Tuesday, July 21, 2009
The big things are often...
As I stated in a comment in the previous entry, I still own the same stocks and I'm still watching them. I still worry about CFRI's survival. They have been quiet for quite a while. Cameco has done well since I bought it, but then so has Strathmore, so at this point, there wasn't much difference in whether I had switched or not (I still own some Strathmore and Fission). NICK is doing well. So is CVU.
Getting back to the title above, I've been pretty clear for a long time that I saw trouble coming, but I had no idea how bad it would be. I bet against Fannie Mae, but three years too soon. In hindsight, we had a stock market bubble that peaked somewhere between 1998 and 2000 depending on what stocks you cared about. Starting in the late 1990s, everyone was amazed at how the Fed was able to dump enormous amounts of dollars into the global system without causing inflation. They could throttle the economy without any negative consequences, no? When the stock market bubble burst, they pumped dollars into the system to soften the blow and we got a housing bubble that slowly started to burst in 2005. Now, to fix that problem, they've been dumping an insane amount of dollars into the system. This won't end well.
Over the decades, I've seen lots of fear mongering over the levels of debt and I never really took them very seriously. The numbers now are bad, even the optimistic numbers. Not only is the US Government needing to borrow a massive amount of money, but it is taking a vast array of actions that have the effect of dampening the economy's future growth, killing it's ability to pay off the borrowing later. The dumb farmer eats his seed corn. The insane farmer also uses salt as fertilizer.
A while back I noticed the ominous sign of China warning the US against fiscal irresponsibility. China is currently our nation's banker. We also have a gigantic Social Security trust fund which, instead of money, has a big pile of IOUs, sort of like the suitcase in the movie Dumb and Dumber for pretty much the same reason. China has been slowly stepping up its rhetoric and their actions. They are not just making noise.
Today we see that they're planning to dump their dollar denominated IOUs and start buying big chunks of the US. They'd be crazy to just sit around and wait for the US to inflate its way out of debt. So I guess they're going to start the ball rolling.
That particular news item, just like the earlier shot across the bow, didn't get a whole lot of attention. The really big things are often like that. People don't realize how big they are until they look back after the fact and convince themselves they knew it was important. Go back and read the New York Times' account of the first Wright Brothers flight at Kitty Hawk. It was a below-the-fold minor story.
In the 1970s, people made up a new word, stagflation, to represent a phenomenon they had never seen before. Today they talk about a return of stagflation. I doubt it. The conditions today are like nothing we've ever seen before. The result will be the same, although I had no idea how it will turn out.
In the meantime, I continue to own the same stocks. I'm taking whatever actions I can to try to prepare for the future, but it's basically nothing fancy, just common sense.