Future Shtick

For the last three Tuesdays I have shown cheesy videos from the 70's available on YouTube. I bet you were hoping that was enough. Alas, here is one more. 

Future Shock was a well-received "futurologist" book that I remember reading. Alvin Toffler was the author, and he became best buddies with Newt Gingrich in his later years. Orson Wells was only a shadow of his former self (metaphorically), and his voice was available for productions like this for a reasonable fee.  Wiki describes the term Future Shock to mean "too much change in too short a period of time."

Maybe I should write a book called Future Shtick. I could say things like the Amazing Criswell who in Plan 9 from Outer Space said that "the Future is where we will spend the rest of our lives." Never were truer, or dumber, words spoken. 

Moore's Law states that every two years the power of a computer chip will double and the cost will halve. Thus things that seem like Science Fiction become science fact. I think that eventually this will stop. Compound growth cannot continue forever. As Herb Stein once said, if something can't continue, it won't continue. But for the near term this will continue and us old fogeys will continue to receive more change than we can handle. 

Be sure to notice the height of 1970's technology in this documentary, especially the 8-track tapes! 

Inflation 1933

As I mentioned recently, yes inflation is your friend. This video from 1933 takes this to a whole new level. Basically Roosevelt forced everyone to turn in the gold they owned and gave them $20 for it. Then after everyone, under penalty of law, had turned in their gold Roosevelt revalued gold to $35-stealing 70% of the gold that had been turned in. 

If we are indeed in a depression, expect more irrationality like this.  BTW, the Roosevelt Inflation Plan failed and the depression continued until Roosevelt could engineer a war. 

Is war just around the corner? As Mark Twain noted, "History does not repeat, but it does rhyme." 

Inflation Is Your Friend

While my title is obviously a joke, I am not so sure. Most central banks seem to think that inflation is our friend. Japan especially wants inflation. They may in fact have no choice as this might be the best way for a government to default, and default they will, as most governments have lied and promised beyond their ability to pay. If Japan gets 2 or 3% inflation this might be the best of their options, but once started down that road, they may not be able to stop. This is the risk. Japan cannot afford to let interest rates rise as even a modest increase in these rates will mean that all Japanese government revenue will be spent on interest. 

For Japan I offer the transcript of Dan Ackroyd on Saturday Night Live imitating President Carter. (I have made a few changes to avoid errors.)

We may find out first hand that Inflation is not our friend. 

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 wholesale 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 capital-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 80's should be "Let's Party!" And in that spirit, I'd like to say, "Live, from New York, it's Saturday Night!" 

The Bubble of All Bubbles

Coming to a financial portfolio near you!Economically we have been cascading from one Bubble to another. The first two bubbles were gold and silver, where gold reached over $800 an ounce in 1980. They crashed. The next bubble is still with us. Interest rates have been dropping for almost 35 years. This bubble has not crashed yet but it will. While this bubble has been going on two other bubbles grew and popped. The Dot Com bubble popped in 2001; the Real Estate Bubble popped in 2008. The continual drop in interest rates fed these bubbles. In fact the low interest rates have been fueling a resurgent Real Estate bubble. The rates are not just low; they are not just at generational lows; they are as low as they have ever been in history.

This one's gonna blow.

Really there are no investment choices, so you gamble. But only do this after you have done the pre-investments I mentioned in a previous blog post.

This is where the following video comes in. Rather than talk about the intrinsic value of gold—nonsense…it has no such value—it admits that gold is once again a bubble.  But we may be early in the bubble process. If so, now is the time to buy.

So join the other punters at the Casino. Yes, there will be a jackpot for somebody.  Just hope, or dare I say it, pray, that the dice are not loaded. Remember that if you are at a gaming table, or in a business deal, and you do not know who the sucker is, it is probably you. 

How Much Inflation Is There Right Now?

There is a general suspicion that the inflation rate is greater than the 2% admitted by government statistics. My personal experience is that it is greater, as there seems to be month left at the end of our household money. How much is inflation? Honestly, I have no idea. The following chart will demonstrate this.

As you can see if the CPI, the consumer price index, was calculated the same way it was done in 1980 the inflation rate right now would be 10%. If the rate was calculated the same way it was in 1990, then the rate would be 5%. Obviously 10 and 5 is greater than 2.

But each of us has our own bundle of goods and services we buy each month. I started thinking about this as I read John Mauldin's weekly newsletter. He pointed out that inflation for him (he has children in college) was much higher than 2%. Similarly, someone with a lot of medical expenses is seeing a lot more inflation than 2%. 

Ours was a little smaller. But there are also areas where there is deflation. I remember how proud our high school was to have their own computer in 1971. My memory is hazy, but I think it was $35,000 and had 4K of memory. I also remember my second computer circa the mid 80's. I believe it had 512K and it had an internal hard drive of a whopping 10 Megs. I was really hot stuff back then. I paid about $3000 for it, used. Right now I am in the market for a computer and will spend $1300 for a computer with 8 Gigs of memory and 1 terabyte of storage. The computer industry is massively deflationary. This has to be factored in.

State of the Art—for the 80's. As wrong as the current 2% CPI is, are the others any better? As obvious as it is to me that the rate is more than 2%, it is just as obvious it is not 10%. This is another factor that is making investment so difficult. If one cannot model the future, all planning is virtually impossible.

Obviously the future is not knowable—but right now it is not even guessable. But that won't stop me from guessing…prophecy is fun!

I think the dollar is headed up, not because the US is in great shape, but because everyone else is worse—the cleanest dirty shirt, as one financial wag put it. What happens when the two trillion in excess bank reserves is spent? What happens when the dollars in foreign hands come home? I have no idea. But you can guarantee it will not be pretty. It could happen tomorrow. It could happen in ten years. Or I could be right, and the crisis is 3 to 7 years away.

Get ready.