What will $100 buy you in Nebraska?

Independent research organisation the Tax Foundation reveals some interesting differences in the cost of living across the USWhere in the US do you get the biggest bang for your buck?

Feeling the pinch? Well, how far your money stretches pretty much depends on where you live, according to independent research organisation, the Tax Foundation. Data has recently been collated to find out how much $100 buys you on a state-by-state basis and the results show that regional variations can be significant. While there is a correlation between income levels and prices, it’s not as clear cut as you might imagine. Read more…

Chancellor Osborne initiates RBS sale

RBS sell-off

RBS sell-off underway

British Chancellor George Osborne has started the controversial process of transferring bailed-out bank RBS back to private ownership. The sell-off of a 5% stake in the bank – around £2bn-worth of shares – will reduce the taxpayers’ holding to under 75% and is the first sale of shares since the bank was rescued in 2008. The sell-off will result in a loss of around £1bn to the UK taxpayer. Read more…

Trouble at the top as Barclays oust boss

Barclays Chief Executive ousted in boardroom falling outBarclays Chief Exec ousted in boardroom falling out

British bank Barclays has announced that boss Antony Jenkins has been ousted from his job by a disgruntled board just three years after he was promoted to the job in the wake of the Libor scandal. Jenkins is being replaced for now by chairman John McFarland following unrest over the board’s desire for bigger cost cuts and more focus on the investment bank’s performance. Read more…

China stock market in freefall

$3tn wiped off value of Chinese shares$3tn wiped of the value of shares

The Shanghai composite index has plummeted by 6% as panic selling continues to wipe trillions of dollars off the value of Chinese-listed companies. Despite the government’s efforts to stem the tide by relaxing borrowing rules and cutting fees, shares have dropped to less than a third of their June peak. Read more…

Where did the Greek bailout money go?

where did Greek bailout money go?Greek crisis showing cracks in Eurozone

With tensions high in Europe as it faces its biggest crisis since the union, questions are being asked about the viability of giving the green light a third bailout for the Greek economy. But what happened to the hundreds of billions of Euros of financial assistance delivered in the wake of the global crisis of 2008? Read more…

Barclays sets aside £800m for forex penalties

Barclays profits hit by forex and PPI penalties

British bank faces fresh fines

Barclays has had to carve another £800m off the bank’s bottom line to pay its share of the international forex rigging scandal and to settle further compensation claims for mis-selling payment protection insurance to customers. The bank’s penalties will total around £2bn from regulators in the UK and US charged with investigating the manipulation of the £3.5tn-a-day forex markets. Read more…

Is Greece on track for a Eurozone exit?

Greek crisis reaches turning point as bailout talks stallDon’t mention the war

German Chancellor, Angela Merkel didn’t become the most powerful leader in Europe by being a pushover. Merkel’s government is dominating European politics at the moment, so you might wonder what response Greek Prime Minister, Alex Tsipras, was expecting to his demands for Nazi war reparations at their meeting this week. One can only imagine that Frau Merkel delivered a frosty ‘Nein’, before going on to say that ‘in the view of the German government, the issue of reparations is politically and legally closed.’

Read more…

The Correction is Here so Mind your Vs and Ws

We wrote in January “any material pullback that could make 2012′s chart look like a V or W on renewed European default or earnings concerns is a buying opportunity.”  The correction is here, live and in person with global markets retracing 2012’s gains to date.  The V can certainly deepen further, but this is the time to begin putting some of the cash you have on the sidelines to work. 

The timing of the bottom of this correction is irrelevant and don’t expect to get it right.  Just start putting 10-20% of your cash to work on days when the market is down over 2%.  If we fall just another 5-7% from here, I will advise swapping out your boring, broad ETFs for something more fun like 2x or 3x leveraged ETFs and emerging markets exposure with more upside. 

Corrections are psychological animals and we are definitely in the midst of a Euro-led psychosis.  The faster Greece is resolved (stay with Germany’s austerity plan or leave the Euro) and Spain performs an Italian-esque political and economic turnabout, the better.  But since the timing of this correction is identical to those we saw in 2010 and 2011, we are in no big hurry to get overexcited that the worst is behind us.  The US economy is in a rough patch driven by the confidence-killing psychosis across the Atlantic.  Notice nobody is worried about France’s new left-leaning leader or the actual Euro currency which is still far from parity with the US Dollar.  All this negativity will pass and the stock market will show its strong hand again as we get closer to the Presidential election.  Markets cheer political deadlock so bet on Republican gains in Congress and another four years for President Obama.

The Economics of Luxury: Apples and Googles

I have a wealthy friend who asked the following question today:  What are the odds of Google and Apple hitting $1,000/share, respectively, in the coming 18-30 months?

I don’t have a clue, but it doesn’t seem too far fetched.  Which stock will get there first?  No idea.  This is a great topic to remind ourselves about luxury goods from Econ 101.  Between Google’s IPO in 2004 until 2007, investors couldn’t get enough – it outpaced the tech-heavy NASDAQ 100 index by 3-4x over that period.  The higher the price went, the more investors demanded shares of GOOG. 

This price action was no different than what you see with Louis Vuitton purses, Rolex watches, Ferraris, and trendy art.  But in 2008, GOOG changed its behavior and began trading like a technology stock rather than a sought-after purse.  Over the past three years, AAPL has traded in similar fashion with similar results.  This week even as Eurozone worries returned to the forefront of market action, AAPL seemed to defy gravity.

High net worth folks (politicians call them the 1%) around the globe flaunt their Apple shares at parties like a gold Rolex or red Ferrari.  Look at me, look at me.  The more AAPL stock makes up of your liquid net worth, the cooler you feel now.  This has nothing to do with ratios or earnings or any fundamentals at all since these folks could care less about them – this is about being cool and envied.  I don’t know how to time when AAPL stops acting like a luxury good, but I bet it will someday sooner than later.  Sadly, there just isn’t any reason to bet against it for now.  When it stops acting special, you will know.

Meanwhile, I take the road less traveled.  So long as the bull market is in place for 2012, I choose to own QLD or TQQQ which offer 2x or 3x the daily return of the tech-heavy QQQ ETF, respectively.  Because AAPL is the single most influential stock inside the QQQ ETF now, these leveraged ETFs will better mimic its potential for continued ascent.  If it loses its luxury luster along the way, even better.

Portfolio Checkup and Facebook Musings

It’s February and the weather in Southern California is reminiscent of spring.  Birds are singing, the ocean is glassy, and the sky is blue – it’s a nice feeling.  This is appropriate given the spring awakening stocks enjoyed so far in 2012.  Luckily there remain many negative headlines and bearish doubters out there, so we may have some room to run with this rally before an inevitable correction a.k.a gut check. 

My timing isn’t always great, so if you’re just now diving into stocks, it may be wise to hold off for a meaningful correction.  The fears that caused me to reduce equity exposure last fall perfectly coincided with the bottom in global equities so I still feel a little pain from that error.  But I followed my gut that if things didn’t play out as I expected by the end of 2011, I had to admit error and return to a more bullish positioning.  Now 2011’s tiny gain in the S&P 500 Index is followed up so far year-to-date with a 7% pop , but beaten-down European shares are up a few extra percentage points over US stocks, the tech-heavy Nasdaq 100 is up 11% along with small cap US stocks (Russell 2000 Index), and risky emerging markets are up over 15% (MSCI Emerging Markets Index).  Gold is mostly keeping up with the broad stock indices much to my chagrin.

The news is chalk full of headlines about individual investors sitting on the sidelines, waiting.  I love that.  If you wait for your neighbor to tell you how great his portfolio is doing, you missed the boat or at least part of it.  I also enjoy reading about how February is a bad month for stocks over 50% of the time.  Pay no mind – this is no different than the sucker bet on black in a game of roulette after three or four red bets pay off.  Summer of 2011 is starting to fade into history much like the summer of 2010’s 20% drop.  That one took six months to fade from memory and make new highs.  This time shouldn’t be much different from the smell of it. 
Is a Eurozone financial panic and debt default still a risk?  Sure and it’s enough to keep my nose mostly out of their stock market.  But the economic picture is getting brighter in the US with steadily rising output and employment.  A slowdown in corporate earnings may well be in effect, but the powerful leverage achieved via massive layoffs during the recession can only last so long. 
Stay the course with your equity investments.  When meaningful pullbacks occur, I use leveraged ETFs (exchange traded funds) to add a little pop to the portfolio.  I like TQQQ (3x leveraged daily Nasdaq 100) and EDC (3x leveraged daily Emerging Markets).  These 3x ETFs should not be used as the basis of a portfolio, but rather to add some juice to returns after a 4-5%+ pullback occurs at any given time.  When this happens you can swap out a 10-15% position in a boring index fund like SPY or IWM for one of these little rockets and see how you do.  Don’t hold them over 30-60 days as leverage can be very painful when the index moves in the opposite direction of where you need it to go.  These ETFs even have inverse brethren so you can profit when markets slide.  I am a terrible short seller and I avoid these like the plague.  Use them at your own risk.
Republican primary coverage is constantly on television.  Obama was smiling during the debates, but now has reason to giggle a little.  The financial wizards at the Fed are helping make sure he wins a fresh 48 months in the White House.  The Fed is helping Europe push off implosion to never or at least 2013 with quasi-QE3.  Don’t worry about what that means, just know they are pumping tons of liquidity to European banks.  Employment and GDP numbers smell like roses and Bernanke promised Wall Street near-zero interest rates through 2014.  Love or hate Newt and Mitt, their whining about the economy may start to sound like a broken record in a little bit.  Is all this action artificially inflating stock prices?  Let’s not worry about that and enjoy the ride.  We can revisit this issue at year-end. 
Obama’s dinner buddy Mark Zuckerberg (Facebook CEO worth $20+ billion) is about to make thousands of new millionaires via their IPO.  They will buy toys, homes and pay taxes on their very public earnings.  That’s great.  Should you buy the stock when it finally trades?  Sure, why not, just don’t go crazy with the actual amount of stock you buy relative to your net worth.  A more interesting play is to figure out what public firms Facebook will buy after it gets that multi-billion-dollar cash infusion. Zynga is an obvious choice and its stock is already shooting higher.  I like LinkedIn (LNKD) as a takeover idea.  I’m not crazy about the site and its business model, but I have an account and I don’t belong to the cult of Facebook.  Mark will have to buy me and my ilk to earn our eye balls and dollars.  And I think he will do just that.