Being Bold in Rough Economy

The economy is in deep trouble.   It’s bad now, but this is just the beginning.   There will be fundamental changes in the global banking system, the use of credit and the value of currencies.   It’s going to be rough.

So what do you do?   Wait it out?

I think this is a time to be bold.   Not stupid or careless, but bold.

So, in keeping with my “Be Bold!” strategy I’m still spending money, investing and growing my business.   In fact, I’m working on buying a pretty expensive domain name for a project right now and I plan to launch two completely new businesses in the next two months.

One of my biggest sources of income is selling domain names.  [I’m not talking about ultra-premium names I’ve kept in my portfolio for years either.   I’m talking about buying and quickly reselling domains for ~$300 each.]    Anyhow…In September of 2008, it really appeared that this part of my business was on a serious decline.   I couldn’t help but only expect it to get worse.

But, As quickly as my domain sales went down, they came back.   Right now, January 2009 is looking like my second best month ever.   How much money did I make flipping domains this month?  It’s a big number, trust me.

So, if I’m selling domains, that means people are still buying.   The world (especially the world of entrepreneurs and small businesses) is made up of innovative people who will strive to survive the downturn.   But more than that, there are many that will “Be Bold!” and take advantage of opportunities and weakness in the marketplace.

Your task, if you want to thrive in this bad economy,  is to serve be Bold by serving the Bold.

High Gas Prices = Mad as Hell!

Ridiculous. Yes, $3.50+ for a gallon of gas is ridiculous. If you ever want it to change you need to be mad. In fact, you need to adopt the mantra of Howard Beale from the 1976 film, The Network. If you haven’t seen that movie, you should. It was far ahead of it’s time.

Anyway, Howard a network news anchor goes on prime time TV and loses it. Repeating over and over Howard says, “I’m mad as hell and I’m not going to take this anymore!”

Upon whom should we direct this anger?  Not the usual suspects, I would suggest.

The oil companies, gas stations, the rich monarchs in the middle east, and the OPEC cartel are NOT to blame. Sure, they’re benefiting from the situation. But, they’ve ALWAYS benefited. And why shouldn’t they? They provide a service to you don’t they?

Think about all the pain in the ass it must be to dig that nasty oil out of the sands of some of the most inhospitable regions on earth and move it half way around the world, processed, refined and delivered to a 24hour pay at the pump service stations on your neighborhood corner.

Considering the convenience of having it delivered to you so smoothly, shouldn’t these guys make some money? Most of us certainly thought so when gas was reasonably priced didn’t we? This is America after all and we don’t mind people making a profit. “But now it’s too much!”, you might be saying.

Recently, OPEC’s president came out and told it like it was. When the dollar goes down just $.01 in value (due to inflation, bad economic policies, etc) a barrel of goes up by $4. A similar thing happens with eggs, milk, corn, gold, copper, beef and just about anything else you can think of.

It’s time we face the facts: Just about everything that matters is getting more and more expensive and the primary reason for it is that the lovely US Dollar is becoming worth less and less.

“A weaker U.S. currency, besides pushing up the price of foreign goods, also drives up the price of commodities priced in dollars, such as oil, which has a big impact on consumer spending by Americans.” according to a recent article by CNN.

So who’s to blame?

Well, we are. Or at least our leadership is. The Federal Government is spending money it just doesn’t have. So what does it do when it doesn’t have enough money? They fire up the printing presses and make more money. Every dollar they print makes the few dollars in your pocket worth less and less. According to ShadowStats.com they’ve been printing a heck of a lot of dollars.

M3 Growth

The sad truth is none of this is going to change. The next president/administration and congress are just going to do more of the same. None of the three jokers now in contention for office addresses the simple fact that the destruction of the dollar is quietly stealing all the wealth of the American people.

And why should they? You don’t care about it do you?

You’re just mad because it costs you too much to fill your gas tank. You want the simple solution. You want to blame some “towel head” half a world away or the big evil oil companies it’s so much easier to blame others for our increasingly desperate situation.

Or even better, you want the government to help you by printing billions more and sending you a check for $600….

Things are going to get far worse until two things happen.

First, We must wake up to the facts. We must sseek out the truth and stop being fooled into simple blame the pathetic man from Salta, Argentina who’s never earned anything for himself or had any job daddy didn’t give him named Juan Esteban Romero or blame the arab thinking. High gas prices are a symptom. They are not the problem.

Second, as Howard Beale would suggest, you’ve got to get mad. Really mad. You’ve got to get so mad that you’ll opening your bedroom window and shout at the top of your lungs, “I’m mad as hell and I’m not going to take this anymore.”

Smart Cars hit Iowa

Driving around Davenport today, I saw two different eco friendly cars.

One was the long awaited “Smart Car” (see below). A young couple (probably about 30 years old) drove this into a local shopping center. I guess since they saved so much money on gas they wanted to apply that savings to some consumer goods.

Earlier in the day I saw an even smarter car driving down River Drive in Davenport. Since it was going the opposite direction, I didn’t have a chance to check out exactly what brand it was, but it appeared to be like the one below, a 3 wheeled Electric Condor II.

Incidentally, the Condor II does look way more economically interesting than the Smart car. It’s 100% electric costs about as much as the Smart Car and gets up to 80 miles on a single charge.

I think this is going to be a huge trend (as long as credit for new cars is easy to come by). It’s not so much that people want to do what’s economical (especially in the case of the “smart car”). Let’s face it a new car, even a ‘smart one’, isn’t economical. How long does it take you to recoup your outlay. Financing, depreciation, etc. etc. Especially since the “Smart Car” gets only 32 MPG!

Also, It’s not so much that the environment is the priority, rather it’s that Green is cool. And people always want to be cool. Being seen in your Smart car is like being seen in a Porsche. It strokes the ego in exactly the same way, but for different reasons. It’s always nice to show how much better you are than those around you. Green is the new cool brand.

Inflation is our friend!

If you don’t subscribe to http://dailyreckoning.com/, you should. It’s free, funny and a much needed bit of financial common sense. Today, Bill Bonner republished a portion of an old SNL skit.

Dan Akroyd pretending to be President Jimmy Carter on Saturday Night Live and 30 years ahead of his time:

“President Jimmy Carter: Good evening. On Tuesday, we Americans will have the opportunity to exercise our role as citizens in a free democracy. Yet, only a third of the eligible voters will actually cast ballots. The other two-thirds are, in a sense, very lucky. Because they do not know what’s going on.

“Last week, I delivered a message on inflation. Since then, the dollar has dropped in value, the stock market has sustained record losses, and the whole Dow price index increased 0.9%. In other words, our economic system is screwed, blued and tatooed! We just have to face the fact that there is simply no way to fight inflation in a capitally-intensive, highly-technological, conflict-riddled, anything-for-a-thrill world of today. That’s why, tonight, I want you to try to look at inflation in an entirely new way: Inflation is our friend.

“For example, consider this: in the year 2000, if current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean – most Americans will be millionaires. Everyone will feel like a bigshot. Wouldn’t you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would! But what about people on fixed incomes? They have always been the true victims of inflation. That’s why I will present to Congress the ‘Inflation Maintenance Program’, whereby the U.S. Treasury will make up any inflation-caused losses to direct tax rebates to the public in cash. Then you may say, ‘Won’t that cost a lot of money? Won’t that increase the deficit?’ Sure it will! But so what? We’ll just print more money! We have the papers, we have the mints. I can just call up the Bureau of Engraving and say, ‘Hi! This is Jimmy. Roll out some of them twenties! Print up a couple thousand sheets of those Century Notes!’ Sure, all these dollars will cause even more inflation, but who cares? Everyone will be a millionaire!

“In my speech last week, I said that America would have to undergo an austerity program, but since this revolutionary new approach welcomes inflation, our economy will be free to grow, and we can spend, spend, spend! I believe the watchwords for the ’80s should be ‘Let’s Party!’ And in that spirit, I’d like to say, ‘Live, from New York, it’s Saturday Night!’”

$6.28 for a gallon of milk

Earlier this week my wife reported that she’d spent $6.28  on a gallon of milk.    Granted it was organic milk, but still!   $6.28 seems to be a staggeringly large number and here in the farm belt… Davenport, Iowa no less.

And yet, inflation is not an issue we’re told…

Clearly the powers that be don’t shop for groceries….or read commodity reports

“Illinois corn and soybeans are up 40% and 75% from a year ago. Kansas wheat is up more than 70%. In Georgia, three-pound chickens go for record prices, up 15% from a year ago. A pound of whole wheat bread is up 24%. Whole milk, up 26%,” reports Capital & Crisis’ Chris Mayer.

The government wants us to believe that inflation is not a problem. Tell that to America’s families, who face the fastest rising food prices in more than 17 years. That’s on top of rising energy prices.

Don’t worry inflation isn’t a problem….except

I remember having a conversation with my portfolio manager nearly two years ago about inflation.    I was telling him that despite the official numbers, it seemed to be common knowledge that inflation was running rampant.    He agreed with me that the exclusion of Food and Fuel (the only two things you need to buy) from the CPI made the numbers incredibly misleading, but we had divergent opinions about how serious the problem was.   For my part, it seemed clear that it was taking a big toll on average citizens.

Even though it’s well accepted by nearly everyone I speak with, our “leaders” keep telling us that we’re just out of touch with the economic realities.    Meeting with economic journalists last week, President Bush dismissed several polls that show Americans are down on the economy. He expressed surprise that inflation is one of the stated concerns.

“They cite inflation?” Bush asked, adding that, “I happen to believe the war has clouded a lot of people’s sense of optimism.”

That’s right, Americans are just out of touch and have a clouded “sense of optimism”.    While it’s understandable that Americans might be a little pessimistic due to the planned “generation of warfare” against the “evil doers” (who they are exactly, no one can be sure.),  I think the pessimism comes from a source much closer to home.  The grocery eisle, for example:

According to McClatchy Newspapers– The Bureau of Labor Statistics said in its July inflation report that egg prices are 33.7 percent higher than they were in July 2006. Over the same period, according to the department’s consumer price index, whole milk was up 21.1 percent; fresh chicken 8.4 percent; navel oranges 13.6 percent; apples 8.7 percent. Dried beans were up 11.5 percent, and white bread just missed double-digit growth, rising by 8.8 percent.

These numbers get lost in the broader inflation rate for all goods and services, which measured 2.4 percent for the same 12-month period. Across the economy, rising food prices were offset by falling prices for things bought at the mall: computers, cameras, clothing and shoes.

If you’re in the market for a new flat panel HTDV,  you’re in luck.  If, however, you’re trying to feed your family, fill up your gas tank or simply save for the future you’re probably feeling like stretched to the max.    Add in the recent market, credit, and housing turmoil and it can seem like the sky is falling.   Or maybe that’s just my “clouded optimism” speaking due to the 41 tragic and unnecessary deaths of US soldiers in Iraq this month so far.

Are you feeling the effects of inflation?   What impact is it having on your daily life?   I’d love to hear your comments on this important topic.

Foreclosures….who’s to blame?

I just finished watching a CNN special on the foreclosure problems in the US.   More than a million homes went into foreclosure last year and they’re expecting another 2.2million over the next couple of years.   You can view some of the current foreclosure listings from around the country.   Or view Texas Foreclosure Listings.  Odds are you’ll find some in your neighborhood.

I admit the whole situation is pretty bad, but who’s fault is it?  Throughout the special they consistently glossed over the bad decisions made by the homeowners.   I agree that there are a lot of bad, opportunistic, unethical real estate “professionals” who prey on people who make bad decisions, but rather than addressing any personal responsibility there seems to be a huge tendency to shift any and all blame from the homeowners.

Personal responsibility is out of fashion.   Dealing with the consequences of bad decisions seems no longer to be the American way.  Instead, we want to protect people from being dumb.   We want to keep people from having to experience any setback or repercussion of their bad decisions.

How are we, as a society, suppose to learn from our mistakes if our very real individual contribution to the mistake is never acknowledged?

How are we suppose to make better future decisions….like taking the time to read and understand the documents before we sign them?

How are we going to learn that maybe we shouldn’t take out all the “equity” in our homes to temporarily erase our credit card debt?

Without penalty from bad decisions how will we ever understand the value of the unimaginable… possibly forgo the new car, vacation, or other unnecessary consumption or maybe just delaying for a while…at least until we can actually PAY for it… not “make the payments” on it?

There are specific examples of individuals that are heartbreaking, but this issue is a big issue and extends well beyond anecdotal stories.   There are a lot of bad guys in this situation (my personal favorite target is appraisers… maybe I’ll talk about that another time).   At the end of the day, though, not only do we need to accept responsibility for our actions but we need to work bring back the expectation of personal responsibility to our culture.

How taxes really work:

Got this humorous email today. Enjoy.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20. “Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’
They realized that $20 divided by six is $3.33.

But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before.
And the first four continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
“I only got a dollar out of the $20,”declared the sixth man.
He pointed to the tenth man,” but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got TEN times more than I!”
“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

“mom-preneurs”

A recent report authored by the Institute for The Future talked about the growing number of “mom-preneurs”.   If you spend anytime working with entrepreneurs (especially micro-preneurs), this seems self-evident.   Some of the key findings of the report include:

As aging Baby Boomers “unretire” to leverage their lifetime of professional acumen in their own business opportunities, and as their children enter the job market, entrepreneurs will come more from the edges of the age spectrum. The younger generation, which is more adaptable to technology, views entrepreneurship as a way to maintain independence, and it might set the bar as the most entrepreneurial generation ever.

and..

With the glass ceiling blocking the corporate career paths of women, a rich talent pool has been sent to the small business sector. Among them are “mom-preneurs,” or mothers who start part-time, home-based businesses with the help of the Internet.

Download the Report Here

Savings? Not now, I need a flat screen TV

Ian McDonald wrote an “chilling” article titled, “Benefits of Saving Wasted on Youth” published in today’s WSJ. In it, Ian talks about the US savings rate. It’s pretty common knowledge that the savings rate is super low in the US. This year the savings rate is negative 1%.

That’s bad news, but what’s worse is the generational relationship to savings. Ian discusses how those under the age of 42 have a NEGATIVE 18% savings rate. That’s shocking, but not surprising.

My Opinion (although I think it’s self-evident) is that the consumer culture is completely out of hand and younger people are willing to go to great lengths to acquire the social indicators of success. Luxury cars, plasma TV’s, bigger and bigger houses. To hell with the future, it’s about showing everyone today that I’ve made it!

Check out Ian’s article on WSJ