This week we have Greece to talk about and we will get to that. First, I'd like to share a few thoughts about my trip out west last week.

Seattle, Portland and Real Estate

I spent the better part of a week in Seattle and Portland. Seattle was business, while Portland was for my brother's wedding. 

To say I was overwhelmed with the Seattle area geography would be an understatement. The Puget Sound, mountains, forests, rivers and everything else is simply amazing. I've been to 42 states now and I think the greater Seattle area might be the most scenic. Portland along the Columbia River is also amazing. I wouldn't be able to attach enough photos to do either area justice. All I can say, is go for a long visit. 

Living in either area long will cost you an arm and a leg though (the hotels were full and expensive actually, so maybe camp). In talking to a few real estate agents, I learned that the cost of real estate is getting to 2006-07 levels. In talking to more people (I'm pretty social in bars) and doing a little research, it is pretty easy to realize that people are spending way too much of their income on housing.

The cost of housing is actually rising too fast around the nation in many places. I've seen multiple client houses sell in a week or two this spring at full asking price or above. If you've been thinking about selling, I'd say get to it quick, probably by next summer.

The rapid rise in real estate is getting to be a dangerous situation again. One that we really shouldn't be having again this soon.

Stop banging on the the millenials who are sticking with roommates and renting, or buying fixer uppers, they are the ones doing the right thing. The ones bidding up condos and houses with curb appeal are going to get destroyed financially, absolutely destroyed, if the Fed can't navigate the perfect soft landing. 

Take a look at the Case-Shiller 20 city composite home price index data. It's fascinating.

In Seattle I also got to learn about Passive Building Construction from Hammer & Hand. Passive buildings in short are those that put out a small or no carbon footprint, can generate electricity and/or water, essentially are very sustainable and carry little to no negative footprint. As prices come down on components, expect to see more of this in the future. It will have an impact on our solar investments.

Old Pundits, Same Bad Advice

Let's come back to Neverland, where you should never listen to an old mid-tier or lower financial pundit, essentially 4 out of 5 of them (floss?).

I read another article (doesn't matter which one) that pointed to financial planning as the value added service that people in finance provide. The article said that investment advice wasn't a big deal really, and that proper financial planning was what was important. Well, let me, let you in on a little secret, that's wrong.

Here's 90% of what you need to know about financial planning, are you ready, write this down (or print):

  • Spend about 20% less than you earn. There. That's it. If you spend about 20% less than you earn and invest that money, so long as you don't make big mistakes, you'll do pretty well over time. Here's the problem, because there's no value added from financial planners on the investments (they pretty much cop to that), you're going to make a big mistake, like going 100% equities a couple weeks ago like I saw one financial planner talk about finally doing after 6 years of bull market. 

Some of you know I've been mingling on the web lately. I'm about done. It's not worth it. Way too many fakers who claim everybody else is a faker. I'll put my very public history up against all of them, and you know what, like a good dentist telling you to floss, I'll be better than 4 out of 5 of those financial planning pretenders. 

I've also been having some back and forths with three professors who manage money now. All of them are very sure of themselves and like their own approaches. Interestingly, none of them would have made it if not for their professor salaries and enough people blindly following the PhD.

Here's what I know about folks who play academic (but aren't really academic) and then claim to be good investors, they're probably not. That's not universal of course, but I'll fall back on 4 out of 5 being mediocre at best. The thing is, mediocre pays the bills. For them, not you. If you want mediocre, index, that's what it's for. 

A Degree of Separation

I always wondered how Wall Street traders ran their scams. Mind you, I'm not asking if there were any, I just didn't know how they really did it. Yeah, insider trading has been on the radar for years. High frequency trading was in the news and a book lately. Here's what I learned after suspecting it for the past several years, there really are groups that push stock prices around in order to separate people from their money.

I haven't been able to completely figure it out, but this is about how it works:

There are firms that finance hedge funds and traders, as well as, provide them with a place to all trade in the same room using kick ass equipment and platforms. These firms maintain a degree or two or three of separation from the traders.

The traders share ideas. Most of the ideas aren't original. The ideas come from somebody or some firm that's not affiliated, but you know, is affiliated. They push a stock down, create momentum, talk up the trade online, allow day traders and amateurs to follow in, then bam, change the direction and bet the other side of a short squeeze. They do it in reverse more often, pushing up then down.

The chatter that's put out there is almost comical, but people fall for it over an over. Why? Because there is an element of truth in what they say. That's the best lie, the one that doesn't sound like one. It's the Swordfish theory of trading. Misdirection. 

It's a vicious and unethical way for those traders to make money. From what I can tell, they just look at it as a game that pays them. As long as they make money and don't get in trouble, they play. Legal? I don't know. Ask the SEC. I'm not sure they even know it's happening. What I do know is that one of these rooms is busted, it'll be the little guys, the traders who take the hit, the big firm behind it, well, they'll be safe behind a wall street of lawyers and plausible deniability. 

I'm not sure things are structured exactly, but I have some material I've forwarded to a prominent journalist to look at. We'll see where it shakes the tree. 

Greece

I'm going to tell you the one and only thing you need to know about Greece. It's a harbinger. 

If the world can't deal with little bitty Greece's debt problem, then how on earth are we going to deal with the big economy's debt problems in the coming decade? 

What you are seeing is that nobody is willing to fix the problem of lower living standards lest they get blamed for losing already lost money.

There are issues of ethics involved of course, but folks, particularly German folks, are focusing on the wrong ones. Sure it was not right for Greece to overspend their checkbook. But it's also not right to subject their children to miserable lives. Europe ought to forgive about half of Greece's debt and the IMF should give Greece a new repayment schedule, but neither should give Greece anymore money. Greece should pick some reforms to make ends meet and then sell a port and/or build a pipeline and/or build some other great big thing - an LNG import terminal maybe.

So, don't worry about contagion or the Euro or the markets long-term due to Greece. Worry about what comes next.

Freedom

Each July I publish an article on my investment advisory website with Freedom in the title. This year I am talking about Freedom to Change the World. It'll be up July 2nd.

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