Monday, October 26, 2009

I will be taking a long break from this blog

A lot has happened in the past few months, with the most significant being that I have purchased a home. It is my primary residence and is a fixer-upper. I've stayed away from looking at real estate as a major investment in the past, but I believe this property qualifies. It is an 80-year old craftsman bungalow located a mile from downtown, and I think (I hope) I haven't bitten off more than I can chew with the work needed. I will be taking an indefinite break from this blog while I tackle this new project and wait for some intelligent thought to strike me regarding the future of our economy.

To comment on what has transpired in the markets and the economy over the last several months, there are two major things that have happened. First, in my view the Fed realized that the major financial pillars of our country were still in horrific shape and were going to require another major bailout. There are several ways to conduct a bailout, and the method by which the US government directly hands over billions of dollars of cash is seen as extremely unpopular. Because the government wanted to avoid going down that road again, it instead is simply creating a hyper-profitable environment for banks through tools such as a highly subsidized discount window. This has the same effect of bailing out the banks at taxpayer expense, but is less direct and thus is much harder for Mrs. Palin and her proverbial "Joe Sixpack" to understand. Thus, same results occur with the same costs, but without the protests or regime change. It has another side effect which is bankers patting themselves on the back and using more of those profits to pay themselves large salaries at shareholder expense. I would have preferred direct transfers of wealth from the taxpayer and all the anger and regulation that accompanies it, but then I don't have as much money as Goldman Sachs so that battle is over before it begins.

The banks are still in bad shape and are still facing ever-expanding numbers on the liabilities side of the balance sheet, but the earnings side will be growing at a faster rate than the liabilities side in this environment. Thus, many major banks will simply grow their way out of debt eventually, thanks to the taxpayer.

The second thing that occurred (although related to the first) was that we created an ultra-liquid environment. All that liquidity needs to chase something, and so it is chasing assets such as stock, bonds, commodities, foreclosures in California, etc. It is all the liquidity chasing assets that has pushed up the stock market without a corresponding rebound in the economy. It is why so many people are wondering if the market has gotten ahead of the fundamentals of the economy (it has), and it is why people are wondering if we are repeating the last 20 years of Japan's markets (we are). If you consider the fundamentals, the market should still be at levels near March, but it is not. There would be a slight premium added for the fear being gone, but not to this degree.

This highly liquid environment is currently viewed as a positive to people who held bad assets such as financial stocks, but it is soon likely to have some negative impacts on the real economy. If liquidity starts chasing oil, we're going to see oil prices spiking higher even while demand stalls or decreases. We saw this happen in 2007, and it has a very real, very negative impact on the economy (although a positive impact on the environment).

It would be nice if we would preempt this move in carbon-rich energy by taxing it so that - assuming the price will increase anyway - we would get the surplus income rather than Saudi Arabia, but that is another post for another blog.

How should you position yourself? I don't think stocks are going to perform in the future at the level people aged 40 and under are expecting. I think you should buy old world valuables like gold, oil, and property and hunker down against inflation. I don't believe we have a modern-day Paul Volcker who will break the back of inflation, and I don't believe we will get one until we've already suffered several years of severe inflation and are willing to sacrifice in the present to be better off in the future. That doesn't happen very often because the policy cycle tends to be longer than the election cycle.

I personally am hunkering down by locking in a 30-year loan at 4.5% and paying it off as slowly as possible while keeping it tied to an inflation-proof commodity (land). A lot of smart guys (John Paulson) like gold. I personally would prefer other things that have more utilitarian value like oil or trees or land or lithium or whatever strikes your fancy.

I want to thank you for reading my blog in the past. I'm sorry I didn't foresee this method of bailout and the liquidity chasing asset prices above their economic worth. The best I can do is analyze fundamentals and make decisions based on that analysis. I had a very profitable and entertaining time during the liquidity crunch, and a very unprofitable and unpleasant time during the rise in liquidity. What have I learned through all of this? It is a smart move to short segments of the economy when you see a ticking time bomb, but don't hang around too long trying to catch the bottom. Also, never underestimate the motivation of the federal government to keep markets rising at any expense to the taxpayer.

Take care, and thanks for reading.

12 comments:

Walter said...

Thanks Rick for your posts over the last year and good luck with the home renovation. Think I'll invest overseas for a while.

Scott said...

Yeah Rick, thanks for the insight!

Regina said...

How about changing the focus to your renovation?

Anonymous said...

Hi !.
You re, I guess , probably very interested to know how one can collect a huge starting capital .
There is no need to invest much at first. You may start to get income with as small sum of money as 20-100 dollars.

AimTrust is what you haven`t ever dreamt of such a chance to become rich
The company incorporates an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

Its head office is in Panama with structures everywhere: In USA, Canada, Cyprus.
Do you want to become an affluent person?
That`s your chance That`s what you desire!

I`m happy and lucky, I began to take up income with the help of this company,
and I invite you to do the same. If it gets down to choose a correct companion who uses your savings in a right way - that`s it!.
I make 2G daily, and my first investment was 500 dollars only!
It`s easy to join , just click this link http://irigozowi.envy.nu/nahipy.html
and lucky you`re! Let`s take this option together to get rid of nastiness of the life

Anonymous said...

Hello !.
You may , perhaps very interested to know how one can reach 2000 per day of income .
There is no need to invest much at first. You may start to get income with as small sum of money as 20-100 dollars.

AimTrust is what you thought of all the time
The firm represents an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

It is based in Panama with affiliates around the world.
Do you want to become a happy investor?
That`s your chance That`s what you wish in the long run!

I feel good, I started to get real money with the help of this company,
and I invite you to do the same. If it gets down to select a correct companion utilizes your savings in a right way - that`s the AimTrust!.
I take now up to 2G every day, and my first deposit was 1 grand only!
It`s easy to join , just click this link http://nofuparul.kogaryu.com/fycohi.html
and go! Let`s take our chance together to get rid of nastiness of the life

Anonymous said...

Good day !.
might , probably very interested to know how one can make real money .
There is no initial capital needed You may commense to receive yields with as small sum of money as 20-100 dollars.

AimTrust is what you need
The company represents an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

Its head office is in Panama with structures everywhere: In USA, Canada, Cyprus.
Do you want to become really rich in short time?
That`s your chance That`s what you wish in the long run!

I`m happy and lucky, I began to get real money with the help of this company,
and I invite you to do the same. If it gets down to select a correct partner utilizes your funds in a right way - that`s it!.
I take now up to 2G every day, and my first deposit was 1 grand only!
It`s easy to join , just click this link http://jidatagug.uvoweb.net/vucode.html
and lucky you`re! Let`s take this option together to get rid of nastiness of the life

Anonymous said...

Hi there!
I would like to burn a theme at this forum. There is such a nicey, called HYIP, or High Yield Investment Program. It reminds of ponzy-like structure, but in rare cases one may happen to meet a company that really pays up to 2% daily not on invested money, but from real profits.

For quite a long time, I make money with the help of these programs.
I don't have problems with money now, but there are heights that must be conquered . I make 2G daily, and I started with funny 500 bucks.
Right now, I'm very close at catching at last a guaranteed variant to make a sharp rise . Visit my web site to get additional info.

[url=http://theblogmoney.com] Online investment blog[/url]

Anonymous said...

Hi!
You may probably be very interested to know how one can manage to receive high yields on investments.
There is no initial capital needed.
You may begin to get income with a money that usually goes
for daily food, that's 20-100 dollars.
I have been participating in one company's work for several years,
and I'll be glad to share my secrets at my blog.

Please visit blog and send me private message to get the info.

P.S. I earn 1000-2000 per day now.

[url=http://theinvestblog.com] Online investment blog[/url]

Anonymous said...

Hi!
You may probably be very curious to know how one can manage to receive high yields on investments.
There is no need to invest much at first.
You may begin to get income with a sum that usually goes
for daily food, that's 20-100 dollars.
I have been participating in one project for several years,
and I'm ready to let you know my secrets at my blog.

Please visit blog and send me private message to get the info.

P.S. I earn 1000-2000 per day now.

http://theinvestblog.com [url=http://theinvestblog.com]Online Investment Blog[/url]

Anonymous said...

Glad to materialize here. Good day or night everybody!

We are not acquainted yet? It’s easy to fix,
my parents call me James F. Collins.
Generally I’m a social gmabler. recently I take a great interest in online-casino and poker.
Not long time ago I started my own blog, where I describe my virtual adventures.
Probably, it will be interesting for you to find out my particular opinion on famous gambling projects.
Please visit my web site. http://allbestcasino.com I’ll be glad would you find time to leave your comments.

Poker said...

I wonder how you got so good. This is really a fascinating blog and all your post too, lots of stuff that I can get into. One thing I just want to say is that your Blog is so perfect to me.
--------------------------
Our www: Texas Holdem Poker & No Deposit Bonuses & Free Poker No Deposit

No Deposit Bonus said...

I was shocked to visit this awesome and good updated website now. I needed to thank you for this fantastic articles!
Good Day dear Admin
--------------

Easy cash to play online
Learn free holdem poker with French, Urdu, Serbian players
Free 50 dollars
play game to win more money then usually
Texas holdem free
Become profi player with texas holdem rules sites

Darmowe bonusy bez deponowania kasy na platforme
instant poker money
Latest No deposit poker bonus
Real money bonuses
Play texas holdem games with players from Austria, Marocco, Bosnia, Israel
Starting capital free
Get startup capital to rooms like BetMost, PokerAce, Titan poker every day
Basic Poker Rules
Poker Promotions for every new account
cheap laptop computer
Play poker games on your newest laptop computer free
Best TV for Poker