Sunday, July 05, 2009

BBQ, Beer, and Contrarian Investment Indicators

Welcome back from the long weekend - I hope you had a great 4th celebration. Even us folks who are not so keen on the Federal Government can appreciate many of the founding values of our country...despite how frustrated it is when Constitution seems to be a forgotten a world where "whatever it takes" is Uncle Sam's new mantra!

After a great weekend of beer, BBQ, and socializing, I thought it'd be interesting to reflect on some data points I gathered from discern the social mood and outlook from the people I spoke with. Of course this is a completely ad hoc sample...the qualification being that these folks either had a beer with me, or served me a beer, over the last two days!

I hope these anecdotes will be entertaining, and perhaps even a bit insightful, as we engage in the challenging, humbling exercise of trying to figure out where the world is that we can invest accordingly.

If you have any anecdotal stories, I'd love to hear them - drop a comment below, and let's see what we come up with!

The Hot Bartender Who Disapproves of Money Printing

Regular readers know that we've been on a deflationist kick over the last couple of weeks - simply due to the contrarian appeal of it all. Since the collapse hit, I've believed that inflation - more specifically hyperinflation - would be the end result, mostly because the government can print as much money as it wants.

Honestly, though, what the hell do I know? The common sense consequence of money printing is price inflation...but what if common wisdom is incorrect here (as it often is!)

Anyway this Friday evening, some friends and I were at a new bar (with a fantastic happy hour, and an even better bartender, "Shelley" (stage name to protect the innocent :) ) - very good looking, and quite patron friendly).

Shelley's a very nice girl who you'd initially surmise to be a "knee jerk liberal". Lives in Northern California...into raw foods and organic farms...all that good stuff.

We got into a conversation about some boondoggle going on a few blocks away at the State Capitol (Sacramento), and I figured I'd toss a pseudo-libertarian comment into the fray, see if we kick start anything interesting.

Me: The only way to fund that idiotic program would be to print up the money.

Shelley: Ha, yeah, and then comes hyperinflation.

My heart skipped about four bartender ever.

Now I thought it was very interesting she didn't say merely "inflation", but "hyperinflation." Pretty impressive financial acumen - and also another hyperinflation data point.

We'll keep our ears open for deflation talk from bartenders...right now it's 1-0 in favor of IN-flation.

Renting: The New Buying

Markets don't bottom when everyone is looking for the bottom. They bottom when there is a
final capituation in which the market basically vomits all over itself.

When nobody wants to talk about stocks, that's when you want to back up the truck.

The housing market has been in free fall for about 4 years now, and I've been intrigued to watch the shift in social mood.

Back in 2004, I recall riding the MUNI in San Francisco, and overhearing a conversation between two other riders about how "housing never went down". The common mantra in the Bay Area at the time was that even if housing goes down in some locations, it never goes down in the Bay Area, because there's such limited supply.

Bay Area home prices are now down over 50% from the peak.

The first year or two of the downturn, we heard a lot of the "now is a great time to buy" bad advice. Home buyers were trying to catch the bottom of the market before it went back up again. In reality, all they caught was a falling knife.

Yesterday we hosted a 4th of July BBQ in our backyard (of our rental). I recall when we moved into it nearly 3 years ago, and we had people over, often the first question was around when we would buy our own place.

This year, I noticed a lot of the shine seems to have come off home ownership. When I mentioned that we rented the place and didn't own it, the feedback around renting was more positive than I remember. Several of my friends who are home owners even said they wouldn't mind being renters themselves.

Not necessarily a bottom in the real estate market, but maybe we're getting closer.

As an aside - real estate is often a terrible investment during a depression. The first thing folks do when they hit hard times is they bunk up together, cutting their own housing costs, and sending a lot of supply on the market.

During the salad days of the 80's and 90's, you had people really "spreading out" across the country. Times were good, money was flush - hey let's go grab our own place.

Today in 2009 - maybe not so bad to stay with family. If unemployment continues to worsen, this could be a wild card in the real estate market that I don't hear many people talking about...another potential monkey wrench in a recovery. Why buy two homes when one cozy place will suffice?

So it seems like we are starting to see a bit of a shift in the social mood about renting and home ownership, but we may have a ways to go.

How Long Do Turnings Last?

For the past month or two, one of my favorite discussion topics has been The Fourth Turning - the book/concept that society goes through cycles. And every 80 years in the US, a crisis hits - The Revolutionary War, the Civil War, the Great Depression/WWII, and potentially the mess we're in now.

I'll tell you, this has been a real hit at weddings and cocktail hours - people think I'm nuts when I say "Hey, we're in the 4th Turning...get used to it, we're screwed!"

Again yesterday, I had a few friends who I had previously floated this "odd ball" idea to come up to me and start asking me about these societal cycles! How long did you say Turnings last? Are we almost out of this one?

To me it seems like people are beginning to resign themselves to the fact that this is a depression, not a recession, and that things are going to be bad for awhile.

This is very important because the stock market could have a hard time maintaining these levels when folks start to accept the cold, hard reality that the recent "green shoots" rally was built on optimism that just isn't materializing.

And we may have gotten a taste of this at the end of last week, with the disappointing unemployment numbers. Maybe "less bad" is no longer a good thing.

Quick Reader Survey - Please Share Your Thoughs!

I tossed together a quick 3-question reader survey, and I'd appreciate it if you could take a minute or two to share your thoughts and suggestions with me using the survey link here.

It's always great to connect with you, and your feedback and input help me figure out where to focus my energies...namely on stuff you like, and stuff you'd like to see more of.

Positions Update

No trades this week...I'm watching the trailing stops on each position (A$ and sugar), and will sell on a 15-day low.

Honestly I don't know whether the A$ is correcting or out of gas - so I'll let the market tell me.

If you're looking at either of these trades, I personally wouldn't initiate a position here...I'd wait for a breakout to a new high to confirm that the trend is still UP!

Current Account Value: $30,499.46

Cashed out: $20,000.00
Total value: $50,499.46
Weekly return:
2009 YTD return: -38.0% (I like to think it takes skill to lose this much money in 6-months :) )

Prior year's results: --> Don't try this at home...this is what is known as wreckless trading
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

1 comment:

Tally said...

Good stuff, Brett.

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