Now you don't have to read the rest of this article, but it might help your investments.
So far the housing market has lost 20 percent of its value. That depends on where you live. Some places not as much and others twice that.
The stock market was going up while home prices were sinking. Ooh-O, the Dow Jones just broke from about 12,800 to about 10,800. About 15 percent. Will it go down more or will we get one of those ‘I hope, I hope' rallies we have been praying for in the housing market? Both look like they are a long way off.
Why am I so pessimist. Let's apply a little plain old country logic to see if my thinking has any merit. Not the same kind of thinking those Wall Street mavens and economists use.
What is it the makes houses and stocks appreciate in value? Maybe value isn't the right word. We will stick with price. The value doesn't change. Just the price.
As long as there are lots of people with money or a stream of income wanting to buy a product (house, stocks) the price will be stable or continue to rise (more buyers than sellers). That means jobs. If fewer folks are working or working part time then the stream of cash slows or stops. Nothing mysterious about this. It seems when we send a new person to Washington they forget this basic fact.
Anyone with two brain cells to rub together knows this. We, at least all us outside Washington, know this. So if there are fewer people working, meaning less income, meaning less cash available what should us folks that have 401Ks be buying. See the first word above. There is no fuel to make the market go up. Until we see good job creation for a period of time the best place for money is in the mattress. A money market account doesn't pay much, but it is better than watching money disappear. This could be for a long time.
Not in U.S. Bonds. Not In municipal bonds. Maybe a few select corporate bonds if you can figure out which ones; it is hard to find a good corporate bond mutual fund, but definitely not in stocks, mutual funds or real estate.
Why do stocks go up? Sure, more buyers than sellers, but there is more to it than that. The company has to show it is making a profit now and will make a bigger profit later. That means the stockholder may receive a larger dividend or the company has a higher net worth. Simple. However if the economy is shrinking due to large unemployment who is the company going to sell its products to?
The same goes for housing. Even if interest rates were zero if Joevdoesn'tvhave a job he can't buy the house.
Washington doesn't get it. They are either stupid or don't care. You decide.
The best place for investment now is the mattress or paying off all
personal debt. Don't buy any equities.
Al Thomas' new book, "If It Doesn't Go Up, Don't Buy It!", 3rd edition, has helped thousands of people make money and keep their profits with his simple two-step method. The method made 10% during 2008.Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
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