South Texas Is not Known For Beautiful Fall Foliage. Fall colors have been almost non-existent for two of the past three years, mainly due to hurricanes which blew the leaves off trees while they were still green. In my area, the woods look a bit scruffy because even the trees that were spared were damaged by wind or falling trees. Finally, the past few years have brought a drought which inhibited some of the fall colors. Still, even with limited Autumn colors, there is still ample beauty here if you know how to appreciate it. Sumac trees at the edge of the woods are a bright scarlet and Chinese Tallow, normally considered a trash tree, add some additional red color. Another thing that adds to the beauty of the South Texas fall is the flowers, which have virtually disappeared in cooler areas, are still blooming here. Looking out my front door, I see the Salvia, Knockout Rose, and Geraniums blooming with the red Sumac blooming at the end of the yard. One thing I know is that life is better now that I’ve learned to appreciate nature’s beauty.
Cash Is King??? I don’t know who invented that saying but I have seldom agreed with it. Of course, any financial rule depends on the needs of the individual. For example, if you are stuck in the middle of a small rural area and you want a hot dog from a small rural operator who doesn’t take credit cards, cash may be king at that moment. But if you are an investor, afraid to take risk in the financial or real estate markets, the return available on your cash equivalents are so low that the income you can generate will do little to supplement your cash flow needs. This results in reluctant investors being forced into the markets to keep from spending down assets that are critical to survival in their later years. A number of investors I know are in that very situation, having exited the market and missed a dazzling rally while waiting for a signal that it was safe to re-enter the market again. While I admit to selling some assets and increasing my cash allocation in the past year, I have never been completely in cash. In fact, cash has never been the majority of my investment portfolio.
Is The Long-Awaited Stock Market Correction Finally Here? I think so but I can tell you that I have thought so for some time. My fear has kept me from being as aggressive as I could have been to maximize returns in this situation. Still I have to go with my instincts and continue to move slowly. Part of the reason our markets have been as strong as they are is that those of us who already have all the houses and cars we need are subsidizing those who want to buy in this market. Cash for Clunkers and new home buyer subsidies are providing temporary props for the housing and car markets. This amounts to doing more of what got us in trouble in the first place. What happens when these subsidies are withdrawn? My guess is that things will slow down even more. I believe that the risk in the market exceeds the reward right now. Does that mean we should get out? ABSOLUTELY NOT. For my part, I will continue to emphasize dividend paying stocks and try to increase incremental returns by selling calls against those stocks. Of course, I might raise some cash now and then when I am holding assets that are fully valued or even overvalued, but getting out totally is not an option.
Should You Buy Real Estate? Not with your last dollar. Lack of liquidity can sink you in a hurry. If you are looking to pull some money out of the markets and, if you can put up with the stress of an uneven cash flow and occasional maintenance problem, there are signs of improvement in the local housing markets. In my last post, I talked about the shrinking inventory of resale houses on the market. Obviously that is a positive sign. Another positive sign is the lack of builder activity. So far this year, there have only been 1,787 single-family home permits along with a paltry 471 condo and townhome permits. This is the lowest since 1989 when the population of the metro was fifty percent lower than at present. (See John Rebchook Insiderealestatenews.com). Not all signs are positive. The low rate of job formation, high foreclosure rate, and low sales levels indicate that we may not be at the bottom yet; however, I’ll tell you the same thing I told you when the Dow-Jones average was below 7000. There is more risk than reward in the housing market.
Either Way It’s Not Time To Complain. I have been on this planet for more than 70 years and there is no comparison between how well we live now and how we lived when I was growing up. The typical person has three times the buying power that his parents had in 1960 (The year I got my undergraduate degree). In the 2000 census, less than 1% of our families were without inside plumbing. ( Our family was one of those until I was 10 years old). The average new home is 2349 square feet as opposed to 1100 in 1950. Lest most of you think the 1950’s is ancient history, let me remind you that I graduated from high school in 1956. Don’t think I am complaining about how poor our family was. Most of our friends were in the same boat and I have many happy memories from that era. Rather than complain and expect the government (meaning our friends and neighbors) to take care of us, most of us just need to take responsibility for our own lives and appreciate what we have. Here's to a happy Thanksgiving for all.
