G&G Associates Tax & Financial Consulting
The Financial Media Wants to Brainwash and Bankrupt You
Imhotep (Wisdom To You) G&G Readers,
The financial news media is conspiring to blow up your brokerage account and flush your retirement savings down Ben Bernanke's new commode.
I'm not saying the editors of top financial newspapers and magazines sat down together and hashed out a plan to brainwash you and bankrupt you. I really don't think they did that. It only looks like they did it…
The conspirator I'd like to focus on today is Barron's, one of the most well-respected publications in the industry. By the look of it, you'd think it made a bet that it could nail the best "cover story sell signal"…
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The cover story sell signal is one of the best contrarian indicators around. Whenever a trend is deeply ingrained enough in the public mind to sell magazines off the newsstand, you know it's about to end.
It’s most recent issue of Barron’s, you'll find the most irresponsibly ostrich-like, head-in-sand attitude on the cover of the November 29 issue.
It shows a retiree lounging with a cocktail next to a waterfall of money. The headline promises, "How to keep the income flowing." The article inside is called "Going with the flow."
That doesn't sound very contrarian to me… It's essentially an invitation to throw caution to the wind and take on more overpriced risk. And the Barron's story is recommending a whole slew of risky investments…
Among the high-risk offerings touted by Barron's: emerging market debt, foreign government bonds, high-yield corporate bonds, Build America Bonds (subsidies for municipal bond issuers), senior bank loans, MLPs, dividend-paying stocks (well, that one's a pretty good idea, actually), variable annuities, and the one that's been going straight to hell faster than the rest of them lately, municipal bonds.
It's as though someone at Barron's sat down and decided to make a list of the riskiest stuff you could buy right now. Income – especially fixed income – is clearly a bubble. That Barron's is trying to sell this list of fixed-income and near-fixed-income investments as a retirement-worthy portfolio seems more irresponsible than usual.
It even tells retirees to take more risk, saying, "Generating a rich stream of post-retirement income these days requires investments that retirees once might have shunned."
Adding particular insult to injury, a smaller headline on the left-hand margin of Barron's latest cover says, "REITs have the right stuff."
I guess as long as you ignore the loud crashing sound coming from the commercial mortgage-backed securities (CMBS) market, the equity in commercial real estate looks positively peachy. In particular, the delinquency rates on mortgage-backed securities secured by apartment buildings spiked more than 100 basis points in November, to 15.8%. That's from the same report by CMBS tracker Trepp that says the overall CMBS delinquency rate rose to 8.93%, up 35 basis points from October.
The loans underlying U.S. commercial real estate are blowing up at higher rates. But Barron's thinks the equity slice, the riskiest piece of the pie, is somehow appropriate for retirees.
If the bond holders aren't getting paid, the equity holders can throw their tickets in the trash, have a smoke and a shot tequila, and resign themselves to getting crushed.
And like every other kind of yield, REIT yields have compressed. The U.S. Real Estate Index dividend yield has fallen from 11.19% in February 2009 to less than 4.6% today. For taking on all kinds of risk, you're paid just a little more than 30-year Treasurys.
That's a bad deal. And you should turn up your nose.
Barron's and the rest of the financial news industry is a shameless hype machine, by all appearances in the direct employ of Wall Street, the Fed, and anybody who's already got a ton of money. It's forgotten how to say, "Inflation is bad for business, and what's bad for business is bad for stocks. Sell fairly valued stocks. Hold cash. Buy only when valuations are dirt cheap and business quality is stellar."
See, that wasn't hard. Sure, subscriptions to my GGIS newsletter won't have people pulling out their credit card with that kind of advice. But at least we'll all sleep soundly, knowing we understand exactly what the heck is going on.
If you need a one-on-one consultation, feel free to contact me to setup an appointment.
Until the next time,
Ankh Uja Snb (Life, Health, Strength),
Asar Gary Gray
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.