By Brad Stark, Published in the Montecito Messenger’s
“Montecito Money” column on March 2, 2012
Nothing is more fun than going to a party and getting stuck chatting finances. If you are unable to change the topic to politics or religion, here are some of the current talking points for consideration.
The Greece non-sense in Europe continues but did you know that China creates the economic equivalent of a Greece every 11 ½ weeks.¹ As long as Italy, France and Spain get their financial houses in order, we believe the rest of it shouldn’t really matter much.
Oil prices, the old and new political firestorm of ideas and opinions. But in 2011 did you know the demand actually declined in 2011 for China as they continue making significant inroads into alternative energy and nuclear. To dig deeper into the value of oil, while the spot price is around $120 a barrel today, the 5 year forward contracts have been hovering in the $80-$100 range.² Interesting…costs more today, less if I wait.
“US Stock market corporate profits hit all time highs?” Yes, they have but the stock market still trades below record levels. But who cares about that, let’s talk about Apple.
“What is this Federal Reserve (The Fed) doing with interest rates and printing all this money? Did I hear someone that wanted to discuss gold?” The Fed normally controls short term interest by setting overnight lending rates. They have dropped this figure as low as they can go…basically zero (one reason why cash and short term deposits pay bupkis).
The Fed instituted “operation twist” to further manipulate longer term interest rates by purchasing mostly medium term bonds in the market (pushed prices up which in turn, lowered yields). For anyone owning municipal bonds last year…you may have been largely rewarded (weren’t they supposed to fail per that 60 Minutes report)?
Regarding financially shaky municipalities, it’s not mainstream news yet, but Stockton has been flirting with bankruptcy for a while. They have already claimed fiscal emergency twice and they are threatening to follow the path of Vallejo. The real fight is centered upon the local government’s inability to cut expenses. This is a good segue topic for union contract and government spending conversations. Always a crowd pleaser.
With all the “troubles” and problems throughout the world…did you know that through last week, the emerging market stock index was up over 16% year to date followed by the broad non-US market at almost 12% and the US close to 9%.
“Yes, that all sounds great, but have you heard of the new Apple initiative?”
Far less conversations about real estate as of late. While the data has improved marginally, lending rates remain low but lending tight.
Jobless claims continue to improve. They would surely get better if Apple moved the manufacturing back here. Right? Depending on the how one interprets the government data, either unemployment is much better or the numbers really don’t properly represent the amount of people that stopped looking for work. Since you are most likely having this conversation with a fellow “one percenter,” email us on how you two settled that dispute.
“You have to have all your money in gold, it is the safest investment!” If you get stuck in a conversation with this person, splash something on your clothes and excuse yourself. Yes, gold prices have increased substantially over the past number of years. While having it as part of a portfolio makes sense to many, its still a commodity and subject to great fluctuation. For a little perspective, it took almost 30 years from the last peak to drop to break even. When Village Grocery puts a scale and a chisel on the counter instead of taking cash or credit, then the sign of life changing events is upon us.
If the person is adamant about talking endlessly about gold, try switching the conversation to religion, they probably have less conviction there. But you can always fall back to Apple.
Author’s Note: Brad Stark, MS, CFP®, AAMS, CMFC and Seth Streeter, MS, CFP® are Co-Founders of Mission Wealth Management, LLC (MWM), a Registered Investment Advisor. They can be reached at info@missionwealth.com. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Advisory services offered through MWM. Securities offered through National Planning Corporation, Member FINRA/SIPC. NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. In general, the bond market is volatile, and fixed income securities including municipal bonds carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Indices are unmanaged measures of market conditions that cannot be invested into directly.
¹ Goldman Sachs Monthly Insights and Strategy Series, GSAM Chairman Jim O’Neill, www.gsam.com/jimoneill.
² GS Global ECS Research, Jan 2012.