And so it goes with the “creative destruction” reflected in foreclosures and the housing crisis. My argument is that if it’s going to happen anyway (there really is no avoiding it), let’s just suck it up and get it over with. Technically speaking, this would be the Fast Band-Aid Approach.

Government policy from the beginning of the crisis has been to try to avoid or delay the natural process that has to occur to put the crisis behind us: We have to move housing inventory from “weak hands” to “strong hands” as quickly as possible. After ten or fifteen years of government policies to encourage “weak hands” to invest in real estate, it’s going to take time to effect this evolution. It will take even longer than it otherwise would because our government designs and enacts policies every day to slow the process further.

In a bit of an “Atlas Shrugged” move, the politicos believe the process of creative destruction can be halted simply because they wish it so. But no matter how hard they wish, the process must run it’s course.

We could have done it the quick way or the slow way. Unfortunately, we’ve chosen the slow way.

ACTION ITEM: It can probably be a decent time to make some real estate investments if you can be comfortable holding it for a very long time. Although we’re seeing economic improvement which will probably help to hold up prices, it seems fairly balanced by continued slow dumping of homes on the market.

(Hint: Although the monkey thought it was all in good sport, we all know what happened to the weasel next.)

My long-running pseudo-battle with Bill Gross and the Bond Sellers came to an end this fall when we exited our long-term Treasury positions. I still do not like long-term bonds as an investment vehicle right now. The simple reason is that the price is too high.

The price of the long bond (20+ year Treasury) ETF (TLT) is being held up at weirdly astronomical levels by investors who can’t think of any safer place to put their money. The troubles in Europe have driven investors around the globe out of the Euro and European country’s sovereign debt and into the dollar and US debt.

Remember this: People are not buying US debt because it’s “all that”… it’s not, and it’s providing a lousy rate of return… but, hey… we can print our own money and the Europeans can’t, so Treasuries seem to make a pretty decent “mattress” for global investors to stuff their cash into at the moment.

I have my ears to the track and I’m hearing that money has been coming out of stock mutual funds at another record pace here recently. And where is that money going?

U.S. stock mutual funds that invest in domestic equities had their second-biggest redemptions last year as record market swings sent investors to the perceived safety of bond funds.

And why do we suppose it’s going in to bond funds?

Despite a reputation for being a slow-growing alternative to stocks for the risk-averse, bonds just passed stocks’ long-term performance over the past 30 years.

Many investors chase last year’s winners, perennially dooming them to under-performance… not to mention it makes you feel like you’re always in the wrong place at the wrong time… very hard on the ego. It’s kind of like charging into real estate in 2006: It seemed like a good idea at the time.

In fact, you are actually witnessing an historical event: A bond bubble that offers the most expensive bond market in your lifetime. Don’t bite… The minute Europe straightens out their situation, the bond market bubble will pop.

Here is a very wise investment technique (good for all fields at all times): Take the time to figure out precisely what everybody else is doing… and then do the opposite.

ACTION ITEM: If you have bond investments, reduce or eliminate your allocation to them.

Nope… I’m resolving to write more often and to be more actionable when I write. When I reflect upon bits and pieces of the past couple of years, I can see that I’m too obsessive about how I put together my posts. I agonize over a lengthy story and what feels like a great idea, until it isn’t either one of these things any more. I think it to death… or something like that.

I’ll write something, or a part of something and then have to set it aside while I tend to the real business of taking care of clients. And then, I don’t get right back to it or I’ve derailed my train of thought for the time being and “can’t” get back to it. This might go on for a few days and then one of three things usually happens…

1.) I lose interest in the article entirely. Maybe the good idea doesn’t seem so “great” or interesting any more.

2.) It’s no longer timely. It’s possible I’ve thought about exactly the right way to write or phrase something way past the time when the article is relevant and whatever I’m thinking about has already happened or resolved itself… so there’s no longer a story.

3.) I completely lose the point. I had a great point, but I don’t usually outline articles because when I start to write, I believe that I’m actually going to finish it in one sitting… and then I don’t. And then when I get back to it, there’s no obvious point that I’m trying to make anymore. Or, I’m getting old and forgetful? I can’t remember.

The point is (and I must hurry and finish here!), that I’m resolving to evolve my writing style to adapt to the little snippets of time that I usually have here and there during the day. So, posts will be more often and more in little snippets than the lengthy tomes with lots of time in between like before.

Oh yeah, and more actionable. I want to include an action item with each post. In a great start to my new resolution, I don’t have an action item for my first post about action items. Sorry, I guess it gives me something more to strive for!

One of the people that I follow off and on from time to time is James Altucher who writes, ” The Altucher Confidential”. In past lives he used to manage a hedge fund and from time to time you’ll see him as a guest on CNBC or other financially-oriented news shows. Recently, he made some salient points about Greece, the country and their debt. Here are a few items that I found the most interesting:

We first even heard of Greece in May 2010. There were some rumblings. They couldn’t pay their debt and everyone wanted to retire by some early age – what? 24 years old they wanted to retire. And then hang out on the beach and get paid by the government.

It’s 0.15% of the world’s population.

If you go to Greece (or, in my case, if you go to a pool hall in Astoria, NY which is almost entirely populated by Greek people, and many of the waitresses at the Greek diners were too beautiful for me despite the fact that I wrote my phone number down on $2 bills that I gave out as tips) they have three types of backgammon that they play as opposed to our one. No wonder they want to retire so early!

The Greek debt divided by the Eurozone GDP is similar to Rhode Island’s debt divided by the US GDP. If Rhode Island defaulted I wouldn’t care either. Rhode Island, also btw, is a beach resort. Just like Greece.

Most important: Since the time of Augustus in 20 BC, Greece’s bills have been paid by other countries. All the way up to Ronald Reagan in 1989 who was terrified the Soviet Union would have access to the Mediterranean so kept paying Greece’s bills. So the EU knew this going into the situation that Greece can not live without the kindess of strangers. THIS HAS BEEN KNOWN FOR 2030 YEARS!

In 1981, the top 5 banks in the US were 263% exposed to South American countries that TOTALLY DEFAULTED! Zero! THANK GOD the word “contagion” had not been invented yet by some media Einstein. What happened next in the US? 20 year Stock market BOOM!

So ok, what’s our exposure to not only Greece but let’s throw in Portugal, Spain, Ireland, Italy. Other than Ireland, all prior leaders of the world. Total exposure in the top 5 US banks? 8% Glory Be! You know what this means? It means I should NEVER be able to turn on the TV and hear the word “Greece” unless I am watching some backgammon tournament on ESPN 3.

This isn’t to say that the stock market won’t produce a wild ride if investors (pushed by the media) head for the exits en masse based upon a contagion fear theory currently trumpeted about by the media. For this reason, it’s important to respect the potential for market volatility.

But, it’s also a pretty good reason not to get our shorts in a bunch about the whole Greece-Europe-Contagion thing and recognize that; while we should respect the market movements that others may cause because of it (this is the world that it appears we now invest in); we might also view it as a possible buying opportunity once calmer heads prevail.

Trying to trade this market is like trying to take food out of a spinning blender, you may be successful, but your piano playing days will most surely be over. -Bully, Wax On Wax Off

Naturally, I have no idea how this whole European / Greece / contagion thing is going to play out. It feels a little bit like the Germans are trying to conquer Europe again… but that’s a whole ‘nother post. If anyone tells you they know how this is going to play out, run. Run. Quickly. Very. Far. Away.

All kidding aside, I’m not too worried about whether or not I’ll trade the outcome correctly. I will. I’ve written previously about why it doesn’t matter what I think anyway and how this keeps us on the right side of wacky markets like we’ve seen a lot lately.

To entertain myself (and hopefully others) while I’m doing the smart thing (nothing), I turn to finding humorous ways to look at our current world situation, much like I’ve done here, here and here.

Here’s something that turned up a few days ago that everyone might get a kick out of:

One of the basic principles of Asset Allocation Theory is that certain asset classes are inversely correlated (act opposite of each other) and therefore by owning each of these asset

The Only Truly Perfect Hedge

classes, you lower your overall risk. If the stock market goes up by the same percentage that a certain bond fund goes down, they are said to have a correlation of -1.0, which means they move 100% opposite of each other. Correlations between investments can run the gamut from +1.00 to -1.00, meaning that they can both move together perfectly or opposite each other perfectly. Two growth stocks like GOOG and AAPL might have a correlation close to +1.00, which means when one goes up the other does too. And vice-versa.

Let’s imagine that it has been recommended to Conservative Mr. Jones that he put 60 percent of his money in the bond market and 40% of his money in the stock market. One study shows that a typical bond market investment has a correlation of -.68 to a typical stock market investment. If the stock market rises by 20%, then Mr. Jones’ stock investment will increase his whole portfolio value by 8% (40% of 20%) and the bond value will decrease his portfolio by 8.2% (60% of 20% * -.68). Isn’t this about the same as doing nothing? Throw in transaction costs and it’s worse than doing nothing.

Most investors that I’ve worked with, when they think about how they want to invest, feel like they want to participate in the stock market’s long term opportunity, but they want to temper their risk a bit if things get “dicey”. Let’s say you’ve been considering allocating 70% of your money to the stock market and 30% of your money to the bond market, why wouldn’t you just subtract out the negative correlation percentage that the bonds will provide (30% * -.68 = -20.4%) and put about half of your portfolio in stocks (70% – 20.4% = 49.6%) and sit on the rest in cash for some future opportunity? (Like Roulette)

So when things do get “dicey” like they’ve been recently, we don’t end up saying silly things like, “Hey, at least you made a little bit of money on the bond side”, which is a bit like, “Apart from that Mrs. Lincoln, how did you enjoy the play?”

Instead, we’ve got a little bit of our “perfect hedge” laying around in cash to bring our stock allocations back up to whatever target level we’re trying to maintain.

This is also known as buying low.

NEW YORK (CNNMoney) — Investors have been pouring their money into U.S. Treasuries all year, much to the consternation of bond guru Bill Gross, who had been advocating for investors to dump out of government debt because of their low yields.

Gross, who manages the world’s biggest bond fund, is now admitting that he struck out.

Read the rest of the article at cnn.com here.

Today, almost 15 years to the day later, with the S&P 500 at 1120 (give or take) we find ourselves firmly in the middle of the range of the past 15 years (1121.44). To think of it another way, any stock market investments made over the last 15 years and held to date had about the same odds of being profitable as walking into a casino and putting everything on red: 50-50.

The number of months in the past 15 years that we’ve closed above 1120 is 107 and the number of months that we’ve closed below the 1120 level is 73.  Since we’ve spent 2 out of every 3 months in the past 15 years ABOVE where we closed today (1120), we can deduce that not even the foolproof (as-advertised) strategy of dollar cost averaging has enabled most investors to make money.

Additionally, behavioral finance studies have demonstrated that investors are more biased to buy when the market has been performing well, so we might make the fair assumption that most investors made most of their stock investments during those periods where the index was in the upper half of its range (above 1120 in our example). This puts the percentage of losing investors most likely higher than the 50% suggested by the numerical odds alone as well as the 60% suggested by the number of months spent above the halfway level. This easily leaves more than half and probably nearly two-thirds of investors fairly bummed out by the performance of their 401-ks and IRAs.

But within the numbers has been tremendous opportunity. The moves between each low and the following high have been unprecedented. The percentage gain of the index for the 1996 to 2000 run was 238% and the run from the low in 2003 to the high in 2007 was 205% and the latest run from the lows of February of 2009 to the recent May 2011 high was 206%.

If an investor can muster up the courage to buy stocks even occasionally when he finds it the most uncomfortable to do so, it is obvious that there has been plenty of opportunity to profit on a long term basis. And there’s even more opportunity to be had if that same investor could face the risk of maybe being wrong (or early) and to sensibly lighten up on his stock positions when everything seems to be going well.

Gang, it’s time to stop subjecting your financial future to the dogma and tired phraseology of investment hindsight. It’s a new world, different from the past and as investors we must think and make decisions based upon our expectations for the future rather than the statistically aberrated past.

I’ve noticed that most people remember where they were when significant events in their lives occurred. Certain songs, events, or images can also take one back to the past or to a specific place or time long ago. I don’t know how it works, but it does and I thought it might be interesting to note some of the events of the last 13 years that happened in a month that the S&P Index also traded at 1120. The month and year, followed by the close of the index for that month is in parenthesis.

• Disney’s Animal Kingdom opens at Walt Disney World near Orlando, Florida, United States. (April 1998, 1111.77)
• A federal judge in Sacramento, California, gives “Unabomber” Theodore Kaczynski four life sentences plus 30 years after Kaczynski accepts a plea agreement sparing him from the death penalty. (May 1998, 1090.82)
•  Terry Nichols is sentenced to life in prison for his role in the Oklahoma City bombing. (June 1998, 1133.84)
• Russia buries tsar Nicholas II & family, 80 years after they died. (July 1998, 1120.67)
• Monica Lewinsky scandal: US President Bill Clinton admits in taped testimony that he had an “improper physical relationship” with White House intern Monica Lewinsky. On the same day he admits before the nation that he “misled people” about his relationship. (August 1998, 957.28)
• Brokerage houses are ordered to pay 1.03 billion USD to cheated NASDAQ investors to compensate for their price-fixing. This is the largest civil settlement in United States history. (November 1998, 1163.63)
• The Russian Mir space station is disposed of, breaking up in the atmosphere before falling into the southern Pacific Ocean near Fiji. (March 2001, 1160.33)
• Former president of Federal Republic of Yugoslavia Slobodan Milošević surrenders to police special forces, to be tried on charges of war crimes. (April 2001, 1249.46)
• Terrorists hijack two passenger planes crashing them into New York’s World Trade Towers causing the collapse of both & death of 2,752 people. (September 2001, 1040.94)
• 2001 Attack on Afghanistan: Taliban forces abandon Kabul, Afghanistan, ahead of advancing Afghan Northern Alliance troops. (November 2001, 1139.45)
• Euro banknotes and coins become legal tender in twelve of the European Union’s member states. (January 2002, 1130.20)
• Tiger Woods becomes the third golfer to win The Masters in two consecutive years. (April 2002, 1076.92)
• In Fallujah, Iraq, 4 American private military contractors working for Blackwater USA, are killed and their bodies mutilated after being ambushed. (March 2004, 1126.21)
• U.S. media release graphic photos of American soldiers abusing and sexually humiliating Iraqi prisoners at Abu Ghraib prison. (April 2004, 1107.30)
• Ronald Reagan’s funeral is held at Washington National Cathedral. (June 2004, 1140.84)
• Following the bankruptcies of Lehman Brothers and Washington Mutual, The Dow Jones Industrial Average falls 777.68 points, the largest single-day point loss in its history. (September 2008, 1166.36)
• Tiger Woods announced an indefinite leave from professional golf to focus on his marriage. (December 2009, 1115.10)
• The 54 year run of the soap opera As the World Turns ends as its final episode is broadcast. (September 2010, 1141.20)
• Today (August 2011, 1119.46 (so far))