Wednesday, December 07, 2005

Future History 2005-2012

Mortgage rates are low because of the velocity of money and the lack of risk premium built into the cost structure.

"Foreign investment" has always been around. If you were a rich capitalist pig Nouveau Riche ChiComm would you entrust your money to the mainland financial system? NFW. And balance of payments data are broken. No longer reliable. It isn't as bad as it seems.

What long term is gonna kill low interest rates is the necessity to inflate our way out of paying back all the SocSec money that isn't there but that's 8-10 years away.

In order of occurance:
1 Velocity of money slows down (M3 no longer reported, coincidence?)
2 MBSecs fall out of favor in the secondary markets.
3 Commodities pricing finally honestly shows up in the inflation data.
4 The Republicans (re)capitulate on taxes (again).
5 The Fed screws up one time too many.
6 The boomers start drawing down earlier than ever expected at the same time the extended lifespans of their parents so dearly bought both radicalize health care and push assetst onto the markets. Property and stocks, etc.

Welcome to a short history of 2005 through 2012.


Anonymous said...

great summary--there are so many that will come together in the next few years that it looks like one big financial storm. What should we do to protect out assets?

Rob Dawg said...

Wow, what a big serious question to ask an unknown blogger. Straight answer to "What should we do to protect out assets?"; I don't know but I suspect.

I know assets owned (not a primary residence house with a mortgage) beat investments based on future earnings. I suspect most commodities (except gold) are assets. I don't think gold is purely a commodity anyway or even an effective inflation hedge as it more resembles oil than any other commercial ore. Newmont's viable holdings in ounces rises with price. Just like oil. I also don't think it is as stable as in decades, centuries, millenia past. We can physically make more of it and between its' sensitivity to cultural demand and local economies it has fallen out of my favor. Land was usually a good idea but since 1997 distorted in the US by false signals and amateur meddling. Same to a lesser extent in the landlording business. Energy markets are for traders as are technology. Natgas is overpriced, Apple is underpriced but both are going down in the next round.

Protection implies insurance. What is insurance but risk spreading and careful management? I remember meeting some of the" big guys" at a major in Hartford, CT in the 60s. These guys didn't pull down 800x the lowest paid employee. They'd never consider spreading risk returns as to capture the speculative element. They were. dare I say it, "bred" to be stewards not kings.

Asset preservation depends on several things. Are the paper gains actual gains? Realizing those gains carries a penalty. Could the remained do more good where it is?

The "silent spring" in real estate this March will do much to focus peoples' attention. That real estate market turmoil will spill over into every market; bonds, stocks, the general economy. Stupid 42" plasmas aren't the problem. Even SUV sales are not going to be a big deal. Those are "creative destruction." The real value of the US economy will be proven to be its self healing and flexibility. To protect the inate value of the US economy or individual assets means correctly pricing risk and carrying costs. A fixed rate mortgage for anyone with a note is a good idea. California's Prop 13 is a good idea. A share of Berkshire Hathaway ($89,500/share) speaks to the issue of value over price.

This is a time to sit tight. Presumably you didn't make any stupid choices recently so this should work.