CNBC: A timeless investment choice

I came across this interesting article on CNBC’s website which talks about watches as an alternative investment, more interestingly, as an asset class that withstands the test of time. Personally I find it satisfying that my little hobby (my wife would call it an obsession) can now be described more respectfully as an alternative form of investing. Hopefully with the aid of this article I can argue my case more eloquently and convincingly in justifying my next watch purchase to my better half.

Some points from the article which I found to be worth noting:

i) The article that the current downturn has been hard on the luxury watch market. However it is necessary to differentiate between “retail” luxury watches from “collectible” luxury watches. In the current global economic malaise the collectible luxury watch market have been more resilient. Record prices are still seen at recent horology auctions for rare timepieces.

ii) “Jon Cox from Kepler Capital Markets says collectible watches may also offer inflation protection as investors may be worried of higher price levels in the future. He adds that in some countries, a Rolex is even considered a currency.” – That’s good news for all Rolex fans out there. Like they say, never leave home without your trusty old Rolex. You never know when you run out of hard cash. With a Rolex or two on your wrist, you can confidently pop into the nearest neighbourhood pawn shop and walk out five minutes later with wads of hard currency bulging in your pockets.

iii) “While age for most other asset classes is associated with depreciation and loss of value, a collectible watch investment ticks differently. The older a timepiece is, the more value it usually holds.” Words of wisdom indeed. Like I always say, it’s far better to put your money into good watches than to buy an expensive luxury car which depreciates the moment you sign the purchase agreement. But I’ll bet there are people out there with deep enough pockets who would dispute my line of thinking.

iv) “Signs of wear and tear show a watch is authentic and has history, while a polishing only reduces a watches’ value.” So all you weekend watch polishers please take note. You may be polishing off your watch value, so go lightly on the cape cod cloth.

Motley Fool accepting Government bailout money

As I was checking my inbox this morning I noticed an eye catching email from David and Tom Gardner of Motley Fool. In case you are not familiar with these names, the Gardner brothers are the founders of the Motley Fool, a commercial investment website for individual retail investors.

The email pointed to a letter, from the Gardner Brothers, which unceremoniously announced that the Motley Fool has received US Government bailout money to the tune of 25 million US dollars, and it went on to explain why the application was made, the approval process and how they splurged 24 million USD on bonuses and perks for staff, including an island resort and they even invited fellow Fools to help them decide how to best spend the remaining bailout money.

As I read the mail I was shaking my head in disbelief as to how an investment advisory service could have successfully applied for the bailout money and how they had the audacity to splurge the taxpayers’ hard earned cash on themselves.

A strong sense of outrage began to build inside me…… then I glanced at the date and it was clearly stated 1st April.

April Fool’s Day and the joke was on me.

Tracking the pulse of wall street

Following last week’s bloodletting on Wall Street, I was curious to know where the current panic selling stands compared to previous Wall Street panics. A popular tool to track the pulse of Wall Street is the RSI (Relative Strength Index) which is used to indicate technically overbought or oversold conditions.

Conventional wisdom states that an RSI value below 30 indicate an oversold condition and this is especially relevant for longer term timeframe such as a weekly chart. I used the weekly data for the NYSE Composite Index going back to early 1980s and used the RSI as an indicator. The resulting chart incorporating weekly data up till 10th October is displayed below (click on the chart for a larger image).

To my surprise last Friday’s close capped one of the worst oversold market in history as indicated by the above chart with the RSI hitting a low of 13. Wall Street’s pulse can now barely be detected as unprecedented market panic delivered a knock out blow which drove the RSI to a grossly oversold position.

So the question remains whether Wall Street will remain out for the count, or whether it will pick itself up and live to fight another day. If history repeats itself, and if the current situation is not so different from previous panics, then lessons of the past would have us expect a short term rebound as the market recovers from its current grossly oversold condition.

While it is safe to say that the stock market moves to its own rhythm which defies mortal man’s attempt to divine its future direction, it is also not unreasonable to assume that US equities are much closer to a significant market bottom after last week’s sell off.

As always, caveat emptor.

Desperate times for the SEC.

On Friday 19th September, the SEC imposed a temporary ban on short selling in an elite group of 799 US financial stocks. The SEC also eased stock buy back rules which previously restricted companies ability to buy back shares at the market open and close.  The moves were designed to stem the steep decline in stock prices over the previous two days. The SEC’s desperate measures helped fuel one of the most dramatic short covering rally in recent times. Chris Cox must have hoped that the old saying, “Desperate times call for desperate measures”, would  justify the SEC’s unfortunate decision to tamper with the workings of the free market.

The SEC’s traditional role is to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities. In its recent moves the SEC has dramatically reversed its role and instead aided one group of market participants in artificially propping up prices in ailing financial companies. This is tantamount to ramping the markets.

The SEC is effectively changing the rules in mid game for market participants. In particular the new rules have benefited the bulls tremendously while severely shackling the short sellers. You can’t have a free market when the regulatory agency so blatantly tilt the playing field in favor of a particular group of players when the game is not going their way. I don’t know how the rest of the world sees this but from my corner here it looks very much like blatant cheating! It is sad that the USA no longer practice the free market principles which they had been championing.

A great problem to have, too much cash on hand.

In the past few years Warren Buffett’s Berkshire Hathaway has been plagued by a growing problem which other companies would kill to have, ie the problem of having too much excess cash. It comes from years of accumulating hugely successful businesses which rake in tons of excess cash each year. The growing cash stockpile is truly an embarassment of riches, one which Warren has had to explain every year to his fellow shareholders.

Well, at this year’s Capitalist Woodstock Festival, where thousands of investors make their pilgrimage to Omaha to hear the Sage speak, he was pleased to finally present a solution to the problem. Berkshire announced their first acquisition of a foreign company. The 4 billion dollar deal showed that Warren wasn’t just dipping his toes to test the water. His latest prize is a family owned Israeli company. He’s also made it clear that this is only the first of many other acquisitions to come. With this acquisition Warren Buffett is effectively announcing to the world that Berkshire Hathaway is now a serious investor in the foreign private equity market.