Written on May 31, 2010
Greetings and happy holiday in the States-
Mr. Mahmoud Ahmadinejad might be as slick as our former Chief. One week, the world stares him down attempting to get Iran to stop their nuclear ambitions and the next week the entire world wants a nuclear free Middle East. Which means, by the way, that only Israel will have to relinquish its nuclear arsenal. I would say that Henry Kissinger had a better shot with Golda Maeir and those odds were south of zero. Unfortunately, we now have the wrong guys at the wrong places at the wrong time. Quoting Jimmy Carter’s nemesis the Ayatollah Khomeini, who had similar thoughts, Ahmadinejad has been very clear about wiping Israel or the Israeli regime off the map. Netanyahu has been very aggressive verbally his entire political career and after somewhat agreeing to divide Jerusalem, he is under political pressure to look tougher.
Sad day for some (I think) well meaning folks. Organizers from Turkey, following a frustrating year of trying to get aid into Gaza, last night chose to ignore Israeli Navy warnings and tried to break through Israel’s maritime blockade of the Hamas-run coastal enclave. The nine vessels carrying “aid” turned their self-proclaimed Free Gaza Movement Freedom Flotilla toward Gaza and though apparently in international waters, within minutes, Israeli commandoes rappelled from helicopters and climbed onto their boats.
Aboard commandoes were confronted by “angry activists and aid workers” who showed up to break a war time blockade carrying nothing but loud mouths, picket signs, pipes, bottles and according to some sources a few guns. Big surprise, the Israelis confronted them using excessive force and subdued and overtook the boats.
Nineteen “aid workers” were killed. Turkey withdrew their ambassador from Israel today and the threat level everywhere got kicked up another notch. I hate this political BS. North and South Korea, Turkey, Syria the UN and soon Israel are going to be in the “we have to do something” mode. I hope they don’t. This is nothing new but it is gathering fresh momentum again and it looks like it could be a hot summer.
For me, I worry more about where the nukes are right now, than where they might be in the future. Unfortunately, the Bushehr nuclear facility is across the way for us…
Now onward to the esoteric. I have a representative chart below… if you have been buying US Treasury Tips over the last decade, congratulations, you won…
But, you might want to ask: What happens to my TIPs (US Treasury Inflation Protected Securities) if there is deflation?
It is my understanding that the principal is adjusted downward, your interest payments will be less …at maturity, if the adjusted principal is less than the TIPS original principal, however, you will be paid back the amount of the original principal.
Like our pal Tony would say, “I am not saying you should hit dem bids right now, I am just sayin’ ya know…pigs and hogs… they usually get slaughtered…I agree with Tony. It is wise to keep an eye on TIPS as they approach their historic highs. If they flinch, deck ‘em.
Makes me chuckle to think that the smart guys at the Treasury may have stumbled into a way to hose Chinese bondholders with these babies. Who would think you could deflate your way out of some of your debt…amazing those smart guys..
On the US home front, ten of the cities in the 20-city Case Schiller Home Price Index have steadied and come up a bit with CA, AZ and Washington having the nicest bounces from their lows. However, half the residential real estate markets measured in the 20-city Index (as of March) have yet to find their low prices. Tampa, Atlanta, Chicago, Detroit, Charlotte, Vegas, New York City, Portland, Dallas, Seattle either measured their lowest reading in March or have yet to bounce more than 1% from their low price.
Overall, the home index fell 32% from April 2006 to its lows in APR-2009 and regained 3.7% to March from the lows. Exacerbating the situation is that while we were all enjoying our home values dropping we were also experiencing 8.5% inflation between April 2006 and the present. So much for that inflation hedge.
Assuming equal amounts (~$100k) in both home and stocks in May of 2000... and no bonds or other investments. At year end, 2009 your Real Net worth (adjusted for inflation) was fighting to get back up to the 9/11/2001 level. Since it has fallen away. As it is released 60 days late I kept the house price index flat for APR and MAY below. This may be a best case scenario as the home price index may already be declining with the Federal Extension for First Time Homebuyers ending in April.
There has been a dance between stocks and housing going on since 9/11. Liquidity generated by low rates, tax incentives and liquidation of stock portfolios were the perfect catalyst to run-up home prices in 2002-03. Subsequent you can see the home market hit the wall in glut of homes early in 2006. A sustained rally in either/both home prices and/or equities will be necessary to offset what has happened to personal net worth. In the US, if you feel like it has been tough to stay ahead, you are correct. Over the last decade stripping out inflation, $208k turned into <$190k after getting as high as $193 late last year.
Last but not least, (actually now it is the biggest) Apple. Don’t be afraid of missing the big move here either. Lay in a protective stop at 235 and if it cannot take out the highs, same story, adios muchacho, vaya con Dios. And a big thanks for performing when little else did.
Re: your cash, make them pry it from your cold dead hands.
Leon
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