Some things bouncing around in my brain today:
1. James Altucher, a fellow author on Realmoney.com wrote a very insightful article on household debt a while ago, where he points out,
if you take the full financial obligations ratio (which includes house payments, auto loans, insurance payments, as well as debt payments) and divide by household income then we are right now at the lowest we’ve been in 11 quarters and at the same level we were at in 1989. In other words, no big deal. Most economists only look at credit card payments, which is misleading since credit cards have become a larger part of how we, as a culture, simply do our household accounting (easier to see your full budget if you put everything on a card and then pay it off before interest hits.
Also recommend James’s book, Trade Like Warren Buffett.
2. Lots of people ask where I get the weird newspapers I read. I get them delivered to my desktop by newspapersdirect.com evert day. Costs $9.95 per month. They deliver too, but that’s sooo 20th century. They have 200 newspapers from 55 countries including my favorites, the Shanghai Daily, the Times of India, and Izvestiia, along with all the usual European papers. How could a person not do this?
3. Got to talk to a terrific group of brokers and financial planners in Portland Oregon last week. Their biggest problem; clients still too afraid to invest, sitting in cash. The market is up more than 50% in the past 2 years. America was not built by people afraid to take a risk. Equities are a good value today.
4. footnote: the Portland airport is beautiful. Spotless concourses, uncrowded ticket counters, security points, and shops. Then I learned why–there are no planes! Can’t get there from here. I think they do it to keep the rest of us out.
5. State and local governments collected $20B in taxes on your phone calls last year at rates reaching above 20%. $7B of it was collected at rates above general business and sales taxes. That $7B could be invested in faster networks (they have them already in Korea, China, and India)or paid out as dividends. We need to focus here.
6. There are signs that some of the investors in the Gulf region are starting to think about taking some of the profits they have made there in the past 2 years off the table, and investing it around the world. Will help their sizzling markets stabilize.
7. Saw a real estate project in Maui this weekend where 300 people were drawing lots to buy 50 properties. This is one of the signs the hot market is over. Prices will be flat to down next year in the US.
8. Good piece fron my friends at CEI on how political price regulation causes problems.
9. Big jobs number on Friday (+262,000 in February) surprised people. Shouldn’t have. There has been a dramatic thawing in bank and leveraged lender attitudes in the past 9 months. They are back to making silly loans again, pushing paper out the door as fast as hedge funds and mutual fundds can buy it. This will make small businesses grow faster than big ones this year and push growth, profit, and dividend numbers higher than people think. That’s why I own a big position in small cap stocks today. It will also set up the next banana peel for the economy in 2-3 years when the loans go bad again.
10. Huge upward revision in the productivity growth numbers last week. Overall productivity grew 4.0% last year, with 5.2% in mfg., and 6.3% in durables. Durable goods productivuty rose 7.2% in Q42005. Yikes! This is why the inflation numbers are surprising people on the downside and will continue to do so all year. If we get a new telecom law productivity will accelerate further.
11. Productivity, growth, and profits up, inflation and interest rates contained. Stay invested!
Would love to hear from you about the things you are seeing. You are welcome to lob in comments on the blog, or email me directly at jr@rutledgecapital.com.
Regards,
John
John –
I used to be a leveraged finance banker focused on the larger buyout shops, first in US and then Asia. I must say that in my opinion, it feels like a bubble is developing in the global HY markets, and there will be hell to pay in 2-3 years. Part of the problem is the flow of funds looking for yield but another part of the problem is that even with record high levels of issuance, that issuance has likely not increased as much as the interest being paid (most of which gets reinvested in new bonds). So returns on the existing stock plus new money exceed new supply and hence the rates are where they are. The low default rates also help. Any thoughts? Also any thoughts on how to parlay this action into returns – nothing out there with which to hedge/short.
Thanks.
Jon
Thanks for writing Jim. First, to introduce Jim to our readers, Jim is CEO of the CROM Corporation in Gainesville, Florida. Crom is the #1 builder of commercial water storage systems in the US. (Every time you turn on your faucet, you can thank CROM) Jim is the kind of CEO I would be happy to go to war with. I am proud that Rutledge Capital is an investor in Jim’s company.
Jim, regarding your question. I am seeing a lot of turmoil in the propertiy markets. The abrupt drop in interest rates over last couple years has led to the complete re-pricing of residential and commercial real estate, as owners re-financed mortgages at the lower rates.
Essentially, we have re-capitalized the future stream of rental value embodied in the current housing stock at lower rates. The securitization of the US mortgage market allowed this to happen.
This leds to two sorts of problems. Some people look at the rising prices of the past year and think they will rise forever. They are the buyers lining up to draw straws for new developments today. We have seen this movie before in 1990. Price increases reflect interest rates, not rising future rent values (not inflation), so are one-time events. In fact, the most recent report on existing home prices from the National Association of Realtors shows that prices peaked last June and have fallen since then. It is important not to get swept up in the excitement today.
The second thoing I hear is talk about a real estate bubble. I don’t find that credible because I believe interest rates will not rise much from current levels. Interest rates are ultimately determined by inflation, which I believe will remain in the 1-3% zone for a long time.
John