Welcome to Short Squeeze!
Welcome to Short Squeeze, Kirtland Financial Management’s bi-weekly blog that will be posted Thursdays or Fridays on our “new and improved” website. Our goal for Short Squeeze is to provide insights into mainstream financial topics which we believe you will find interesting versus the more technical market analysis we present on the quarterly conference calls.
There are two main topics I wanted to discuss today. First, the recent strong market action in the face of the developments in Ukraine, Crimea, Russia and the West. We saw stateside markets rally with the “vote” in Crimea to secede from the Ukraine, along with Putin’s announcement that he will annex Crimea. The belief is that all parties will stay true to their word and the conflict will not spill over or escalate into different regions of Eastern Europe. As is always the story with Geopolitical conflicts, and life in general, actions speak louder than words, but as far as the markets were concerned “less bad” was “good.” As of Wednesday morning the S&P 500 Index is approximately six points from its all-time closing high of 1878.04. Should we break through that level and sustain it we believe a move over 1900 could be very possible.
Secondly, I read an article that, in my opinion, was a stunning piece. This was posted on MSN Money’s website yesterday and written by Jonathan Yates at Benzinga. The title of the piece is “3 Reasons To Tap Into Home Equity To Buy Stocks.” MSN Money has subsequently deleted the post from their website although it is still posted on Benzinga’s website as of Wednesday (Read more here). My first response when reading this article was “is this guy nuts?!?!” To quote said article “…property owners should be able to responsibly take out a mortgage to buy stocks for the long term. Stocks with high dividend yields can help to pay off the low rate mortgage.” I find it fascinating that anyone would venture this idea when we are not even six years removed from one of the greatest financial crises in our country’s history. We all know the meltdown in 2008 was brought on by Americans (and the banks that allowed them) who overleveraged their real estate holdings for either consumption or investment.
When developing retirement plans, Mary and I always view your primary residence as a “use” asset, not an “investment” asset. We all have to live somewhere, and to take out additional debt to speculate in stocks is a game that can easily end in tears! The use of the word “speculate” in the previous sentence was intentional. When you are taking on debt and investing in stocks with the hope that the value of the stocks, including their dividend yield, will pay down the debt, you are speculating on the stock market; you are not investing for the long term and you are making a gamble.
—Brett C. Hixon, CFP®
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Brett Hixon and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Past performance does not guarantee future results. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. Dividends are not guaranteed and must be authorized by the company’s board of directors.
