Monthly Archives: June 2008

Tripping Around the Web

This guy has an interesting idea on how to handle the banking crisis in America. (It’s the June 30th entry)

A story about how a group of people were taken to the cleaners on real estate loans in the past few years.

I don’t mention this much, but when I was investing in properties I was taken to the cleaners on one deal over the financing. The broker I used promised me a product that he ultimately wasn’t able to deliver. He got me into a loan for temporary construction financing to rehab a property, but then he couldn’t come through on the permanent financing he said was part of the deal. I was able to secure permanent financing because we have good credit histories, and I’m educated about the market. But, if I can be misled how does someone with little education handle it?

You want to know what retribution I was able to make against the broker? Nothing. I complained to the state regulatory agency and when they couldn’t get him to respond they said I could sue him for extra costs I incurred. It wasn’t worth it to do that though. I wasn’t seriously hurt by it, but I can imagine someone not in my position being hurt much more by it. When there are stories in the news about people being taken advantage of I don’t assume that it was just people not being educated, not anymore. It irritates me when people say that “it’s what they signed up for”. Well, if I have a vested interest in it I can explain almost anything to you in such a manner that you would think it was a good idea.

Some gardening ideas from John Jeavons.

A world with $200 a barrel oil.

Some ideas on $200 oil from the Oil Drum.

The End of the Oil Age. (Good point driven discussion, not just opinion like me…)

It’s Contaminated I Tell You!

Danger Will Rogers!  Danger!

The city has posted “keep out, contaminated soil” signs at the garden plot.  So now I’m wondering if I should really be concerned or if I should sneak back to plant something.  I see other people back there planting things so I’m not sure.

If I don’t plant any food perhaps I should plant some cover crops?

Do any of you have any opinions?

Gone With The Wind-Best Book Ever?

Hold your hats folks, we have another contender for the best book I’ve ever read. I finished Gone with the Wind before all this flood mess started, but haven’t been able to write about it. Amazing book. Fantastic. Easily on par with The Grapes of Wrath for my favorite book of all time.

When I first started the book I thought it was bound to be a love story along the lines of a soap opera or something. But I gave it my requisite 100 pages and then I simply could not stop reading it. It’s an amazing story. The details the author put in about their adventures and what was happening around them are just breathtaking. Sooo much detail and information. And the tale of love mixed with society’s rules and written in a time period of such huge upheaval in a way of life.

I should have written this down when I finished the book, because now I can’t remember enough to really discuss it the way I want to, but this was such a great book. That’s all I can think of. Such a great book.

I checked out the Wiki page for this book too and some of the info about the author is incredible. This is the only book she ever wrote! And it took her 10 years! I can’t blame her for not writing another book after churning out 1K+ pages with this book. And before the age of computers when it was easy to edit them!

Linkety Link

I’ve been finding some interesting articles lately (I read a lot and only put up the ones I find the most interesting) that I want to share.

How oil prices affect American life, as written by an Englishman.

Peak Oil analysis from ASPO.

Discussion about credit card debt being the next debt to make news.

Article about people living in their cars. I think I saw this on Dateline too.

Independence Days Update

Planted something: Planted more squash/cantaloupe/watermelon, I can’t remember which one it is that’s growing there now.

Harvest something: Harvested peas and lettuce. Rhubarb and a few onions. Also onion and garlic scapes. Spinach, swiss chard, broccoli also.

Preserve something: Made up quite a bit of strawberry jam, and some with rhubarb in it. (check my storing tab. I’m trying to keep it updated) Froze .75 lbs of rhubarb, 1.25 pounds of broccoli and 1lb of peas. Canned 9 pints and 10 half pints of jam.

Prep something: I ripped out the peas that the rabbits killed and I’m prepping that bed for beans (probably). Preparing some traps to catch the chipmunks and rabbits so they can be transported to a new location. I keep trying to build one more bed for potatoes but it seems to keep getting put off.

Cook something new: Well I made two new jam recipes. And this time the jam actually jammed so that’s a positive. Tried a new recipe for creamed peas, but haven’t actually eaten them yet. Haven’t had a lot of time to cook this past week.

Manage your reserves: I don’t think I ate anything from our storage this whole 10 days or so. It’s been mostly fresh.

Local food systems: Haven’t done anything I don’t already do.

Reduce waste: Nothing new.

Learn a new skill: Nothing new.

Is Inflation The Real Threat Here?

There’s been some yapping lately by the talking media heads about inflation. Inflation, inflation, inflation. Everyone’s worried about inflation. Food prices are surging. Oil prices. Gas prices. They’re all rocketing up. I gotta tell ya, when an economy is in a recession (or heading there, depending on who you talk to) the thing you have to worry about is deflation. Inflation is basically the thing that makes our debt based society go around. It’s what allows stocks to grow each year and for corporate profits to increase year after year. But deflation, it’s the noose that restricts the airflow of the economy.  The noose that kills the golden goose.

Check out this simple definition of deflation from Wikipedia.

…deflation is caused by a combination of the supply and demand for goods and the supply and demand for money, specifically the supply of (demand for) money going down (up) and the supply of (demand for) goods going up (down).

I’ll reword this and break it down; demand for money is going up and demand for goods is going down. Does this sound at all like the world we live in? Aren’t we hearing about car sales being off? (I’ve seen projections for them to be off by 30% this year over last year) And house sales?  (Down at least 30% + and house prices are off 15% or so according to the most recent Case-Schiller report)

And just about every retailer you know of is cutting back on expansion and saying their same store sales have dropped off. People are taking refuge, and honor, in being thrifty, cutting back their spending and saving their money. Perhaps the demand for goods is going down?

Inflation (aka price increases) usually occurs because demand for goods is higher than supply.  Because people feel wealthy and are willing pay the prices demanded.  Because things are good.  A current example of supply and demand is the food and energy markets.

About the demand for money; How many of you know someone who is hoarding cash right now? Or, is paying down their debt as fast as they can to be debt free, thus not buying things? Or how many people do you know who have stopped spending for trivial things, thus showing they value their money over these said objects? Perhaps the demand for money is going up?  Do you think?

Or, even in an environment where a savings account pays less than .5% interest people would rather have that cash in hand “just in case”. Is it possible that there has been a consumer sentiment shift from just a few years ago?

If both sides of the equation are true does that make the statement true?

I mention this because if you aren’t outside the mainstream media when you get your news you’re in for a world of hurt because this will hit you and it will surprise you. You won’t be ready. But you have to be ready. If you aren’t, you’re looking at a Depression era level of destruction to your financial worth, and really, to your whole chance for survival.

If the economy does go into a deflationary cycle you have to be prepared. If you haven’t yet, read that wiki page. If tells you what you need to know to be prepared. If you are in debt when deflation occurs you will be paying back your debt with dollars that are worth more than they are today, not less like a normal inflationary environment. How would you feel paying off your mortgage with dollars that are worth 10% than they are today? And the year after 10% more? And then 10% more? Normally inflation eats up the value of a dollar so they are worth less each year we are paying on a debt than the year before.

If you are in business and you assume you can continually raise prices you will be hurting. Some industries are accustom to this, but what if GM has to sell their cars for 10% less next year to get them sold? And then the year after and the year after? Or, can’t sell them at any price because people are hoarding cash for the next batch of lower prices? That’s what happened during the Depression. Prices got ridiculously cheap for most things, but no one had any cash to buy them, and if they did they didn’t want to spend the cash anyway.

That’s the nature of a deflationary environment. Regardless of price no one is buying. But what should you do about it?

Well, get out of debt first of all. Cash becomes more important as prices go down, not just so you can take advantage of them but also so you don’t have to use an asset that is increasing in worth to pay for something (goods, house, car) which is declining in worth. Also, it’s a good idea to have cash available to buy things when they are on sale. It’s been said, “A recession is nothing more than a garage sale for the rich.”, and it’s so true. They are ready to step in when things go south while the rest of the people are all desperate to sell. More people have gotten rich buying in a depression/recession than buying in a rising market.  And it’s a safer way to buy too.

Even though they are slightly inflationary right now, it’s a nice comfortable feeling to having some food stocks on hand so you won’t have to worry about any shortages.

Personally, almost all my investments are in cash. You can’t own stocks during a deflationary period because the profits of the companies’ will get crushed, and the direction profits are going dictate the direction of stock prices.  Profits down, stock price goes down.  It’s as simple as that.

Owning fixed income investments are also tricky because rates could go down further as the Fed gets desperate to stimulate the economy.  Today they froze rates, to monitor inflation (right).  Already there is a serious disconnect between the Fed Funds rate and the real rates being offered in the market. This means that the Fed is trying to stimulate the economy, but the banks aren’t buying it and they aren’t lowering their rates. That means less lending and that means less spending by us, the end consumer.  (Even though the Fed Funds rate is really a benefit for banks to borrow from other banks, not for us to borrow from them)

Eventually the Fed will have to bring rates up to attract the investment they need to fund our country’s budget deficits. (Who are these people that keep buying Treasuries at 2% a year?) Depending on interest rates fixed income can be a nice place to be in a deflationary time. If things really go sideways, and no one wants to invest, rates will have to keep going up and up and up until they attract investors. This is what you need to watch for. Sitting on a nice pile of steady incoming cash flow while price go down opens up a lot of possibilities on further opportunities for this cash, which is appreciating.  Not to mention serious price appreciation if you are sitting on long term securities if or when rates ever come down again.

My cash is in CDs because I’m able to have it insured by the FDIC if something happens (although I have my doubts that they can cover all the potential losses) and I can get a slightly higher rate than with Treasuries. I also am geographically diversified with them to spread out the risk over many different areas in the country.

The big thing is selling anything you want to sell now vs.. later. This is the opposite of how people act when their is hyper inflation. With hyperinflation people buy their goods as soon as they have the money because the goods will cost more, and the money will be worth less, the next day. But in deflation it’s reversed. Goods become less valuable. So if you are trying to sell your house, get it sold. If you want to sell a car, get it sold. Get that cash in your hand so you can enjoy it’s appreciation.

In the face of deflation people usually run to commodities for safety. Gold, Oil, Metals, Food stocks. I can’t talk much about them because I don’t know those markets. If you do, feel free. I can tell you that they’ve all had massive run ups in the past few years, and I personally stay away from areas with recent and rapid price appreciations because there’s too much downside risk.

I think it’s too late for a lot of these things to happen. I think the momentum has already been started. Housing started it but then consumers cut back on their spending to payoff their debts. People are maxed out, which means they will keep cutting back on their spending. If things go bad, they’ll start defaulting. So far we’ve only heard about subprime mortgages, but soon it will be cars and credit cards and prime mortgages.  Unemployment is starting to rear it’s head and that will further push this snowball down the hill.  Each job lost begats a portion of another job, which is a portion of another job.  This continues on and the ones who are still working start hoarding cash in case they are next.  On top of that, the banks are flat out tapped out for their cash.  They’ve used their cash to make too many bad loans, and when these come home they will be starved for capital, until the capital dries up and they go belly up.

It’s time we all start thinking really seriously about this new future in front of us.

Link Parade

I wanted to share a few links with you tonight.

26 things to do to manage your anxiety.

How to best spend your tax rebate.

Comparison of American and North Korean food situations.

An interesting raw milk video. I wish I could get raw milk in Iowa. It’s illegal to buy here. I’d have to buy a cow, and that just isn’t going to happen anytime soon.