Monday, March 17, 2008

Monetary Thoughts

On Friday, I burbled on a bit about my amateur-eye view of the economy, expressing a wee bit of concern.

Events this weekend don't particularly strike me as especially calming - what with J. P. Morgan buying out Bear Stearns at fire sale prices ($2/share or $236 million - that's fire sale prices by my analysis anyway for a company that was worth 3.5 billion as recently as this Friday 15 Mar 08, or 20 billion in January of 2007). More interesting, the same article notes the Federal Reserve is providing as much as $30 billion in financing for Bear Stearns's less-liquid assets, such as mortgage securities that the firm has been unable to sell, in what is believed to be the largest Fed advance on record to a single company.

Combined with concerns about the viability of Freddie Mac, Fannie Mae, a rare weekend drop in the Prime Rate with a further drop expected at the Federal Reserve Board meeting this Tuesday....while it's not time to panic, the rough ride I spoke of seems more and more likely. Take a meander over to Drudge Report to see what I mean.

Given that things are at a point raising an eyebrow seems prudent, and that a recession of noticeable proportions seems inevitable at this point, some preparation against misfortune seems wise.

If you can, without breaking the bank, do it - I'd suggest laying in some supplies to ride out some of the bumps and perils of the coming months. No need to go hog wild quite yet, but laying in some largish bags of dry goods and the means to turn them into food might be a good notion at the same time (pending circumstances) that if you're coming into a time you can get out of a lease or pay out a mortgage, downsizing to more spartan quarters might serve you well. Same thing for cars; if you can pay of the car, or downsize to a beast with a lower payment, now might just be a really good time.

Why? Because as commodities (Housing, food, cars, energy, water, clothes, etc) become more expensive in relationship to the dollar, historically wages have always substantially lagged prices during a fiscal adjustment.

Dumping the jargon, your wages are going to be worth less, and if you're not making a pretty fair chunk of change - things are about to get a bit tight...but you can plan ahead and buy ahead.

Once you buy a bag of beans or flour or a car or lock in a lease/mortgage - the value is suddenly stable right up to that second in time you decide to sell or trade them to someone else and strike some kind of a bargain. Simply - if I buy a case of baked beans this week for $10...and next week the prices is $20 or $2, I still have a case of baked beans that I can eat.

Right now, it seems a pretty good bet to me that our allegorical case of baked beans is going to cost a bunch more next week than this week. And since we like beans and will eat the case anyway, it serves us to buy 10 cases this week, and not have to pay next weeks higher prices. It will cost more next week to plant those beans, to harvest those beans, to process those beans, and to drive those beans to market, and for you to haul them home from that market - because each day as all those things happen...the dollar is devaluing and the price of production is increasing. At least that is my bet.

So...again...it's a bit premature to panic, but moving things about a bit to create a prudent reserve might not be such a bad notion - whether in your investment portfolio or in your pantry.

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