San Diego Housing Market News and Analysis

Good job there, jg, you beat me with your returns. My plan is to short the stock market for the first half of 2007, and then switch into gold. I'm hoping that in the first 2 quarters, the decline of the market into the recession will exceed the rise of gold associated with a fall in the dollar.

(Did you read the Microsoft and Google have the greatest insider selling of any companies, and insider selling/buying of US companies is 65:1, a record of some kind. Hopefully this market is topped out now.)

The market may take some time to go down meaningfully, ps. The P/E for the S&P 500 is just under 18; the mean P/E over time is ballpark 14. That's a drop of ~30%. Earnings should be dropping, too, further reducing stock prices.

But, in the last recession ('00-'01), it took one year for the S&P 500 to go from ~1500 (Sep. '00) to ~1000 (Sep. '01), and another year before it moved down to ~775 (Oct. '02). Two years for a total 50% drop. Over the last two years, UNWPX went up 31% in '05 and 51% in '06 (compounded growth of 98%) and VGPMX went up 44% in '05 and 35% in '06 (compounded growth of 94%).

Shorting the market seems like a protracted (two year) path to a 30-50% return, compared to recent performance from good gold mining mutual funds and the likely path for the dollar and gold over the next two years.

I'm in dynamic inverse funds, which return twice the inverse. If the market goes down 25%, I'm up 50%. Of course I can lose, too. So I would have made a 60% return in 2000-2001 had I been in the Rydex fund (1500 to 1000 is 30% down, dynamic fund returns twice that). I'd be happy with that.

Sometimes last year's high flyers can be next year's duds, so there are no guarantees that the funds you mention will have a similar good year in 07. The Chinese can prop up the dollar even more, as our purchases from China decrease, making the dollar rise and gold fall. Temporarily. Likewise, the stock market could keep rising for many more months. Although the high rate of insider selling and falling Dow Transport stocks are indicating a sell-off should come soon, it could be months away.

Hey PS,

Can you give me the symbol for the inverse fund. I'd like to look at it. Thx.

I looked at the Rydex Inverse Dynamic S&P 500, which seeks returns that are inversely 200% of the daily S&P 500 index. The S&P 500 was up 14% in '06; the Rydex Inverse was down 18%; 1.3X, not 2X.

They may try to get you 200% inverse, but their '06 performance was not very encouraging.

Wiley, ProShares UltraShort is one ETF that PS might have been referring to. It's investment goal is to return twice the inverse. It trades as QID.

Have any of you ever wondered why it seems to be OK to lose money on stocks, but it's not OK to lose money on a house. People will do anything in their power not to lose money on a house, but when it comes to stocks, they just mark it up as nonchalant loss.

I do see gold going to $2,000.00 a troy ounce !!!!!

jg, you're right, they don't deliver quite 200%. More like 150%.

Rydex Inverse Dynamic S&P500 Fund returns almost twice the inverse of the S&P500. The 1 year return for the S&P500 is 14%, and for RYTPX is -22%.

Likewise, RYCWX, Rydex Inverse Dynamic Dow, had similar returns.

Rydex has other inverse funds: long bond, mid-cap, Russell 2000, NASDAQ (named OTC).

I purchased these funds in November, so my losses are still small. My biggest surprise has been the stock market rally, heading into a recession. This again proves to me that markets are not rational, not forward looking, not efficient. Markets seem to be bubble blowing machines.

After the stock market started falling this spring/summer, I thought the markets were anticipating the recession from the housing bust. I was utterly surprised by the fall rally, the high-flying private equity deals, and the imbalance between the bond and stock markets. The bond market is priced for a recession, while the stock market is priced for more profits ahead. While insiders are cashing out, the Dow has gone longer without a 2% correction than any time since the 1960's.

jg, I was just bragging about your spectacular returns on Roubini's blog, and upon checking the returns myself, came up with different numbers so I had to erase my post.

For 1-year, the UNWPX returned 20%, and the VGPMX returned about 21.7%.

UNWPX, adjusted for dividends and splits
12/29/06 $27.26
12/29/05 $20.27
Return = 34%. How did you calculate 51%?

This is the VGPMX Price, adjusted for dividends and splits
12/29/06 $ 28.05
12/29/05 $ 23.05
Return = 21.69%. How did you calculate 35%?

Both funds climbed 60% in the first 5 months of 2006, but then gave up half to 2/3 of their returns and stalled for the rest of the year. They are highly correlated, so how did you decide on these particular funds?

Silver's up 42% in 2006.

Silver is going to at least $80/oz and gold is going to at least $1650/oz.

Got silver and gold???

VGPMX paid $3.03 in dividends and capital gains in 2006; as I put in my post at the top, 22% capital appreciation ($23 -> $28 = 22%) + 13% dividend/capital gain distribution ($3/$23 = 13%) = 35%.

UNWPX paid $3.57 in dividends and capital gains in 2006; 34% capital appreciation ($20 -> $27 = 34%) + 18% dividend/capital gain distribution ($3.57/$20 = 18%) = 51%.

I picked these based on (1) their correlation to gold, (2) magnification of returns to gold, and (3) exemplary track record in the '01-'03 run up in gold.

I was 100% in VGPMX, but as it is closed to new investors, and I wanted to open a separate account, I had to find another gold-related fund, and stumbled across UNWPX. I now have the lion's share of my money in UNWPX.

So the Yahoo Finance entries are incorrect then... they must not have updated their prices to include that last distribution.

Mining companies amplify the returns of gold, at least according to Zeal. Again, nice job on those gold mining stocks.

Yep, Yahoo is a bit behind on updating with final '06 numbers; their numbers are up-to-date as of Nov. 30, '06, and both VGPMX and UNWPX made distributions in Dec. '06.

Here's the chart that convinced me that gold mining stocks are good and that the UNWPX fund was better than the VGPMX fund:

http://piggington.com/gold_and_gold_mini...

To what do you attribute the higher returns of UNWPX vs the Vanguard fund? Have you read any of Zeal's reports (mining companies outperform gold by many times)? That's why Bill Fleckenstein raves about Newmont Mining and not about gold as far as I know. The mining companies amplify gold's return. Zeal has a bunch of junior mining companies on their recommended list, but after I got burned with Chevron and Ivernia, I quit my subscription.

UNWPX holds smaller companies -- median market cap of $1.2B vs. $5.8B for VGPMX -- and uses warrants/options (27% of its holdings) to amplify its holdings. Smaller companies have, historically, higher returns than large companies.

I've never used a broker and have never bought individual stocks (except the stock of the companies that I worked for). So, no, I haven't looked to Zeal for recommendations.

I've been on the buy side in a big company (i.e., worked in the business development function), and have come to the conclusion that there are many, many factors required for a company to be a success. As a working stiff, I don't have the time to fully understand all of those elements (management, product, market, competition, etc.) for a reasoned, prudent investment in an individual company. Hence, I don't buy individual stocks. And, having spent a good bit of time with sell-side Wall Street analysts and investment bankers, I'd never rely on their thoughts for where to park my money.

Nope, I'm happy with mutual funds, and am happy with VGPMX and UNWPX, until one of you folks can point me to something better!

Good Luck !

Casino Royale Wall Street.....Dont put ANYTHING on the table that your not willing to lose......That leaves me out.

Also dont confuse a stock "certificate" of a gold "mining" company, with the ownership of actual bullion.......when the SHTF, your "certificates" at least maybe can be used in the bathroom.

LoB, I share your concerns; as I tell my wife, my concerns during the upcoming 'fun' times are (1) physical security for my family and (2) not getting our savings confiscated.

I'm not being alarmist; during the Depression, Roosevelt outlawed the individual holding of gold, and gave, de facto, folks who turned in their gold a 42% haircut.

Make sure you shout out when you see the Feds coming knocking on doors and the South Africans and Brazilians nationalizing gold mines. I want to earn speculative returns while I can, but realize that I'll need to move my money to something safe if things get really bad.

jg, for such a newbie like myself, would you elaborate on "safe" places to park your money when things get really bad ? thanks.

tp, my preliminary thoughts are:

TIPS -- Treasury Inflation Protected Securities: U.S. Treasury securities whose yield goes up and down with inflation; provides protection against inflation.

Gold bullion stored at a Swiss bank.

Good, solid local bank -- I bought ratings for California from http://www.veribanc.com/ (their Blue Ribbon Bank Report; single issue is $35) and may consider moving from my current bank, Bank of America, to one with high reserves if things deteriorate.

These are options that I will consider at the right time, and I have no preconceived notion as to which is best.

What are your thoughts, folks?

Hey jg, do you know of a company offering gold stored in Switzerland? I have been contemplating a bit of gold but I don't want to have to keep Kruggerands in a shoebox.

bullionvault.com stores gold in Brinks vaults in Zurich, New York, or London. The gold never leaves, just the ownership changes hands. The bullion is tracked from the moment it leaves the mining company, so it has a history and the buillon is sequentially stamped. This is important I think for institutional purposes and resale. This is the company recommended by Eric Jantsen (iTulip.com)

Other options are keeping some 1 oz. gold coins for spending, if that need ever arises. According to Adam Hamilton, owner/publisher of Zeal, they should be fungible. Get something easily exchanged, like 1oz. American Eagles, Canadian Gold Maple Leafs, or South African Krugerrands.

JG,
What are your returns for the last six months? Gold hasn't moved much in last siz months. I would like to know if you have still been able to make some nice profits duringn this time (thus indciating the benefit of holding commodity stocks then commodity futures).

Nope, you're right, qc. UNWPX and VGPMX haven't done much in the last six months, just trying to hold onto their earlier-in-the-year gains:

http://finance.yahoo.com/q/bc?t=1y&s=UNW...

Thinking through stocks vs. futures is beyond my capabilities.

Storing gold myself is working great and will work better for taxes **wink wink

My website tracking Inland Empire

Concho, I e-mailed this outfit, and received a courteous phone call and some educational e-mails/website links:

http://www.safewealth.com/

Seems like there are a number of private banks in Switzerland that specialize in 'preservation of capital.'

A well-heeled fellow that I chatted with keeps his gold coins in a bank safe deposit box. Note -- in the '30s, when FDR required Americans to turn in their gold, he stopped access to safe deposit boxes.

An interesting alternative is to buy shares in StreetTracks, which holds its gold in London, outside of U.S. government reach:

http://www.streettracksgoldshares.com/us...

Unfortunately, in time of crisis, many governments may act in concert, or feel obligated to under pressure from the U.S. In the old days, the Swiss would thumb their nose at the U.S., but after reading "Gold Wars" by Ferdinand Lips, I'm not sure if the Swiss still have the backbone to do such.

Tell me if you come across some good ideas for safe storage.

I've posted my strategy before ... but I'll repeat it for those interested.

I'm not really a gloom and doomer. I believe things in the U.S. are on a downward trend (housing is screwed for at least 5 years). Still, I like diversity and like the Coffeehouse portfolio. I altered it a bit to fit my gut feel for the markets.

15%-20% in a REIT fund (vgsix) ... they're still doing well. I had 20% of assets here but sold off some - down to 15%

10%-15% in gold (vgpmx and gld) ... I did good here with vgpmx the last 3 years

10% in international (vgtsx) ... I did good here too

30%-40% in stocks (vfinx, vivax, naesx, visvx) ... spread the risk

25%-30% in bonds (vbmfx) ... nothing great happened here for me, but I didn't loose anything either

5% in cash (money market) ... lost to inflation here, but oh well ...

And lastly, I'm redistributing and adding some new cash to vgenx for a long term play (10 years or more). With China and India in the mix, I believe energy is only heading upwards for a long time to come.

jg, Please let me go, your hatred and obession with me is kind of freaking me out. When I pop in your head, could you please think of your glittering beautiful gold and your Saviour and think peaceful thoughts. Thank you.

SDAppraiser, bear market funds info is available on the internet. You and I won't be exchanging information about our financial investments, bank account passwords, or results of our physicals anytime soon.

Clients of stockbrokers, retirement fund managers, financial planners, and investing bloggers (Big Picture, Don Harrold) should aks for, and receive, the professionals' investment returns. If their past returns are lousy, there should be a story of knowledge gained that would improve returns in the future. Most clients are too afraid to ask. Don't be. Demand to know, and don't invest with anyone who refuses to tell you, or who gets mad/defensive about your question. Chris Johnston and Zeal post their returns on their websites. You ought to demand the same from anyone who manages your money.

The guy from the gym who's got $ 1 mil under management does not even know his advisor's own history of returns. When I asked him, twice, he changed the subject and was clearly uncomfortable.

HeavyDuty, in your opinion, how much one loses to inflation when having money in 5% return money market saving accounts ?
also, it looks to me that for the past 2 years, the bond index did not gain more than 5%.

thanks.

HeavyDuty and others,

In your opinion, how much one loses to inflation when putting money in 5% return money market saving accounts ?
also, it looks to me that for the past 2 years, the bond index did not gain more than 5%.

thanks.