Re: The sky is falling

[wabmester]

There's no question that the combination of easy monetary policy, the propping up of the dollar by foreign central banks, the trade imbalance, and our mounting debt has created a lot of monster-chickens coming home to roost. The only question is when the roosting begins. In the meantime, enjoy the bubbles.

[cute fuzzy bunny]

Yep, this is a rehash of several other similar articles that I've seen from time to time over the last year.

We stand at a precipice of the confluence of a lot of extremely negative trends. If just a portion of these problems kick in at the same time we've got a real mess on our hands.

This guy forgot the part about equities (and most other asset classes) being overvalued vs the mean.

Or maybe each one of these problems will unwind itself individually with limited impact.

And people keep wondering why I include a disaster scenario in my planning...

The real question is how to defend against this?

[unclemick]

Duh? I'm old enough to remember freeze dryed food(7 yrs worth recommended) and well hidden gold bars( 1970's). I think I'll take balanced index and dryer sheets and try to muck it through. The sports size of freeze dryed worked great for backpacking in CO. Never bought gold bars but still have 10% interest in a non-working gold mine. It's patented so could build a vacation cabin on my share of the 20 acres - someday.

[stone94195]

Well, we have managed to muddle-through for the most part but still . . .

I laughed at those who over-reacted to the Y2K thing, but in hindsight, it would have been the perfect time to get out of the stock market. Maybe the dot com crash was unrelated but maybe it wasn't.

You can't be too complacent when you live in earthquake country and I've always thought it wise to be prepared for emergencies of any kind: water, food, prescriptions, a full tank of gas, and emergency funds.

And if you can't rely on the "full faith and credit" of the United States government then you better be sure to have some sort of firearm too.

[JWR1945]

I think that the article is laughable. Our economy is going great guns. We have not been in dire circumstances. We have been through an exceptionally shallow recession.

In the backdrop we have had a situation very much different from typical recessions and all of the economic models have failed except for those of the Austrians. The only solution offered by the Austrian approach is to take your medicine and suffer through a very deep, but (relatively) short recession.

We have been in uncharted territory. We are still in uncharted territory. The closest analogy is that of the Great Depression, which I would just as soon avoid repeating.

The Federal Reserve has chosen inflation over deflation because it has tools and experience for dealing with inflation. It has appealed to judgment instead of statistically based economic models which are far outside of their relevant ranges. IMHO, the Federal Reserve has done an outstanding job.

The United States economy has been the only viable economy for several years now. Only now are we beginning to see foreign nations recover from sub par performance.

BTW, never equate economic conditions with investment conditions. The two diverge often and often by wide margins.

Have fun.

John R.

[charlie]

Where is Ted when we need him? Ted, if you are
there, please pick up!

Cheers,

Charlie (aka Chuck-Lyn)

Hey Charlie. Ted?? You don't need no stinking Ted!!
You've still got me, and while my financial
pontificating lacks the esoteric qualities of the late
great "Ted", I'm a lot more entertaining

For stone94195, packin' heat is a good idea,
regardless of what the economy is doing.
Remember, a Smith and Wesson beats four aces!

John Galt

[BigMoneyJim]

So what investments do you recommend in these circumstances? Something from a pump action shotgun asset class, or perhaps a semiautomatic handgun class? What's the ROI on a Glock 9mm versus a Bersa .380? How can dryer sheets help with storing and transporting ammunition?

[cute fuzzy bunny]

Tough to beat a shotgun for home defense.

Just pumping in a shell usually makes your point.

[markplus4]

I must say the "bear case" probability has been ratcheted up to 30% or better in my humble statistical analysis of the next 2-5 yrs. I think many of us in the FIRE mode don't fully appreciate the extent to which our brethren are leveraged to the hilt....it's anathema to us, but quite the norm for 90% of Americans. Those of us invested in U.S. markets are betting on their continued ability to spend recklessly....any prudent retrenchment would not be pretty for corporate profits/equityvalues.

The fascinating exercise for me is trying to determine whether the bubble will end with inflation or deflation. I'd been leaning towards inflation...but now I'm uncomfortable with that thesis because...a) it's the conventional wisdom....b) Globalization is unavoidably resulting in deflationary pressures on U.S. wages. Seems like to stem the tide of outsourcing will require a "repricing" of American wage levels.

Maybe the most likely scenario is a strong dose of inflation/higher rates, which will break the bubble & lead to a deflationary spiral. Very few places to hide finanacially in that scenario....maybe selected emerging markets or T-Bonds.

I don't get much nourishment from SWR related discussions prevalent on this board, as I don't believe the past is prologue given the new dynamics of globalization. Seems to me that taking our best collective shots at predicting the most likely future economic outcomes, and positioning investments accordingly, will be critical to maintaining our FIRE status. Not that predicting the future is easy.......

John Galt, are you my husband? His two favorite expressions this year are "XXXX! You don't need no stinking XXXX!" and "It's a good thing". He rides a motorcycle without a helmet. He just bought a new gun, drives an old truck, and doesn't like the city. He always has a contingency plan.

Do you have gold and silver stashed away? Do you talk baby talk to the dogs?

I am not signing my name to protect the innocent.

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Seems to me that taking our best collective shots at predicting the most likely future economic outcomes, and positioning investments accordingly, will be critical to maintaining our FIRE status.

Since the Market 'Experts' have never been able to consistently do this. What makes you think you can?

[markplus4]

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Since the Market 'Experts' *have *never been able to consistently do this. What makes you think you can?

A better way for me to have stated my position would have been..."analyze the relative probabilties of future economic outcomes & make investment asset allocation changes accordingly." Great investors do this with regularity....poor ones don't. Buffet bought high yield debt a few yrs ago, and then sold when it became fairly valued.

Looking back at recent history.....
1) After multiple yrs of double digit returns in the mid/late 90's, did the probabilities favor a linear continuation of that trend, or a reversion to the mean via a nasty equity market pullback?
2) Same analogy with the bond market rally....When rates hit historic lows, didn't it make sense to re-allocate away from treasuries & high grade corporates?

[BigMoneyJim]

Quote:

Great investors do this with regularity....poor ones don't.

My problem with that is I can't tell who's a great investor and who's lucky. As demonstrated in most investing books, with the large number of financial gurus a small number will have stellar returns over a long period by luck/happenstance alone.

I'm reading around, and I can see decent cases for the beginning of a depression and decent cases for the beginning of a boom and decent cases for a period of flat returns. I'm not smart enough to know who's right, and I'm too emotionally involved because my nest egg is at stake.

So far it's the best I can do to pay off my debts, have some fun, save some money and pick a stock fund/bond fund investment mix that is widely accepted as reasonably safe by those whose path I want to follow.

[wabmester]

There's a big difference between being able to consistently predict trends and being able to see the occasional obvious trend. * We've got some obvious trends the size of freight trains headed towards us in the form of inflation and higher interest rates.

The definition of inflation is an increase in the money supply. *Rising prices are a side effect. *So, it doesn't take a genius to predict the results of the fed pumping money into the system. * Nobody should be surprised when inflation goes up to an annualized 6% as it did last month.

Nominal interest rates are more a function of supply and demand. * Again, the fundamentals are that our debt is rising very fast (due to reduced taxes and increased spending), which means the supply of treasuries is increasing rapidly to fund the debt. * Increased demand from foreign central banks has been able to meet the increased supply, but the foreign banks cannot sustain this buying without creating inflation in their own countries (principally Japan and China). * When they stop buying, the results will be obvious.

Finally, when interest rates are low, investors chase yield wherever they can find it, namely in stocks, hard real estate, and REITs. * When rates rise, these trends will likely reverse.

No matter what happens, there will be an expert around to tell you that he predicted it.

[sgeeeee]

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No matter what happens, there will be an expert around to tell you that he predicted it.

cut-throat, Your statement is the one prediction I'm certain is true.

[Michael]

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No matter what happens, there will be an expert around to tell you that he predicted it.

I predicited that you would say that.

[Traveler]

For MarkPlus:
Thanks for a thoughtful and thought-provoking analysis of the current financial situation. I'm interested in your general opinion of what I fear will be the next bubble to burst: the (some would say "overpriced") housing market. I have a house in Sacramento, among the hottest real estate markets in the country. My fear is that housing is poised for a slowdown at best and a steep decline at worst. Trying to time my exit....

[markplus4]

Quote:

For MarkPlus: Thanks for a thoughtful and thought-provoking analysis of the current financial situation. I'm interested in your general opinion of what I fear will be the next bubble to burst: the (some would say "overpriced") housing market. I have a house in Sacramento, among the hottest real estate markets in the country. *My fear is that housing is poised for a slowdown at best and a steep decline at worst. *Trying to time my exit....

Well, I don't hold myself up as a real estate expert by any means, but I share your concerns. If rates go significantly higher, which many believe is in the offing, I would expect that higher end homes would be much tougher to sell. Another factor would be the robustness of your local employment market...
I'm astonished at some of the price levels that are bandied about for CA real esate...honestly can't comprehend how people can service debt at those levels. Must be makin' some righteous bucks!