Monday, May 13, 2013

Staying Safe in the Running of the Bulls

I read a great article this morning comparing today's bull run to the infamous fire of 1942 at the Cocoanut Grove nightclub. You can read it here:

Just yesterday I was just having a friendly Mothers Day discussion with my mom on the markets...she was saying, "I don't know why you keep saying that the market's going to crash, as far as I can tell it's going to keep going up and up." And I said that while it certainly could, the facts remain that there's nothing fundamental supporting the bull run, it's all due to the fed's QE, The Bernack is probably leaving, who knows what will happen, and so forth. Thankfully she has sell stops in place on her long positions, so she can keep enjoying the ride up without worrying too much (except for the overnight gap risk, and I'd love to have a discussion on this another day).

Back to the article posted above, I noticed how the writer laments the lack of choices people believe they have in a market like this, due to the low interest rates that the banks are paying on FDIC-insured investments. One thing he didn't mention is buying real estate secured notes. I truly believe that this is a great place to park money. Of course, like anything else you need to be smart about buying these. But there are some excellent opportunities for people to make a decent return in something secured by something real.

Something real? What do I mean by that? Isn't a CD at a bank something real? What people don't understand is that when you put money into a bank, the money's no longer's the bank's. You hold an IOU and the bank has to pay you. While this hasn't been a problem in our recent past, it is fraught with problems if the Congress gets its way and passes a bill which would make products of the shadow banking industry (everything in the banking swap casino that most of us don't really know about) insured by the FDIC, just like your bank deposit...and even worse, the swaps would have priority consideration for payback over your bank deposit. So while your bank deposit would be insured by the FDIC, you'd be in line behind the entire shadow banking industry, waiting for an underfunded FDIC to pay you back. Anyone smell a new TARP on the horizon? Yes I know it is insane, but if you don't know by now that Washington is Wall Street's prison bride, you haven't been paying attention. 

So here we are. Stocks are running up like there's no tomorrow. Just be sure that you can get out when the gettin's good. Enjoy the ride and manage the risk. And give serious consideration to other vehicles such as secured notes, so when the crash happens you don't really care because you're well protected. There are good choices out there. Get yourself educated and enjoy your life.

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