|
|
MAKING CENTS OUT OF THE NEWS
Blog #23
(June 17th, 2010)
LOOKING UP FROM SOUTH FLORIDA
By Tom McAllister, CFP®
Between Sarasota and Ft. Myers in southwest Florida sits Englewood, where I've spent time each of the past five winters. I've formed a number of friendships with neighbors and other folks with whom I've crossed paths, both retirees and those still active in the work force. Some miles west of Interstate 75 and Highway 41, Englewood is a quiet, well-kept secret. Their snowbirds like me, from Indiana, Michigan, Ohio and Illinois can hide from winter without battling crowds of tourists. The few small hotels in town are ample for the handful of vacationers who do find their way to Englewood.
As a longtime student of people and their attitudes about the economy, I noted that, mostly sunny weather notwithstanding, gloom prevails in Charlotte County, Florida. Many blue collar workers have moved back north, unable to make a living now that so little building is going on in Florida. Others have remained, sustaining themselves with remodeling and small construction jobs. Realtors, mortgage brokers, and bankers survive modestly on the boom in "short sales" of properties (where the mortgage holders settles for less than is owed). The housing bust turned what was a recession in most of the country into a near-depression in southern Florida. Still, as I conversed with different locals and snowbirds, it was, in many cases, their perception of continuing gloom and doom that surprised me most.
In fact, what I find both interesting and deplorable is how widespread the belief is that our U.S. economy is actually getting worse, not better. In actuality, the economy hit bottom a year ago and has been in slow recovery since. As I have stated before, unemployment is a lagging indicator of the economy. It is, in great part, though, the unemployment numbers that are causing the pessimism.
Many blame the Obama administration for high unemployment, and, in fact, as our administration moves in the direction of higher taxes and more stringent regulation, they are interfering with the recovery. Coupled with the resentment about unemployment is the growing perception that neither the executive branch of our government nor its closest advisors and cabinet members, seem to be demonstrating much executive experience or ability.
So what should we make of all this? The public's false perception that the economy is in trouble IS the trouble! That perception is bleeding over into the markets, causing many investors to remain fearful of common stocks. As is typical of herd behavior, investors are doing exactly the wrong thing at the wrong time by pouring money into bonds and bond funds.
Think with me for a moment… Interest rates are at historic lows. To return to "normal", bond rates must climb 3-4% from present levels. Each 1% rise in interest rates equals a 5% drop in the value of the average bond! Rates returning to historic "norms" would mean bondholders losing 15-20% in the value of the very bonds and bond funds they are purchasing in order to feel "safe"! Talk about lemmings….
Whether you live in Englewood, Indianapolis, California, or New York - if you own bonds of more than 2 or 3 year maturity, I recommend selling those bonds now, replacing them with U.S. corporate (non-financial) preferred stock. The current stock market correction represents a stock-buying opportunity, probably for at least the remainder of this calendar year. We have specific suggestions for our clients, but for all our readers and friends, our suggestion is this: a doom 'n gloom attitude does little for either the country or for your portfolio!
Take a tip from the map - from southern Florida, there's only one way to look - up!
|
| |
| |
______________________________________________
| |
Click To Print This BLOG
