Archive for February, 2008

Prepare for the coming financial duress.

So, how bout that that economy?

I wish I wasn’t right, but all of the indicators seem to be pointing in some direction.  We need to prepare ourselves for what is clearly coming.

One thing we can look at is where we want to invest.  As the market develops, the law that people will only be able to consume as much as they produce will take hold.  The question is, where are these producers?  The developing world holds these producers.  They are going to drive a lot of future buying.  The question is, what do they want?  They are manufacturers, so what they really need is the natural resources required to make whatever they are making.  The feedstock for almost all processes is oil, for both plastics and energy.  Copper is also very important, for infrastructure and also for everyday electronics. 

As the world tries to get more energy efficient, we are going to move to more and more electrical devices, whether it is hybrid or plug in cars, or more power generation capabilities.  These will continue to consume raw resources like copper.  Also, as we try to wean ourselves form fossil fuels using biofuels, we will be pulling food off the market to use to convert to energy.  Commodities will continue to be strong over the near future.  Gold and silver are surging, supported by people fleeing the dollar.  

One big problem coming down the pike is that this is a self fulfilling prophecy.  As the dollar drops, it will lose its status as the world’s currency.  People will flee the dollar, causing even more pronounced drops. 

How can we reduce our exposure to the dollar?  I think some of the best choices are foreign stocks.  A friend at work mentioned investing in the Australian dollar.  If you are going to do that, why not improve it?  Why not invest in quality Australian companies, many of whom are heavily involved in commodities, and very close to the hungry Asian markets.   Canada also has a healthy economy that is based on producing real goods that people in the world are hungry for.   Although FCX is headquartered in the US, it is truly worldwide, and is involved in commodities.  I still love FCX.

I have been talking about the approaching grinder of recession and inflation over the past few months(here, here, here, here).  In order to lessen the impact, we needed to face it squarely and work through it.  The average citizen doesn’t have enough forethought not to live paycheck to paycheck.  How can we expect them to plan years (gasp) into the future?  Savings rates are poor on both the macroscopic and microscopic scales.  Government policy is based on short sighted placating of the masses.  People are getting more and more lazy.  I can sometimes feel myself getting infected with a sense of entitlement.  It is pushed into us from so many different directions.  The idea that we should be able consume resources based on are ability to produce is going by the wayside.  At work, they are astonished that I just don’t fly out and buy everything. 

People in Washington could really help by stopping all their help.  Just get out of the way.  Seeing politicians can’t stand to do this, lets just try to isolate ourselves from the problem so that amidst the ocean of hubris we can still have a few ships floating along.  I would rather be on one of those ships.

Good luck all.

Stimulating the economy or just financially masturbating?

The more I think about the tax rebates that will be sent out, the more crazy I get.  We are going to dole out money that we don’t have, go down to walmart, and end up sending it to Asia.  What a splendid idea!!  We surely don’t owe the Chinese enough already.   This idea created the worst sort of burying your head in the sand.

It is an election year and getting reelected is foremost in the minds of politicians.  What could be better than sending out cash to all of your constituents?  Only a brave few opposed the bill.  I really respect what Sen. Judd Gregg, R-N.H., who voted against the bill said”We have to remember that every dollar being spent on the stimulus package is being borrowed from our children. And our children’s children.”   We can’t create this money out of nowhere.  We are all taking out a loan that our children will have to pay back with interest in the future. 

Many people don’t know what really happened in the bible when Joseph foresaw the 7 years of plenty followed by the 7 years of famine.  Joseph stored up the food for the Pharaoh, and then he sold it back to the people during the famine.  The first year he took their money.  Then he took their animals.  Then he took their land.  Finally, he took them, as they sold themselves into slavery to ensure they would have enough to eat.

We are setting up a financial famine for ourselves, and we better make sure that we have something stored up, or our creditors will have their pound of flesh.  In some ways, this is even worse then burying our heads in the sand.  It’s like having trouble because you have spent too much and are too far in debt, so you head out with a credit card and go shopping.  It is not the cure.  It is more of the sickness (but it feels good to the general populace right now).

Bernanke is in a very tight spot.  He can’t win, because we have to have a reckoning.  We are going to have a recession, inflation, or most likely, some combination of both.  He can shift it a bit, but huge economic forces are coming home to his doorstep.  We can minimize those that come to ours by not squandering our resources during our years of plenty, which might be coming to an end very soon.   Get out of debt and get some savings put away, preferably invested in some economy that knows how to save and invest in the future.  We seem to just want to mortgage ours.

Good luck.

The Primaries- Empty promises win again (and signal economic doom)

A friend of mine just commented, “I think it is arrogant of presidential candidates to act like they can solve all the health care problems in the US with a plan that they can come up with.”   I would add to that.  It is crazy to think that some government economic plan can make us prosperous.  Citizens create the resources of this country.  The government just redistributes them.  McCain and Huckabee seem oblivious to that fact.

I know that you have heard this all before, but so have I.  This batch of politicians sounds more and more like the last.  I am not a huge fan of Romney, but I think he is in better condition than most to make the economy move forward.  He is one of the few that can also make a living without sucking on the government teat.  McCain has received his economic security form the government since he started working.  Huckabee was a preacher.  Ron Paul actually made a living and did very well as a doctor.  He has opted out of the government program to ensure congress-men’s retirement. 

Two stand out as people that could make business work.  They understand that the government that governs best is the government that governs least.  This old adage is repeated often but used very little.

One thing that intimidates me about McCain is his ability to compromise.  Compromise is often a situation of you giving me my program if I give you yours.  This effectively doubles the rate of government growth.  If that is what you really want, vote McCain.   I also think that the idea that we make our country safe by ignoring our borders and securing those in Iraq is ludicrous.  I recognize that we are already in Iraq, but the wholesale ignoring of our national sovereignty at home is a recipe for economic and security disaster.   The recession is going to come, the question is, will the government prolong and deepen it?  Our votes will help decide.

I have heard people say that they would rather vote for Clinton than McCain.  I think these people are crazy.  Politicians move to where the votes are.  If you want to show the republicans that you want  a more conservative brand of republicanism, vote some conservative party.  I will probably end up writing in Ron Paul if nothing else changes.

Last of all, I think there is some hope that if McCain and Huckabee join on a ticket, Huckabee will be able to pull in the conservative vote.  This won’t pull my vote for sure.  They are pair a big government populists who speak rhetoric out of both sides of their mouths.  

Part of me does want the democrats to win.  If we have a recession while the democrats are in office, hopefully a more conservative form of government will come into being at the next elections.   The catch is how much damage will the well meaning, but economically blind democrats be able to do before those elections.  I dont’ want to think about it, and I dont’ want them to win overall. 

I guess all that is left to do is to not waste my vote.  And any vote given to the lesser of two evils is a wasted vote.