LilBob

Investing in Deflationary Times

Three areas I guess, that was a typo. Also, an addendum to the Ford comment, if either one of the other two US automakers takes the big plunge, the remaining players will see a significant boost in pickup truck sales, which is the reason that I'm picking the company I see as being most likely to end up in the top two when it's all said and done.


On Dec 23 12:18 PM LilBob wrote:

> I have to agree with Alan. There really isn't any investing advice
> here. Not even a reiteration of the "Buy Low and Sell High," philosophy.
>
>
> I'll go ahead and put my two cents in. There are two areas that I
> think are worth investing in, and one of those areas is now down
> to a single company: Ford. Normally I don't care to name individual
> companies in this kind of forum, but as the strongest of the big
> three I believe Ford is in a position to see significant gains as
> soon as the economy starts picking up. News stories about the big
> three bailout have also provided free publicity for Ford Motor Company-specifically
> the fact that in recent reliability tests some Ford products are
> on par with Toyota and Honda in Initial quality surveys. Last I checked
> Ford stock is all the way down to 2.18 a share, and at that price
> I think it's a pretty safe bet. Just expect a long-term hold, this
> one won't pay off for awhile.
>
> Another area that I see as strong are private label food brands.
> This is a pure "social utility," pick; if people are looking for
> ways to save money, invest in those alternative products that they
> will turn to when they want to save money. Private label brands are
> the companies that manufacture grocery items and label them for different
> regional grocery chains. Many of these private label brands are now
> producing items that are on par with national brands for quality,
> but at significantly cheaper prices. I shop at Wegman's grocery stores,
> an upstate NY chain, and I feel the quality of their store brand
> items is always at least as good, if not better than the national
> brands.
>
> Finally, local entrepreneurs. I really think now is the time for
> investors to start "going out on their own," and looking for ways
> to provide start up capital for local small businesses. You have
> to be a real shark to do this properly. If you're prone to sales
> pitches this is the worst possible area of investing for you. A good
> rule of thumb, if you pay your credit cards off every month, or just
> generally don't use credit cards at all, then you might want to consider
> the local entrepreneur angle. If you carry a significant balance,
> then you're too green, you'll most likely end up losing your shirt.

Investing in Deflationary Times

I have to agree with Alan. There really isn't any investing advice here. Not even a reiteration of the "Buy Low and Sell High," philosophy.

I'll go ahead and put my two cents in. There are two areas that I think are worth investing in, and one of those areas is now down to a single company: Ford. Normally I don't care to name individual companies in this kind of forum, but as the strongest of the big three I believe Ford is in a position to see significant gains as soon as the economy starts picking up. News stories about the big three bailout have also provided free publicity for Ford Motor Company-specifically the fact that in recent reliability tests some Ford products are on par with Toyota and Honda in Initial quality surveys. Last I checked Ford stock is all the way down to 2.18 a share, and at that price I think it's a pretty safe bet. Just expect a long-term hold, this one won't pay off for awhile.

Another area that I see as strong are private label food brands. This is a pure "social utility," pick; if people are looking for ways to save money, invest in those alternative products that they will turn to when they want to save money. Private label brands are the companies that manufacture grocery items and label them for different regional grocery chains. Many of these private label brands are now producing items that are on par with national brands for quality, but at significantly cheaper prices. I shop at Wegman's grocery stores, an upstate NY chain, and I feel the quality of their store brand items is always at least as good, if not better than the national brands.

Finally, local entrepreneurs. I really think now is the time for investors to start "going out on their own," and looking for ways to provide start up capital for local small businesses. You have to be a real shark to do this properly. If you're prone to sales pitches this is the worst possible area of investing for you. A good rule of thumb, if you pay your credit cards off every month, or just generally don't use credit cards at all, then you might want to consider the local entrepreneur angle. If you carry a significant balance, then you're too green, you'll most likely end up losing your shirt.

Tech: And You Think Q4's Going to Be Bad? - Barron's

And that new world is the next step in tech Cos. At least as I see it. The companies that put control back in the hands of consumers will be the winners in this new consumer phase we're entering: cars with diagnostic software and USB ports so you can run your own diagnostics and bring back the day of the shade tree mechanic; publishing houses with volumes that explain how that computer works and how to fix it up and tweak it yourself; appliances that you can go online and download repair manuals and parts lists without needing a dealer number. A lot of this stuff won't appeal to baby boomers. It may not even appeal so much to Gen Y kids, who've become completely used to having everything done by a tech. But I think that one could have some real success in marketing to Gen-X-ers (Who are now approaching the income rich portion of their career cycles) by going with a "do it yourself," mentality.


On Dec 22 07:53 PM cos1000 wrote:

> I'm not much of a fan of Eric Savatz, or Barron's Tech Trader, and
> reproducing it here doesn't indicate much but a slow day on the Tech
> News Front.
>
> Having said that, I do find the Posts here both interesting and insightful.
> LilBob, your view of tech is forward in its thinking but, remember
> that not everyone wants to deal with the "workings" of a thing, they
> just want it to work, simplistically. Throw away products that can
> be recycled are a part of this genre. The day of changing a "Tube",
> and I am being facetious, are a thing of the past. Do it your "Selfers"
> also have a place but are not mainstream. The simplicity in Form
> and Function that you talk about is the norm, for everyone not just
> 40 "sumthins". Looking Good is not good enough, even with tech. It
> has to look good and be exceptionally well designed in its Function
> to survive our open access consumers. The day that one device can
> sit on a coffee table, that everyone in the room can make work, is
> the day that we truly have a new world.

Giving Even Odds on a Holiday Rally

And tomorrow my weatherman says to expect a high of 28 degrees with a 70 percent chance of snow, ergo the market will... This article is ridiculous. We predict the weather by what's happened in past years, not the stock market. This is a perfect example of how economists get too caught up in playing with the numbers and begin to lose touch with reality.

The Antidote to Economic Malaise: A Culture of Collective Mindfulness

Okay, so what your saying is that regulation isn't the answer to the failures of the economy, all we need to do is have everyone become more than human, and somehow manage to overcome the True Believer herd mentality that was an essential component of all our recent economic bubbles.

There's one major flaw with this article, if people actually had the capacity to be critical of situations and offers to the point where they could sniff out a con before it had a chance to happen, significant portions of our existing economy would falter immediately-not just the housing market and hedge funds, and many very successful sales staff members would never work again.

The Deflation Scam

Richmond, in order to have a serious currency debasement you have to have some sort of national upheaval that causes a significant deterioration of a nation's productive capacity-like what happened in Zimbabwe. We aren't currently suffering any significant scarcity of essential goods, so the notion of a currency debasement with corresponding inflation is unlikely. With fuel prices falling and agricultural production turning away from formerly profitable ethanol production and regaining it's primary focus on putting food in people's mouths the situation you're describing isn't especially likely.


On Dec 20 11:55 AM SW Richmond wrote:

> This is a fallacy that is often repeated by those schooled in modern
> monetarist economic theory. This idea of a wage/price spiral being
> essential for "inflation" completely discounts the very real possibility
> of a currency collapse, or a serious currency debasement.
>
> Read about Argentina.
>
> On Dec 19 08:18 PM LilBob wrote:

Impatient with Upcoming Recovery?

Unfortunately I think deflation is inevitable. We had an economy that was based on hype and false promises. Remember not too long ago when the New York Times reported that Investment bankers were complaining their biggest problem was that the government was requiring them to report asset valuations based on market value? In other words, they had to tell people how much money they really had, not how much money they would like to have.

In this country we're in a state of shock because we've lost our sense of what things cost. The "Low Price Revolution," has filled our discount stores and homes with tons of cheap imported goods while the cost of everything that matters: education, health-care, durable goods-has gone through the roof. Now many Americans are waking up to what is important and they aren't buying so much of the cheap plastic crap. Higher national savings with a mind-set of focusing on those things that have become more expensive should be a good thing, but with an economy that's based so heavily on cheap plastic crap it's perceived as a nightmare.

Tech: And You Think Q4's Going to Be Bad? - Barron's

Absolutely Homer. Open Office 3.0 is already making a dent in sales of Microsoft's Office Product line-I personally have no intention of ever doling out the cash for MS Office products ever again. Ubuntu Linux has reached the point where it's being installed on compact laptops and may soon start to make its way into the consumer desktop market.

I was also thinking of companies like Dell that use proprietary internals. I had to replace the motherboard on my Dell recently and because the case had a unique geometry, I couldn't use an off the shelf motherboard, I had to get the original Dell to fit the case or else run into cooling problems. That part happened to cose more than twice what a comparable Asus board would have cost. That sort of thing isn't going to fly with value oriented consumers.

I definitely expect the Open Source development movement, which is really a throwback to the early days of collaborative sharing and DARPA-net in terms of spirit will pose a real threat to tech entrepreneurs billionaire fantasies.


On Dec 21 11:33 PM Homer II wrote:

> Lilbob said, "... Those firms that insist on proprietary software
> and parts are going to see their market share disappear. This is
> going to be an interesting time because some firms that became truly
> massive over the course of the last 15 to 20 years may disappear
> rather quickly while Open Source will make a comeback."
>
> And when (not IF) that occurs, the crosshairs will be squarely centered
> upon Micro$oft.

Tech: And You Think Q4's Going to Be Bad? - Barron's

The real problem with tech is that we've reached a point in development where user's are able to derive enough social utility from devices they already own that new products aren't as appealing. Everyone should have seen this coming. There's a growing Open Access movement out there for older software that uses up less of a Personal Computer's system resources, high definition television has exceeded the point where the average 40-something is able to perceive the difference between a DVD movie and a high-def DVD movie, and people have in large part come to the realization that "constant connectivity," can be tremendously annoying.

This is one of those "Our Iceberg Is Melting," moments where the ones who are successful are those who recognize the change and adapt. Those vendors who offer units with readily available replacement parts, easy software compatibility and flexible service plans are going to be successful. Those firms that insist on proprietary software and parts are going to see their market share disappear. This is going to be an interesting time because some firms that became truly massive over the course of the last 15 to 20 years may disappear rather quickly while Open Source will make a comeback. I also wouldn't be surprised if we see a pushback against technology.

The Baroque era of European history was characterized by tremendous ornamentation in all things: music, architecture, clothing, etc. The Baroque era was succeeded by the Classical era, a period of relative minimalism in European culture. We've been living in a technologically baroque age. Don't be too surprised if we see a push towards a quieter more old fashioned existence-one that doesn't include so much beeping and buzzing and pointing and clicking.

The way to succeed in tech nowadays isn't to push new features or try to generate perceived needs for the stuff your engineers just thought up, it is to focus on performance, reliability and economy.

The Deflation Scam

Deflation is a function of cash-strapped consumers trying to rein in their debts. In order for consumer prices to rise we have to see a corresponding increase in wages, which isn't going to happen when the unemployment rate is high and competition for menial jobs is fierce. The Fed can print all the money they want but if most of it ends up sitting in the vaults of banks that are afraid to offer credit then it's a pointless task.

The consumer based economy is over. Consumer prices will continue to fall. Retail will continue to suffer. Private colleges and universities are going to have to rein in their costs or eventually they are going to get hit also. American consumers will soon start acting more like their grand-parents. Right now is not the time to invest in consumer goods-especially pricier items like computers and cell-phones. Consumer prices will continue to fall until they have reached parity with the rate of wage deflation experienced by the working poor over the course of the last ten years (And that includes losses suffered because of rising health-care costs).

We are on the cusp of an economic change so dramatic that-by looking on the posts here and on a few other websites-I don't believe most economists or investors can even begin to fathom the change.

Changing My Stance on the Dollar

I mostly agree with Alex. But I disagree with the consensus that we need a strong dollar. Sure, a strong dollar makes for prestige and it makes those goods in our NAFTA partner countries that much cheaper, but I'd like to see a return to small scale specialty manufacturing because the consumer based economy is essentially over. Holding onto a strong dollar mentality is a bad idea right now. Cheap dollars make our debt payments to China that much cheaper, and it also makes US made goods more price competitive with other countries. To me a desire for a strong dollar is nonsensical.


On Dec 18 12:01 PM alex trias wrote:

> Here's the thing about periods of risk aversion: it's candy for the
> government. The Treasury is selling Treasuries and buying unwanted
> corporate debt, and pocketing an almost historic spread. My hunch
> is that probably has been highly supportive of the dollar insofar
> as the dollar is basically stock in the US government which, at the
> moment, is poised to make a killing by arbitraging current risk aversion
> in the credit markets. Maybe it's no coincidence the dollar rallied
> back in the summer, when risk aversion in the credit market was hitting
> an all time high?
>
> And another thing. The value of the dollar is relative to the value
> of other currencies. Supply has something to do with this. What I'm
> saying is that other governments get to do what the US government
> is doing, and make lots of money in the process. They're doing it,
> and will continue to do it. My guess is we'll see Euros and Yens
> flooding the marketplace too, along with torrents of dollars. <br/>
>
> Fundamentals aside, the real issue is how easy it is to trade the
> buck against other currencies. At the moment, the dollar is poised
> at it's 200 day moving average. If this area acts as support, fantastic.
> The dollar will rally a bit in the short term and, maybe, the long
> term. If not, and the dollar slices through technical trading support,
> then that will be the shortest long term upward price trend the dollar's
> ever seen.
>

Is the U.S. Economy Running Out of Options?

I have to agree with Mister Jimmy. Right now with the credit markets being so tight (NPR reported today that to get an auto loan in the current market you must have a credit score north of 750) reliance on the private sector is pointless. A WPA style public works program is the only likely solution. Remember, it wasn't the private sector that pulled the country out of the Great Depression, it was government contracts that were dispensed as part of lend-lease policies to foreign militaries as Europe was led into war. The private sector had nothing to do with coming out of the Great Depression.

Also, given how hopelessly backward GM and the other auto-makers are right now, I really don't think they deserve government money. GM keeps touting the Chevy Volt as the car of the future, but anyone who follows the publications that automotive engineers read can tell you that vehicle has several major design flaws and is going to end up an enormous failure. In fact, the whole notion of "plug-in hybrids," is great for ad-copy but a really hopeless design idea.

The economy is in for a rough time, we've built an economy that absorbs wealth rather than creates it; and leaders in business, rather than trying to push new ideas that lead to the creation of greater total wealth, are almost certain to pursue a course that tries to lead consumers and government back to old habits.

Forbes Says, Devalue the Dollar. Bad Idea.

Right now a weak dollar is what this country needs. Strength in the manufacturing sector as the result of a weak dollar and competitive pricing with foreign products has been one of the few bright spots in the American economy over the course of the last year. Right now a strong dollar will put more people out of work.

What this economy really needs is to get back to fundamentals. Adam Smith said there are two ways to increase wealth:

1. The development of as yet untapped natural resources

2. The development of new technologies that extend the useful life of existing natural resources

In the case of the US economy, we need a social change that will result in the elimination of "wealth-sucking," sectors of the economy (iPods, Video Games, mid-level chain retailers and restaurants, petrol consumption) and a focus on the development of sustainable economic efforts: small scale specialty manufacturing primarily-that can lead to stable growth.

The general public has already made a very good first step by reducing gasoline consumption. Less money spent on fuel means less money that ends up in the hands of OPEC and other oil producing nations and less money that ends up in the pockets of already gargantuan oil companies.

Playing games with currency manipulation can only lead to greater catastrophe.

Forbes Says, Devalue the Dollar. Bad Idea.

Right now a weak dollar is what this country needs. Strength in the manufacturing sector as the result of a weak dollar and competitive pricing with foreign products has been one of the few bright spots in the American economy over the course of the last year. Right now a strong dollar will put more people out of work.

What this economy really needs is to get back to fundamentals. Adam Smith said there are two ways to increase wealth:

1. The development of as yet untapped natural resources

2. The development of new technologies that extend the useful life of existing natural resources

In the case of the US economy, we need a social change that will result in the elimination of "wealth-sucking," sectors of the economy (iPods, Video Games, mid-level chain retailers and restaurants, petrol consumption) and a focus on the development of sustainable economic efforts: small scale specialty manufacturing primarily-that can lead to stable growth.

The general public has already made a very good first step by reducing gasoline consumption. Less money spent on fuel means less money that ends up in the hands of OPEC and other oil producing nations and less money that ends up in the pockets of already gargantuan oil companies.

Playing games with currency manipulation can only lead to greater catastrophe.

Negative Psychology Tightening Grip on U.S. Consumers - Pew

What's eventually going to happen is a fundamental reshaping of the economy.

Fool me once, shame on you. Fool me twice, shame on me.

American's bought into the low price revolution that they got from retailers like Wal-Mart, and they bought into NAFTA too, not openly in friendly conversation of course, but when they forgot all about that thing from the 80's, what was that called again? The buy American movement? After a fleecing as bad as the outsourcing of American manufacturing and the sub-prime meltdown it was inevitable that habits would change, and chances are they've changed for good. Those companies that focus on trying to lure consumers back into their old spending habits are going to fail.

"Ahh come on guys, you can trust me! So, last time I lured you into a ridiculous mortgage you couldn't afford, caused you to lose your house, then in the economic downturn you got laid off, and now you're working again but you'll have to delay your retirement probably another ten, maybe twelve years. Is that really a good reason for not trusting me?"

With the American dollar falling again we'll see an increase in the price of foreign goods-bad news for China but good news for us. More good news for America (although it isn't widely reported), all of those Americans who are settling for zero percent interest on treasury bills are providing the government with interest free money to fund the bailout, American investors are purchasing a larger percentage of government bills than they have in years.

Falling gas prices mean lower energy costs for American manufacturers, and a weak dollar means greater price competitiveness-too bad all the factories moved overseas, otherwise we might have some means to pull ourselves out of this mess. I would expect a resurgence of the "Buy American," ethic-in fact the other day I was very pleasantly surprised when I was shopping in a Dollar Tree store and purchased a winter hat with a "Made in U.S.A." tag on it.