That is a lyric from the 1976 Kansas hit Carry On Wayward Son (the word My is not in the title which I did not know until I looked on Wikipedia). I have this song on my iPod, it is a great workout song (who knew?) and seems to often come on at the most difficult point of my workout; the last 5:30 on the stairmaster.
Anywhoo that one line strikes me being especially poignant. While I am not sure that I claim much wisdom there is plenty I don't know and one thing I really don't know but that I've started to think about more lately is the serious pickle the country is facing.
The chart comes via John Mauldin and tells an important part of the story. While the spread will probably narrow in the next couple of years it is not realistic with what we know today to expect it to revert to any sort of mean.I am thinking more about the magnitude of the deficits, how much debt needs to be purchased by someone in the future, the percent of revenue that could need to go to interest payments and the $53 trillion (or whatever number you care to insert) entitlement problem and I do not know what the answer is.
To repeat, think about the magnitude of the numbers.
One thing that will happen is that some amount of growth at some point will make the problematic numbers a little smaller. This always happens but whatever the magnitude of the effect it cannot solve the problem, not even close.
As a country we lack the political will and we as citizens collectively lack the will to make truly difficult and painful decisions. We lack political will because politicians who vote for truly difficult things will lose their next election and as far as citizens, try telling someone who relies on social security that their check needs to be cut by 2/3.
This week Mauldin wrote a lot about the book This Time Is Different by Reinhart and Rogoff. In studying just about every crisis in history it is amazing the extent to which past crises had so many things in common with each other and how similar this one has been. The other ones tended to end very badly.
My focus in this regard is not to be the one to come up with a solution to the problem and as noted above I really don't know but instead to focus on what is in our control. We can control our own savings rates, our own balance sheets, how long we work (not universally true) and what we do with our savings.
After such a dour post I'll close on a lighter note. Long time readers who are also sports fans may know my fascination with the blue turf at Boise State. Well Eastern Washington University, about 400 miles north of Boise, is trying to raise money for a red field. The artist rendering is not easy to look at I can only imagine how difficult it will be to watch a game on this stuff but if they do install the field you can bet we will be able to see plenty of it.
13 comments:
Good morning Roger
The inability of politicians to tackle real rather than manufactured problems in our overheated partisan climate has been a real cause for concern for more than twenty years; distracting a gullible and/or ill-informed electorate appears to be a relatively easier problem to solve.
So before folks trot out the usual suspects -- "reaching into the pockets of future generations" or "crowding out private spending" or "foreigners own us" -- they might want to read this: http://tinyurl.com/b5v7z4
And then, before reflexively dismissing it, consider the possibility it might be accurate and what the implications of that might be.
From my POV our core problem is we pleased ourselves as a nation for at least a decade too long, squandering wealth on gewgaws and combat while neglecting infrastructure (in all its multiple senses), and it has caught up with us.
And that red field really makes my eyes hurt.
Roger,
not only USA has difficult choices, but the rest of the world. This has been and we still are in a financial war, therefore these governments will use all they have to fight such. Now there is bab bonds like the war bonds, however governments (it seams to me) that they are talking more therefore with more concerted actions. However, we will come out of this. What I saw and sayed this from july '09 that were going to 1166 and then thank. I did not know, how, why and all those things. Roger, when you reported your Sunday morning coffee on jan 3/2010. I told SEG that things looked good but sticking with what I saw and felt. Thanks MikeC for providing the tool - your recommendation about book - the art of contrary thinking by Neill. Actually the actual number was S&P 1149. I chose 1166 for numerical purposes, and because 1166 would stick bettr on my mind. I actually made such on this blog back (not Sure) in august/2009. However the timing I gave was late october/early nov2009. All these tools that I have devolved come from translating what Roger and participants have said and come up with mathematical calculations, inserted into excel vba programs. I knew I was on the right track when you published Anger and Panic! on jan 21 2010 and many comments there said that there was nothing to see "carry on" and when RW (who is very smart) published the best comment(since I have read this blog) said that this is not yet an intermediate top. Just because a battle has been won there are many other battles to win to get to the total fight. One think that I want to share about what I have learned about the market. The market will do what it wants to do. Anyone's opinion means nothing. Going back to the Neill book - your own work is more significant than others. I am glad that I have developed some significant tools so that I can extrapolate and judge where the market is. One thing that I agree with Roger and have extrapolated from my work is that being invested in the long run will give you an hedge on inflation and the devaluation of money. I am not here to give you a positive plug, Roger, but having a good money manager and avoiding the big mistakes makes a big difference.
Jeff from Milan, Italy
Roger,
I am starting to like Mauldin more than Hussman, but both are must reads IMO.
Red grass is the right choice if they change playing football to the death as suggested in a previous post :)
SEG
Seg,
the words " Just because a battle has been won there are many other battles to win to get to the total fight." is about the financial war that we are all in. Read my first paragraph. I do not fight battles. I only trade the market and try to get an edge as to how it works, so as to avoid losses. I am sure you are a good trader if not a great trader. I am still learning the tools of the trade. I know for sure that this blog has given me an edge and must thankl Roger and the participants.
Best to you SEG and rest of you,
Jeff from Milan, Italy
P.S. Perhaps my english is not as clear and hope that you and others do not miss understand me
Hey Roger, thanks for the good post. You are much better than me at organizing words clearly. I posted yesterday (www.mentate.com) about my pessimistic view. It is so hard right now - we need to encourage people to save $... no spend $... hmmm. I feel like I am looking behind the curtain at the Wizard of Oz.
But my coffee is hot and I have a soft cat curled at my feet. Onward.
Kristin in Hawaii
Don't know what all the fuss is about. Reagan said deficits don't matter and Dick Cheney reaffirmed that in the summer of 08. Now suddenly they matter? They either always did or they never did/do.
If they do, then adjust entitlements, expose the military industrial complex for what it is and finally, make lobbying a criminal activity. How hard should this be to do?
Roger,
In light of this -- do you have any general advice on how to protect one's investment portfolio. Thanks.
you mean besides the five and half years worth of posts saying to selectively increase foreign exposure in all asset classes?
Roger,
The non-Euro part of the world continues to depend on keeping their currencies low and exporting to the US and Euro, won't they be in just as bad of a shape ?
Or do you think their economies will become more self-sustaining ?
15% of Chile's exports go to the US. there are other countries that are not so intertwined with the US. dollar fluctuation did not prevent other countries from being on different cycles in terms of rolling over and turning back up at different times than the US and other countries were never in as much trouble at home as the US. a country with less debt and less leverage is probably going to come out a little better than the US.
This is the first time in my life when I can say "I don't think the U.S. can solve its' problems.
@RW
So before folks trot out the usual suspects -- "reaching into the pockets of future generations" or "crowding out private spending" or "foreigners own us" -- they might want to read this: http://tinyurl.com/b5v7z4
And then, before reflexively dismissing it, consider the possibility it might be accurate and what the implications of that might be.
Good stuff there and certainly thought-provoking, and I am trying to stay mentally flexible here. I see the point that debt at the family level and debt at the federal government level is not comparable, especially when the debt is denominated in the currency you can print.
That said, I've got to think there is some upper limit, some breaking point, where the magnitude of federal debt doesn't lead to happy outcomes. Did you read Mauldin's piece this last week "This Time is Different". An excerpt:
"And one last thought. The US is running massive deficits. If we do not get them under control, we will one day, and perhaps quite soon, face our own "Greek moment." Look at the graph below, and weep.
Obama offering to freeze spending by 17% in US discretionary-spending programs, after he ran them up over 20% in just one year, is laughable. Greece is an object lesson for the world, as Japan soon will be. You cannot cure too much debt with more debt.
I just don't know. This is so damn complicated to figure out yet I can't help but think getting this call right is the key to the right big picture strategic positioning the next 5-10 years. Should you be buying bonds like the Hoisington guys because of the debt deflation or shorting bonds because of the looming hyperinflation?
Strange times, and I often wish I had started my investing career, both personally and professionally in the early 80s and just rode the wave of the Great Moderation and steady disinflation. I suspect the next 10 years won't be any easier then the last 10.
MikeC,
Mauldin is a square player as much as he is able and his failure to mention that the Obama administration has yet to come close to the increases in dept-to-GDP ratio caused by the Ronald Reagan, George H.W. Bush and George W. Bush administration borrow-and-spend policies was doubtless a mere oversight.
The Republicans and corporate media have been too successful in undermining this young president and he has blinked: The public has been persuaded that debt matters more than what can be built or repaired with it and he has made reducing the deficit a priority.
I do not give advice but do suggest you follow your own counsel and remain flexible: Economic depression remains in the fat tail and the next decade is unlikely to be any easier than the one just past; in fact there is now a measurable probability it will be worse.
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