From the Desk of Steven Lee Yamshon,AAMS,RFC

Transcription

1 From the Desk of Steven Lee Yamshon,AAMS,RFC March 22, 2004 Our portfolios are fairly liquid because we have been selling bonds since last summer and we have recently sold some of our equity positions in Asia. The NASDAQ is down over 4% and the Dow is down by almost 5% since January. Although one might think this is normal after a large run up from last year, investors should not be so complacent. Many of our gauges are signaling to us a warning sign. I have said for a long time that the global imbalances and high valuations cannot go on forever. The portfolios are liquid and this is essential to avoid some severe trouble spots that are on the horizon. At present there are some geopolitical and economic uncertainties that have increased the complexity in setting a clear investment direction. In December I told investors that if they want to know what is going to happen here in the United States they need to watch what is going on in China. After all China has been responsible for manufacturing goods at a very cheap price, exporting them all over the world and then purchasing U.S. Treasuries so we can pay for them. This is a classic case of vendor financing. For example, General Motors sells you a car at 0% financing and loans you the money to pay for the car. That is, the seller finances your purchase. Now China is purposely trying too cool their hot economy and you can clearly see it in the prices of basic commodities, except oil. Commodity prices are correcting, a good indication China is slowing. And we cannot forget the re-election of President Chen in Taiwan that could prove troublesome for the Bejing Bureacrats. The world is shifting gears from acceleration to deceleration.

2 Stocks, bonds and currencies are reflecting this and are adjusting to a slower pace of economic expansion and profit growth. Is this temporary? I am not sure, but some adjustment is needed and that a reversal of gains may continue for some time. We will continue to purchase equities in Japan, as we believe that market is cheap, at least cheap for Japan. Also some of the energy stocks continue to provide good value and a nice dividend to boot so we might increase our exposure to them. We will continue to do as we always have done, buy equities when we think they are reasonable and buy bonds when we believe they offer good rates of interest. Housing is in a bubble and one day not too far in the future prices will start to decline. The problem with forecasting is that eventually all forecasters are right if they wait long enough. However, I can tell you this, the housing situation in California and in other hot markets across the country is unsustainable. There are gauges of valuation for real estate just as there are for stocks and bonds. Those who ignore them are playing a dangerous game. For example, Adriana and I went to Palm Springs this past weekend for our anniversary. As usual I like to scout around either looking at companies such as Home Depot or Lowe s or to see what homebuilders are doing. By seeing what is going on at the street level an investor can really get a good idea on what is truly happening. I was shocked to see what houses were selling for in Palm Springs. The prices were not quite as high as in Orange County or Santa Barbara, but in certain areas of Palm Springs, not much below it. Service people cannot afford to live in many areas of the desert and have to live in the eastern part of the Coachella Valley or in Desert Hot Springs, which used to be the backwater of the valley. After all, this is the desert, but speculation is in full bloom. One realtor I spoke with told me she recently bought four houses in Desert Hot Springs and she is going to flip them. At another house we looked

3 at, the realtor informed us that the house would not appraise at the listing price and the buyer would have to come up with some extra cash for the down payment. She was confident it would sell at this ridiculous price, and in this market she is probably right. I don t know when the housing bubble will burst, but to put it into perspective, the housing market will start to decline when interest rates start to rise. If the economy moves forward then demand for credit will increase and interest rates will go up. When could that happen? Possibly after the election and most likely in If you are thinking of trading up or buying a new home you might want to think about waiting. Just remember when housing burst in 1989 or those speculators in 1999 who believed that the stock market could rise forever. With the massive use of computers identity theft is becoming a big problem. People should try to prevent identity theft before it happens. For one, everyone should check his or her credit report at least twice a year. This is cheap insurance costing roughly $30 per year. All of the credit reporting agencies let consumers check their own credit reports for a fee. One good site is mycreditreport.com. If you see delinquent payments or applications for credit that you didn t apply for on your credit report then you know you have a problem. Never give out credit card numbers to strangers and if you purchase goods from the Internet make sure you know with whom you are dealing with. For instance, some criminals post websites that look like they are legitimate, but are not, and serve as a gathering place to get credit card numbers. Use only encrypted sites from known vendors such as Amazon or companies you have heard of. Never under any circumstance input your social security number on any Internet site. Your social security number is widely used for identification purposes and many unscrupulous people steal social security numbers and apply for credit in the social security cardholders name. Guard your social security number. Never give

4 your social security number to someone over the phone unless it is a company you know very well. Another way criminals steal your identity is to search through the trash and get numbers from statements and invoices. Go to Staples and buy a cheap shredder and shred any important documents. Do not give out your passwords or answers to questions like, What is your mothers maiden name. Once I took a class at Caltech called Competitive Intelligence, which was taught by an ex-cia training agent. He told us that before he sent his recruits to a local mall he instructed them on the technique of information gathering. All of his students got people to tell them credit card numbers, social security numbers, date of birth and other personal information. People can be very naïve when supplying information and criminals know it. They use this information to get charge cards or rip off bank accounts and leave the mess for someone else to clean up. Therefore it is imperative to protect your identity by using some common sense before giving out people who you don t know any personal information. As your guard your identity we will guard your money. We will continue to manage your money in a prudent manner and we will be vigilant for opportunities as we always have. Enclosed is our latest filing of Form ADV that we send to clients each year, for your records. For those whom I haven t visited for our performance review I will be scheduling your appointment shortly. Thanks for your patience. Annie is our new Associate Portfolio Administrator and she is very bright and talented. Annie studied Business and Decision Sciences at George Mason University. I know George Mason U well because they are one of the few universities in the U.S. that teaches Classical Economics in the Austrian method and Vernon Smith who won the Nobel Prize for Behavioral Finance also

5 teaches there. I have discussed many of my boom-to-bust theories with Professor Smith. Again, as always, I want to thank each and every one of you for your continued confidence. We look forward to seeing you soon. Very truly yours, Steven Lee Yamshon, AAMS,RFC Investment Counselor