El Erian on why he is avoiding publicly traded stocks and bonds

Mohamed El Erian first ‘shocked’ the mainstream when he admitted in a print interview in early April (I wrote about it here) that he had most of his estimated 2.2 billion personal savings in cash and non-publicly traded investments today (ie., private equity, private loans etc) out of concern for over-inflated public markets (stocks and bonds) thanks to years of central bank-led distortions.

For a billionaire who made his fortune selling people on the merits of public investment markets at PIMCO, to say openly that he has moved out of them to avoid dangerous valuations, you know the risk-reward dynamics have gone full nut job. I couldn’t agree with him more.

Mohamed El-Erian explains where he’s putting his money in cash and illiquid non-public investments in order to avoid the most expensive Fed-inflated assets in public markets. Here is a direct video link.

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Danielle on The Financial Survival Network

Danielle was a guest today on The Financial Survival Network with Kerry Lutz, talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.

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60 Minutes looks at TED Talks

The lecture series has become one of the Internet’s most powerful and popular platforms — spreading ideas through the stories of remarkable people. Charlie Rose reports. Here is a direct video link.

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Billy Joel: Thirty-Three-Hit Wonder

Billy JoelA friend mailed me a copy of the recent New Yorker article on Billy Joel published in October.  I finally got around to reading it last night and enjoyed every drop.  Full of colorful characters and stories, writer Nick Paumgarten weaves a complex and entertaining portrait of a very interesting man.

Love him or not (and I do) the history brims with lessons on life, character and money.

Well worth the read:  Thirty-three-hit wonder

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Banks exerting even more unhealthy power and influence today

Author Nomi Prins of “All the Presidents’ Bankers: The Hidden Alliances that Drive American Power” describes the economy. Here is a direct video link.


“I don’t even like to think of it as a revolving door between Washington and Wall Street, because it’s more two doors into the one house.” –Nomi Prins

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Don’t need rising rates for lower home prices- rising age may be enough

This spring we are noticing a pattern:  high-end housing is going up for sale.  In clusters all around us.

On our short lake front street in an old, established end of the city, there are now 9 properties for sale out of maybe 35 houses.  In 20 years, I have never seen this many homes for sale on our street.  Yesterday as we drove further east to visit a friend, we could not help but notice that this spring about every third property over the 5km stretch now has For Sale signs.  It is actually a little surreal.  What in the world?  Mortgage rates are the lowest ever in our lifetime.  Unemployment rates are so far still historically low…

But then we remembered the pattern of North American birth rates, as reflected in this picture of US birth rates below. (source: US Birth rates)

US Birth Rates 1909 – 2009:  76m ‘baby boomer’ births 1946 – 1964 (in red)

Baby boom US Birth RatesRising education levels in women and birth control in North America, have made birth rates today much lower than in 1909.  They fell dramatically into the depression of the 1930′s.  They rebounded after the Second World War and have been on a downtrend ever since.  All those babies born during the boom time (in red) are now between the ages of 52 and 69.   And once more, they are proving a dominant economic force.  Only this time, the force they are exerting is mostly deflationary rather than inflationary.

An estimated 84% of baby boomers own their home, and thanks to trade ups over the years, the properties they own are among the most expensive on the market.  Most are debt-financed, with 68% of boomers now saying they expect to carry mortgage debt into retirement. (See: Retirement time bomb: mortgage debt). In fact baby boomers have the distinction of being the most asset rich and indebted of any previous 50+ generation in history.

Most are also now living in some of the largest, most expensive to maintain housing in modern history with the highest property taxes, utility and maintenance bills the masses have ever experienced.  At the same time, many are trying to assist their struggling kids who are paying the highest education costs of all time.

Even the tiny minority who are not indebted, and have amassed significant retirement savings, are still facing the lowest yields (interest and dividend income) in more than a century.  A million dollar portfolio that historically produced 50k a year of appropriately low risk retirement income, now yields maybe 30K/year with much higher capital risk.

No wonder that boomers are now putting their high-priced properties up for sale.

Boomers are moving as a pack once more; not so much by calculated choice, but as a natural response to advancing age and the economic facts before them.  Boomers have been asset rich and cash light for years.  Now they crave the opposite:  they want higher liquidity and lower upkeep and financial stress.  40% report they are worried about running out of money in retirement.  Many more should be concerned but they just haven’t understood their math yet.

With so many aging and over-housed owners wanting to downsize at once, one has to ask:  who can buy?  With the smaller, age 20 to 4o cohort, still struggling to start careers and pay down debts, it is difficult to take on payments for even the lowest, entry-level property in many markets today.  Taking the abundance of up-market properties off downsizing boomers at current prices, is virtually impossible to imagine.

In the end markets are driven by supply and demand.  For all those arguing we would need higher mortgage rates to weaken demand before prices stumble, I suggest there is another route.  A surge in supply brought on by a steady stream of aging sellers might itself be enough to trigger the long overdue mean reversion in prices.  And if my age 50+ neighborhood is reflective of others (and it is), the downsizing exodus has already begun.

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