Dear Reader,
Vedran Vuk here, filling in for David Galland. Readers who have been with us over a year may be wondering what I've been up to since previously writing the Casey Daily Dispatch four or five times a week. Well, I've been helping with various special projects and doing some of the research behind The Casey Report. However, my most exciting project has been helping Dennis Miller launch his new letter, Money for Life.
Working with Dennis has been a remarkable experience. Our team at Casey Research has decades of investment experience. However, none of us have yet had the experience of actually retiring like Dennis. He's a guy who has walked the walk on retirement investing, and after years of learning from experience, he is talking the talk about it. If you haven't already signed up for his free newsletter, Miller's Money Weekly, do so. For readers with a few years left before retirement or those just beginning to plan for it, there's no one who can break down the process for you better than Dennis. Why, even if you're already retired, there's still lots to learn from his advice.
Today, we'll start with an article from Dennis on his paid newsletter's performance thus far, his experience starting it, and what to do when you're sitting on a profit. Then I'll touch on the run-up in gold prices right before the QE3 announcement. Does this price action suggest a leak at the Fed? And last, I'll discuss our national love affair with real estate. Why after years of poor performance does the sector still appeal to so many?
By Dennis Miller, Editor, Money for Life
I opened up my inbox the other day to find several messages with the subject line "Money for Life quarterly report card." Much to my surprise, Vedran Vuk – our senior research analyst – had finished our portfolio analysis for the September issue and had shared the results with the entire Casey team.
We're still building the Money for Life portfolio. Excluding the three picks we just added in the September issue, we have eight picks ranging from low to high risk across several different market sectors. Seven show positive gains, and including dividends received, four are up by double digits, ranging between 12-27%. One pick is down 13%.
Vedran had told me we were off to a good start, but it really hit me when I saw the numbers. The bar has been set.
In response to the results, I received several emails with kind words from the Casey team, including an implied "I told you so" from David Galland. That reminded me of our first discussion about the Money for Life project. It was one thing to write a book about my own investment experience, but quite another to have my name on a newsletter making investment recommendations to my friends and readers.
I told David that I considered the Casey Research team to be true specialists. They've all been in their respective fields for years. They find the stocks and write the newsletters. I just used their newsletters to pick and choose what I thought was a balanced portfolio. When first contemplating the Money for Life project, I thought to myself, "I am not a stock-picker; I just pick them out of the newsletters."
David's response surprised me. He pointed out that I have 40-plus years of investing experience, both good and bad. He just wanted me to keep up what I'd been doing and help others do the same. He wanted me to use my experience to show other folks like me how to build a nest egg, protect it, and make it last for life.
His bottom line was that I had to tell the research team what I needed, and they would find the stocks. My biggest challenge would be sifting through the abundance of investment choices and deciding which to pick and which to pass up. I got a good bit of reassurance "not to worry," because the research team would hold up its side of the bargain by providing the quality research found in all Casey Research publications.
I recall a friend of mine describing a blind leap of faith as jumping into something unknown, without the proverbial gun to your head forcing you to make the leap.
In the case of starting this newsletter, I decided to take a blind leap of faith, that others had faced or were facing the exact same investment challenges which I encountered in my lifetime, and that my experience along with the Casey Research team's expertise could help them overcome these obstacles as well.
Was I scared? Damn right I was scared! But after three issues and positive numbers almost all across the board, it was the right leap to take.
After our first quarterly results were published, I spoke with Alex Daley, who started the Casey Extraordinary Technology newsletter a few years ago. Several of his picks are already in the "Casey Free Ride" category, which means that the stocks have doubled, and readers were advised to sell the equivalent of their initial investment. This immediately brought a thought my mind: With one of our stocks up 27%, was it time to lock in some profits already? Vedran pointed out that we have 20% trailing stops on our heavily traded picks to help lock in profits. So even if that pick makes a major drop, we'll still be taking home a minimum of 7%.
They both reminded me that we now have two challenges: to continue to build a balanced portfolio; and to educate our readers. It's fun to be off to a good start, but our job is just beginning.
As luck would have it, when I started to tell my wife Jo about what was happening with our portfolio, Kenny Rogers came on the oldies station, singing:
You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done.
Now ev'ry gambler knows that the secret to survivin'
Is knowin' what to throw away and knowing what to keep.
The same holds true for investing.
You've probably heard the stock market described as a gamble. I disagree. That's one part where the song doesn't fit. Gambling is largely a game of chance, and the house always has the best odds. With the help of good investment advice, though, you can take your time, pick your own cards, look to your coaches for help, and better your odds.
By Vedran Vuk
If you've ever studied mergers and acquisitions closely, you know that a lot of insider trading can happen behind the scenes leading up to a takeover. In the worst-case scenario, the news will leak out to so many people that the stock price will surge through the roof prior to the merger's announcement. When the event finally happens, the stock still goes up a bit, but there's barely any meat left on the bone.
With this price action in mind, my question is whether someone let the cat out of the bag early on QE3. Looking at the price action for gold, it' golden, is it not? It's very similar to the price chart of news leaking prior a company's merger. We have a huge, sudden run-up in the price, followed by an announcement which adds little more value to the price. From August 30, gold rose from $1,657 to $1,731 on September 12, right before the announcement. Is this proof of insider trading? No, it certainly is not. Is it highly suspicious? You bet!
(Click on image to enlarge)
Now, one might argue, "Vedran, people have been talking about QE3 happening for quite some time. Doesn't this make perfect sense?" That's definitely true, and it's half of my point. People have been hyping up QE3 all summer long and even before that. Yet – despite all the predictions and the hype – gold stayed well below the $1,700 mark. If everyone was so certain that QE3 was around the corner, then gold's dips into the $1,500s doesn't make sense, and neither does its slow performance over the final months prior to the announcement.
The next logical train of thought is that something must have happened prior to the announcement to trigger the sudden surge. Well, what exactly happened? Was there a labor report which was so bad that the Fed would surely act? Was there a completely abysmal manufacturing report or housing index number? No, not really; there was some bad news, but no red flags. Even the Fed meetings were the same "business as usual" which hardly moved the markets.
Furthermore, one could even argue that economic conditions are better today than they were several months ago. When the market was reeling up and down several hundred points per day, QE3 seemed more likely than in the weeks leading up to the actual event.
Whether some insiders got the scoop early or not doesn't really matter for us. In some ways, those who bought gold as early as us –well below $1,000 – saw QE3 coming miles away, long before those insiders. If you were already long gold, the price action prior to the announcement is somewhat irrelevant.
Nonetheless, there's something to take away from all of this. We can't always be privy to the special deals struck in fancy rooms by the monetary elite. As a result, betting on the exact timing of a certain Federal Reserve action can be a losing game. As retail investors, we're inherently at a disadvantage in this regard. However, what we can do is look at the big picture, and get it right. Over the next decade, do we see more money-printing or less? The answer is pretty clear.
If you're very lucky, you can make good money playing short-term, up-and-down trends in gold. But I'd rather stay long and watch gold move up slowly but surely, rather than mistime a trade and as a result miss the next big move.
By Vedran Vuk
After years of declining real-estate prices, I can't believe how many people are still excited about the real-estate sector. They purchase their houses envisioning higher prices ahead. They search for deals among the heavily discounted homes, waiting for a rebound at any moment. Americans have never fallen so deeply in love with any other asset class.
Sure, we've had our short flings with other bubbles. Who can forget the nation's romance with the tech sector? However, that experience was different. After the tech bubble burst, the average investor wanted to hear nothing about a company name ending with ".com" – even when the opportunity might have been a good one. What started as a hot love affair with tech ended in years of bitterness and feelings of betrayal.
But what is it about housing? After years of disappointment and anger, our hearts still skip a beat at the proposition of rising home prices. Are we hopelessly drawn only to the bad investments that promise us rides in fast cars? As with tech, our crushes usually pass, but with real estate, it's still burning hot. However, there is something different about real estate which draws us to the sector. It's our obsession with consumption – and as a result, debt – which makes us so vulnerable. The thrill of a real-estate investment holds our hand and tells us, "It's OK to spend more and get a bigger house."
However, if we can understand the features of real estate that pull our heartstrings, we can avoid the heartbreak. Here are three reasons why real estate gets us every time:
1. Real estate is simultaneously consumption and investment. Think about it. This is one of the only investment vehicles where you get to consume while also investing in hopes of a future gain. Besides real estate, almost nothing else offers this combination. If you buy $40,000 worth of GM or Ford stock, they're not going to send you a new truck to drive around for a few years. Even if I put $100K in Johnson & Johnson stock, I won't get a single measly tube of toothpaste free.
OK, to be fair, maybe there are a few other assets classes in this category, such as collectibles or art. But most of us will never enjoy a picture on the wall as much as a nice $500K house. With real estate, we can spend and "invest" – and boy, you know how much our culture loves to spend.
2. Real estate gives you excuses for bad financial decisions. Sure, you can only afford the $300K house, but if you look at it as an investment, then the $400K house is an even better deal. In the long run, real-estate values must always go up, right? So by purchasing the $400K home, you're making a sound decision for the future. Real estate lets us flip our logic on the correct decision. The larger home becomes the forward-looking purchase; the house within our means becomes the poor decision.
These blinders are even more useful when purchasing a second home. Yeah, you might not be able to make it to your Miami condo more than twice a year, but if you look at it through the lens of investment, it's all right. It's not just a rarely visited condo which you don't really need, it's an investment! The magic of real estate allows us to transform excess into wisdom.
3. Real estate lets us invest without saving. The whole principle behind saving and investing is to consume less today with the promise of consuming more in the future. Real estate allows us to completely avoid the first half of this equation. We can borrow money now (in the past, sometimes with no money down) and can still invest for the future. With real estate, we don't have to consume less for the promise of greater future wealth. In fact, we consume more by purchasing yet another product, a house.
Real estate is the modern American dream. It's a way to continue spending and living frivolously, while at the same deluding ourselves that our extravagant lifestyle is an investment. Unfortunately, I'm here to tell you that this is bubble thinking. If you're planning on retiring in some decent level of comfort in the future, there's only one way to go about it. That involves curbing your spending today and investing wisely for a better tomorrow. I know. It's a tough pill to swallow, but that's just the truth.
In that process, should you avoid real estate altogether and cut your love affair with it forever? Not necessarily. If you find a good investment, go for it. But be honest with yourself. Is the real-estate deal the best investment available (versus other properties, as well as all the options on the stock market), or are you really just being deluded by one of the three reasons above? If you're being truthful with yourself, I bet that 9 out of 10 times it's one of the above factors driving your decision-making, rather than sound reasoning.
A little boy wanted $100 very badly and prayed for weeks, but nothing happened.
Then he decided to write God a letter requesting the $100. When the postal authorities received the letter addressed to "God, USA," they decided to send it to President Obama.
Obama was so amused that he instructed his secretary to send the little boy a $ 5 bill. He thought this would appear to be a lot of money to a little boy.
The little boy was delighted with the $5 bill and sat down to write a thank-you note to God, which read:
Dear God: Thank you very much for sending the money. However, I noticed that for some reason you sent it through Washington, D.C., and that jerk Obama took $95 in taxes.
Mitt Romney, the Aquafresh toothpaste smile candidate….
A tough spot for the GEICO lizard…
Let's hope the brain trust behind this one is overseas too…
Hmm… maybe I should try somewhere else:
Malfunctioning snack machine still dispenses deep insights:
That's it for today. David Galland should be back next week. Thank you for reading and subscribing to Casey Daily Dispatch.
Vedran Vuk
Casey Senior Analyst