Author: Darwin

The gold bugs have certainly been gloating of late (well, excluding the prior 2 trading sessions) seeing as how bullion prices, miners and precious metals ETFs have been holding up well while most other asset classes spiral downward in a volatility vortex.  In the short term, sure, gold has performed well and may well continue for some time to come.  However, on a long-term basis, there’s no reason to believe gold, and especially, the most popular gold proxy ETF (GLD) will outperform other conventional asset classes, and in fact, it should probably be expected to actually underperform.  Here’s why.

…continue reading 5 Reasons to AVOID the Gold ETF GLD

While there are numerous ways to short Treasuries, there are several different approaches investors choose to take, each suited to a particular strategy and risk tolerance.  What I’m outlining today is both high-risk and highly likely to succeed – IF I can outlast the Fed.  See, I entered into the ultimate risk short today that I’ll describe further below, but want to emphasize that this probably isn’t a prudent approach for most retail investors and requires the ability to short, a margin account, and intestinal fortitude.

Short Treasury Strategy

The approach I took was to combine the leverage that options offer, the poor performance of leveraged ETFs over time (see more on ETF Decay), and the time value decay of both options and leveraged ETFs.

• Sold TMF Calls (TMF was priced at 61 during Tuesday trading)
• Strike Price $75
• Expiry November
• Premium 3.40 each

TMF is the 3X leveraged 30-Year Treasury Bond ETF from Direxion. 

This is about as turbo-charged as you can get in looking to short bonds.  In the past, I’ve already sold TMF short as an ETF holding, but now I’ve turbocharged the play even further.

Here’s the Rationale AND Risks:

…Continue Reading Shorting Treasuries For the Ultimate Risk-Takers

I’ve mentioned a pending real estate deal a partner and I have been working on for a while.  I thought I’d give a quick update on how we came upon this opportunity, what we’ve done to date, what’s left to do to close the deal and all the lessons learned along the way.  To recap, I’m borrowing from my 401(k) $50,000 since I have no doubt the ROI is much better than the crappy equity and bond funds offered (if you’re saying “tisk, tisk”, see why I have all my bases covered on this loan) and the properties are at a local college – where the damage potential is high but cash flows are very lucrative.  We minimized our down payment and with rates at historic lows, we snagged an attractive 5.5% loan which is great for commercial ventures.

The Deal – It’s a pretty sizable deal with 5 dwellings and about 25 students (give or take). My partner has multiple properties at another college and these gigs have been cash-flow machines, especially on larger scale projects since you spread many of the fixed costs like property management, accounting, legal, repairs, etc.  Since there’s usually very little vacancy risk on heavily populated college campuses and you don’t need to plow a ton of money into the properties.  You remember what your college housing looked like, right?  It’s just gotta be “good enough”.  Finally, parents tend to pay the bills and there’s a much lower incidence of deadbeat renters…

Continue Reading: My Foray into College Real Estate – Animal House 2011

Whenever something significant occurs in financial markets, or even a major industrial event, people invariably start asking about whether capitalism is doomed.  I remember after the BP oil spill in the gulf, one of my old highschool buddies (who’s a great guy, but his ultra-liberal ideals give us some good debating topics) put a thread on Facebook saying “Capitalism must end” or something to that effect.  Since he lives in California and he’s one of those artsy types, there were all kinds of high-fives and people railing against America and how Cuba got it right and all this nonsense.  I weighed in with how preposterous this notion was and how ironic that he and his hippy friends were venting on none other than…FACEBOOK – a venture that exists purely because of lure of riches that has expanded to its current state by American conventions – an American student at an American university, computer programming, at-risk capital, the internet, mobile technology and all kinds of other contributing factors that exist SOLELY BECAUSE OF CAPITALISM.  The irony was lost on these people of course.  By simple virtue of being born in America, they’ve already started off life on 3rd base yet they curse the opportunistic environment they find themselves in.

Well, following the recent debt debate, the S&P downgrade leaving 4 AAA Companies with a higher credit rating than the US, the recent market slides and an imploding Euro region, Nouriel Roubini penned a piece asking whether Capitalism is Doomed.  While the headline and his mention of Marx being “partly right” drew plenty of controversy last week, his thesis remains pretty much aligned with his usual message – we need to deleverage, divert stimulus to infrastructure, enact more progressive taxation measures and regulate more effectively.

While progressives and “revolutionaries” rejoice at the spectre of crumbling capitalistic support, it’s silly to “blame” capitalism for problems in the world or their current circumstances.

Continue Reading: Is Capitalism Doomed? The Cliche of Our Time

It’s en vogue now to be “anti-homeownership” given the recent crash in home prices and all the shenanigans the mortgage companies, banks and Wall street firms pulled over the past several years.  People tend to use the recency effect and confirmation bias to formulate their opinions which dictate important lifestyle and financial decisions. Before you jump all over me for this thesis, let me clarify a few things:

a) Many people CAN’T own – that’s a fact of life.  If owning a home isn’t an option for you for numerous reasons ranging from finances to career, then making a choice between renting and owning isn’t something that mandates weighing the options.
b) Many people SHOULDN’T own – perhaps during the days of easy credit or even today, you have the funds to buy a home, but there might be some factors that would make this a poor choice.  Perhaps you need to relocate every couple years due to your line of work, perhaps you’re in the middle of a divorce or child custody battle or perhaps your income is quite variable.  It might make sense for you to rent until there’s more stability in your financial situation.
c) Many people COULD own, but don’t.  That’s the target audience.

Long-time renters often cite all the negatives of home ownership, and there are some to be sure.  But many of these oft-cited reasons have a valid counterargument OR these old paradigms are no longer accurate:

Continue Reading Renters Are Deluding Themselves – Here’s Why

There are tons of articles out there waring about the dire consequences of borrowing from your 401(k) – you know, not earning money on the withdrawn amount, double taxation, early withdrawal penalties and having to repay immediately if separate from the company…I’m going to lay out why my particular situation and outline why none of these “risks” matter and my transaction will work out beautifully.  So, be prepared for some unconventional wisdom!

First off, many people are either misinformed or irresponsible and would have been better off having NOT borrowed from their 401(k).  But financial pundits like to compartmentalize ALL situations into a single bucket and paint something as “good” or “bad”.  Generic cookie-cutter advice is often wrong and doesn’t apply to individual cases.  My scenario is different and as you’ll see, I’m VASTLY better off borrowing from my 401(K) than not.

Read more about Why I’m Borrowing $50,000 from My 401K(k)