Where The Heck Are We Or Where Should We Be?

[Guest yobob1]

Ok this has nothing to do with oranges, but maybe something to do with frozen OJ concentrate...then again maybe not. I know there are many people that would like to see OJ concentrated and frozen, but that's a whole nuther subject.

 

First a little checklist for those preparing for the reality ahead.

 

1. Are all your assets paper, denominated in dollars? If so go to the back of the bus. You're not paying attention. It should be noted that physical assets are best stored at home..not a safe deposit box where your access is controlled. Money market funds should be abandoned. Go to a passbook savings as an alternative for holding cash for now and consider buying real gold or silver for cash you don't think you'll have an immediate need for. There is little to be gained for the rapidly rising risk in money markets.

 

2. Know your bank. Is bigger better? Is JP Morgan the one you want? Personally I think small banks with conservative management will fare better in the long run this time around than the mega banks with so much exposure that they can be considered indecent.

 

3. Have you eliminated all debt? If so you can drive the bus. If not, you don't have any time left. Stand in front of the bus and act like premature road kill. Now I know a lot of you won't sell your houses and I certainly wish you the best of luck, but my read on real estate says that there will be very few markets (if any) that don't experience some loss of value. The bigger the boom the more likely you'll get a big bust, which is not the same thing as a boob job though it is surprising how many boobs have jobs. As a minimum average I would expect property values to fall 20% over the next few years and plan accordingly. Hopefully you haven't mortgaged the darn thing to the hilt to short stocks with. Bear in mind that the average equity in all mortgages nationwide is 16% even after all the appreciation we have seen over the last 8 years or more depending on the market.

 

4. Do you have enough food on hand for 2 or 3 months at least? If not do so. Don't go out and buy survival food. for the most part it sucks big time and is expensive. Just stock up on the things you normally eat. Build a pantry stock and maintain it, rotating the food as it is consumed. In the long run you'll find you can save money by buying when things are on sale and avoiding trips to the store every day. Vacuum packing and freezing bulk meats is also something I find I like. In the event of some sort of supply disruption your local store would, under normal circumstances, be out of food in well under a week. In an emergency situation the shelves would empty in a matter of hours. Water is something that need to be considered on an individual basis. Some of us are fortunate in that we know our locale, and have access to a natural safe or usable water supply not connected to a water system. Those that don't, might want to save their milk jugs and store some tap water. Chlorinated tap water is preferable for storage. If the chlorine bothers you simply let the water "breathe" for a day before use. Most of the chlorine will simply vaporize when the water is exposed to air.

 

Now if you're a good little stoolie you will have already taken most of the steps above. The most important aspect of preparation is the flexibility it gives you. To say that things are unsettled would be a gross under statement. The potentail for unpleasant surprises, IMO, has never been higher and trying to judge just which direction those surprises will come from would be nothing more than a wild guess. My guess is one crisis may beget another, possibly in a cascading manner.

 

So as we near the end of the year, just where are we? The stock markets look poised for a major bruising, the bond markets don't look a whole heck of a lot better once you stray from US notes or AAA corporates, real estate is peaking in many markets and has peaked in some, and savers are being punished severely. "Things" are the only items doing well on a selective basis.

 

As to where interest rates (10 yr treasury yeild) are headed, my guess is down within a couple of months. First the fed has not totally expended it's bullets. Just because they have short rates at 1.25 doesn't mean they can't take them to zero. While this won't necessarily move long rates it does add to the suction from below. I would expect they would do that before leaping into Bernake's wild and irresponsible suggestions. Secondly, in the event of a stock market sell-off (which I expect), I still think the US bond is viewed as risk-free and will likely benefit from that status causing rates to drop below 4%, posssibly much below depending of the state of Uncle Buck in Q1, which I expect to be relatively unchanged. If long rates drop to 3%, will another re-fi boom ensue? Lord only knows, but my guess is no. For that to occur we need not only lower rates but continued house price appreciation, and for now that seems to be tapering off in an accelerating trend. I also expect that a lower 10 yr might just manifest itself in widening spreads across the board.

 

Gold continues it's subtle rise to monetary status but is still "constrained". Silver has a date with destiny, but that may take a while to manifest. Oil prices are "sticky" and it's very unclear which direction they will go in the short term, especially in view of Shrub's impending visit to Bagdad. Long term oil has nowhere to go but up. Agricultural products seem vulnerable on some fronts. Industrial metals should head down longer term as we get deeper into a global "slow-down". For now, most of the rise in the commodities markets, if you strip out PM's and oil, look speculation driven. When you deal with things, fundamentals will always prevail. In the long run, physical supply and demand will set the price regardless of the manipulations by paper speculators.

 

Major asset classes are poised for deflation. Virtually anything that has benefited from low interest rates and easy credit is likely to deflate. A whole bunch of the financing being done now and for the last couple of years has been sub-prime. A lot of that subprime debt is already going bad. That trend will accelerate and will spread upwards through the credit scores. As debt fails, lenders inevitably tighten up standards slowing credit growth. Once credit growth stalls, the percentage of debt going bad mushrooms simply because not enough new credit is being created to disguise the bad credit. In short, even if a can of tomato soup goes to $3, don't expect your car, furniture, house, boat, RV, ATV, or anything similar to become more "valuable" (priced higher in devalued dollars).

 

And what of our dear Uncle Buck? Unless something major or stupid happens I wouldn't be looking for Bucky to do much more than oscillate near where he's at for quite a while. If Bucky falls out of bed and rips out his feeding tube, you can kiss the whole global fiat system goodbye. They will prevent that from happening at all costs, despite the fed's recent puffery about not allowing deflation. It's one thing to say it, it's a whole different matter to actually do it with the dollar being the reserve currency. IMO, Bucky's biggest danger may lie in the geopolitical arena as opposed to the financial arena. Of course eventually all fiat goes to zero. How long it takes Bucky to get there is an open question and is the primary reason you need flexibility The value of Uncle Buck could be the least of your worries in the event of collapse. Failure of a fiat implies failure of the issuing government. I often find fiction precedes reality. (see Jules Vern, Tom Clancy, etc.) Given the proliferation of "Mad Max" genre films/books over the last couple of decades, the seeds of reality may have already been sown.

 

So be prepared for a fun filled, action packed 2003. I think so far all we have seen is the warm-up. With car sales waning, the lone pillar (of salt?) remains housing and that is showing definite signs of weakening. When housing succumbs, the acceleration to the downside could well be breathtaking. Of course that assumes a terrorist attack or a muffed Iraq excursion doesn't occur first. I'd lay even odds on either of those. No more time for contemplation of your navel, get your house in order.

[Hypertiger]

Wipe out most of the home equity, factor in realtor fees, and a whole host of other complex factors to arrive at the conclusion that many millions of home buyers will lose the ability to borrow (create debt), and all the money (debt) they have already created (potential savings) have been vaporized. At some point it will magically stop. 2003 is a write off and 2004 is a done deal. I sold my house 3 months ago and they are selling it again all ready? Feels like a deflationary shockwave (Panic) is about to show up very soon? months? You?ll have to be lean and mean?

[ThorAss]

Houses and debt will be hot potatoes passed for pennies on the dollar to speculative interests or strongarm outfits. Have neither. Tell no one about your heavy metal and make yourself hard to find in case they decide to come looking for you. Do not confront them, you will lose. Just stay out of their way.

[Guest yobob1]

The original post has been expanded and revised.

 

Where the heck is Machinehead? I throw out all this tempting bait and he's awol.

 

By the by if you've caught Thor's recent post about participation in the gold forum, I agree. Sometimes a guy wonders why he even bothers. However for me it is as much therapy and helpful in organizing thoughts as it is about anything else. Most of the members are intraday day-trader junkies, which is cool. However most still seem to think we can make a ton of money shorting stocks and have no uninteneded consequences. Well maybe, but it would be the first time in history problems of this magnitude ended up just disappearing without a great deal of pain showing up somewhere. Whatever it takes to pay the bills, and I'm grateful for Doc keeping open forums which generate no income directly.

[Goldilocks]

Let me just say this..... I just paid Doc for the first time (1yr subscription). His anals seem very good. I, however, don't need them though as I don't trade anymore. Wait, that's not true..... his insights on the Feed and mortgage stuff is priceless. So I certainly paid for those as well. But what I really paid for was the forums populated by Yobob1, Machinehead, Threadbare, EasyAL, SEG, etc....... So keep at it and don't lose heart. That goes for the crazy gold guy in the Pacific rim as well. All of us appreciate the good Doctor. Some of us appreciate the shared community insights even more.

 

Don't ever let them overthrow you. They may conquer all that they think you are. They may take all that they think you have. That does not mean they have overthrown you. It only means they can be fooled into thinking they have overthrown you. Don't ever let them overthrow you.

[machinehead]

Not AWOL ... just keepin' a low profile. I agree witcha on stocking up. Wasn't there a book back in 1980 called The Alpha Strategy, about storing food, fuel, toilet paper, gold coins, ammo, you name it? Some day we'll have to dust those old books off again. The research has already been done for us.

 

I'm sticking to my view that the long interest rates are headed up, though. The CRB index is at 232, right at the edge of a 2-year high. If it breaks out, that implies higher interest rates ahead.

 

By the way, counterfeit yen dropped on Japan in the 1940s echoed yobob's advice ["American" is substituted for "Japanese" to bring this up to date]:

 

?To the American people! The money and bonds deposited in the bank, are they of any use? I recommend that you rather buy daily necessities and commodities you will need in the future, because goods are becoming scarce. On account of the air raids, most shops will soon be unable to open. To cope with these difficult times, we recommend you buy food, clothing and daily necessities. Money alone cannot prevent hunger, and it cannot be used in place of food and clothing. With savings bonds you cannot stop a child from crying. If you are prudent, you will buy commodities instead of depositing your money. This is not a time for saving. Now is the time for buying goods.?

 

Buy now, citizens

[Guest yobob1]

Nice to know you're still alive, MH. Just in case you're right about IR I am working on perfecting my scan and print techniques on Mr. Grant. I sure hope doc appreciates all the hard work put into creating this work of art. Besides if we all chip in and help out with the printing, we can get that inflation the fed wants just that much sooner. I just sure I'm in line for a letter of commendation with this susggestion. Why would they possibly object?

 

I still think a flight to safety will negate the perception of inflation. After that all bets are off. The way things are bouncing off the walls these days, forecasts are valid for about 5 minutes.

[machinehead]

Use your sense of humor on those Grants, yb1:

 

[ThorAss]

Goldilocks, I'm shocked. :shocked

 

What me, crazy?

 

You can feel the luv in this place, its tangiBULL.

 

Man, that's a nice dong. Is it real or counterfeit?

[machinehead]

It's a French-made propaganda note. About two-thirds of the way down in this article:

 

Counterfeit notes of war

 

The interesting point of this article is that the propaganda is usually true, pointing out to the enemy population that their paper currency is losing its value and may become worthless. But governments invariably tell their own populations that their paper currency is stable and valuable.

[MaxxPain]

1. 70% paper, I'm going to the back of the bus. Biggest chunk of that is in 401k and there's no way to get physical. Just avoiding stocks.

2. Bank, no problemo

3. Debt, what's that? I admit mortgage debt is tempting.

4. Food, I can make it two weeks. If the electricity goes out your meat is gonna rot. I dislike canned food. I guess I should research food storage some more.

 

With the volume of posts on the Stool Pigeons Wire and other mandatory reading, it very hard to keep up and visit every forum. I should be sleeping right now. I may have to cut my time visiting here because I've been ignoring other priorities. It's a time management nightmare.

[Guest yobob1]

True, maxx, a loss of electricity could be a problem. My top loader will hold a sub freezing temp for about 48 hours, which gives me some time to either find alternative storage or alternative power for the freezer. I don't rely on the freezer for my survival stash which is comprised of canned and dry. The freezer is a "luxury". Worst case scenario? I just throw a hell of a barbeque for the neighbors.

 

I grow a little weary of the 401K argument. "I can't take money out! The penaltys, the tax, oh the humanity!"

 

Can you tell me the avearage 401K holder is money ahead over the last 2.5 years by clinging to their 401K as opposed to where they would be if they had cashed out, paid the tax, taken the penalty and then planted it in a savings account paying 1%? And who's to say what the tax situation will be, should you be lucky enough to live to retirement age? Maybe they will decide that in order to "balance" social security 15 years from now a special levy will be made on 401K or Roth IRA accounts? Thanks but no thanks. I'll take the pay as you go approach, so I am in full control without restrictions and the money "saved" is already tax free when I need it. That way I don't have to ponder what the greedy bastards will do to me later. IMO there are no "gifts" from the government. Invariably they turn out to be Trojan horses.

 

One of the hardest lessons I've had to learn in business is to know when to cut your losses and move on.

[MaxxPain]

I can borrow some out of the 401k but I can't withdrawal any permanently unless I quit my job, probably counterproductive. I'm thinking that if I lost my job I would take money out of the 401k at a rate slow enough to remain in a lower tax bracket. Right now the 401k is my only tax shelter. I could stop contributing but I'd pay alot more taxes.

 

It's confusing, nothing makes sense anymore.

[Guest BEARDRECH]

MH wHEN I WAS TRAINING AS an aerial gunner(b29 tail) during the korean war they showed us a silk handkerchief imprintedwith korean writing as well as a US flag--it was called, if my memory(what was that?) serves me correctly,a BLOOD CHIT-WHICH TRANSLATED MEANT that if we were shot down we were to show this chit to some farmer who, if literate enough to read it ,stated-"deliver this airman to the ------town and if he survives you will receive $15000 in GOLD. the destination was any one of a a number of minute islands off the western coast---

This"leaflet" ,if you will, exemplifies many ironies,one of which is the fact our freedom,in an emergency, such as described above, depended upon an element which, today, is being hunted down by the very country that used it for purchasing the freedom of downed US airmaen years ago--

I certainly hope some of this tactical wisdom is being used in our current leafleting of the iraqui front lines which ,i'm hoping ,will crumple without firing a shot--we shall see wont we?

And Yobob what do you do with a wife who happens to be one of the most misdirected ,boobish ,anti-survivalist saints in the world--she and my daughter think it unfair if we have soup to eat if our neughbors lack the same-and taking advantage of this difference,in their most spiritually estimable opinion, wouldnt be "right"---an example: i bought at least 40 cans of soup recently in a rather pitiable attempt to prepare us for some of the worst to come--finding my stash do you know what they did? they used all of them to purchase a fare on the local ride-on which, annualy,on thanksgiving, runs a food drive for the poor--they are the kind of people,who if occupying aposition in a fleeing lifeboat,would open the petcocks thus enabling the overshadowed water beneath a chance to see and reflect sunlight--and WHY? because it just isnt fair to water beneath--QUESTION ! How do you survive with people such as my beloved dysfunctional anti-survivalist idiots???????

beardreech