The Unconventional Economy
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- Published on Thursday, 26 April 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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When stocks fizzle, this asset sizzles. It is no wonder investors are clamoring to get in.
The news is not good in Britain. We got official word yesterday of its first double-dip recession in two generations.
The news is not good in China. Beijing says more trouble lies ahead as it tries to transform the great exporter to an economy based on domestic demand.
And the news is not good here in the States. We just learned durable goods orders took the biggest dive in three years last month. And worse yet, a top D.C. watchdog tells us hundreds of small banks won't be able to repay billions of dollars' worth of TARP paybacks.
Here's the good news...
There's a small subset of savvy investors making money far from the potholed streets of Wall Street. They are all part of what I call the "Unconventional Economy."
Here is a fact. The Mei Moses World All Art index, which measures the value of investment-grade art, jumped by 10.2% last year. That means, once again, art trumped the stock market.
Art is one of my favorite unconventional assets for a very simple reason. Unlike most "herd plays," the government has yet to find a way to mess with the value of art.
The feds can confiscate your gold... They can rig the bond market... They can (and will) increase tax rates on dividends... They can purposefully destroy the value of the dollar...
... but they can't mess with art.
That is why it is becoming so popular with savvy investors. In fact, demand for art grew by some 25% last year compared to 2010.
"What's become really apparent over the last 24 months," said Neil Palmer, the CEO of Christie's International Real Estate, "is that [high net worth individuals] have decided that, because the rest of the market is extremely difficult, they are going to buy things they can enjoy, look at, and that have been shown to have a reasonable level of protection from downwinds over the medium to long term."
But what so many ordinary investors get wrong is something I will focus on during one of my two presentations next week... You don't have to be rich to invest in art.
To wrap up our annual Natural Resources Investing Summit in Toronto, I've been asked to participate in an alternative assets breakout session. Along with coins, timber and a slew of other unconventional investments, I will talk about art.
One area I will focus on is how ordinary investors can get in on the action.
To prove the idea, I will point to the growing popularity in art fairs... like the hybrid Nada Cologne fair. This brand-new show kicks off in New York next week, but it will have to compete with the popular Frieze Art Fair just a few blocks away.
After two successful fairs in Dallas and Hudson, N.Y., art investors are excited for these headline-making shows.
The great thing about the NADA show is the majority of the art on display has a price tag of between $3,500 and $10,000. It's not the million-dollar art that has wrongly become synonymous with art collecting -- but the investment potential is the same.
Remember, art is largely uncorrelated to the stock market. In fact, a common theme in the "Unconventional Economy" is "art sizzles when stocks fizzle."
It's true. I am witnessing it right now.
I am not telling you to run out and sell all of your stocks and bonds. That would be stupid.
But it is equally stupid to lump all your wealth into a market that is freely and openly manipulated. It is like what I try to tell my Unconventional Wealth subscribers in every monthly issue... stocks and bonds are merely a sliver of what it takes to build wealth.
These days, if you want to get rich and stay that way... you have to get off Wall Street. Thanks to a couple of big shows next week, smart investors will only have to travel a few blocks.
Editor's Note: Although most people don't know it, there's a whole universe of unique investment alternatives that put traditional stocks, bonds, mutual funds, options and ETFs to shame. These "AIOs" are totally off the grid and unconventional. They could also make you very rich. Learn more about alternative assets here.
Chart of the Day: Just the Beginning of the Student Loan Mess
By Adam English, Associate Editor, Inside Investing Daily
For the first time in what seems like a lifetime, Democrats and Republicans fundamentally agree on something. With Obama, Harry Reid, Mitt Romney and Mitch O'Connell all on the same page, it looks like the federal Stafford student loans will not see their interest rate double this year.
Of course, now they need to figure out how to pay for it. Washington either needs to take out an additional $6 billion in debt or offset the cost by cutting elsewhere in the federal budget.
We should enjoy the bipartisan sentiment while it lasts...
What many people do not know is that the stakes for the federal government are much higher than they appear. It is no longer the guarantor of these loans. It is now the sole supplier of all federal student loans.
Thanks to legislation in 2008 and 2010, student loans will consume the equivalent of 6% of GDP by the end of this decade.
To put it bluntly, the student loan industry is already in terrible shape. Of the 37 million borrowers who have outstanding student loan balances, 14.4%, or about 5.4 million borrowers, have at least one past-due student loan account.
Together, these past-due balances add up to $85 billion, or roughly 10% of the total outstanding student loan balance.
But wait; those figures exclude the 47% of student loans that are not currently due. As long as a student remains in school, the debt will be postponed until graduation.
After excluding these students from the delinquency figures, an estimated 27% of borrowers have past due balances, while the adjusted proportion of outstanding student loan balances that is delinquent is 21%.
Six billion dollars for continued low interest rates is just the beginning for the amount the federal government will need to offset.
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