Housing surprises

THE sudden rise in home prices suggests that the psychology of the market has shifted substantially. 


This year’s [home-buyer] survey coincides nicely with the upturn in home prices, the sharpest change in direction [the survey has] ever seen. The suddenness of this shift surprised [Robert Shiller]..."the new data are startling."


Given the abnormality of the economic environment, the sudden turn in the housing market probably reflects a new home-buyer emphasis on market timing. For years, people have been bulls for the long term. The change has been in their short-term thinking. The latest answers suggest that people think the price slide is over, so there is no longer such a good reason to wait to buy. And so they cause an upward blip in prices.


The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility.


VIA Comments: 

1. We share this article not to agree or disagree with the survey's findings, but to illustrate what we have always believed that the future is unpredictable.
2. Nothing in this article and survey should be used to guide your investment decisions in housing, stocks or anything else.
3. Assets have increased in value at a very rapid rate in the last 7 plus months. If you did note benefit from this increase, you need the help of a qualified investment advisor.

NY Tines article by By ROBERT J. SHILLER

Jim Cramer DOW 6500 Bottom Call Myth

On June 1, 2009 Jim Cramer gave a summary on his show of what he saw to call a bottom on the stock market at DOW 6500 by saying "the worst is over, the downside was over and the time was ripe to buy."

Don Harrold says Cramer is "perpetuating the myth". This is an excellent video by Don Harrold showing how bearish Jim Cramer was at the bottom of the bear market.

Following the headlines can be lethal to your finances

In times of great stress, like when your equity portfolio is down 60% as it was in the beginning of March 2009, people are anxious and in search of information that can satisfy their horrendous feelings.

Unfortunately, news sources who are willing to provide that information are just as likely to provide the wrong information as the right information – how can you tell which to follow? Luckily, most news advice is ignored, but when published by a credible source, it is too often mistakenly followed.

Such was the case on March 6, 2009 (the absolute low of the market – perfect timing) when the Los Angeles Times reporter Joe Queenan provided his opinion in Panicked by the stock market.

“I decided that the time had come to panic… This is the time for hysteria.”

What do Visible Investors observe about this writing?

1. Joe’s “401(k) is now about half the loaf it once was” – taking more risk than he could stand to take (most individual investors think they can withstand a lot of risk in times when times are good) f.orced him into action he will later regret.
2. Newspapers are for entertainment, not actionable information. Joe was confused by the information he was getting from his own sources, and even quoted pundits and “well intentioned journalists’ advice” but fell into the same trap he was warning about in his article.
3. Joe felt there was more risk in his portfolio when it was down 50% than when it was at its high – exactly the opposite of the reality.
4. Joe did not have cash reserves available to take advantage of the opportunities that panicked investors presented him with.
5. By the way, who is Joe Queenan and why was he qualified or given the right to write this article? And what about a follow up piece to apologize to all of the individual investors that were harmed when they followed his advice? (In the following days “Letters to the Editors,” people actually thanked Joe for getting them out of the market – can you imgine what those people are thinking today? And can you believe this that his latest article is a ‘who done it’ book review).
6. Buying high and selling low is a formula for disastrous investment returns.

If you are confused or panicked, you are not in position to make a decision that will affect your quality of life your 30+ years of retirement.

Contact Visible Investment Advisors for an individual solution to your current situation.

How does this bear market compare?

The 4 major bear markets in the 100 years

• The "crash" of 1929, which lasted 34.2 months (from 9/3/1929 to 7/8/1932)
• The "oil shock" of 1973, which lasted 20.7 months (from 1/11/1973 to 10/3/1974)
• The "tech bubble" of 2000, which lasted 30.5 months (from 3/24/2000 to 10/9/200
• The "housing meltdown" of 2008, which lasted 19.3 months so far (from 10/9/2007 to ?)

Bull and bear markets since 1871 | 4 major bear markets | Bear market rallies | Inflation | Stocks versus bonds

As Warren Buffett says "In the business world, the rearview mirror is always clearer than the windshield."

If you need some help dealing with the current market, contact Visible Investment Advisors.

Recoup losses sooner than you think...

From the NY Times article by Mark Hulbert is editor of The Hulbert Financial Digest



"Historical stock charts seem to show that it took more than 25 years for the market to recover from the 1929 crash — a dismal statistic that has been brought to investors’ attention many times in the current downturn."

"But a careful analysis of the record shows that the picture is more complex and, ultimately, far less daunting: An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low."

"Three factors have obscured this truth from investors: deflation, dividends and the distinction between the Dow Jones industrial average and the overall stock market."

Deflation
"The Great Depression was a deflationary period. And because the Consumer Price Index in late 1936 was more than 18 percent lower than it was in the fall of 1929, stating market returns without accounting for deflation exaggerates the decline."

Dividends
"When the Dow hit a low of 41.22 on July 8, 1932, for example, the dividend yield of the overall stock market was close to 14 percent, according to data compiled by Robert J. Shiller, the Yale economics professor."

The Dow vs. the Market
"Many researchers consider the overall market — defined as the combined value of all publicly traded stocks — as the best gauge of a typical investor’s experience. The Dow is made up of just 30 stocks, which are weighted in the index according to their price rather than their relative market capitalization."

"So when did the overall stock market really make it back to its pre-crash peak? Just four years and five months after its mid-1932 low, according to data provided to Sunday Business by Ibbotson Associates, a division of Morningstar."

"That seems remarkably fast, given that the stock market lost more than 80 percent of its value from its 1929 high to its mid-1932 low. But the quick recovery of the 1930s is consistent with the typical experience after other bear markets in the United States."

"...according to a Hulbert Financial Digest study of down markets since 1900, the average recovery time is just over two years, when factors like inflation and dividends are taken into account. The longest was the recovery from the December 1974 low; it took more than eight years for the market to return to its previous peak, which was reached in late 1972.

None of this, of course, guarantees that stocks will have a quick recovery from the market decline that began in October 2007. But it suggests that the historical record isn’t as bleak as it looks."

Visible investing principals show that by reinvesting dividends and continuing to dollar cost average during market downturns further decreases the time it takes to recoup your losses.
Contact us if you would like to see how you can shorten the time it takes to recoup your losses.