Wednesday, September 5, 2012

Welcome to My Lily Pad ... Come in ... The Water's Fine

When I read news articles - like this one that details the selling off of stocks for American-based consumer products companies and banks - I wonder what do they know that we don't.

I'm not talking about insider trader secrets or conspiracy theory fodder, but the reality is that these billionaires (like Warren Buffett) who are selling off their stocks in these companies (like JP Morgan, Goldman Sachs, Johnson&Johnson, Proctor and Gamble) made their fortunes in the stock market, and one has to think that these guys probably know a thing or two that, perhaps, we average folks don't know ...

... and maybe we should be paying attention - not so that we can emulate their actions and also become billionaires, but so that when they do something like this, we can, perhaps, be a bit more prepared when there's an upset (like the real estate bubble that burst in 2008. In this May 2006 article, Buffett cautioned that the real estate market was on a downward trend).

To be clear, Buffett is not/does not predict the future. What he does is react to trends - the same thing Gerard Celente (who has been warning of the types of economic downturns we've been seeing for many years). In the case of the housing bubble, in 2006, he noticed a slowing in the real estate market in areas that had, formerly, been hot beds of activity, and he began investing less, and then, selling his properties in those areas. In other words, he got out while the gettin' was good.

What they're noticing now is that consumer spending is down (duh!). Most of the companies whose stocks are being jettisoned by these billionaires are consumer-based products. With 70% of the US economy dependent on consumer spending and an obvious downward spiral in consumer spending, one would have to be blind - or completely oblivious - to not see that something is coming up the pike.

According to the article, ... these professional investors are aware of specific research that points toward a massive market correction, as much as 90%.

*After this quote a lot of the rest of the Moneynews.com article is a promo for Robert Wiedemer's book "Aftershock", but the point should be taken, regardless of Wiedemer's the hard sell, that paying attention to market trends and knowing when to take a gamble and when to take one's money and run is what these guys do. If they're running from these American companies (in particular the big lending giants like JP Morgan and Goldman Sachs), we need to be taking some steps to protect ourselves, too.

The problem is that most of us think of prepping for this economic collapse in the same way that we think of prepping for an approaching storm. We stock up on water and/or food, check the flashlight and radio batteries, and batten down the hatches, settle in with a good book, and roast marshmallows over candles while the storm rages. Then, we go out, assess the damage, clean up, and go on with our lives.

It's not like that, though. With economic collapse, there's no, single, catastrophic event that can be tracked on the doppler radar. Instead, it's a series of, seemingly, unrelated events with one happening in Europe, one in Syria, one in Peru, and one in Iowa, and all of these places will be hard hit by whatever disaster (whether nature or man is the culprit), but we tend to think that what happens in Europe is of no consequence to us in Iowa.

We can stock up on bottled water and food in our basement (and probably should, for every winter, which we replenish with fresh home-grown and canned goodness every fall :), but if nothing happens (like the Y2K non-event), we have 30 cases of MREs, which we won't, on an average day, ever eat. Problem is that, even in the midst of this collapse (and we are in the midst of it, right now), every day is an *average* day for most of us. We'll keep holding on to that treasure of stored MREs, and never realize that the big IT we've been waiting for happened while we were busy watching Honey Boo-Boo.

The collapse won't be a single event that marks the end of the world - at least not for those of us who are living it (it took several HUNDRED YEARS for the Roman Empire to collapse and plunge the world into what was to become known as the Dark Ages, but the folks living through just knew that today was just a little worse than yesterday was). In retrospect, we'll look back and think, "Oh, it was that day", but in the here-and-now, we'll just keep living our lives, until one day, we realize that we can't keep living the lives we've been living - either because we open our eyes and make a change or because the reality of the new way of things finally catches up to us.

It's simply not enough to prepare for TEOTWAWKI by setting up a storm shelter. We have to change our attitudes, and our way of living in the world.

The fact is stocking up on peanut butter, rice and oil will only shield one from the eminent price hikes until one has to replace those items - and then, the sticker shock could be paralyzing. Consider, if you bought your first car in 1988, and it was a Yugo, for which you paid $3000, and you've been driving it since that time, and then, finally, had to replace it, because you just can't find repair parts anymore. You choose as your replacement a Ford Fiesta, which has a similar body type, but the sticker price is four-times what you paid for your Yugo. Sure, you've saved money all these years over having a car payment, but there's still that mental and financial leap of expecting to pay $3000 for a car and realizing that it's going to cost $13,000.

The problem is that all of those years of no car payment did not prepare one to pay $13,000 for a car that is not really any better than what one paid $3000 for twenty years ago. In short, not having a car payment did nothing to encourage a change in lifestyle to not-being-dependent on the car.

Buying and storing prepared foods from the grocery store certainly can provide some sense of security, but food is a perishable consumable. It will either be eaten or will expire. And then ... what?

The point is that, while we might save ourselves a bit of money in the short-term by stocking up on peanut butter and olive oil today, while prices are low, eventually, we're going to have to purchase those things again ... unless we learn to produce those things ourselves, or we eliminate our dependence on them.

In short, go ahead and buy the peanut butter, if one lives in a region of the world where peanuts grow, but also buy peanut seeds and learn to grow peanuts to roast and grind into peanut butter.

We need to be using this time, while we're still able to think about buying our supplies, to learn to produce them ourselves or learn to live without them.

The other day Deus Ex Machina and I were chatting about gasoline prices, and I was reflecting on the general apathy and lack of news coverage regarding the ever increasing costs (which are, now, only $0.35 cheaper - and still increasing, almost daily - than at their 2008 height). Deus Ex Machina called it the Boiling Frog Syndrome.

If one drops a frog into a boiling pot of water, he'll jump out. But if one puts a frog into a cold pot of water and sets that water to boil, the frog will be cooked before he feels the change in temperature.

In short, with slow change, we become accustomed to the change a little at a time, and never think much about what's happening until it's too late for us to react.

It took two years for the housing bubble, which Buffett saw coming in 2006, to finally burst. It's going to take time for whatever bubble is inflating now to pop.

But we'd be smart not to be frogs in the slowly simmering pot, and the only way for us to do that is to emulate those billionaires and get out while the gettin' is good.

As consumer spending slows, company profits dwindle, and management starts looking for ways to cut costs and increase profits. One way they usually do this is by cutting jobs, which means more unemployment. When people are out of work, they tend to spend less, which means that consumer spending slows and company profits dwindle, and management starts looking for ways to cut costs ...

Pop!

If you can't imagine how you'd survive without the money earned at your job, you should probably start trying.

Don't focus on limitations - Imagine the possibilities.

2 comments:

  1. Oh lordy, you have to keep an eye on those billionaires. They pulled out of Greece well in time, are now pulling out of China - where is it all going? Under the bed? That's why billionaires have great big beds.
    Well, bring it on. Here in my suburban fastness I am completely self-sufficient in lemons and rhubarb. We'll be fine. Thin, but fine..

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  2. "learn to produce them ourselves or learn to live without them"
    I have never thought about that before. That is a very good point, but very difficult to put into practice. I hope I have the skills to learn if things ever really got to that point!

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