Saturday, December 27, 2008

The Audacity of Hope

Call me a cynic, but I think the markets are hoping for a miracle from Obama.  Maybe he will even deliver (though I doubt it - at least on any time scale that would satisfy the markets).  But what happens if he doesn't?

I was speaking with my brother-in-law a couple of days ago and he accused me of being a pessimist.  Moi?!!  

There is no room for pessimism or optimism in forecasting, parachute packing, surgery, or hand grenades.  There is only preparation, research, thinking...

I think that people who can think this through AND take the action are going to prosper.  We can already see in everyday news reports what is happening to the people that did not prepare.  They are losing their homes, their cars, their jobs... think losing the family home might echo down the family line for a few generations?  My parents were children of the Great Depression.  I can tell you with great certainty going through that kind of trauma will carry through a generation or 2.  Some traumas last 5, 10, 15 generations and longer (witness slavery).

The trauma people are experiencing now is going to change their future behavior.  My bet is that consumerism, as we know (knew?) it, is dead.  The effect on the economies of the West, and the U.S. in particular, is going to be earth shaking.  For example, the U.S. has more retail space per capita than any nation on earth:

Between 1990 and 2005, the amount of retail space per capita in the U.S. doubled, from 19 to 38 square feet. In contrast, European countries generally have less than 10 square feet per person.

That the U.S. has 4 times the retail space per capita of Europe is of no small consequence, and housing and office space is in a similar vein.  The American economy was based on construction and autos until the 1990's when we threw in a little tech.  Now we don't need any more construction, and automobiles are piling up on dealer lots and at sea ports around the world.

So now the government is going to come to the rescue by creating another industry (and, they hope, another bubble for the next administration to handle) with fiscal stimulus and move the unemployed construction workers and auto workers to work in this "new" industry?  Really?  You believe that?

Not me.

But the markets and the media do believe that, and if and when things don't work out that way TSWHTF.  What are you doing to prepare for yourself and your family in case things do not work out the way the CNBC cheerleaders project?

The Mormons made the front page of MSNBC today for their peculiar habit of insisting on self reliance:
Mormons may be among the country's best prepared to weather the current economic hard times. Since the Great Depression, church leaders have preached a doctrine of self-reliance and selflessness, calling on members to plan for their own future while tending to the needs of others.

"It's a critical component of our theology," said Bishop David Burton, a senior church administrator who oversees the faith's worldwide welfare and humanitarian services programs.

Year's supply of emergency food

Members are encouraged to squirrel away a few months' worth of living expenses and stock a one-year supply of emergency food. Church handouts, classes and a Web site describe how to prepare, store and cook with emergency food supplies so nothing goes to waste.

No, let's face it. While 2009 could continue to be rocky, it can't get much worse than this, especially if Obama and the Democrats work some magic with a smoke and mirrors act to get people thinking positively.

Right now everyone is thinking negatively, and none of it is helped by our panicky government and its talk of economic meltdowns, food riots, martial law and other comments to freak out the citizenry.

See what I mean?  Why can't it get much worse?  Because it would be inconvenient?

Never mind the facts, stick with optimism!  Everything would be fine if only those jerks in government weren't so negative!  Never mind that these are real, foreseeable, and quantifiable risks that the people in government are duty bound to either prevent, prepare for, or at least warn the public about.  

Take a look at existing home sales and prices for November.  That data was noting short of worthy of sh-ting in your pants, and yet that data was from buyers who committed BEFORE the world lost $32 TRILLION in equity values, and an as yet an undeterminable amount of bond value.  Think that might have something to do with home prices in 2009?  How about the commercial real estate market?

This is all before some f$$#!! crazy despot somewhere bombs his neighbor or some nutty  fundamentalist funds a terrorist attack against a nuclear armed country like say, India.

This does not mean that at some point the government cannot destroy the US$ making markets go up in nominal terms.  It just means that that will likely be a while yet, and in any event, even if they are successful, that does not increase wealth by ONE PENNEY in real terms.

Now add all of the above to a significant decline in crude oil production due to the price declines over the next 3 years or so...

I am beginning to see the possibility of deflation ending with massive food and energy price hikes, and if you think energy security is important, it pales in comparison to food security.

And I am an optimist.

Good luck!

Mentatt (at) yahoo (d0t) com


Anonymous said...

So being a pessimist is now para mount to being a Racist according to the politically correct? SO being stupid in the face of facts is OK, smart and correct? Geez what is it going to take to bring reality to the Yuppies?

bureaucrat said...

Having a lower standard of living, wasting fewer resources, not having the nicest houses or the newest cars, will KILL NO ONE! It is way overdue. Debt has become a way of life in the U.S. (I am just as bad as everyone else). The Asian countries are THRIVING being basic, seeing the work ethic as not some quaint thing that only simpleminds follow. While the world will change dramatically when the price of gasoline and diesel goes back up, as long as we have food, somewhere, everything else is negotiable. But I'm gonna make some money at the same time anyway. :)

Anonymous said...

Debt did not create the big houses and fancy cars. The ability of the USA to suck in 21 million barrels/day made that possible(w thanks to the US military which enforced this arrangement).

The debt was an attempt to keep the game going a bit longer. And the fact that many in the finance sector confused credit paper with real value added activity.

Greg T. Jeffers said...


Consider this:

Finance, Insurance & Real Estate are 3 sides to the same coin, and that coin is the largest sector of the U.S. economy AND that sector is contracting drastically.

The more I research the savings issue, the more I come to the conclusion that Americans will be FORCED to save, and that that event is going to make reinflating very tough to do for a while.

That is... unless the Fed and Treasury decides to send every man, woman and child a check for $100k or $1mm (you never know...)

bureaucrat said...

The idea that we are all going to become little old ladies with 2% savings passbook accounts, in an interest rate environment with all interest rates headed to zero, and an inevitable inflation from all this cash now waiting to be injected into the U.S. economy is difficult for me to see .... talk about a whipsaw ...

oOOo said...

It is hard man, being aware of so many dark facts which will effect things in such a serious way, whilst so many either don't know, or choose to ignore them. I am constantly being told to stop being so pessimistic or that there is nothing I can do, so why bother reading so much. There is certainly a fine line between staying on top of things and letting them get on top of you. There is a truly profound Chinese book written around 5000 years ago called the I-Ching which deals with the acceptance of the inevitability of change, the dynamic balance of opposites and the evolution of events as a process. In these rapidly changing times I find it extremely calming.
Thanks for the insights as usual.

bureaucrat said...

I find it rewarding to watch the head-in-the-clouds people and take their money while they dream and deny their lives away. Pessimists make money in this environment. I was a extreme pessimist in 1991 when I thought the world was coming to an end (I was 23 -- silly me). I bought gold! Turns out I was 18 years ahead of schedule. I was right all along! :)