wearmanyhats

[Due to technical difficulties with our service provider and the internet, this blog has been unable to be written daily in the past two weeks.  Thank you for your patience.]

A casual glance in the supermarket would probably not make most people cringe.  Prices took a big drop in the past eight months, and although food still may seem high to some people, it truly has dropped a bit in price.  Eggs, which had been as high in the upper Midwest as $2.00/dozen, sunk down during the time of deflation to $1.50/dozen and less.  Milk, before inflation, was fetching dairy farmers $22 per hundred weight. Last week, I was told that the same hundred weight was getting $9.

All this will change as the price of gasoline goes up. Shippers will impose higher fees to cover their delivery price.  That is more money out of the pockets of regular every day people.  It means higher prices in every store.   People can’t spend their money at a local store if they have to put their money in the gas tank.  It sets up a chain reaction where many small businesses could go under.

This inching up of fuel will set back the economic recovery that is underway.  While there has always been a time in American history when individuals have had to have wage increases to match the standard inflation that is going on, this is an exceptional time.  First, the number of available, excellent candidates is much higher than jobs available.  Employers don’t have to pay more to get good workers.  Second, when choosing between having a job or not having a job, most people will agree to the job without a pay increase just so they can put food on the table.  At this time, most Americans can not absorb an increase in fuel prices at all.

Martin Weiss, the ultra-conservative financial adviser, is warning that the market’s recent gains may be completely wiped out by another topple in the market.  He feels this is time to get out of the market if you have not already done son.

If one looks at the Dow Jones technical charts, it certainly looks as though the market is in a downhill trend.  Normal ups and downs in any market may account for the recent upward climb.  Weiss argues that the soft monetary base of the banks, the struggling of the average Americans, and the debt of the U.S. government makes another drop in the stock market quite likely.

If Weiss is correct, and it looks like the market could crash one more time some time in the next eight months.  Therefore it is critical to for all investors to balance the time they have to recover if they choose to stay in the market with the time before the money they are investing is needed.  If, for example, this money is for a child’s education and college is six years away, a steady balance of EE bonds with a small stock investment might be a better mix than the fully stock invested portfolio that was the standard ten years ago.  

Watch the price of fuel as a good indication of the health of the economy in the next ten months.  And adjust your investments accordingly.

Anyone who works with people whose income is under $25,000 will not be able to deny that the United States is basically subsidizing their existence. There is heating subsidies, free lunches at school, foot stamps and medicare.

One couple, who have been struggling with the basic job layoff economy related the simple reason why they do not have health insurance.  With a $400 a week paycheck (after taxes, $12.00/hour), half the income is needed for rent and utilities, the rest is for mandatory car insurance, and other expenses.   A good chunk of the paycheck is for paying off the credit card expenses that were acquired when the main bread winner fell and broke his  foot.  There simply is no extra money for health insurance.

This couple is fairly similar to other members of the lower class.  They have fallen on hard times because of a medical situation and are struggling.  Other such members of the lower class include widows who have been living off of social security and state medicare.  One director of a local Salvation Army privately confessed to seeing a woman buy a bag of dog food, but owns no dog.  Such charities work daily to put out vegetables and other donated food to help along those who don’t have the money to put food on the table.

Now that the lowest class can not live without government help, it is getting more and more surprising how many lower middle class folks are slipping in that range, too.  One couple, who used some inheritance money to buy some small investment real estate, found themselves in a quandary after the husband had a heart attack.  Although the medical bills were picked up by the Veteran’s Administration, the loss of income during the time of convalescence has left the family struggling.  On top of that, no one can buy their real estate because of a credit freeze.  Layoffs and slowdowns have hit this family home.  They haven’t had steady income for three years and slowly their assets are slipping away.

What happens when the lower and middle class begin to slip into the range of being eligible for government assistance?  The answer is simple math:  more money must be taken from those making more money, and this is an unsustainable tax burden.

The answer  is not in more and more government money.  Instead, the answer may lie in eliciting the help of organizations such as the Consumer Credit Counseling Service and similar programs.  The federal government would do well to encourage the development of a Job Development organization.  Such a program could help people organize family members to afford new training for the breadwinner.  Grants for small training programs would be better spent if it could help people get a job that makes a decent living quickly, rather than putting the money into more and more utility bills.

As a nation, the United States cannot afford to ignore the economic changes that are happening to the lower and lower middle class.  Many of these people have not had money for fancy televisions or recreational vehicles.  The majority have struggled for years.  Continuing to make them dependent on government handout is not a good long term solution.

There is historical precedent for the devastating impact of the lack of smart government planning to help the lower classes rise to their potential.  The powerful Roman Empire declined after too many social programs carried the populous.  Neglect of the lower class caused the revolutions in both China and Russia.  The time is now to begin some kind of national plan to give the lower class the tools to rise out of their poverty.

Since the possible pandemic has been inundating the news, (and this blog looked at how that will affect the economy), no one has paid attention to the rebound of natural resource prices.   This includes oil, the one commodity that will force retailers across the board to raise prices on goods and services.  So far the jump from $35 a barrel that was just the price a couple of months ago has now changed to over $51.  There has been little discussion on this on the streets nor by our politicians.  One of the major reasons is because the price at the pump has not really changed.  Therefore the refineries and other middle men are not being as profitable.  Watch any refinery companies such as Valero (VLO),  for if they made money the last quarter, they probably are not a good investment for the second half of this year.

Other prices are going up, too.  Copper has taken another jump.  While it was running $4.00 at it’s high, it fell precipitously during the market correction.  Slowly it is heading back up.  This again will affect the building industry.  Anyone building or remodeling a new house take note:  Now is the time to get the copper.

One of the reasons natural resources are going back up is demand from other nations around the world for these building materials.  China and other Asian countries barely slowed their building during the downturn that hit the other nations.  If you were to sit in an office overlooking Singapore or other Far Eastern cities, you would see cranes like big trees towering over new construction projects.  The rest of the world is working to catch up their standard of living.

When people in the U.S. and European nations can not afford fuel for their vehicles, when they have to spend more on a remodel, when a new house costs more, the impact runs like shock waves in the economy.  People who don’t have the money to build, won’t hire the contractors.  Contractors won’t have jobs for carpenters.  They won’t sub-contract to plumbers, electricians, flooring experts, or decorators.  All of this is essential for money flowing into the economy.

Even the most prudent contractor probably never anticipated a downturn that would last several years.  And yet that is what is happening here.  And as fuel costs turn away potential home builders, as copper prices continue to shoot up, making the price of building more expensive, the recovery could slip away.  If prices could stabilize even for a few years until paychecks adjust to those increases, good times could once again return to our nation.

The international economy, stymied by the downturn in housing, defaults on loans, and a banking crisis has finally started showing signs of a turn around.  The unemployment has certainly been an issue, but as money begins to flow a bit again, growth will slowly turn the situation back to a more stable economy.

A pandemic would not help.

In the short run, shutting down stores for ten days may even cost a resurgence in unemployment and ultimately be the death knell for thousands of small businesses.  These businesses, already hurt by the recession, could probably not sustain the one- two punch of zero foot traffic, even for ten days.  

But is a pandemic likely?  Before you can consider whether it will affect a recovery,  it should be noted that Mexico has responded with zeal to contain this contagion.  That is also true of other nations where people have been strictly quarantined.  But the biggest factor in all of this is the weather.  Summer in the northern hemisphere is on its way, and with that, more people will be outdoors.  Thus the disease has less chance of spreading wildly throughout the population.

One doctor that was interviewed said it was most likely that the disease would whither away this spring, only to come back with a vengeance in the fall.  If scenario plays out, small businesses may have the summer business to sustain enough of a comeback that ten days of no business will not devastate them.  That’s good news for the people who work for small businesses.

All eyes should be on New York now, where the disease is racing through some schools.  If the flu is able to be contained, and summer helps curb its spread, the economy should do fine.  But if not, the Obama administration will have one more challenge to its already burdened agenda.

As of yesterday, thousands cases of the swine flu had been reported worldwide, according to all of reports on CNN.  150 died in Mexico, some people are infected in the United States, some in Canada, then Spain and Australia.  No doubt about it, pandemics, if this is one, can go worldwide at warp speed now that global travel is the norm.

The question then bodes, how would a worldwide pandemic affect the monetary situation?  Here are a few thoughts on the situation.

1.  Expect gold to rise in value.  Peoplle always buy gold when they are nervous. Could the leadership at the national level  somehow be affected before enough inoculations are made?  Certainly the President, his cabinet and other critical people will be inoculated first.  But what about administrators that simply won’t fall into the level of “Must be Inoculated?”  If the government worker bees are dying, who will be able to get all of the work done?  These are the kinds of things that make people flock to gold.

2.  Expect a period of economic crisis:  Imagine the country shut totally for ten days.  People who are already struggling to make ends meet will truly suffer if they are not allowed to work at home or show up at the work place.  Take that kind of money out of the system and it will be financial catastrophe to an already weakened economy.

3.  Death Knoll for Small Businesses: The small businesses that are already struggling simply would not make it.  Even Walmart would have a difficult time if it suddenly had to close all stores for ten days.  Suppliers that are already not getting paid from small businesses would find it impossible to stay afloat.  Massive numbers of distributors, trucking firms, and other middle men could simply be wiped out overnight, first by lack of workers that become ill and secondly because firms aren’t paying them.

4. Burdened hospitals would screaming for help. Imagine the state budget cuts which have already relegated poor people to use the emergency room more.  Now put people in there that can’t pay the bill and that’s a recipe for fiscal disaster for the hospital.  Most hospitals are required to treat the ill, but expect more to leave people dying in the halls. (This has been known to happen.) Priority will go to people who can pay.  And hospital administrators would be calling upon the states, who are already hurting fiscally, to help keep them open.

But then there would be a turn around.  If people simply don’t get inoculated, if they don’t have access to medical care in time, if they don’t get Tamiflu to help them beat it, they can either get well or die.  If the virus mutates into the deadly type of 1918 where it killed some people quite quickly,  businesses could reopen to find over half of their workforce simply gone.

The unemployment picture would immediately change. Professionals who have been looking for work may suddenly find themselves in demand.  Men and women who have been walking the unemployment line might find employers offering better wages to lure people to work for them.

There is historical precedence for this.  The last plague that swept Europe completely changed the feudal system because the peasants that worked the fields simply left for the cities to find work.  These were jobs that had previously been available to city dwellers.  But when millions died throughout Europe, the remaining workers found themselves in demand for better paying jobs.  The result:  feudal lords had no one to work their lands and ended up out in the fields themselves.  It was quite the shift in employment.

For now, there is no reason to be too terribly concerned.  Tamiflu seems to help it, and no one in the United States has died from it.  Mexico, the hardest hit nation, has responded appropriately.  Consequently this illness could be beaten before it even gets too far into the general population.

Once oil had gone up like a rocket, and then began its fall to the earth, it was interesting to see how the prices of other goods were affected.  Here is a list of these prices so that you can get a sense of how and what has been affected by deflation:

1. Clothes:  How can retail compete with a sudden rush to used stories?  They can’t.  So prices have been slashed and company profits are slow.

2.  Legal advice:  Some lawyers cut their prices to be more affordable to the common person.  Most have not, but there are a few.

3.   Furnace filters:  The prices stabilized.

4.  Cars:  Prices on new cars have dropped.  Used cars are expensive, however, because of the high demand for them.

5.  Used tools:  There is a huge number of tools on the market as more and more people pawn items to make ends meet during this economic downturn.   Price of used tiller last year:  $80. Price of used tiller this year:  $50.00.

6. Cereal:  Name brands:  stable price.  Generics:  Price decrease.  One change:  discount stores are sold out of cereal more often.

7. Highly sought after artwork:  price change unknown.   Artwork that is famous still commands a sizable amount, but who knows how much more if times were good in this nation.

Since oil is slowly heading back upward, it should say that so will inflation.  High unemployment numbers may help keep prices low for a while yet.  But sooner or later, inflation will take a bigger and bigger bite out of our savings.

A comment from the OnceandFutureFarmer from this network asked how having an international currency would affect the average Joe.  Along with that, he commented that the Forex would go away.

Actually, the Forex is one device that could honestly make this whole idea of an international currency move quite slowly.   Any time there is money to be made, someone will protest losing that money making chance.  But an international currency would render the Forex obsolete. Just remember, not all countries will get on board right away, and the Forex investing could get quite volatile while that transformation takes place.  If it takes place at all.

The other thing that would happen is that travel between countries would get easier.  No more figuring out how much something would cost when paying for a dinner in a foreign land.  Also, trade would be easier as far as paying bills.  

All of that sounds great, but there will be a period of financial instability that will occur before everything will become stable.  For one thing, some countries will see their currency drop in value, such as the dollar.  While all of this happening, the price of gold will skyrocket.  One financial guru, Larry Edelson, has said that gold will rise to unprecedented heights. 

The impact of this on business will be quite interesting.  Af first glance, it might seem that businesses would have no reason to take their companies overseas to find cheaper labor.  However, countries like China and Viet Nam will still probably have a cheaper work force right now no matter what changes happen in the currency.  

One thing that would happen is the currency we are using now will become collector’s items.  Consider keeping an eye open for small face bills that still might be in the general population now, and throwing them in your safety deposit box.  But perhaps it would be wise to keep a close watch on an international currency as well, because each country, too, would be getting new money as well.  It would be a collector’s dream come true.

It’s unlikely an international currency will happen any time soon.  Imagine trying to get fifty states to agree on any one thing?  Now try to get hundreds of countries to agree on something as important as money.  But if a global recession gets bad enough, anything is possible.   In the meantime, keep an eye on it, and remember the collector’s market.

The recent meeting between the G-7 and President Obama led to speculation that the international community will be moving toward one currency for the whole world to follow.  Will it happen, and if so, what will be the ramifications?

First, why are the nations even talking about such a thing?  Easy.  The leveling out of such terrible global meltdowns is the goal.  In the minds of the men who are trying to get this put together, a global currency would be easier to manage when it comes to trade.  Currently, the Chinese government has been asked repeatedly to make their currency value more even to the dollar and pound.  The Chinese periodically adjust the value to keep their trading partners quiet, but why should they?  The way it stands now, factory after factory were opening, people by the billions were able to get jobs.

That all changed when the United States’ economy began to tank.  Suddenly those Chinese workers were sent home and the recession spread around the world in the fashion of a pandemic.  Once again the idea of a global currency began to be discussed, and it is always easier to sell an international “medicine” to other governments when there is economic “illness.”

So will there be one currency?  That is probably the way in which the world is heading, but it is most likely not going to be now.  The Euro is the forerunner to an international one, and there are some problems that are getting worked out with that currency as we speak.  There have even been times when countries have spoken out about going off the Euro system.

Another reason why it is unlikely that we will have an international currency any time soon:  what do you do with rogue nations?  Someone like Saddam Hussein or Fidel Castro can be made miserable through trade embargoes and the like.  Keep them all on one currency and that misery is tougher to use.

It would be super challenging to move to an international monetary system, but there is certainly precedent that it is on its way.  Look, for example, at the rise of the international court in the past ten years.  If they can get the UN to police their indictments for rogue leaders such as Sudanese President Omar Hassan, then there will be teeth behind their leadership.  Right now they are depending on the people of that nation to turn him in.  How likely is that?

If the High Court can get muscle behind it, then the world will become a very different place, and in not too short order.  Expect some voting changes on the United Nations council to happen first.  All of this takes time, but those changes must happen before the world will live under one currency.  Good or bad, whether we like it or not, the way of the world moves forward.

Check out Fargo, North Dakota.  Here is a bustling city filled with young professionals working in a fast paced city filled with many factories and thriving businesses.

Enter the Red River, which flows toward Grand Forks and then Canada on its way to the Hudson Bay.  It is fed by dozens  of other rivers as the rain and snowmelt run to the sea.  As the weather patterns change and more water comes into the Prehistoric Lake Aggasiz the river gets higher every year.   This year the city valiantly fought and won the first battle of the water, but the price on the small businesses has been tough to bear.

Millions of dollars of revenue has been stopped as businesses closed for the possible flooding.  In the past week, Fargo has been hit with at least two blizzards, and people are still fighting to keep water from their homes.  After days of being closed, the mayor asked small businesses to open back up.  The money lost by the small businesses being closed or people evacuating the town is still not measured, but is most likely in the millions.

Fargo is not unusual in many ways.  It’s a college town, just like many others.  It has industry, just like other cities.  It has many businesses and is thriving.  And like many other cities under stress, the people pull together to make things happen.  The volunteers put together three million sandbags to keep the Red River from overflowing. That’s a dedicated community.

The loss of millions of dollars in a weakened economy is more than one could expect in a city. But these people have resilience.  The city will rebound after time,  because the citizens will pull together. And Fargo is not unusual.  Detroit has lost jobs before, had foreclosures before, and bounced back.  Fargo is just a miniature example of how bad times will not last forever.

Consider the situation:  one family rents a chunk of land, puts on their trailer house and goes about the business of paying bills. Then work slows down for the breadwinner.  And the wife and grandchild is staying at home, hoping the husband will get work.  They miss a rental payment.  The owners, trying to work things out, have to pick up the bank payment.  The breadwinner slips on ice and gets hurt.  Again, they miss a payment.

Now the landowner/ landlord faces a problem. It’s a bad time in the economy, these people are in distress.  How can you kick people who are already down? Since they owe the landlord money and since the trailer is sitting on the property, now the landlord has a right to the trailer. How do you make a family homeless?

Such is the problem facing one couple in central Minnesota today.  These are people who are trying to help this couple out, to keep the renters they have.  But slowly the situation is falling apart, and slowly the family moves toward homelessness.

In 1929, the same thing happened to a landowner in the small town of Frazee.  The renters had no money; many people had no money. The landlord was just happy to have someone living in the house so vagrants didn’t take up residence.  In the end, those people who stayed there left for California and never did pay their rent.  Those were bad times, and so are these.

It’s not just rental properties.  On a long stretch of Highway 78 just north of Ottertail is a storage business.  Here the owners are fighting to keep the payments to their bank so they don’t lose their livelihood.  People have been unable to pay the bills, so they leave the storage unit and run.  The owners never know until it is too late, and then they are left with worthless junk.  With money tight in the area, even auctions won’t recover the loss.  

There have been financial gurus predicting a commercial real estate crash for several years now, and we are most likely in the throws of it.  Thank goodness for the All American enthusiasm and ability to bounce back. Because this nation is going to need that more than anything.