So – your money. (And mine.)
The chickens so many of us were warning of have indeed come home to roost, but what good has that fore-knowledge done us?
We decided not to speculate in the overheated real estate market – that’s something.
And we bought oil stocks years ago – that’s something.
Just this April, those of us who could afford the risk bought double-inverse S&P EFTs – RSW – which is a fancy way of saying we shorted the market when it was higher and have been making paper profits at twice the rate it’s been declining.
And we’ve always been frugal (a complex algorithm on this site actually blocks visitors who fail to pay their credit cards in full each month) – a really big thing, because living light on the land, and beneath one’s means, are two keys to our collective, and individual, success.
Our timber keeps growing. PCL, first suggested here 5 years ago at $26.50, is around $43, having paid out $8 or so in dividends along the way.
But, oh, have we ever lost a lot of money in FMD and WM. It was money we could truly afford to lose but I still feel terrible that you lost it.
And I’m not thrilled that the TRBR some of us bought around $11 is now, just a few months later, half price.
So what do we do now?
The easy things to say are the things it’s always easy to say: economize wherever you can; keep paying your credit cards in full each month to avoid interest (and so your browser will be able to access this site); recognize that there can be as much happiness reading a good library book under a tree – at zero cost in cash or carbon – as in driving out to the ballgame for whatever that costs in gasoline, tickets, hot dogs, beer, crackerjacks and antacid (sorry, stadium bondholders).
(Oh: and ‘study hard, kids.’ It’s a global economy. It would be great if you had the skills, and character, to compete.)
(And: ‘eat less.’ You’ll save money, look better, live longer.)
But then what?
I fear we have not hit bottom in real estate or the stock market. And I fear there are a lot more chickens straggling roostward. (Did anyone count them when they left?)
I like to think world economic growth will boom, with China and India, Brazil, Eastern Europe, the former Soviet Union, et al, shrugging off any momentary unpleasantness and pulling the American economy out of the fire . . . even if more and more of it will be owned by our friends the Saudis.
I like to think astounding technological progress – much of it invented here – will pump new energy, efficiency, and prosperity into our economy.
I like to think a youthful new President next January will capture the popular imagination, turning our deficits away from enriching the richest through tax cuts toward financing America’s future (deficits are fine if they’re incurred to make compelling investments) and inspiring investors to take the leaps of faith that will lead to millions of new jobs greening our economy and modernizing our infrastructure.
And maybe the stock market will begin to anticipate all that sooner than I think.
But this much I know:
1. I don’t know much. So I try to diversify. (And to keep my fees and transaction costs low, because it’s not worth paying a lot for what others don’t know, either. I would say, by way of example, that the comments you are reading right now are appropriately priced.)
2. We could well have a serious recession and serious inflation. Which comes first would be nice to know (a recession we reflate our way out of? an inflation we stifle with recession?). Anyone who’s lost a job lately or seen her commission income shrink at the same time food and fuel prices have skyrocketed knows we’re already having a good deal of both simultaneously.
And who knows: deflation could get into the act at some point, too. A stable system, once nudged off its track, can be hard to restabilize.
So, again, what do we do now?
If you’re 24, rejoice! You’re poor (I assume), but getting relatively less so by the minute. Someone who had $100 million more than you (who have a 1998 Honda and $38 in your checking account) just a few months ago may now have only $70 million more. You’re $30 million closer to having what he does!
More to the point, if you can contrive to start putting $100 or $500 a month into (say) the stock market for what might be the next 30 years (raising the monthly contribution if and as circumstances permit), you’ll be sitting pretty at 54, and the lower the market might go in the next months or years, the better price at which you’ll be able to accumulate shares. And you have all your hair. (We hate you.)
But what if you’re 54 or 64 or 74?
All I can really tell you (at least in this overlong column) is what I’m doing with some of the items I’ve suggested here from time to time. The list won’t be exhaustive because some of the worst suggestions have doubtless been dragged and dropped into the repressed memory folder. (But feel free to me-mail me a reminder or recrimination.) And of course I’m not going to rehash positions I suggested you sell, a few of which turned out nicely, because that was then, this is now.
1. Real estate. I doubt we’ve seen the bottom. Then again, if you can afford to carry it, real estate is, well, real, and could eventually be an inflation hedge.
Of course, homes in Las Vegas are different from warehouses in Scranton are different from office towers in Manhattan. And property in Costa Rica (visit and then consider buying a lot!) may perform differently from farmland in Kansas.
So there’s nothing hard and fast. Just try very hard not to dive into something it turns out you can’t afford to carry for a long time, in case your interest rises, your boiler bursts, your tenant goes broke (but refuses to leave), or you lose your job.
I still have much of the SYMS we bought four years ago around $6.50 (adjusted for cash distributions). It closed last night at $14.56. Nominally a clothing chain, it’s basically a real estate play, not least Manhattan real estate. Someone with a lot more shares than me thinks that real estate makes the stock cheap. Of course, months or years from now, commercial real estate could be a lot cheaper or more expensive than it is today. For now, I’m holding my remaining shares.
2. Oil. I wouldn’t be surprised to see it drop back to $70 for a while, but even at $70 the oil companies should do nicely, thank you; and in the long run, the price is likely to keep trending up. If gas is going to be $8 a gallon, you may as well be one of the people selling it (which as an oil company owner you sort of are), not just buying it. So I’m keeping my Anadarko (APC), selling very short-term calls against it in my retirement plan from time to time when it’s had a run up (e.g., selling the $75 call for $2 and change when the stock was $74 with 20 days to the expiration of the call). I’m keeping my TXCO, first suggested here at $4.50, but hardly tearing up the turf at $11.90 last night, considering that the price of oil has gone through the roof in the meantime – suggesting that those who know the company best may not have a lot of faith in management.
Someday, alternative energy may provide much of our fuel, displacing oil, just as wood was long ago displaced as the dominant fuel. But, as with wood, there are so many other uses for oil, it may always be valuable. And speaking of wood . . .
3. Timber. As I said earlier, it keeps growing. I bought my PCL as a very long-term retirement holding, and plan to sit tight.
5. SPACS. We did so well with that first batch of Aldabra warrants, that turned into GLDD, ten-tupling our money, or more. But in thinking we might have good luck with more deals, I failed to foresee that the market’s music would shortly stop. I should be shot for not suggesting you sell at least half your Aldabra II / Boise Cascade warrants after they doubled, from $1.40 or so to $3, because then you would now have been playing with the house’s money, as it were. Instead, we agonize over not having taken some or all that profit and, instead, watched BZ+ drop al the way to 20 cents last night. I bought a bunch more there yesterday, not because I have any assurance Boise’s business, and stock price, will be good by 2011, when the warrants expire, but because just in case they were – well, the leverage is enormous. If sometime in the next three years the underlying stock got back to the $9.50 it was four months ago, the warrants would jump twelvefold.
6. Barges. I still like GLDD and TRBR, for the reasons set out before. I wish I had waited to buy TRBR until, when it’s half price – though in a bad market, it could certainly get cut in half again.
7. BOREF. Go ahead and laugh. Nothing has changed except that (according to the company) we continue to inch along toward realization of our iron ore riches in Canada and our technological riches to be made in the nose wheels of every jet. The stock sits at $4.50, giving the entire enterprise a value of $25 million. My friend Sandy is selling his beach house for more than that.
8. Cash. I can think of worse things to hold, whether in the bank, a money market fund, or Treasuries. If you have a lot of it, consider whether you’re sure the U.S. dollar will outperform all other currencies (which is what holding all your cash in dollars implies). I have some of mine in FXC (Canadian dollars – a country with lots of natural resources but not the military burden) and, when someone smarter than me tells me which to bet on, some of the others.
9. RSW. I’d love to lose money on these, because that can happen only if the market goes up. So far, sadly, we’re well ahead.
10. FMD and WM. Ugh, ugh, ugh, ugh. But I’m not selling.
Quote of the Day
The large print giveth and the small print taketh away.~Tom Waits
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