Monday, February 25, 2013
A recent theory going around investment circles is the spreading your bets to protect against a plunge in the U.S. stock market called “Differsification”. In this theory you should regard your portfolio as a set of bets on basic economic conditions and create one bucket for each: expansion, recession, inflation and deflation.
Financial planners have long built portfolios based on historical correlations, or the extent to which various investments have moved up and down together in the past. The theory is that when stocks zig, bonds and other investments will zag; market declines in one asset will be buffered by rising values for others. Unfortunately, markets recently have not followed this historical correlation. For much of 1980s and 1990s, U.S. Treasury bonds and U.S. stock tended to move up and down in price together. During the 2008-2009 financial crisis, Treasury bonds were the only major asset that went up as U.S. stocks crashed. Next time, who knows?
Viewed this way, the challenge you face isn’t figuring out which assets are cheap today. It’s building a portfolio that can prosper regardless of whether economic growth is high or low or whether prices are rising or falling.
In your “expansion” bucket, for the scenario in which the economy grows faster than forecast, you want stocks, real estate and, if you can tolerate the risk, commodities. In your recession bucket, for times when economic growth falters, you want bonds. The inflation bucket, for periods when the cost of living rises faster than expected, hold Treasury inflation-protected securities, or TIPS, and, if you can stand the volatility, commodities. Finally, in your deflation bucket, for times when prices are falling, you want stocks and conventional bonds like U.S. Treasurys.
Instead of constantly sloshing your money around, put some in each bucket and keep it there as lifelong insurance against everyone’s ignorance of the future. Play around the edges every once in a while, if you must. But sticking to basic differsification will give you peace of mind – and probably the last laugh.
THE GREAT HOUSING COMEBACK - 'The Great American Housing Rebound focuses on the Phoenix metro area and finds that home values in that area fell by 55 percent from 2006 to 2011. Now, tempered by painful memories of the bust, the area's buyers, sellers, builders and investors are coming back into the market warily, but they're coming back.
'Housing prices in metropolitan Phoenix climbed 22.9 percent in 2012, the highest in the nation. Phoenix has always been a bellwether of national fortunes and its housing market presaged and magnified the collapse in real estate. Now its recovery could reveal much about the prospects for a nationwide turnaround."
WHY MEDICAL BILLS ARE KILLING US - TIME cover story is an investigation by Steven Brill "into how outrageous pricing and egregious profits are destroying America's health care and creating even deeper budget deficits. Brill spent seven months analyzing bills from hospitals, doctors, drug companies and every other player in the American health care ecosystem, following the money to find out exactly how and why we are overspending, where the money is going and how to get it back. What he discovered will radically change the way you think about our medical institutions."
Brill: "With Obamacare we've changed the rules related to who pays for what, but we haven't done much to change the prices we pay. ... When we debate health care policy in America, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills are so high? ... Breaking these trillions down into real bills going to real patients cuts through the ideological debate over health care policy.'
CABINET 2.0 - "Barring any new, damaging information, Chuck Hagel has secured the necessary votes for the Senate to confirm him to be the nation's next defense secretary. A vote ... is expected next week [as early as Wed.]. Hagel cleared the threshold when ... Republican Sen. Richard Shelby of Alabama said he would vote for [Hagel] after joining other Republicans last week in an unprecedented filibuster ... Hagel is expected to get all 55 Democratic votes and the support of three Republicans -- Sens. Thad Cochran of Mississippi, Mike Johanns of Nebraska and Shelby. Two other Republicans -- ... Susan Collins (St. Lawrence ’72) of Maine and Lisa Murkowski of Alaska -- voted last week to allow the nomination to move ahead and are expected to do the same next week, giving Hagel the requisite 60 votes out of 100 necessary to end a filibuster."
--Statement from former Senator Bob Dole, Bob Dole, released by the White House : "Chuck Hagel has spent his entire life in service to his country. He volunteered to fight in Vietnam and did so bravely, side-by-side with his brother and earning two Purple Hearts. He served as Deputy Administrator of the Veterans Administration for President Ronald Reagan and was President & Chief Executive Officer of the World USO. He represented the people of Nebraska in the Senate with honor for twelve years and was a coauthor of the Post-9/11 G.I. Bill. Hagel's wisdom and courage make him uniquely qualified to be Secretary of Defense and lead the men and women of our armed forces. Chuck Hagel will be an exceptional leader at an important time."
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to: Chelsea Clinton (33), Daniel Craig (45), Ron Howard (59), Bernadette Peters (65), Maria Suffredini ...famous niece, Chris Webber (40).
TECHWATCH - "Google challenges Apple with high-end laptop: Google unveiled a touchscreen notebook computer Thursday designed for high-end users, throwing down the gauntlet to Apple and its MacBooks. Google said its Chromebook Pixel computers blending tablet and laptop technology, boasting heavyweight Intel chips and screens tailored for rich graphics, were released in the United States and Britain, starting at $1,299. 'People will give up a MacBook Air for this,' Google Chrome senior vice president Sundar Pichai said. A Pixel model featuring built-in connectivity to the Verizon mobile Internet service will hit the US market in April at a price of $1,449. The newly unveiled version can connect online with wireless hot-spot technology or cables. ... Google is hoping enthusiasts will forego price comparisons with competitors such as MacBooks or laptops built on Windows 8 software and focus instead on the Pixel's touchscreen feature and the massive terabyte of Google Drive online data storage included. ... Google custom built Pixel and is producing it with the help of electronics manufacturers in Taiwan."
COLLEGE DEGREE IS THE NEW HIGH SCHOOL DIPLOMA - "The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job. Consider the 45-person law firm of Busch, Slipakoff & Schuh here in Atlanta, a place that has seen tremendous growth in the college-educated population. Like other employers across the country, the firm hires only people with a bachelor's degree, even for jobs that do not require college-level skills. ...
"Economists have referred to this phenomenon as 'degree inflation,' and it has been steadily infiltrating America's job market. Across industries and geographic areas, many other jobs that didn't used to require a diploma - positions like dental hygienists, cargo agents, clerks and claims adjusters - are increasingly requiring one. ... This up-credentialing is pushing the less educated even further down the food chain, and it helps explain why the unemployment rate for workers with no more than a high school diploma is more than twice that for workers with a bachelor's degree: 8.1 percent versus 3.7 percent."
MEDIAWATCH - "David Gregory re-ups as 'Meet the Press' host, NBC News ... described the new deal as 'a long-term commitment.' 'What a great vote of confidence from NBC,' a pleased-looking Gregory said Thursday. He said his first four years in the moderator's chair have passed quickly. ... The 42-year-old Gregory began as host of the Sunday morning public-affairs program in December 2008 ... Before that, he was Chief White House correspondent during the presidency of George W. Bush. ... Gregory is only the 10th permanent host of 'Meet the Press,' which premiered in 1947 and continues as the longest-running program on network television. Looking beyond the new contract, Gregory said he planned to be hosting the program 'for as long as they'll let me. ... I can't think of a better platform to have for doing what I love to do - the interviews - and as an outlet for my curiosity ... I think this is an impactful, influential program, and I love being associated with it."
COLLEGE HOCKEY PICK OF THE WEEK – Friday March 1, 7:05 PM CT, BTN; #10 Denver Pioneers (16-10-5) visit #2 Minnesota Golden Gophers (21-6-5) in a key late season WCHA contest. Both teams have been peaking for the playoffs, we like The Gophers 5 – 2. (Season to date (7-2)
THE SWAMI’S TOP PICKS: ice – (WCHA) Minnesota 5 Denver 2, (NHL) LA Kings 4 Detroit Red Wings 2, hoops - (Pac 12) UCLA 68 Arizona 65. Season to date (59-31)
JACK ASS OF THE MONTH – our Jack Ass for this month is Mr. David Kenny and all the folks at The Weather Channel who came up with the idea for Winter Storm names. Names such as Brutus, Gandolf, Nemo, Q, Ukko and Zeus. Are they kidding? Hurricane names from the National Weather Center is one thing, but Weather Channel names for low pressure moving across the country. Enough please. This advertising gimmick is a bit much. What next, names for wind currents – Tic Tac, Breaking Wind, Baked Beans, Garlic.
DRIVING THE WEEK - Congress is back for a week of sequestration fighting, but as noted above, there is little hope that a deal materializes before Friday. Dynamic after Friday will largely depend on how much impact the cuts have ... President Obama and Vice President Joe Biden deliver remarks to the National Governors Association this morning in the State Dining Room ... Senate Finance Committee votes Tuesday on Jack Lew's Treasury nomination. He is not expected to have a problem. The vote will come as part of the committee's 10 a.m. hearing titled "The Budget and Economic Outlook: Fiscal Years 2013 to 2023" ... JPMorgan Chase holds its annual investor day on Tuesday ... Senate Agriculture Committee has a CFTC oversight hearing on Wednesday ... Case-Shiller home prices at 9 a.m. EST on Tuesday expected to rise 0.6 percent ... New homes sales at 10 a.m. Tuesday expected to rise to 380K from 369K ... Consumer confidence at 10 a.m. Tuesday expected to rise to 61.8 from 58.6 ... Second read on Q4 GDP at 8:30 a.m. Thursday expected to be revised up to 0.5 percent from -0.1 percent.
QUOTE OF THE MONTH – “The true definition of madness is repeating the same action, over and over, hoping for a different result.” Albert Einstein
Next week; movie and book reviews.
Until Next Monday, Adios!
February 25, 2013