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The Blowhard Report?

February 7, 2013

I’m thinking about changing the name of this blog to “The Blowhard Report!” or“Imtheexpertjustaskme.com.” Any preferences out there? ☺

Over the weekend the financial/business news reports were all giddy over the equity markets returning to their 2007 highs. The news is so good that this continued trend is all but guaranteed and supported by the fact that the small or average investor (that’s you and me) is now back in the stock market. These reports entice me to ask one question and make one comment.

First, how is it that we have managed to return to pre-recession highs without the average investor being in the run-up over these last four years? Being the “expert” I am, you might imagine I have the answer to my own question. In my blog post Money Aplenty I pontificate about why all asset classes are once again showing signs of speculative bubbles. These artificially manipulated and stimulated markets make it extremely difficult and frustrating to invest with even the slightest sense of confidence these days.

However, the comment I would throw out today is that the news about the average investor getting back in equities is not a comforting sign for me; rather, it is a red flag that we are nearing a top. My theory is when the masses are fooled, that is exactly when the bait and switch will be played out. And the average investor will once again find he has had terrible timing.

The second issue that has been troubling me is an alarming bubble in housing surfacing once again. I have always felt it would take awhile for the housing market to recover because the average homeowner had been so burned by the last meltdown that it would take them a long time to trust the real estate market again. In certain regional markets, prices have escalated much faster than the peak of the housing boom back in 2005/2006. I know this firsthand because we have been investing in some of those markets — the Phoenix and Sacramento regions specifically. Some of our holdings have increased in value by more than 50 percent in less than two years.

It has all the makings of a speculative bubble and it makes me want to get out; to take the profits and run. The problem is that there is nowhere else to put our investments that I would consider safe. Second, I have to consider whether this rapid ascent in prices is an unsustainable bubble brought on by all the liquidity and hedge fund investors’ speculation in the residential market, or the beginning of real price inflation brought on by monetary policy. If it were merely a bubble, I would sell. If it is the beginning of high inflation, I would add to the portfolio, and I would buy stocks, precious metals and any other physical assets I could.

I guess that is my point. In financial markets this manipulated, rigged and potentially toxic, there is no place to hide and ride this out. At least I am not responsible for $240 billion in pension assets!!

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