Wednesday, April 26, 2006

Bubblization

"So we have, through trillions of dollars of debt accumulation, created a de facto dollar standard in much of the world economy."

"The debt is based, however, on a worldwide bubble economy, perhaps the biggest bubble in world history. The whole theory behind this comprehensive "bubblization" (a new word for you, referring to the combination of federal deficit, trade, mortgage, housing, and dollar bubble working together) has grown out of the economic theories of the Fed."

From the Demise of the Dollar by Addison Wiggin p88. Mr. Wiggin writes the Daily Reckoning newsletter.

I am currently reading this most informative book. Almost done.

10 comments:

  1. a request

    Can someone who understands these matters well give us all some practical and specific ideas on how best to immunize ourselves against this dollar risk (like buying foreign stocks, for instance)?

    I am alarmed --- I cannot believe how long this bubble has persisted and am growing fatigued from being a contrarian to it; we'll need to be validated some day!

    Just dumped a large US stock position (they are at four-year highs, after all) and am eager to put capital to work in ways that are consistent with the ideas on this (and other) bubble-decrying blogs.

    BTW: a few books that, in unison, rocked my world view:
    Kunstler's "The Long Emergency" (peak oil)
    Peterson's "Gray Dawn" (aging western societies)
    Schiller's "Irrational Exhuberance" (bubblicious)

    How can anyone -- other than an ostrich with their head in the sand -- not understand see much risk is "baked in" (inevitable megatrends) and how there are so many frightful potential exogenous system shocks (e.g. nuclear Iran, bird flu...) out there!?

    Capital preservation for the coming storm....anyone?

    ReplyDelete
  2. tough question.

    1) Diversification

    2)Some say to buy: foreign stocks, commodities, inflation protected US treasuries. Foriegn currency / bonds.

    *Not Investment advice*

    ReplyDelete
  3. not saying you should, but the old conventional thinking points to gold and other valuable metals in serious times of econmoic uncertainty/instability

    ReplyDelete
  4. not having read "The Long Emergency", I think it is fair to say that you might want to consider positioning yourself so that you can continue to be gainfully employed when buying gasoline becomes cost-prohibitive.

    Having access to health care and retailers of food without the need to burn gasoline to get those things would help too. (I understand fully that food and products move around in trucks, which burn fossil fuels, but as long as you mitigate your own dependency on fossil fuels as much as possible, you may be ahead of the curve.)

    Also, look for where the money is flowing in response to the President's multiple recent comments about the need to get off of oil. It will happen only if someone can get rich in the process, and you might be able to ride some coattails there. (and if you have suggestions about that, I'm all ears)

    ReplyDelete
  5. Folks, look, since the beginning of economic time, there has been a contingent out there that predicts armeggedon around every corner. Buying gold, shotgun shells and a 12-year supply of canned franks 'n beans is no more prudent than buying a condo in Reston right now. Relax a little bit, eh?

    That said, I believe there is merit to what some have pointed out in the past few years, and what even Mr. Greenspan has recently acknowledged. The "what" is that all asset prices are at or near historic highs. There really are few exceptions, if any. That includes real estate, stocks, bonds (whose prices are inversely related to yield - low yield = high price), and most commodities, including energy, industrial and precious metals. Fine art is said to be fetching historicly high prices in NY, Paris and Rome, to boot.

    Long story short, something has got to give, and may well give hard. If there is a blow-up, you do not want to be in Micronesian government bonds, Kuwaiti rials or whatever the hell they're called, or any other bit of esoteric weirdness.

    I am NOT an investment advisor, but I am sitting on short-term, U.S. Treasury securities for the rest of the year. I understand the long-term implications of Asian growth, dollar weekness, blah blah blah but I do not want to own "Yuan" in a crisis. Neither do you, trust me.

    There. I feel better.

    ReplyDelete
  6. thanks David and Bryce

    I'd definitely recommend those 3 books to you all. I've been passing the Kunstler book (hereafter, TLE) on to others. To boil TLE down for you, he recommends communities that have (or could again have) intact local economies. So think about farm communities that might be a couple of hours away from major cities. Kunstler loves upstate NY: the non-coastal areas of New England, the northern Mid-West and the non-coastal Northwest would rank below that.

    Problem is, Bryce, to set yourself up for TLE, one would want to wait until real estate prices collapse so you're not paying bubble prices for that strategy. And you are spot on when you recommend setting yourself up to function in one of those small communities -- as Kunstler is proud of pointing out, he can always be the editor/owner of the small town newspaper.

    One more thing. There is a book called the "Coming Generational Storm" (CGS) by a couple of respected university economists that taught me another valuable thing to think about. Our government HAS to raise taxes during out lifetimes, due to all the baked in entitlements, miliary spending needs, etc. So our government will increasingly be "confiscatory". The key, say the authors -- and one of the best arguments in favor of owning real estate -- is to own assets that pay "non monetary" service benefits. {When you own a house, you get the 'service benefit' of getting to live there, which is non-taxed dividend from the asset. The recommendation chapter alone in this book is worth the price of it. BTW: two other great 'non monetary service benefit assets' are your health and family/marriage!}

    So, I believe one should be TLE/GD/CGS oriented over the long-term, BUT the issue is surviving through the popping of the liquidity bubble and recession which will hurt us all in the near and medium term.

    "requestor"

    ReplyDelete
  7. agreed dc_too

    you are smart to point out the China issue

    everyone speaks of China in such loving terms ...but it is a ticking time bomb ...maybe 10 good years 2000-2010?

    Peterson points out in "Gray Dawn" (GD) that China is a big loser demographically. The "one child" policy that kept the Chinese from starving in the 20th century gives them an inverted population pyramid in the 21st (this is the exact opposite of Mexico, where the number of young workers to old retirees is very high). We could go on and on about all the problems they have absorbing all the peasant workers -- hence they keep the Yuan low, and so on -- expect rampant militarism when things turn down. Oh, and if you have any friends who are Chinese nationals, ask them to tell you about the "bachelor" problem -- that is the tens of millions of young males who can never marry, due to the fact that all the "one child" parents chose boys and not girls.

    "requestor"

    ReplyDelete
  8. My opinion on gold is that it's just another excess-liquidity bubble. There are too many dollars out there and they're going to slosh around from one venue to the next until central banks do something to mop it all up. Real estate is now out of favor so dollars are chasing gold, copper, and oil. Next month it will be popsicle manufacturers and banana futures.

    ReplyDelete
  9. Anonymous -- sounds like an absolute bonanza for hookers in China -- even the coyote-uglies.

    ReplyDelete
  10. Being the child of depression era parents (who almost starved) I have been very conservative with my investments. At 58 and getting ready to retire I have a no morgage home ($440K bubble value) $400K in conservative IRA's and a $50K yearly fed pension benefit. Was hoping to get by without too much stress in my "Golden Years" but the projected economy is starting to give me the jitters. Is it all a crap shoot at this time or are large number of hopefull anarchists venting on these blogs??? Does the average grunt run, stay or get out of the way?

    ReplyDelete