Saturday, August 29, 2009

Economic pessimists: too many?

When in doubt, my instinct is to bet against the herd.

In 2007 there were only a small number of people predicting the looming disaster to come. Popular investing gurus like Ben Stein, Jim Cramer, and Bob Brinker only saw happy days ahead. When it came to the housing market, public television and late night advertisements featured people like Robert Kiyosaki and John and Greg Rice singing the praises of real estate investments.

We all know how that turned out, but now I'm starting to see the opposite phenomenon. Ben Stein, who usually advises us not to worry about the occasional bear market, is now expressing fear that the SEC is not doing its job to prevent corruption, and contemplating the possibility that "this time it's different." Robert Kiyosaki, who only a few years ago was saying that it's foolish not to go into debt, is now vaguely advising people to prepare for the worst. I happen to be in agreement with the pessimists right now, but I'm weary of seeing too many people join the doom-and-gloom camp. I don't think the pessimists are an overwhelming majority yet, but they seem to be growing in number.

Even if most people become bearish on the economy in the next several months, I'm still not sure what that would mean. Despite my contrarian philosophy, I can't help thinking that if we really do tax, borrow or print our way into financial oblivion, then sentiment may become irrelevant at some point. Is it ever possible for the herd to be right?

Friday, August 28, 2009

Unanticipated coincidence

I got the nickname "Hodar" in high school from variations of my first name, "Jody." Whether or not I have the talent described in the third item on Google, it's not the reason I use this name for my website.

Tuesday, August 04, 2009

Diversifying for Armageddon Part 2

In my March post, Diversifying for Armageddon, I voiced my fear that the FDIC would run out of money, meaning that future bank failures would cause savings and checking accounts to go up in smoke. My solution was to diversify my savings among several institutions as well as build up a pile of actual cash.

Today Karl Denninger voiced a similar concern on The Market Ticker. Although he's convinced that the FDIC is nearly out of funds, his worst-case scenario isn't quite as bad as mine. He thinks that the next banking emergency would force the FDIC to limit the amount of monthly withdrawals allowed for each account, thereby preventing a total collapse of the banks and giving the system time to recover. Even so, because the limit for one account may be too little to live on, he suggests the same solution that I proposed in March: spread your savings between as many banks as possible, thereby multiplying your personal withdrawal limit.
It is thus my position that even if you are well under FDIC limits you must move money around now so you have multiple bank accounts and thus if your withdrawals and access to your funds are "rationed" in a similar fashion you will be able to access what you need to pay your electric bill, put gas in your car and buy your food.
Food for thought - so to speak.

Sunday, August 02, 2009

Insanity

This little detail of the federal Cash for Clunkers program eluded me until just now: Dealers who obtain the traded-in cars are being forced to destroy the engines to make sure that the cars aren't re-sold on the market.

I understand not wanting to pay the $4,500 for the same car more than once, but couldn't we just record the VIN# of the cashed-in car to prevent fraud? As it stands, the program is destroying some perfectly good cars - ones that could be re-sold for cheap to needy people, or even better, DONATED by dealers to charities.

Here we are in a major recession, with an increasing number of people unemployed and unable to afford new cars, and the government is paying people to destroy working vehicles. For some reason I'm reminded of the vehicle-less victims of Hurricane Katrina who were trapped by government incompetence; I wonder what they would think of this program?

Coincidentally, I just made my last payment on my big roomy gas-guzzler. If and when the time comes, I'll give it away to someone who needs it before I let it be destroyed.