>MSN Money – Why there is no housing bubble – Jubak’s Journal
I guess somebody had to make the arguement…..
This is a bit of a wierd article because he says there is no bubble and then describes how the bubble would “pop”. Again, I don’t believe there is a national housing bubble, but there are certainly areas that at any interest rate are priced ridicously. A townhome not two miles from my office that is only 1300 sq ft is on the market now for $500,000 – does this sound like a reasonable price?
>Smartmoney.com: Breaking News: Citigroup to Settle Enron Suit for $2 Billion
This is the second settlement for Citigroup/Smith Barney, the other with Worldcom. What this article leaves out is that Citigroup has $6.7 billion in litigation reserves which will fully cover the settlement.
Is it me or is it wierd that a company has nearly $7 billion in litigation reserves? Did Citigroup make that much money in the 90’s that it can so easily pay such huge settlements? I am not against profit, don’t get me wrong, but Citigroup had a hand in some of the biggest scams of the century (Worldcom and Enron) and they are just going on like business as usual. Did they really learn a lesson? Did they even lose money after all the fines and settlements were paid? I am not a corporation basher, but I worked for the large wall street firms for several years and the one thing that came out of that work was that they do not have your best interest at heart.
How long will it be until Citigroup has a hand in another multi-billion dollar fiasco? I guess I don’t really have a point here, just pointing out some recent developments and putting out a warning.
>Morningstar.com – PIMCO’s Bill Gross Is Worried
This is an interesting article where a major bond guru predicts long term rates to remain low and to get even lower……what?
Who knows he might be right, he might not be. I don’t buy into some of his fears about the American economy, I believe the economy will be good long term and that stocks will outperform bonds. But in the short term anything can happen – even 3% 10 year treasury yields…….
>NPR : Getting Americans to Save More
An interesting audio from NPR and the Wall Street Journal yesterday. You will need an audio player to listen.
>SignOnSanDiego.com > News > Metro — County pension fund’s rate to stay same
The San Diego County Pension fund continues to refuse to come to reality. When the board was faced with lowering expectations for investment returns to 8% from 8.25% they refused. You may wonder why this is a big deal?
The San Diego County Pension board and boards across the United States are using investment return assumptions that are unrealistic so that they don’t have to use current funds to make stable their pension funds that have overpromised and will underdeliver. This almost guarantees that at some point in the future San Diego will find itself in the same position as West Virginia – being forced to issue bonds to fund liabilities that cannot be met with current state revenues (they just issues $5.5 billion and now have one of the highest debt ratios in the country).
A typical pension plan has an allocation that is 60% stocks and 40% bonds, assuming this allocation will earn 8.25% going forward is absolutely ridiculous.
The Wall Street Journal asked several economists earlier this year what they thought future returns on the stock market would be after inflation – the most optimistic was 6.5%, if we assume only 3% inflation we would get about 9.5% for a total return on a portfolio fully invested in stocks. Since only 60% is invested in stocks we can assume that the portfolio will earn about 7.7% before fees and inflation – this is being optimistic. A reasonable assumption would be 7.5%, yet the board wouldn’t even consider lowering it to 8%. Clearly this board is not considering the long term best interest of the participants in the plan or the taxpayers of San Diego who will eventually be the ones making up the shortfall. This plan will continue to get worse and waiting a decade or two to fix it will hurt much worse than fixing it now.
There may be some pain to fix this pension now, but it is nothing compared to the pain that will be felt a decade from now. The board appears to looking at their own tenure and career in politics, not looking at the tough problems and finding solutions.
San Diego is not alone – this is a widespread problem and issuing bonds to fix the problem is not an acceptable solution.
This is a great website that is updated each month and tracks changes at mutual fund companies that you may not otherwise hear about. It is a free site, but if you read it every month they request a donation to help offset expenses. This is truly one of the best mutual fund oversight websites you can visit.
>Smartmoney.com: Common Sense: House Poor
A good article by James Stewart of SmartMoney magazine on Real Estate. He doesn’t think we are in a bubble, but he also says that he wouldn’t be buying right now.