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Friday, January 20, 2012

Financial Bogeyman

I am starting to get nervous about markets like I was in 2008. I held on a little too long then and wish I had moved to cash a month earlier than I did... it would have saved me almost 10% of my investments. I can't quite put my finger on it, but I feel like one of many financial bogeymen are hiding in the closets just waiting for us to open a door.
The major things going on out there that worry me are: Everybody knows there is a crisis here and lots of nations are doing things in the background and more overtly to fend this one off for a while, but it still makes the market do stupid stuff. I think the impact of this one could potentially be smaller on me us if we are smart about how we react. I also think that there may be some long-term good investments to be had as European companies that are solid get hit at the ticker but less elsewhere. (See also the US market in late 2008) The Brits are saying we might be in trouble, while CNBC is trying to maintain that there's nothing to see, move along. If you sign up with your brokerage to be on the "New Offerings" list, your email will be pelted with multiple listings every day for things like $134M from the NY Dormitory Authority or $282M from the Omaha Public Power District, etc. I could see how you spend almost $300M in a power district. They could be building a new power station and/or upgrading their infrastructure - I know they're dabbling in wind generation, too. But a dormitory project >$100M is ASTOUNDING. You can build a WHOLE LOT of dormitories for that kind of money. Cities around the country are having to cut services to meet their debt obligations, moreso where they are prevented by state law from filing for bankruptcy (see Harrisburg, PA). Yet they continue to drink the spiked kool-aid out of the cooler and party like it's 1999. Eventually, these cities are going to need a bailout from the state or their (formerly apparently rock solid) munis will tank. The states don't have the dough (try figuring out the California budget) and will have to borrow it or be bailed out by Uncle Sam. Now Uncle Sam can do a few things to fix the problem... raise revenue, cut expenses (they don't have the fortitude to do that) borrow more or just have the Fed print more money to give to the states to funnel to the cities. Borrowing more is just kicking the can again. I don't have full faith that our credit can hasn't been kicked all it can stand. Printing more is gradually devaluing the dollars (so they don't have to do it all at once Zimbabwe style). Both of those options pretty much just suck. I don't have a more cogent, mixed company appropriate, professional term.

So what do we do about it? I'm still working that out myself. But I am certainly looking for opportunities to move things to cash where it makes sense and the risk probably isn't worth the reward (European sovereign debt off the top of my head). I'm also trying to position myself to make the really good buys that I believe will be there when things eventually do get bad. I think the market could experience one more super jubilant rally over the next few years, but protecting capital is my primary goal right now and I am beginning to feel like one of the sober people standing around the frat party at 3 in the morning. It's been fun, but there are going to be some serious hangovers.

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