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  • jaquecroissant jaquecroissant Nov 12, 2012 5:09 PM Flag

    Pimco-to-DWS See Economy Escaping fiscal Cliff Even as Stocks Fall

    All of those stats are depressing but you can't just sit on money. Inflation will kill it. I say stocks and gold. Fix up existing house or buy a new house as well. Anything but US bonds.

    Don't you think the market already knows this "bad news" Wins? How are you allocating capital now? Just curious where you would put it and what percentage of cash you are holding?

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    • I agree, you don't want to hold cash for very long given the prospects for more inflation.

      Where we might disagree is how to invest in this environment.(I hold maybe 15% cash in total ( not counting physical PM's) -- and not much different than historical FWIW)

      I'm a firm believer that the inflation we get won't be driven by economic strength but instead by increased monetary supply so I don't look to invest much at all in economically sensitive areas such as housing/real estate as being a great hedge. (at least not in the US or OECD economies)

      People need decent paying jobs to buy homes and low interest rates can't do it alone.

      Banks were a lot less fussy in making loans back in 2005-2007 as the securitization market soaked up all the questionable loans they made but that avenue is not open to them now so loans not likely to be made to anyone that can fog up a mirror now so that will put a damper on real estate demand.

      Some HB's today--They've been relatively strong recently

      http://finance.yahoo.com/quotes/BZH,DHI,TOL,SPF,HOV,LEN,PHM

      • 1 Reply to winsabokk
      • The momentum has certainly been in the HB's favor. I think REITS look interesting as well. VNQ is a pretty reasonable play imho.

        From IBD:

        *The Fed's third quantitative easing plan, or QE3, involves buying $40 billion in mortgage-backed securities every month with no announced end date. The resulting low interest rates are aimed at making homes more affordable, benefiting real estate firms and homebuilders. They also benefit from refinancing their corporate debt and mortgages.

        REITs have to distribute 90% of their income to shareholders because they're exempt from paying taxes at the trust (or corporate) level. So they tend to pay fatter yields than stocks. A part of a REIT's dividend payout may be considered a nontaxable return of capital, which reduces the shareholder's taxable income. This is a complicated individual tax issue that should be discussed with an accountant or tax preparer.

        "REITS were never subject to the lower tax rates on dividends, so the changing (increasing) tax rates are not impacting REITs to the degree they are impacting other dividend-paying stocks," said Zafran.

        That would make them more appealing over other dividend-paying stocks under President Obama's proposed increases on capital gains.*

 
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