Yesterday I tried to find an interview from sometime this year (I think) where Marc Faber made a comment about not buying too much in the way US stocks but specifically thinking that owning a defense stock (military contractor not defensive staple stock) was a good idea. I'm a huge believer in this.I did not find the interview I was looking for but I did find this little ditty that cites comments from Faber and Jimmy Rogers each talking about buying farmland and the potential for social unrest.
A lot of folks feel this way. One viewpoint that seems to pop up in these conversations is that we will somehow revert into a society that looks more like pre-industrial revolution America; more agrarian perhaps like the recent TV show Jericho.
I believe part of the new found awareness of commodity investment is some sort of desire for a simpler society. I make jokes all the time about shot gun shells and whiskey becoming the medium of exchange similar to what my brother has told me Howard Ruff used to say about ivory soap and cans of tuna back in the 1970s; maybe wealth will be measured in goats or perhaps daughters. The emotion that has cropped up as a result of this decade looking a lot like the 1930s is causing some people to lash out, loudly in some cases, against what our society has become.
There is fear that there will be social unrest, that our financial system will literally collapse and that large cities will be like police states with curfews. More than a couple of people have written about neighborhoods where some houses will be overcrowded with multiple generations living under one roof and other house sit there abandoned and dilapidated.
Can I just say Chillax Brrrrroseph?
Creative destruction is still alive and well. Technology continues to improve our lives at an accelerating rate. Advances in medicine are occurring at an accelerating rate. I have not seen any forecasts calling for unemployment to get anywhere near the 25% of the great depression so it is difficult for me to see how society can turn completely inside out if 85% of us still have our jobs.
The US is still the dominant military power, still the straw that stirs the global economic drink and it would be bad for everyone for these things to change abruptly.
This does not mean that things will not change because they will. Other countries are catching up to the US (still have a long way to go) whereas the US is in a position of weakness and trying to hold on to the top spot. I've written about this before; I think this results in dollar weakness, the dollar becoming a little less relevant and higher interest rates playing out over a long period of time but people in other countries will continue to aspire to the American lifestyle.
Additionally the delevering of US consumers, corporations and banks will continue and will have a lasting but not ruinous impact. We will still be leaders (not have the top spot to ourselves necessarily) in medical and technological advancement and be globally relevant even if, as mentioned above, a little less important in some aspects.
There is an aspect to all of this that the US is going to have to reinvent itself, well partially anyway, and even if that process is difficult I wouldn't bet against it.
Care to weigh in on this?
16 comments:
I wrote this post before I saw this comment comparing now to 1890 which is the type of sentiment I had in mind.
Even if the US does not decline I would not look for it to grow as fast as many other countries going faster. The sky does not have to fall for the US to be a bad investment.
If agrarianism is a great idea, then why haven't we run towards it? It's a place we came from, but hardly seems like a destination. Or are you predicting the death of capitalism and being forced backwards in time? Sorry, I'm a bit slow this morning.
the first half of the post (it is a little long, sorry) spells out what I think some folks believe to be going on. the second half of the post addresses things we still have and acknowledges that while we may not be the best investment destination it won't all blowup with social upheaval and probably won't be much different, a little, not a lot.
I read an interesting article recently (can't remember where) which argued that the US would maintain its position of global leadership because capitalism has become inextricably intertwined with the enduring principles of freedom and personal liberty. Contrast this, for example, with societies where the intellectual capital is spent defending socialism or enforcing religious mores.
just thought I post some great real estate agent math:
“Do the math,” said agent Mark Zawideh, who has been selling homes in the suburbs west of Detroit, where prices have declined 18 percent in the last year alone. “If you’re in a $200,000 house (the median price in the area) and you lost 18 percent, that means you lost $36,000,” Zawideh said. “But if you’re moving up and buying a $500,000 house, that person just took a $90,000 loss, so you can see you’re making 54,000.”
That's laugh out loud funny.
I'm surprised I haven't seen the dollar cost averaging concept applied by agents yet. If you own a home, buy another investment property to capitalize on the low prices.
Because it is so difficult to see what the next "new" thing is, people are always willing to count the US out. Every ten years (much like the every 10 year scandal cycle we are on) or so people say the US is done.... As you mention, innovation and creative destruction either originate here, or flourish here because of our capitalist structure. (Ignoring political commentary at this point) We have over 300mil people in this country that not only have access to education; they are allowed to try to make their ideas work. This is not the case in much of the WORLD. Everyone likes to see the top team go down (especially the dirty dirty Yankees) but the reality is we have the tools to stay and become better. If foreign gov’ts actually let their people grow their ideas, the US would be in trouble – thank you Jackie Chan – until then, I do not see the tools that allow intellectual revolution in China, India, etc. I see a numbers revolution of wanting to buy middle class goods…but I don’t recall Hershey Bars and Dole Fruit Company working on nano technology. As far as investments go - I agree there is a lot of opportunity outside of the US as a new middle class grows - we all know this, but its too easy to play down the US…as a contrarian it seems something is amiss when everyone chances the foreign investment.
I laughed out loud at the real estate math too but also thought, crikey, once you've made your living in sales it's probably really hard to think or talk normally again: Everything is schtick, everyone is a mark, your book is you.
The reversion to an 1890's style agrarian economy is a complete fantasy at the level of society -- moving a highly integrated, post-industrial society to that state would probably involve something on the order of a 60-70% drop in population barring an invention involving teleportation or at least the solar conversion of air into food, water, transportation and antibiotics -- but on the individual or family level I suspect a number of folks will give it a try even though I would expect most to fail: I worked as a ranch hand for a year and a half when in my 20's and never worked harder or longer hours in my life but considered myself lucky at the time because the farm hands worked harder and longer than that; couldn't do that kind of work now if my life depended on it, which it would.
The US has reinvented itself before so I wouldn't bet against it longer term even if the dictates of investing correlation do call for allocation to a greater percentage of international or alternative sources. Shorter to intermediate term it is likely the US will recover econonimically before either Europe or Asia even if that recovery is not as robust in historical terms. That is not a market prediction though and a re-test of the Fall lows would not be out of the question first.
Shorter version, I see no reason to go into hurry-up mode or materially alter strategy. Tactically I'm having a pretty good time but still can't believe those SOB's at G-Sachs announced Ford a winner after I sold some.
Random's perspective, in my opinion, is correct. I remember, not fondly, Howard Ruff. Don't get me started on him and contemporary versions of him. When I want to read the tinfoil-hat perspective, I go read the postings made by readers at the CR blog. (Mind you, CR himself posts interesting stuff.)
The joy of the internet is that worthy material is available to a wide audience. The bane is that idiocy also is widely available.
Thanks to our host for his worthy material, and to the generally intelligent correspondents who show up here.
BillM
thank you BillM
"Thanks to our host for his worthy material, and to the generally intelligent correspondents who show up here."
Agree!!! Although I might not
be considered "generally intelligent"....I'm smart enough
to read Roger's blog everyday.
Roger
Well put.
One thing that worries me very much is the generally low level of decision making ability of many individuals. Advertising is usually geared toward an 8th grade level...and many, many people eat up the soothsayers in ads. Just listening to the average person being interviewed on the street will make your eyes water (ala, Jay Leno). We have to improve our education system in the lower grades.
to Anonymous 6:00 "enduring principles of freedom and personal liberty"
.....I'm not sure if "waterboarding, torture, lying, cheating, unethical conduct, etc" are the principals of freedom we started off with.
In Ayn Rand's "Atlas Shrugged", which I read many years ago in college, what would happen to the elderly, the sick, etc.... that could not take care of themselves? And who would decide their fate??
Just questions I'm pondering in these intersting times.
What I believed that has been occuring in the US for the last 20-30 years, is finally being being realized by others. Americans have been fooling themselves to thinking they were better than everyone else. Now, take a look at our educational levels, population health levels, income, ...the US is now lower or trending lower than many other countries. We are no longer "great" leaders. Just look at all the bickering going on between political parties. This is endemic.
Roger, This is off topic but if you
could explain, it would be appreciated.
I just read an article on ETF Trends saying "the carry trade
..."is on the move again. It
talks about DBV. In my reading
on Yahoo, people posted that it
should not be held in a taxable
account....nightmare tax problems
etc. I remember you saying that
you bought a currency ETF awhile
back...did you have the tax nightmare experience? I think it
said something about a K1 form...
and on and on...way over my head
or interest.
Also, if this is treated like a limited partnership, how does this compare with holding KMP? I think
someone told me to keep this in
a taxable account.
thanks in advance.
nightmare? its like a one page form (maybe two). How many shares are you going to buy? Will the div be even a few hundred dollars? What is your tax likely to be in that scenario? If you think a particular product is the best thing for your portfolio is the scenario above really an obstacle?
You need to get the facts from your accountant but it will boil down to a short form and a few more bucks.
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