Weekend Report
by Dr Invest
So here we sit, the market moving up and down. The latest reports of a QE-3 are once again growing. So the story goes, "With the reports of the world economy so grim, the FED must stimulate the economy by the first of August." The mantra is "Don't worry, the goverment is going to keep your investments secure. Invest liberally and ride the ups and downs. Since you can't time the market, staying in the market will even out the ups and downs; in the long-run you will make the most money."
This would be a great way to invest if it had proven profitable over the past 12 years. Sorry, it hasn't and it won't. Borrowing our way to prosperity has a cost. Imagine for a moment that you earn $30K per year. You borrow $150K for your new house. (That's $628 per mo and another $250 per mo in property taxes.) So you will pay $10,636 per year for 30 years. You have $19,364 live on. You need two cars, the latest models; you will pay another $12K per year over the next six years. That leaves you with $7,364. You spend another $5,400 on food and electricity; that means $1,964 remains in your annual budget. Gasoline for your cars is another $2,400 per year; that means you owe $436 per year. This is the fundamental problem with individuals and with governments. You have committed your money for years into the future to pay for things you enjoy now. What is worse is that you OWE and additional $436 than you earn each year. You reason, that is only $36 per month that I am not able to pay; I'll find some way to pay that $36... perhaps I'll get a raise and be able to pay that extra $436 at the end of the year.
I think you see the problem here. When the $436 doesn't materialize, you put it on your credit card. After a number of years, the credit card reaches it's debt limit. Now you have additional debt added to the original debt. The credit card company begins to make demands that you pay them, but you are still only making $30,000 per year. Until your debts are paid, you can't buy more. If you don't buy more, companies can't make a profit, if companies can make a profit, the stock market either declines or grows stagnant. This is the problem with our economy over the past 12 years.
Imagine that UNCLE SAM hires you for three months. You get the salary and your personal income is stimulated for three months, but when the contract ends so does the additional income. Because you still owe on your credit card and you are going into debt at $436 per year, the STIMULUS has hardly impacted your financial condition.
The answer is here is DON'T GET INTO DEBT! If you are in debt, GET OUT OF DEBT! Sell the house; sell the car; start over. Rent an apartment; buy a used car. This kind of austerity hurts for a while, but allows you to make financial gains that are beneficial to your future. You will not be able to borrow your way out of debt. Although you may one day get a salary increase, the increased debt may exceed the salary increase you expect.
OUR BOND INVESTMENT
We have an experimental portfolio of $10,000 and have invested 1/3 of our portfolio into two BOND ETFs, TIP and BND. The investment of $3,333 was made over a three month period with $1,111 invested in TIP and BND each month. As of Friday, the total portfolio gain was 1.21%. The projected return for this investment position could range from 4% to 8%. I have also placed a stop-sell at 3% below the purchase price. That stop-sell will be reset to 3% below the closing price of TIP and BND at the beginning of each month.
That's about it! Be patient. And read John Hussman's latest article at Hussman Funds. http://hussman.net/wmc/wmc120702.htm Please consider EVERYTHING that Hussman is implying. I agree that we will see a bear rally with a final collapse that could take the market down 45%. Be cautious and keep STOP-SELLS on all your investments. Be quick to get out of the market, you can always buy back in.
(note: the above article is for entertainment purposes only and not to be used as investment advice.)
by Dr Invest
So here we sit, the market moving up and down. The latest reports of a QE-3 are once again growing. So the story goes, "With the reports of the world economy so grim, the FED must stimulate the economy by the first of August." The mantra is "Don't worry, the goverment is going to keep your investments secure. Invest liberally and ride the ups and downs. Since you can't time the market, staying in the market will even out the ups and downs; in the long-run you will make the most money."
This would be a great way to invest if it had proven profitable over the past 12 years. Sorry, it hasn't and it won't. Borrowing our way to prosperity has a cost. Imagine for a moment that you earn $30K per year. You borrow $150K for your new house. (That's $628 per mo and another $250 per mo in property taxes.) So you will pay $10,636 per year for 30 years. You have $19,364 live on. You need two cars, the latest models; you will pay another $12K per year over the next six years. That leaves you with $7,364. You spend another $5,400 on food and electricity; that means $1,964 remains in your annual budget. Gasoline for your cars is another $2,400 per year; that means you owe $436 per year. This is the fundamental problem with individuals and with governments. You have committed your money for years into the future to pay for things you enjoy now. What is worse is that you OWE and additional $436 than you earn each year. You reason, that is only $36 per month that I am not able to pay; I'll find some way to pay that $36... perhaps I'll get a raise and be able to pay that extra $436 at the end of the year.
I think you see the problem here. When the $436 doesn't materialize, you put it on your credit card. After a number of years, the credit card reaches it's debt limit. Now you have additional debt added to the original debt. The credit card company begins to make demands that you pay them, but you are still only making $30,000 per year. Until your debts are paid, you can't buy more. If you don't buy more, companies can't make a profit, if companies can make a profit, the stock market either declines or grows stagnant. This is the problem with our economy over the past 12 years.
Imagine that UNCLE SAM hires you for three months. You get the salary and your personal income is stimulated for three months, but when the contract ends so does the additional income. Because you still owe on your credit card and you are going into debt at $436 per year, the STIMULUS has hardly impacted your financial condition.
The answer is here is DON'T GET INTO DEBT! If you are in debt, GET OUT OF DEBT! Sell the house; sell the car; start over. Rent an apartment; buy a used car. This kind of austerity hurts for a while, but allows you to make financial gains that are beneficial to your future. You will not be able to borrow your way out of debt. Although you may one day get a salary increase, the increased debt may exceed the salary increase you expect.
OUR BOND INVESTMENT
We have an experimental portfolio of $10,000 and have invested 1/3 of our portfolio into two BOND ETFs, TIP and BND. The investment of $3,333 was made over a three month period with $1,111 invested in TIP and BND each month. As of Friday, the total portfolio gain was 1.21%. The projected return for this investment position could range from 4% to 8%. I have also placed a stop-sell at 3% below the purchase price. That stop-sell will be reset to 3% below the closing price of TIP and BND at the beginning of each month.
That's about it! Be patient. And read John Hussman's latest article at Hussman Funds. http://hussman.net/wmc/wmc120702.htm Please consider EVERYTHING that Hussman is implying. I agree that we will see a bear rally with a final collapse that could take the market down 45%. Be cautious and keep STOP-SELLS on all your investments. Be quick to get out of the market, you can always buy back in.
(note: the above article is for entertainment purposes only and not to be used as investment advice.)
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