All Forum Posts by: Anthony Halstead

Rich,

Just curious what your thoughts are if prices keep declining. I understand well the plan for using inflation to your benefit, but we are now seeing milk rise and housing keep declining.

Do you see this continuing or ? And if it does continue, how does that affect your strategy? In other words, are you protected if housing does continue to decline while unemployment and inflation keep rising?

Looking from advise from those with wisdom, those who have more experience than me...

Thanks,

Tony

Bryan,

I agree with the idea of keeping fixed rate, low interest rate, long term debt, with a couple caveats. I do not want too much debt, I want provisions for decreases in rent, repairs, etc. In other words, I do not know what is coming, only that too much leverage will kill you. Leverage is a two edged sword... I am trying to find the balance that lets me grow without putting too much exposure in case something tramautic comes (ie falling property values, falling rents, higher taxes, etc). I do not know if that would come, but being prepared is the next best thing to knowing what is coming.

So I guess my strategy is betting on inflation, but trying to protect at the same time if something else happens (ie if something else happens I do not loose, if inflation happens I "win").

Tony

Who needs hyperinflation anyways?

http://grandfather-economic-report.com/inflation.htm

And here are a couple of interesting sites with facts to start forming an opinion from:

http://en.wikipedia.org/wiki/Economy_of_the_United_States

http://grandfather-economic-report.com/

Matty, nice to see your strategy. My father asked me what I am going to do with my "hoard"... He was laughing a bit at me when I bought it, then one day I told him to look at the prices. He stopped laughing. Recently he asked me when I am going to "buy that farm". I replied that when the price of RE goes down enough and the price of my "hoard" goes up enough I will do a swap. He quietly replied that it does not seem like it will be too far off...

Nice to see my dad see the light about inflation, spending, etc.

I do not think that this will happen all at once, rather a slow decline in the affordability of our current standard of living due to resource depletion leading to higher costs. Most will not notice it right away, and I do not know if the mainstream will admit and face up to the fact that current livestyles will need to change to adapt to reality.

When you think about it our current lifestyles are running on petroleum. Oil is basically stored energy from the sun (via photosynthesis) in a superdense source. I have heard estimates that one barrel of oil is the equivalant of 10,000 man hours of labor. I do not understand how that can be possible, but anyways the fact remains that oil allows us to work less and enjoy more. If the oil gets more expensive, so does our lifestyle. And the same for all other materials mentioned in the study.

I would say that simple is best when learning to adapt to this event: chickens, garden, etc. Many of my friends have chickens. Some let them roam free, some have movable cages that they can place in a place to be weeded. The chickens thrive in the sunshine, eating bugs, weeds, etc. The eggs are very good (and healthy, do some research) and chickens are easy to to take care of.

A garden is not that hard, and provides lots of chemical free food (if you do not put chemicals) and teaches kids where food comes from.

We have a root cellar for storing potatoes, carrots, roots, etc. Not too hard to do, and the rewards are worth it.

And even if there is unlimited oil, copper, etc at easy to mine prices, even if the prices go back down and stay down, it is not a bad thing to do these things, so win - win in my mind.

Tony

From Rich-

"I read all 19 pages and checked out ALL the graphs. Very worrisome. Here is my short cliff notes version."

Rich, you did an excellant job summarizing the report.

However, I do not see the need to worry. Yes, it portrays a drastic change coming, and not a good one, but I always feel that when you have identified the problem, then the next step is to work on a solution. For this there may be no "fix" type of solution until a magic way of converting solar energy into electricity at high levels of effeciency occurs, so then it shifts into preparing for the eventuallity. I feel that when you are preparing, you do not need to worry, worry just gets in the way and causes negativity. Not picking on you here, and yes there should perhaps be worry for all of us who are not prepared, but what is is, and what will be, will be. Nothing we can do except prepare. And that we now CAN do because we have the appropriate knowledge.

This is not an attack on what you wrote, Rich, just something that is conditioned in me by now. When people come to me with a complaint, I ask if they have a solution. When people worry, I ask what they are worrying about, and what is the solution. Action brings relief to stress and worry in many instances, but prior to action adequate knowledge is needed. It is funny how sometimes people equate correct knowledge as bad, because it brings them news they do not want to hear. (It has been shown that most humans are wired to believe the easy lie, rather than accept and face the hard truth... I say that again and again, and try to remind myself of that at every major decision I make to prod myself into thinking which choice I have taken...) The worry or stress should act as a signal that you need to prepare, that you need to dig into this subject so you understand it and can properly prepare. My wife once commented to me that I worry about situations like this, that is why I am reading so much about it. I said no, I am not worrying anymore, I am preparing. That is why I read about this topic, economics, real estate, food, etc, to gain some knowledge so that I may make an informed decision.

Rich, I wish you the best. I have enjoyed reading your advice and have learned immensely from you. It gives a good feeling to reciprocate a bit and see that someone else "gets it".

Tony

After the interesting discussions going on here at BP, thought I would share a parallel discussion which is ongoing amongst my circle of friends:

During the housing bubble, we were watching. We have some knowledge of Austrian Theory of Economics, still learning it at that time, so when the collapse came we were not surprised. After outrage about how large banks got bailouts, gave themselves bonuses, etc, I proposed that anger was like spinning wheels in the mud. Like fighting the weather. We, having identified what was going on, and identifying that we were basically powerless to effect any change in the system, should prepare our lives so that our family and friends would not be harmed by what was going on.

Thus some, along with me began to learn more about eating healthy, inflation, economics, etc. But the most interesting thing we found was that there is not enough of everything. We are using materials at a rapidly increasing rate, while the basic materials are not growing. Copper, iron, lead, etc are finite resources. A second item is that we tend to mine the easily recoverable chuncks first, thus leaving the hard to extract, low grade ores for our future. And this is as demand is increasing.

Resource shortage could have a bigger impact on our lives than any and all govt printing of money. In other words, the debt forced austerity measures will pale in comparison to what happens when oil is more expensive to extract from the ground, when copper, lead, aluminum, iron, etc are lower grade and deeper (higher price to extract, higher price to refine, oil is a huge component of their price), when aquifers decline (see India, OK panhandle, etc) and farming is not economic (also, oil is a huge constituent of food production via fertilizer, tillage, transportation, etc) and on and on. In short, our easy lives are about to become more expensive, and in the long term unsustainable.

We then said, ok, got it. Then what? It goes back to our basic needs first, food, water shelter, etc. When those needs are met, we can progress to the next level of Maslow's Pyramid. I mentioned farmland, prime farmland with a good water source, land that was not denuded by modern chemical farming, land that was near population centers (who are you going to sell to?) yet somewhat distant from the turmoil of the major cities. As far as where, the US midwest was our choice. Water, sun, great soil, not a ton of people compared to other parts...

And just in the last week I read an article which seems to dovetail with these assumptions, except the author has a research staff to help him with the evidence.

http://www.scribd.com/doc/53865070/GMO-April

It is an enlightening and well researched report on what is likely to come. And much more well written than this short post by myself. I think after reading it you may concur that it will have a bigger effect on our lives than hyperinflation.

Tony.

Everyone reading this post, I would again recommend that you read the following report:

http://www.shadowstats.com/article/hyperinflation-special-report-2011

There is such a wealth of information in there. I will quote a few snippets to get you to read the whole thing:

From Ben Bernanke: “Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.â€

"What promises hyperinflation this time is the lack of monetary discipline formerly imposed on the system by the gold standard; a fiscally bankrupt federal government; and a Federal Reserve dedicated to debasing the U.S. dollar."

"Putting the current environment in historical perspective, the following two graphs measure the level of consumer prices since 1665 in the American Colonies and later the United States. The first graph shows what appears to be a fairly stable level of prices up to the founding of the Federal Reserve in 1913 (began activity in 1914) and to Franklin Roosevelt’s abandoning of the gold standard in 1933. Then, inflation takes off in a manner not seen in the prior 250 years, and at an exponential rate when viewed using the SGS-Alternate Measure of Consumer Prices in the last several decades. " (sorry, not sure how to paste the pictures of the graphs, see the article for graphs)

"The gold standard was a system that automatically imposed and maintained monetary discipline. Excesses in one period would be followed by a flight of gold from the system and a resulting contraction in the money supply, economic activity and prices."

There is a wealth of information collected in this one article, please read it.

My take away is that it really is different this time. There is no gold standard to pull us back from unlimited printing, Bernanke promised to not allow a deflationary depression, so he will and must print. This will cause even higher inflation. Hyperinflation comes when confidence in the dollar as a means of savings is lost. When that occurs, or what the trigger is, I really do not know. I do believe that it is entirely within the realm of possibility, and looking more and more probable with each day that passes.

Again, please read the article, digest it, and understand for your self why it could or could not occur. I do think that something which has happened before many times (as Matty pointed out Every time for a fiat currency) has the odds on it happening again... someday.

Tony.

Bryan, I do not see it for the dollar just yet.

However, if the EU were to fall apart, and Spain, Greece, Portugal, Ireland, etc were to not default, and tried to pay their unpayable debts through printing, I think we would see an example of hyperinflation there. Same as what occured in Zimbabwe. I believe that is one of the reasons many govts are working together to bailout and keep the ball rolling; if it is shown that a "developed" country can default or have hyperinflation, then people would really start to question their own currencies.

I think that when debts become insurmountable, default or massive inflation (who really cares if it is hyper or not, anything over double digit is going to produce a world of hurt. Only when there is a complete collapse in confidence, then it is hyperinflation and then currency is soon obsolete) is inevitable, the US is now choosing inflation. We will see how it plays out.

Does anyone here believe that the US debt can be paid down? That taxes will increase substantially, and that this will make a difference in the amount of US debt? That the deficit will decrease? That interest on debt will decrease? I do not, and all of those together mean an increase in debt, inflation, higher taxes and a lower standard of living for a time. Look at how it is playing out in Greece and Ireland, debt rescheduling, austerity plans, bailouts, and it is not enough. You cannot uncook the egg, and at some point it needs to be realized that too much has been spent, it cannot be repaid. Then there will be a default, and a restart.

I do not know what happens in the US yet. I think they will try to keep "moderate" inflation (less than 15%) and massage the inflation statistics as they have since 1982 or so to reflect lower inflation. This will appear to be the least painful alternative.

My predictions for real estate? A long time before prices rise substantially in real terms. Higher taxes on real estate. More govt programs regulating real estate and lending (SAFE act, etc.). But in the end (10 years?) the bad loans will be wiped out, the bad banks will be wiped out, and real estate will have solid ground to grow from again.

Sorry if this hurts get rich quick dreams, but I really see it that real estate is great from a perspective of leverage (LTV, ITV, etc), and how that can multiply returns on investment and produce cashflow that you can re-invest or apply towards principle reduction. And the fact that it is utilizing payments from renters to payoff the mortgage, run the business, and grow the business is the best thing. Someday when appreciation happens again that will be the best thing, and at that point I plan to 1031 into newer, larger units for depreciation, taxation and cashflow purposes.

As you can see, I do see rough times ahead, but I am still pushing forwards. No point in digging a hole and climbing in waiting for the end of the world. I think that if one can understand what is happening, one can prepare, no need to be pessimistic, rather be realistic and prepare accordingly.

And maybe you will be correct. We just have to wait and see about that, but in the meantime, I am not waiting for anything, just building for the future.

Tony

And here is a well thought out article on Hyperinflation, why it is coming and when (he says 2014 at the latest in the US, but could be as soon as the end of this year).

http://www.shadowstats.com/article/hyperinflation-special-report-2011

Bryan, interested in your thoughts on this article.

I find it interesting that a lot of these guys are too early in their predictions. For example some were predicting a tech stock meltdown in 97-98, it took a year or two to be proven correct. Same with housing, 2003-2004 was when some I read and respect were calling a housing bubble, and some were predicting it already in 2001-2002.

This being early leads to them being ridiculed because it does not materialize "right now". I somehow think that if hyperinflation is around the corner, it is the same thing; the ones who are correct are being laughed at right now, but in the end they may be correct.

Not sure if John Williams is correct, but he portrays a compelling argument for preparing some of your portfolio for hyperinflation.

Tony.