Monday, April 28, 2008

Investing Right Now

I have little to add to the great internet conversation of investing, but I thought I would throw in my .02 to the problem facing American who don't spend all of their cash. Where do we put the extra? I know there are some of you out there who did not go 'hog wild' the last 10-20 years, and therefore, have some money that you would like to invest to earn a little return for retirement or maybe just to keep up with inflation. My audience might be 5 people, 10 tops. Where to put it? What do I try to latch onto as the next bubble? Are banks safe? These questions keep me awake at night. I emailed my family members, the tribe of penny pinchers, to give them a heads up on bank failures, as the FDIC at least gets ramped up for them. They said, "OK, but where do we put it?"

I'd start by saying that the S&P and most equity markets around the world are in a stage of confusion, doubt, uncertainty, volatility, and a whole slew of adjectives with negative implications. Even China is going through pains, check out the Chinese stock market as a 1 year chart. I guess selling knick knacks with lead paint can backfire. I'd say most emerging market stock markets are bad buys right now because of the food riots and hyperinflationary elements in the economies for basics. I wouldn't even individually buy solid names of multinationals because they are expensive now and will probably be cheaper when the markets come to grips with a worldwide recession. Try to play roulette with an alternative energy company? Good luck picking the right now with the right power play and political connections. Maybe play the commodities boom. I don't know if there's much money to be made as the prices fo basic staples have risen so much that there is the threat of international intervention. The bond market is completely bonkers as short term bond funds are paying negative interest rates in some incidences when you factor in expenses, and who wants to lock into long term bonds paying 3-4%? In a bear market or deflationary epoch, cash is king.


Where do you put this cash if banks are going to fail? Good question. This bothers me so much that I have spread out my cash holdings amongst multiple institutions. Look to have FDIC coverage for the CDs, checking, and savings accounts that you have. I previously had most of our down payment cash tied up in a money market fund, but I decided to spread it out between that fund, a checking account that earns comparable interest, and then the ultimate tool to fight the sinking dollar: an Everbank foreign currency account. These foreign currency accounts are FDIC insured CDs that hold the foreign currency and earn interest that in some cases are much higher than money market accounts and CDs through your local bank and even those ING direct Orange online accounts. Of course, you are at risk of currency appreciation/depreciation. This could hurt your investment if that currency loses money vs. the dollar, but with short 3 month terms on the CDs, it would take an awfully large swing to lose even the interest.
I'm extremely sad though because I looked forward to growing up and having money to invest as that is something I have always loved to track and read about. I read the Money section of the USA Today right before the Sports section growing up. If I lose a decade because the Wall St bankers, the FED, the federal government, and crack head consumers made a giant mess of things, I will be mildly depressed.
Speaking of the FED, many folks are crying to financial and investment websites that the FED cutting rates is hurting savers and punishing savers and giving away savers' money. Sure, yup it is. Look, I am mad at the FED but for many different reasons, not this one. The FED is slashing rates and hurting savers to try to keep ARM mortgage holders & Wall St afloat and keep the economy rolling. Think about this sad savers, the US savings rate is so close to zero or negative, that it doesn't make sense for the FED to protect savers. A majority of Americans are not savers. Bernanke's main target is the giant group of consumers out there who save nothing. They have us savers outnumbered. Why would Bernanke do anything to protect the 10 savers left? I know there's 10 tops because they view every single investing blog to leave comments with the same dumb handles. Theya re almost as bad as peak oil doomers.
Bernanke is sacrificing everyone else though for Wall St. Banks. The Bank of England is doing it with their banks, and very shortly, the ECB will be doing it for the bank problems across the continent. I have little faith in 3rd world country banks in China and the Middle East. In the end, the same cronies will make out OK, while everyone else eats shit.
I think the best investment people can make right now is in the relationships they have with friends and family. In times of uncertainty, the familiar things and occasional reminiscing can be comforting.

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