Gozinta

From Rick Ackerman:

Today, we have some things that are different, but not for the better. The entire post-WWII period was a credit expansion until three years ago and it ended with a bang. Nobody wants to use the 19th Century as a template for the future. However, we did blow the pages out of the history books with our Real Estate Bubble. This was much bigger and broader than Tulips and all the rest of the manias. In addition we started this credit collapse with a bloated, underfunded bunch of entitlements and safety nets. The next Roosevelt has more fiscal constraints than the last one. And don’t even talk about demographics. Mother Nature appears to have really hit a home run this time.

So it looks like we are entering into the “war to end all wars,” but this time it is not against some foreign power. “We have met the enemy and he is us” (to quote Pogo). It is a battle to rebuild the national balance sheet and we certainly will win, but the national dialogue is still mired in the old paradigm. How can we resurrect demand? This is not a time to be investing for growth. Very soon, it will become clear to the nation that we need shared sacrifice to pay off the debt and that will involve an enormous hit to consumption. Capacity will continue to be eliminated and asset values will suffer. Revenues and household income will remain under pressure for quite a while and profit margins will revert to the mean (and not too far below, if we’re lucky). Sentiment toward risk in the stock market will continue to change as it has in the real estate market.

Hence the gozinta. How tough will it be to buy Wal-Mart when it trades at a 6% dividend yield? Won’t we be afraid that it is headed for 8% like GE in 1979? I think the answer lies in the idea that first, you have to have a gozouta. If the 2039 Treasury Strip goes to 2.5%, that’s up 40% from here. Maybe it’s going to 2.25%, but so what? We will need to remember what Baron Rothschild’s answer was when he was asked how he became the richest man in the world: “I never buy at the bottom and I always sell too early.” Gozinta!

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