Thursday, April 13, 2006

What are your plans for next year?

Or more scarily - what do you expect to do after we attack Iran?

hmmm. Let me get that one out of the way. I expect the US will attack Iran within a year. Mainly, I expect it to happen before the 2006 elections, but I can see it being delayed till March of 2007. While I could stop with "that's my opinion and if you don't like it quit reading," I feel you're adult enough to deserve an explanation. Besides, it's simple:

Bush is not a nuance kind of guy.

Every defense I've seen about the discussions require the president to be operating with finesse and nuance. If the president were Clinton or Gore or Kerry or McCain it might be possible, but not Bush. Bush has stated quite plainly that he wants Iran to do two things: dismantle their nuke development (power and weapon both); change the way their regime works. Neither is going to be done willingly by the Iranian leadership. And compromise isn't likely - compromise is a form of nuance and Bush doesn't do nuance. Furthehr, Bush has made plain that either you win or you lose -and partly winning is losing.

So, we're going to attack Iran. The question is when. For that I'm not being real subtle either. Bottom line, every time the President has beat the drums of war his popularity has gone up. The GOP's election coordinators have made it clear that the plan is to ride Bush's coattails (or else, in some cases). It helps if the wearer of the coattails is flying high, and that brings us back to the bounce from the drums. And after that... In addition to Bush not being nuanced, he's not real patient. Suggestions that he delay some of his failed initiatives - social security for example - were completely ignored.

So much for the digression, back to what I really wanted to discuss. Economic wobbles.

When the US attacks Iran we can count on the price of oil spiking. How much and how long depends on whether oil gets stopped but the spike's inevitable, and at this point I think $100 per barrel is the minimum. The ripple effects are: Gasoline and natural gas prices climb. That's going to have some impact on everything manufactured with petroleum products (fertilizer and plastics) and on everything transported from plant to store (everything, pretty much). Also, I expect to see... call it inflation panic. Regardless how bad it looks, everyone's going to start by assuming the worst. The immediate and obvious things will be the attempts to hoard gasoline and other stocks. Not quite so swift and obvious will be the people who go into hunker-down mode. The ones who are on the edge credit-wise, who will decide its time to bail. Foreclose or abandon some things, perhaps a general bankruptcy, either way they'll tighten their belts and close their wallets.

I think the first result, overall, will be inflationary. But it gets wild from there. See the tightened belts above, and consider the housing situation. Pretty much most economists and market watchers think the housing market is, at best, saturated if not in a full-blown bubble. A tightening of belts makes housing collapse in on itself, which is deflationary overall. Want to start riding the headache I've been chasing? What do you get when you have major inflationary and deflationary drivers in motion? What are the results if they're left in balance (cost of gas driven items goes up, money available goes down)? My answer? Stagflation.

My guess is that the fed declines to ride the balance and instead decides denying one or the other problem - stagnant economy (especially the suddenly growing unemployment rate) or inflation. Based on comments and discussions when reviewing the late 197os, I'm guessing they decide stagnation is worse, and push to print more money. Note that word "push". One glaring weakness of the fed is that it has one tool - interest rates. They're not really that high, yet. If they're not high enough - if they can't be cut enough - then the fed loses control. I suspect they'll ask the treasury department to just flat-out print more money.

So to some -and yes I've been superficial - competing inflationary and deflationary pressures whipsaw us for a couple of months till they stabilize in a stagflation. At that point if not before the fed starts slashing rates again, accepting high inflation so as to spur economic growth. Inflation isn't as ugly as deflation in its effects on businesses and employees. It's not good or pretty, just less ugly. caveat - all else being equal. Hyperinflation's something else again and requires serious re-examination.

Again, I don't know how deep it'll go. For what it's worth, despite all the economic bad news and poor fundamentals of our nation, I think we're still pretty strong. At worst we hurt a lot. I don't see total collapse in any way or fashion, though. Just some rough riding for a couple of years.

So what do we do about it in preparation? I'll be doing the following things.

I've set up so that the day we actually invade I buy gold and silver. Actually, I'm buying some gold and silver now (yes, at ~$600 per ounce). The day this happens I expect I'll be lucky to catch it at double the previous day's price, and I'll still consider that a bargain. I'll buy literally as much as I can while still keeping my cash accounts (bank, investment organ, that sort of thing) open. And it's distinctly possible that I'll buy gold with every earned dollar that isn't going directly to paying a debt within a couple of days. I figure for at least a few months I'll be better off buying it, then selling it a couple of weeks later for the (relative) net profit. When things look stable I'll stop that plan.

I'm also reviewing my job and its likelihood of continuing. That for me is very high. Oh, I've little doubt my duties will change - we'll probably have to cut some people and everyone pick up the slack. But it'll probably stick. Even better, it's not likely to see an attempt to cut wages during the brief deflation/stagflation period. Now it'll lag on the inflation side which sucks, but I can still get a jump on it all.

And my debt load is low. Literally less than a third of my takehome pay is tied up in paying off debts. While things might get tight for a while waiting for wages to catch up with cost of living jumps, I'll come out the winner on the loans. An important point here is that my loans are in fixed rates - they can't jump with changes in the prime. Credit cards? Clear and paid off every month. If you're carrying cards and can't get them cleared that way, consider a debt consolidation loan with a fixed rate. And then burn your cards. [As an alternative, lock them in a safe deposit vault. If you have to have them you can get them, but they're not available for 'ooh that looks good how much sold' events.]

I've been building my capabilities at some production and labor skills (I'm a service person). It's not a major moneymaker, but it's stuff that folk are willing to purchase even in hard times. I'll be making and selling in the rough times.

I've also prestocked some household goods. A "storm pantry" of food and basic goods to buffer any rough rides is, I think, mandatory. I recommend groceries for a month minimum if you're in my situation. It doesn't have to be an intensely varied selection, just something to get you through the rough. I will point out that some people recommend even more, but most of them are also planning for near-apocalyptic situations. If you think you could be out of work for six months then six months of standby food is probably a good idea even with unemployment benefits - because that's another wage that'll seriously lag inflation.

Back to investments, I expect most of the companies in which I hold stock to have a serious decline in earnings and stock price. However, I'm also confident they'll all ride the storm. I've some money in bonds as well. I'll point out here that it's the US that's going to take the brunt of this storm, but it's going to splash on every country in the world since we're the number one customer. Pick a foreign stock or bond by all means, but try to be aware of that company and nation's US burden. I just don't expect anyone to come out smelling like a rose, only that some will hurt less than others. For the record, I like Canada and I like Switzerland with almost no reservations. Others have problems OR I've not done enough research to be comfortable.


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