Taking time out of each day to count our blessings helps build a sense of appreciation for life and a sense of humbleness for one’s good fortune.  It is easy to avoid this simple exercise and not appreciate all that you have.

Just as a child thinks a safe home, healthy food, running water and electricity are all “free” and “normal”, we as citizens of our country need to take time and ask ourselves what blessings/fortunes we have in our favor and be thankful.

Not only is it important to realize how good we have it, we must also be aware of whether our fortunes are improving or worsening and whether these fortunes are sustainable or fleeting.

  • The US has the fortune of having the world’s reserve currency – the dollar.  In times of crisis, the world will, all things equal, dump weaker currencies and buy dollars.  A strong dollar allows us to buy foreign goods (most of what we consume) cheaper.
  • The US has never had trouble getting people to purchase our debt.  Foreign governments are always willing to lend us money at very low interest rates.  Only very recently have treasury auctions had weak demand and higher rates of interest have been demanded.   Economic growth is easier when you have plentiful access to credit.
  • We issue debt in our own currency, which allows us to “inflate away” our debt. Issuing debt in your own currency allows you to ease the burden of paying your debts by debasing your currency.  If a foreign nation issues debt in US Dollars and their currency loses value, they will sink deeper into debt; having to pay more of their currency to pay off the dollar-denominated debt.
  • Immigrants have flocked to America for over 200 years.  We have had the advantage of the smartest, most fearless, hungry people of the entire world coming here to work and be productive.
  • The US legal system allows for private property rights, due process, appeals and the notion that you are innocent until proven guilty.
  • The United States Constitution calls for three branches of government, each with checks and balances.  It limits federal power and mandates that most decisions be made at the state and local level.

I could go on and on about other geopolitical factors (massive world influence via economic and military spending, easy access to oil, plentiful natural resources), but you get the idea… the US has it made.

For my statements above in bold, let me ask you…

  1. How many people realize this and appreciate this?
  2. Do you think the average Joe has a clue about any of these incredibly useful, free rides he is getting?

The problem is this:  The above free rides and get-out-of-jail-free cards are things that we should be incredibly grateful for and guard with our lives.  Obviously, many of these are not permanent and will be lost over time. 

If we don’t understand that these privileges we have enjoyed are vanishing before our eyes, we are oblivious to reality and setting ourselves up for massive amounts of pain and suffering.

These facts are not on the minds of the average voter or average American.  We simply do not have awareness or consciousness that these factors have been in our favor for years and that they are not sacrosanct.  Politicians of either party don’t tell us how good we have it or that we’re living beyond our means.  This lack of awareness and intellectual honesty is going to blindside us.

Takeaway:  The handwriting is on the wall for those that care to read it. Think about each of the characteristics above and appreciate what you have.  As the financial crisis worsens and people look to the government to “solve” these problems, you can plan on these privileges disappearing.

I’ve spent a great deal of time this weekend thinking about my financial future as well as what trends which will emerge in an upcoming Depression.  I feel like reading all sides of the economic spectrum (good and bad) from a variety of sources (technical/fundamental analysis, Bloomberg, blogs, Fortune, CNBC, talking to people in finance/banking) gives me an Accurate Model of Reality and a good sense of what I should do to prepare.

It is easy to read a lot of economic and financial blogs and realize the awful shape the economy is in and then do nothing.

My mind tends to race when I read about this and it is good to slow it down and think about exactly what I need to focus on to increase the safety of myself and those that I love.

I’ve been in situations like this before where I have a good idea of what I see happening, but I don’t take the necessary, decisive action to prepare.  The time has come where the benefits of taking action now outweigh the costs of not taking action.

After thinking about national issues last weekend, I realized a few major trends:

  1. I am doing a great job of thinking about this and I should maintain my state of awareness.
  2. I realize I have a fairly decent situation compared to most, which is comforting.
  3. I realize that a healthy attitude beats money in the bank everyday in terms of who will adapt best to the next 20 years.
  4. Complacency is the enemy. I keep coming back to this idea since it is a theme I find emerging in every aspect of my life (work, relationships, investing, etc).

I began my weekend watching some of Chris Martenson’s Crash Course.  If you haven’t seen it, I highly recommend it.  He provides a very realistic scenario of what can happen if the macro trends (economic, energy, demographic) do not change.  I am adding his blog to the blogroll since he has a useful site and honest commentary.

After viewing this, I began listing things that can be done to increase my level of actual or perceived safety.  Among these:

  • Improving my performance and distinguish myself at my current job
  • Improve relations with neighbors/family that are nearby in case of an emergency.
  • Eat healthy and take care of my body.
  • Start a second job or find a second source of income.
  • Spend less money, save more money.
  • Take time to appreciate my good fortune.
  • Buy a handgun and ammunition.
  • Optimize my investments to profit from a collapse.
  • Buy hard assets and “junk gold” (jewelry) in the event the dollar loses its value.

Assessment of factors:
Job – Needs improvement.  I work for a bank which is extremely risk-averse.  They have been in business almost 200 years.  It is a partnership, which means the company does not have to “beat earnings”, is not subject to moronic “upgrades/downgrades” and they could also not be the victim of any insane shareholder activist campaign.  My division has high visibility and is run by a rising star within the firm.  The firm is well-managed and very down to earth.  The risk is that I am not indispensable.  I have decided to make a concerted effort to improve my performance and contribution at work since I know that no company is immune to layoffs.

Bad/Expensive/Stupid habits – Good.  I do not drink, smoke or gamble.  One of my worst habits tends to be reading too much of the same thing and writing/contributing too little.  Wasting time is a bad habit, but it will not wreak havoc on my financial situation.

Safety – Needs Improvement.  I live in an extremely safe town in Massachusetts and the people are quite soft and easygoing.  I do not know basic self-defense or own a handgun, which could be problematic.  In a disaster, buying a gun will be nearly impossible.  It would make sense to purchase a firearm and ammunition before a disaster happens.

Food safety/Water safety – Needs Improvement.  I consume mostly fruits, vegetables, meat, and water.  I consume few packaged food products, which are unhealthy and expensive.  Unfortunately, I am totally reliant on the grocery store and my apartment complex for food and water.  I have no access to any farmers and no one I know grows their own food.  I have no excess food/water stored anywhere, when I probably should.

Health – Good.  I am not on any medication, I eat sensibly and I exercise regularly.  I do not have any dangerous hobbies like hang gliding, rugby or rock climbing.

Temperament – Good.  I learned from being around rich, miserable people that money does not buy happiness.  I cannot express how grateful I am for learning this lesson at such a young age. I also realize that we are in a unique period in history that could very well be the start of a new depression or ugly stretch of history.  I am not naïve enough to think that my generation or my country or my lifetime will be immune from diseases, famine, war or other events that have plagued human history.  This grounding is one of the things that gives me the most peace of mind.  I have gotten over my teenage angst and I realize that life is luxurious in the United States.

Ego – Good.  If the only jobs available were manual, I would see no problem taking a manual job.  I obviously feel better about working in an office, but if tragedy happens and I need to earn money in a different way, I can do that without a crushing blow to my ego.

Level of frugality – Good.  I have owned the same one suit since about 10th grade.  It is 11 years old and still going strong.  I am a slight foodie, but I always wince at the mention of an expensive dinner.  I have a high threshold for boredom and a weekend reading books suits me fine.  I am not worried at all about impressing others with a fancy apartment, fancy clothes or fancy car.

Transportation – Good.  I have access to a car is fully paid, reliable and insured.

Dependents – Good.  I have no children/parents/pets/friends to support and I do not plan on adding any in the near future.

Cash on hand – Needs Improvement. I do have savings in the bank, plenty of month’s worth, but none of it is at home.  If there was some idiotic “bank holiday”, I would be temporarily unprepared.  I need to save more money at home in small bills in case of an emergency.

Credit –  Good.  I have access to a large line of credit; however, everyone’s credit would dry up in a large economic meltdown so it is a moot point.

Debt – Good.  None material.

Entertainment – Good.  I don’t need to get drunk/high to have a great time.  Watching Seinfeld reruns or reading is highly enjoyable and I don’t need constant stimulation/distraction to feel at ease.

Retirement – Good.  I have no plans of retiring anytime soon and I would prefer to work until I die.

Overall:  Good.  I need to focus on my primary job since I have a great amount of control over my performance and it is, by far, the most important source of income/safety.  I also need to focus on saving more money, keeping larger food buffers and having ready access to cash.

Other thoughts from the weekend:

  • My main concern is that too many people fall on the dependent side of the equation.  Municipal payroll/pension obligations, government healthcare, government schooling/day care, food stamps, government housing and other services are all facing severe pressure as the market declines, taxes rise and dependency increases.
  • To fund these dependencies, property, income and business taxes will rise.  Rising taxes will kill businesses which will put more people on the dependent side of the equation.  This vicious cycle will lead to far fewer small businesses, which are the biggest source of jobs in this country.
  • The only way out is permanent decreases in entitlements and people coping with a lower standards of living.
  • The underground economy will thrive.  Marijuana use will increase due to futility of jailing violators.
  • The Armed Forces/Peacecorps will swell as scores of college kids find no jobs available for them.  Degrees are ubiquitous and an older workforce, unable to retire, will fill remaining jobs.
  • A lot of people’s opinions are driven by whether or not things are going to get better or worse.  I am firmly planted in the “worse” category based on data.  Better seems to be driven by optimism.

Takeaway:  It is always good to do a self-checkup and see how well you can withstand an economic catastrophe.  Please give it a try.

Thank you for reading.

This a part of the Green movement I can get behind! A Green Pizza Box is a great idea whose time has come.

The market has been on a tear lately and it looks like my Nasdaq options will expire worthless.  From this outcome, I have learned a few things.

  1. It is idiotic to “time” the market based on your gut.  Yes, the case for bearishness remains (see below), however, Getting a Piece of the Action (GAPOTA) is a moronic way to trade.
  2. Respect the chart.  Charts show us trends, consolidation, breakouts and the majority opinion.  It is foolhardy to go against the crowd.  I need to exercise discipline and wait for the top to form and develop before trying to rush things.  Let the chart tell me when the market is tired out and has exhausted its supply of buyers.
  3. Trying to score big is foolish. Investing is a marathon, not a track meet.  Invest with the long-term fundamentals in your favor and have some patience.  It will greatly improve my “win” rate.

As a result of these revelations, I am taking a slightly different, longer-term approach.

I have added significantly to my CEF holdings in my IRA and I’m going to be accumulating a larger position in one or more reverse ETFs.  A reverse ETF will allow me to hold my short position in the market indefinitely, rather than being forced to time a drop in the market, like I would have to do with an option.

I lose the upside of leverage that an option provides, however, it is far too difficult for me to time the market perfectly.  As you can see from this Nasdaq chart, markets can go parabolic (like they did in 1999) and throw reason right out the window.  The market went from 2,500 to 4,700 in a few months!  That’s an 88% move in five months on horrible fundamentals!

If the market keeps rising now due to irrationality, I will be more than happy to keep buying inverse ETFs each month since they would be getting cheaper and cheaper (more and more valuable).

From a fundamental perspective I am not buying the bullish argument for a second.  There are plenty of events which have not fully manifested:

  • GM Bankruptcy – The ripple effect has now begun.  Suppliers/Creditors will get haircuts and pass those losses down the line.  Visteon and Metaldyne, two large auto suppliers, have already declared bankruptcy and other large suppliers will eventually have to realign with decreased demand.
  • Municipal bankruptcies/insane pension obligations are still looming.
  • Credit cards are tapped – The consumer has limited purchasing power.
  • Geopolitics – Chinese students LAUGH at Geithner when he says purchasing power of the dollar is solid.

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

  • Jobs are still being lost – Job losses ultimately lead to declines in the housing market as well as consumer spending, the engine of our “growth”.
  • Insane P/E ratios – S&P has the Q12009 PE ratio at 60!  60!!  Historic bear market bottoms typically occur with single-digit P/E’s.  Obviously this isn’t a perfect indicator, but it shows how far removed we are from stocks being cheap.

I remember the bubble of 1999 and how exciting it was to see stocks soaring and thinking how easy it was to buy tech stocks and sell them for huge profits.  I remember buying five shares of Yahoo in a fake portfolio for $205 a share (before a 2:1 split) and learning the lesson that bubbles can crash painfully and never come back.

There is no shame in “missing out” on returns in the stock market.  There is great shame in not learning from your mistakes.

Takeaway:  I lost on the Nasdaq options trade, but I realize that it is foolish to ignore the charts and risk capital when there is no need to do so.  I am coming around to the fact that I should be happy to not hit a home run with a juicy options trade, but rather accumulate quality positions at good prices.  I plan on adding more CEF and RWM in the days ahead.

Thanks for reading.

For the Trading Log, click here.

We all know politicians put on one face for the masses and another face behind closed doors.  It is rare we get a candid moment when we realize how two-faced our leaders can be.

Fast forward to five hours, eighteen minutes of this clip.

Do you know what the Secretary of the Treasury and Chairman Bernanke told us that famous meeting or several meetings that we had?

That we’re 24 hours away from total meltdown of the American economy and 72 hours away from total meltdown of the world economy.  That it would take us back several hundred years.

That we did not have even the security to feed America if it happened.  I could go on to other scary things but I’m not about to do it now.

Amazing.  Whenever Bernanke or Paulson was in front of a TV or in front of cameras last Fall they gave the same copacetic assessment about how the economy was stable and everything was fine.  However, to those that have power and influence, he tells a much different story.

The American people can remain confident in the soundness and the resilience of our financial system. – Hank Paulson, 9/21/2008

We often discover leaks in the Matrix.  We can all remember seeing our parents do things for the first time that let us know they were human and not perfect.  Likewise, our government is not perfect and instead of romanticizing the political process or “parties”, it is more beneficial to focus on safeguarding ourselves from the inevitable economic problems we will encounter.

I’ll be sitting down this weekend and mentally trying to imagine how I would respond to various different stress scenarios and what the outcomes would be.  It never hurts to check.  Better safe than sorry.

Takeaway: This video clip contains a startling admission.  It demonstrates the contempt that Washington has for its own citizens.  Instead of falling for the celebrity reality-show “Inside the Obama White House”, turn off the TV and do some thinking about what could happen if our “leaders” get it totally wrong.

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