Money and Investing Thoughts

Jim O’Neill of Goldman Sachs makes some pretty bold predictions concerning the global economy for 2010 and 2011. Who wants to go against Goldman?

U.S. stocks end down sharply; post big yearly gain – MarketWatch.

The first decade of the 21st century was a tumultuous one for the U.S. stock market. From the end of 1999 to the end of 2009 the major stock indexes had these results:

• DJIA:   -9.3%
• S&P 500:   -24.1%
• NASDAQ:   -44.2%

Not a good decade for buy and hold investors. Remember the decade started out with the 1990′s bull market nearing its peak before the 2002 bear market. Using the total return figures for the S&P 500, the decade started out with 3 down years (2000 to 2002) resulting  in a 40% loss then 5 straight positive return years (2003 thru 2007) with the index gaining 67%, putting the index within 1 point of where it closed on 12/31/1999. 2008 saw the S&P 500 give up 37%, putting the decade deep in the whole again.

Following the disastrous 2008, in 2009 the market “climbed a wall of worry” to show nice gains in spite of an economic recession and daily bad economic news. Here are how the indexes fared for all of 2009.

• DJIA:   +18.8%
• S&P 500:  +23.5%
• NASDAQ:   +43.9%

I think these number show the importance of having some sort of system to avoid big losses during the big market dumps. The markets had two in the 2000 to 2009 time span and they have left long term investors in pretty bad shape. The other side of the coin is to make money in the double digit gain years and figure out how to hold on to them. I have been reading a lot of stuff in this area recently and plan to spend some more time writing about asset allocation and market timing in 2009.

C.A.R. November sales and price report.

This just in from the California Association of Realtors: Home sales in November were 4.7% higher than a year earlier and the median price was 5.8% higher. That’s right, the median price was almost 6% higher than 12 months earlier!

Housing, especially in California still has a lot of issues to work through, but it is important to note these gains came in a time of serious government problems and unemployment rising to over 12%. The prices that banks were selling repo’d properties for were just too low and smart buyers were snapping them up and either selling for a quick profit or holding for a longer term recovery.

The positive price trend has been on since March-April 2009. Will buyers continue to look for bargains and compete for available inventory or will the “shadow inventory” overpower the number of willing buyers? Time will tell, just nice to see some positive numbers.

Southland home sales up; median levels off.

The October 2009 sales report for Southern California is all good news. The number of sales has now accomplished 16 straight months of year-over-year increases. The percentage of sale of foreclosure properties is dropping, allowing the median sale prices to increase. The median price per square foot has increased for 6 straight months.

Of particular interest, two counties, Orange and San Diego now have year-over-year median price gains. The average price on Orange county for October was almost 4% greater than in October 2008!

There has been a flurry of articles recently on Seeking Alpha concerning the hypothesis that house prices still need to fall about 25% to reach the historic trend line. The trend line commonly used extrapolates the price gains from 1990 until 1999 then shows how prices in the new century zoomed above the trend and have not yet fallen back to the extrapolated values. There is an interesting point in the press release linked above. The median mortgage payment, adjusted for inflation, is currently 46% below the average payment in 1989 and 55% below the typical payment in 2007. Current, very low mortgage rates have bottomed payments well below the historic trend line.

All that remains is to flush the remainder of the 2005-2007 inflated mortgages through the foreclosure system and a new bull market will start in the California real estate market. It appears the price bottom occurred in Spring 2009.

Home sales, median prices rise in valley – Business – ReviewJournal.com.

Median prices started to increase for most of California in late spring 2009. Las Vegas prices have continued to erode in the face of high inventory and a serious jobless problem. In October, the LV real estate market turned positive for both number of sales and prices.

Sales in October were up 5% from September and 30% higher than a year earlier. Of the 21,000 units inventory listed, only 8,000 are available without an existing offer. With 3,500 sales in October, available inventory is less than a 3 months supply. Bring on the phantom inventory!

Median prices increased in both September and October, gaining $4,500 to about $139k. Prices are still 26% below a year earlier.

The great question remains whether current and future foreclosures will short circuit the real estate recovery by flooding the market with bank owned properties. One commentator in to article above thinks so. I am waiting to see if this inventory actually materializes in mass or ends up trickling into a market of rising prices.