Sunday, January 4, 2009

Back to Business






The market has rallied 1500 Dow points in the past several weeks. This would be an EXCELLENT time to lighten up on equities. Gold has rallied 20% in the past several weeks, I am still long Gold and Silver and I continue to sell covered calls against the positions.  Oil has had a 30% rally from the bottom, and I missed that rally.  I won't be chasing Oil, until I do.  Oil ain't for amateurs.

I know the market is always right... but I think the market is making a mistake.  Call it the January effect, or the Obama Bounce, or the Stimulus Shuffle... Call it what you like, but I am not buying it.  I might TRADE it, but I ain't buying it.


Anybody believe that?  Not me.  And now Obama's team is warning of 10% headline unemployment?  HAHAHAHA!!  Not even in their dreams.  12% is a minimum peak, and 15% is not out of the question.  This also does not take into consideration the millions of employed taking big pay cuts to stay employed.  You know what that means for the stock market and the US$ (and yes I know what is bad for the US$ is good for the stock market... THAT'S how bad things are going to get...)?

The problem is that that old safety net, CASH, might not be so safe.  It is not outside the realm of possibility to go to sleep one night and wake up to a US currency crisis.

So what should you do?  Good question.

If you have the resources:

  1. Own a home in the country that is fully stocked to weather a year or more.  You won't regret this.  They are relatively cheap, and if I am completely wrong you can always sell it for a small to moderate loss.  This is the price of wealth (and if I am correct productive agricultural properties will go up substantially in value).  
  2. Own Gold and Silver. Hard bullion and paper bullion both work in my opinion.  But don't take my word for it - hold some in hard bullion in a safe place.
  3. Own foreign currency in the form of Exchange Traded Funds ("ETF's"), or on deposit in foreign banks.
  4. Own sovereign debt bonds either directly or in ETF's. Diversify this.  You don't want to be holding only Argentina bonds if they default.
  5. Own a small business that sells or services "must haves" not "want to haves".  Guys in my business are "dead men walking", guys repairing shoes and dentists are not.  This is no time to swing for the fence trying to get rich. Unless you really have an anti gravity machine or Star Trek Transporter...  It is time to survive.
  6. Own corporate bonds rather than stock.  Dividends can be cut, stocks can get cut in half - or worse.  Bonds MUST pay the stated interest and return principal or go BANKRUPT (not that that can't/won't happen - it will.  But most corporate bonds are selling at steep discounts to their face value, presumably to compensate investors for the risk of default.  If you don't know what you are doing, and that means 99% of investors, use a fund manager or an ETF).
  7. Cut your overhead on EVERYTHING.  Go through your cell phone bills, insurance bills, cable, you name it, and call them and start making noise.  My bet is they have a "new plan" that will save you money.
  8. Be perfect.  Don't speed when you drive or run a red light.  Don't drink.  Don't use drugs. Don't philander. Pay your taxes on time and in full.  Be PERFECT.  In times like this you don't need to wreck your car, go through an IRS audit or divorce, or hand yourself a big legal bill, and you don't need any stress.  This is just good sense at ANY time, but especially now.  The various government agencies are experiencing budgetary constraints and are going to come down hard on us to try and raise revenue.  Keep your head low - a low profile never hurt anybody.
As you can see, I think 2009 and 2010 is going to be a time to SURVIVE.  I keep telling my readers not to listen to those nice folks on CNBC.  I don't think we have a shot in hell at a recovery in 2009, and only 50/50 by the end of 2010.  If I am correct on housing - and I believe that housing is 3 years MINIMUM away from bottoming and another 20 to 30% in price - the 50/50 2010 will prove to be quite optimistic.  Think about that... another 20% decline housing and the banks will need an additional TRILLION $$$, at a MINIMUM (remember, they are already insolvent)!!


That would mean another 1974-75 experience for Wall Street and Metro New York... collapsing real estate prices and the eventual bond default for New York City.  An implosion in the Travel & Leisure space. An explosion in the cost of food.

Food is already too expensive for over 10% of the American population, as 1 in 1o Americans now depends on assistance (formerly known as food stamps) from the government to pay for food.  What will that number be in 2011? 1 in 5?  1 in 4? If my unemployment projection is even close 1 in 5 (60 MILLION Americans) is a sure thing, and the 1 in 4 very likely (75 MILLION Americans).  Let's just say that conspicuous consumption would be in poor taste, and perhaps bad for your health.

The point is that the U.S. Federal Government has decided to go "All In".  They don't want to spend $3 Trillion only to find that it is not enough.  They are going to spend WHATEVER it takes - "In for a penny, in for a pound".  That also means that as long as the US$ holds, the government will keep spending.  Ergo, the US$ is doomed, despite last quarter's head fake.  That means you can't sit like a "deer in the headlights", or you are gonna get run over.  

Every 100 to 200 years this stuff happens.  Its normal.  But it SUCKS to be you if you are the one being led up to the guillotine. 

And Our quotes of the day...

"When you come to a fork in the road, take it."  Yogi Bera

"Sunshine on my shoulder makes me happy" - John Denver

"Cleanliness is next to G-dliness" William Shakespeare

"F--k you" - Richard Nixon

Good Luck!

Mentatt (at) yahoo (dot) com



 





14 comments:

bureaucrat said...

As much as I love the thought of mass financial chaos (from a distance), I have to remind everyone that 50% of the U.S. population gets a government check of some type (including me), up from 3-4% back during the Great Depression. No future depression is gonna be like the 1930s for that simple reason.

Which leads us to ... the "oil thing" is still a prime mover for me, but the expanding obligations of the U.S. govt. is concerning me more and more. U.S. Dollar doomed? Templeton Global Bond fund time, methinks ....

Anonymous said...

Sounds like you got a lot on your mind tonight. I was just telling my younger brother to keep a low pro and avoid run ins of any sort with the law they need to keep there jobs and pay for all those SERVICES. What a sham!!!

I was hoping for some more time to get my own affairs in order, however, I began feeling the pinch last fall with a number of large landscape jobs falling through. Hopefully, any near future drops won't scare the crap out of everyone and no one buys the service. I do take comfort in knowing most people beleive that the future looks bright or will be soon and so will not make drastic changes soon ( cut my service )!

As for future employment I have been cultivating a rep for laborous type work i.e. gardening, and other jack of trades. I might take up the recommendation and get on the local police dept. as well(government job) it would be good to have friends in high places.

As you mentioned your job description is " dead men walking " care to mention your future job description?

Robert

Anonymous said...

bureaucrat,

I beleive you mentioned the upper Mid West was/is your place of residence. What was it? Chicago? I don't man, you may have a closer view then others of that choas. That high number of government checks being HANDED OUT may have huge ramificatuions. Keep us posted??

Robert

Anonymous said...

Greg you should really read this
http://online.wsj.com/article/SB122428279231046053.html?mod=special_page_campaign2008_mostpop

A Quaker in a Strange Land said...

Bureaucrat:

The fact that 50% of the population is getting a government check IS THE F&*^^$!!! PROBLEM!!!

Ever hear of Weimar Germany? Remember this one? "The definition of insanity is doing the same thing over and over and expecting different results". We are doing EXACTLY what others did to destroy their currency. Why would you expect different results?

If folks have the resources, these are the steps I see making the most sense, and I eat my own cooking. For folks lacking the resources, the next best thing is a government job.

I am not a "doomer" in the traditional sense. I don't think that poor folks are going to get any poorer. I do thinks people that have worked hard and succeeded are in for the f%$&ing shock of their lives if they don't think this through.

10% of people produce 90% of GDP. I am not talking Bill Gates and the Billionaires here, just your local small business/family man. Those 10% are going to be wondering what the hell they were working so hard and saving for... and therein lies the OTHER moral hazard. Devaluing the currency by doing all the things we are are doing disincentivizes the producers from working. Mess with that at your peril.

As much as I sympathize with the poor and working class (I am an alumni), it is not their efforts that drive the machine. This is not a judgment of their humanity, just of their production within the economy.

A Quaker in a Strange Land said...

The process is very much like heart disease. Everything is going along until... BAM!

This is all about policy. Policy makers can keep us in deflation or spiral us into out of control hyper inflation. It is ALL up to them. WE have to be in the contingency business... "If they do this, we do that; if they do that, we do this."

If the Fed and Treasury did/do nothing, we will be in deflation for some time (cash becomes worth MORE). What if the FED decides to monetize the U.S. Debt? What if they decide to send out a check for $100k to every man, woman, and child? This is why I say they can control this with a stroke of their pen!

So it is very much worth keeping an eye on their writing hand and that pen.

bureaucrat said...

As I mentioned to the Mad Scientist, if printing money to solve problems were that easy, we'd all be wearing Roman togas today. :)

bureaucrat said...

As to Robert's post ...

Yep, I live and work in Chicago. We are nowhere near panic mode, and likely never will be. The Jewel has lots of food, and in a deflation, they have even more than usual. The electric El trains here run all the time. My parents and uncle are getting all their social security/medicare/veterans benefit checks, as am I (4% cost of living raise this year for me, which is obscene). If any financial disaster is going to happen, it will happen over years, if not decades. The U.S. is a big place with a big economy. I myself plan for the worst because I'm a pessimist. But if I had been pessimistic from 1989 to 2007, I'd have been out of the S&P 500 and a LOT poorer. :) Lots of societies inflated themselves into oblivion, and just turned themselves into something else. The loss of the plane-flying, fancy car-driving, plasma TV-watching, kitchen-rehab crowd won't hurt me a bit. Good riddance. Matter of fact, if there ever was a society that needed a large, long, hard drop in living standards, a drop into reality, it is us. All we need is basic foods and a little entertainment ... and some diversification. :)

A Quaker in a Strange Land said...

THe probability is that this decline will happen over a 10 year period, +or- a couple years. Unless I am wrong.

We certainly have systemic risk, as we saw just a couple of months ago. That risk remains.

Go back, read my posts from June on. Look how quickly the Fannie, Freddie, Wachovia, WaMu, Lehman... s--t unfolded. We are not out of the woods re the financial system.

Anonymous said...

>THe probability is that this decline will happen over a 10 year period, +or- a couple years. Unless I am wrong.<

I don't know about 10 years....The USSR popped in a matter of months. And only to be resurrected due to massive resources.

Today we have trillions and trillions of monetary units flying around the globe. We have instant global communications. We have millions of investors, private and institutional, who can sell EVERYTHING with a computer click. Rumours and realities fly around in this environment at the speed of light.

And we have a Fedgov that is in panic mode. They are in a corner and cannot fix 20 years of layered mistakes by any known govt policy adjustments.

Essentially, the FED and US Executive branch are in a state of war- meaning the psychological conditions of real war in which the participants are enveloped in the "fog of war". And the ultimate outcome of the struggle cannot yet be envisioned.

Bernanke spent his entire academic career basking in his reputation as a Great Depression expert. He will risk ANYTHING to avoid becoming the Fed Chairman who lost the US economy. He is probably willing to risk his personal sanity ie mental breakdown in order to reverse this collapse. He will take any risk at this point.

Anything is possible.

Anonymous said...

GJ, thanks as always for your clarity. At your farm, I hope you have chosen not to put the fox in charge of the henhouse, as we seem to have done here in the U.S. with our financial system: http://market-ticker.denninger.net/archives/708-Personal-Letter-from-Satan-to-Paulson.html

JC in NY

Dan said...

Policy may set the price but not the value.

A Quaker in a Strange Land said...

I said "probability". You are quite right that things could change quite drastically, but my bet is for the longer horizon, grinding, tortuous, torment of continued economic contraction. A crash might be preferable, as then growth from the lower point would be doable for several years...

And yes, policy sets prices not value, but in a nominal value price is all their is, particularly in a system where money is an abstract.

I mistakenly believed Paulson would have been the most competent guy would could have for the job. And perhaps I was correct in the competence part... we also needed someone of high ethical standards and clearly my faith was misplaced.

That's the problem with my business... even if you are any good, nearly half your calls are going to be wrong.

Thanks for the comments.

bureaucrat said...

WaMu and Wachovia failed. And today, every depositor has gotten their (insured) money back. My friend that I had dinner with tonight is still gainfully employed with Chase, selling bank products to all kinds of clients, some a little desperate, but most not. He's having more trouble finding a job outside of the banking industry than inside of it. The time to panic is ...... not here. :)