this is only the third time in history stocks have made a new 12-year low. The last occurrence marked THE low of the epic 1973-74 bear market.

This last chart is an update of one I posted a couple of weeks ago. As of yesterday's close stocks are cheaper than any time since 1983, just after the birth of the last major bull market.

Sources:
Weekly Market Recap
JP Morgan Asset Management
February 23, 2009

Twelve Year Lows?
Barry Ritholtz
The Big Picture
March 4th, 2009

Source data:
Online Data Robert Shiller
http://aida.econ.yale.edu/~shiller/data.htm

A Tale of Two Berkshires

2009-03-02T10:08:00.000-08:00

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness..." -Charles Dickens, A Tale of Two Cities

Berkshire Hathaway released its 2008 Chairman's, aka Warren Buffett's, Letter to Shareholders over the weekend (read it here). The press immediately tagged it as, "Buffett's worst year," as the company suffered its largest drop in per-share book value since Buffett took the helm in 1965.

By any other measure, however, 2008 could be considered Berkshire Hathaway's best year ever. The company's 9.6% decline in book value was 27.4% better than the 37% decline in the S&P 500. Many of the company's closest competitors, AIG for example (HT, @nosredna), are now a mere shadow of their former selves. As a result, Berkshire is now the largest financial company in the United States, by far.

If this financial crisis has demonstrated the "age of foolishness" that the real estate and banking industries have endured over the past decade or so then Berkshire's relative success demonstrates the "age of wisdom" it has witnessed since Buffett took over.

Here are a few of the highlights from the letter:

1) "The credit crisis, coupled with tumbling home and stock prices, produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed."

2) "The disarray in markets gave us a tailwind in our purchases. When investing, pessimism is your friend, euphoria the enemy.... Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

3) "I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong."

4) "When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary."

5) "Approval... is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns."

By far the most interesting revelation I have seen regarding the letter was discovered by Jeff Matthews: Berkshire's equity portfolio has now returned to its cost basis.

"What does that mean?" you ask. It means any investor today can essentially replicate Berkshire Hathway's investment portfolio of common stocks and pay the same average price Buffett paid. I don't think there has ever been another time since he took over as Chairman when this was possible.

Sources:
2008 Letter to Shareholders
Warren Buffett
Berkshire Hathaway, Inc.
February 27, 2009

Buffett's Berkshire Posts Worst Annual Results Ever
Joanna Ossinger
Fox Business
February 28, 2009

Was 2008 Buffett's Best Year Ever?
Joe Weisenthal
Clusterstock
March 2, 2009

This Just In: Berkshire Equity Portfolio Back to its Cost Basis
Jeff Matthews
Jeff Matthews Is Not Making This Up
February 28, 2009

GE: A Long-Term Look

2009-02-27T11:00:00.000-08:00

I've written before that I value Elliott Wave analysis for it's theoretical value more than it's practical value. I simply haven't found that it can be applied rigorously with any accuracy. I believe it's value is in it's concepts, more loosely applied.

One of the fundamentals of Elliott Wave analysis holds that corrective waves (in contrast to impulsive waves) follow an A-B-C pattern, as shown in the long-term chart of GE above. The A and C waves usually mirror each other.

Both the A and C waves in this example equal roughly 30 points. In addition, wave B retraced 61.8% of wave A. Both 0.618 and 0.382 (it's inverse) are very important numbers to EW analysis as the basic theory states that the golden ratio (and it's inverse) is pervasive in natural systems.

Elliott Wave practitioners would point to this example of GE as proof of the system's predictive ability. I simply find it fascinating, as I do the popular novel featuring the golden ratio, "The Da Vinci Code."

My Favorite (Tech) Things: G1, TweetDeck and Gist

2009-02-26T16:59:00.000-08:00

I've had a fair number people ask me recently about some of the new technologies I've been using over the past few months and I thought I'd just share them with you here:

Lately, I've been into all things Google. I now use GMail, Google Calendar, Google Talk and own a G1 (Google phone). Because they are all internet based I no longer have to worry what information is on what device and how to synchronize it all. All the information I need is always at my fingertips no matter what device I'm using.

Speaking of synchronization, I've also been using Mozilla's Firefox browser with Foxmarks. It synchronizes my bookmarks between my desktop and my laptop, an invaluable service for me as I switch between both machines constantly.

Another Firefox plug-in I really like is Wisestamp. It provides a customizable email signature that allows you to include links to sites like LinkedIn, and Blogger. Below is an example:

Jesse Felder
Felder & Company

T +541-389-3345
F +541-389-3326
E jesse@felderandcompany.com

Contact Me:

But the coolest thing I've been using for the past year or so is Twitter. Some call it "microblogging" but I don't think that really does it justice. I like to think of it as blog comments or a message board on 'roids. It's a non sequitur paradise.

Some of my favorite Twitter tools are:

-Mr. Tweet: helps you find new and interesting people to follow
-Twitter Karma: helps organize your followers and who you're following
-TweetDeck: hands down the best twitter client out there

Follow me @jessefelder

Probably the one new service I am most eagerly anticipating right now (shameless plug to get an early trial?) is Gist. From the company: "Gist is an online service that helps you build stronger relationships. By connecting your inbox to the web, you get business-critical information about key people and companies."

Play it, Johnny.

My Favorite Things - John Coltrane

UPDATE:

I just got my invitation to the Gist beta from robert@gist.com (@robertatgist on Twitter) and I already love it. It brings together all of your contacts from Outlook, FaceBook, LinkedIn and GMail into one, user-friendly interface.

When you pull up a contact page you can see a history of your recent correspondence with them, links and attachments you've shared and any relevant news for that person in addition to their contact information - brilliant, and long overdue. Here's what Gist Ceo, Tom McCann's contact page looks like:

Bravo, Gist.

Send Robert an email for your own invitation to the Beta at Robert@Gist.com

Bend Home Prices Are Getting Cheaper [Obvious]

2009-02-25T11:12:00.000-08:00

The chart above, courtesy of the Bratton Report, shows the awesome decline in Bend home prices over the past few years. We've now seen home prices here in town fall over 40%!

Today the Wall Street Journal ran a piece arguing that, "the relative cost of owning versus renting is swinging back in favor of homeownership in some U.S. markets, buoyed by several quarters of sharp declines in home prices." Here are the details:

Over the past 18 years, after-tax mortgage payments have averaged 26% more than rent payments, according to Green Street Advisors, a real-estate consultancy based in Newport Beach, Calif. In 2006, at the height of the housing bubble, mortgage payments reached as high as 66% more than rent payments. But by the end of 2008, average monthly rent for the largest 50 metropolitan areas was $1,045, compared with after-tax mortgage payments of $1,300, assuming a rate of 5.5% on a 30-year fixed mortgage. That means mortgage payments averaged just 24% more than rent payments, the narrowest gap since 2001.

Applying the same math to Bend, the median after-tax mortgage payment now amounts to $903 ($233,000 median home price = $186,400 mortgage with an after-tax rate of 4.125% = 5.5% adjusted for a 25% tax bracket) versus median rent of $859. This amounts to a mere 5% disparity which is significantly more attractive than the national average.

After the crash we've seen in local home prices this should come as little surprise. However, it doesn't mean that prices won't continue to fall.

In fact, according to the measure used by National City (famous for calling Bend the most overpriced market in the country), despite the dramatic decline we've already witnessed home prices have another 15% to fall before they become fairly valued:

I guess this is what Mayor, Oran Teater meant when he told the Bulletin over three years ago that, "it used to be that when the state caught a cold, Bend caught pneumonia." What he didn't anticipate is that it didn't just "used to be" like that; it still is. The more things change the more they stay the same.

Ultimately, it makes more sense to buy versus rent today than it did a couple of years ago. There are certainly attractive opportunities out there in the local market right now. However, I still don't think it makes sense to anticipate a bottom any time soon.

Sources:
Renters Lose Edge on Homeowners
Nick Timiraos
The Wall Street Journal
February 25, 2009

Housing Valuation Analysis
National City/PNC Economics

Bank of Obama: Pay to the Order of Jesse Felder

2009-02-24T09:51:00.000-08:00

The New York Times recently totaled up the government's bailout tab and found that it amounts to nearly $9 trillion!!! And to think people were pissed off about the original $700 billion Paulson Plan, aka the TARP.

The total of all the new initiatives works out to roughly $75,000 per taxpayer. If you'd rather receive that amount personally or send it to a friend, you can now go to BankofObama.org and cut your own check.

Still, it might be hard to find a bank these days capable of cashing a real $75,000 check, let alone one to make good on phony government paper.

Sources:
Adding Up the Government’s Total Bailout Tab
The New York Times
February 4, 2009

The Escher Economy

2009-02-23T15:16:00.000-08:00

I've been an M. C. Escher fan since I was a kid. I turns out his drawings make for perfect illustrations of the classic cycles within the economy:

(HT, Ritholtz)

Source:
M. C. Escher - Economist
Mark McHugh
Across the Street
February 21, 2009

Raging Bull: Feeling Like Jake LaMotta

2009-02-21T14:09:00.000-08:00

(Click for video)

On Friday, while the stock market was getting pounded yet again, I posted the following over on Twitter:

I've never been more bullish on the general stock market in my career than I am right now, fwiw. 10:51 AM Feb 20th

Once-in-a-generation opportunity for long-term investors here. Pounding the table! 10:51 AM Feb 20th

To expand on this idea (beyond Twitter's 140 character limit): this is the cheapest stock market in decades, extremely oversold and sitting on long-term support and current investor sentiment is a contrarian's wet dream.

Ironically, the hardest thing to do right now as an investor is to stand up in the face of unprecedented negativity and proclaim unreserved bullishness. I believe, even beyond the investing world, that the hardest thing is usually the right thing.

And that's why I'm doing my best Jake LaMotta impression these days.

What Opportunity Looks Like

2009-02-20T10:26:00.000-08:00

Today's selloff has taken the S&P 500 back to its November 2008 lows, once again slightly below the 2002 lows set during the last bear market. As the RSI at the top of the chart shows, the stock market has not been this oversold in more than 25 years.

Make no mistake: the convergence of support and the long-term uptrend right here is nothing but bullish. Many investors are obviously throwing in the towel today but I ain't giving up that easy. Stocks are damn cheap and I view this as a once-in-a-generation buying opportunity. Right now, when it feels darkest, with rational analysis and emotional fortitude, future fortunes are being made.

LEI: Least Expected Incidence

2009-02-19T12:34:00.000-08:00

I'm not a big fan of economists but one guy I do respect is Paul Kasriel, aka "The Econtrarian" (great name) and Director of Economic Research at Northern Trust. In his latest missive titled, "The Great Depression – Just the Facts, Ma’am," he finishes with this:

We can debate whether the federal government should increase any of its spending. But the facts of the 1930s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.

The economic data are likely to be abysmal through the first half of this year. The popular media will reinforce the gloom of the data. The same pundits who did not see this downturn coming will not see the recovery coming either. My advice to you is to keep your eye on the index of Leading Economic Indicators. If history is any guide, the LEI will signal a recovery well ahead of the pundits.

Today, the Leading Economic Index for January was released and guess what it showed: the second consecutive monthly increase. Good things happen when you least expect them. Is there anything less expected than an economic turnaround right now?

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