How Is Your Wine Supply?

“One can but count on the wine one drinks today.”

Thus sayeth L. E. Modesitt, Jr., an author and a fine piece of wisdom I commend to all of you. I don’t know if Mr. Modesitt regards himself as a philosopher and an analyst, as I am, or “just” the creator of many thousands of pages of superb fantasy, but once we strip away the wizards and sorceresses his grasp of human behavior, politics, financial affairs, and economics is superb. In ten words Mr. Modesitt has embodied both the problems and the basic strategy we need to cope with the dangers growing around us.

More and more most Americans cannot count on the preparations (if any) they have made for all of their tomorrows, whether we are speaking of the 40% who are on the dole, the approximately 21% who are without jobs, or those who have long been serious about the future and demonstrate that by choices including saving, trading, investing, and your devotion to reading Whiskey & Gunpowder. Those with the “entitlement” mentality give no thought to tomorrow because it is an article of faith that government will continue to provide food, shelter, medical care, assistance with utility bills, and “walking around” money, all free and without the effort of working. Surely it will, for in their lifetimes and for generations before them thus it has always been…

Wrong, drones. The federal and quite a few state and local governments resemble GM a couple of years ago, the primary differences being that they produce nothing of worth and have nothing for favored groups to benefit from when the “for profit corporation” known as the United States of America goes under. As it will.

If one did not loathe the Obamacrats fiercely one might be inclined to feel sorry for them. The time is here when some group has to be thrown off the sleigh to placate the wolves of BRIC, et alia. Harry, Nancy, Timmy, Ben, and Barry have nibbled as far as they dared on older citizens, an enormous voting block, putting a three-year hold on COLA increases to Social “Security” and whacking us hard with Socialized Medicine and increased premiums and taxes. They dare not crack down on trial lawyers, Wall Street (used loosely), or Unions, their major sources of funding. If the “entitled” stop getting their checks or the value of those and food stamps are destroyed through the coming inflation, cities will burn. Crime is already up significantly due to those who think the world owes them a living. Cut government budgets and staff? Unthinkable. The few efforts made are chosen carefully to outrage the rest of us, such as shutting down incarceration of violent teens. The worth of the nation is pledged for generations to come, and still they continue to dream up new “entitlements” and push the false issue of the sacred environment.

The end of the quarter is less than a week away and we shall see if the Fed follows through on the statement that it will buy no more treasuries. An astonishing amount of debt has been transfered to the Fed via purchasing the vast toxic debt of Fannie and Freddie. Nothing has changed concerning the prediction that I made that the Fed will be destroyed other than that the situation has grown even worse in terms of unfunded “obligations.” The “easy” solution remains to kill the Fed, and the enabling legislation is all in place. “Who? Us? Default on our currency? Of course not! The Fed was a private institution and it went bankrupt. Tough luck.”

To mock an old Hippie mantra, “What if they held a treasury auction and nobody came?” We all know what would happen (see assorted archived works), the major banks will be obliged to purchase whatever is offered. What is not realized widely is that those banks have already sopped up a third of a trillion in increasingly worthless government paper. Wells, Citi, BoA and so forth are loaded with promissory notes of dubious–at best–value. Commercial loans have taken a serious dive because the big banking houses are obliged to help attempt to disguise the worthlessness of newly-printed money and dare not make private loans in a world where an astounding number of mortgages are under water and defaults on credit cards are up dramatically. The dead cat has bounced suspiciously high, the bond market is tottering, those controlling the metals market deserve our scepticism, a devasting number of ARMs will reset this year, and the commercial real estate bubble cannot help bursting very shortly.

Look at your local areas; how many businesses have you lost? Modestly sized Sherman, Oklahoma, just saw the closing of the Folger’s coffee plant. Not too long ago it also had a major computer manufacturer (now located overseas) and a Johnson & Johnson plant. All that is left is a bill collection agency and local merchants. The three largest employers are gone and will not return. “Jobless recovery” is a vicious misuse of the English language. How many of the “big box” stores are gone in your area? How far is your community from a condition where the only jobs likely to be available are in convenience stores, gas stations, and waiting tables? I went into spasms of laughter when I read that the new head of GM says he thinks they can turn a profit this year. Like all new appointments, he is qualified superbly. After all, he says he has read all the car magazines and used to drive a Ferrari.

Ironic laughter…”Save your Confederate dollars, boys…” The South may not have risen again, although it and other areas are rumbling, but those dollars of 150 years ago now have historic value. Will the same ever be said of Helicoptor Ben’s works or all of the purely imaginary “electronic digit money” that has been created and can’t even be accounted for? My vote is a stern “No,” and bear in mind that it took 150 years for my Confederate dollars to have significant worth.

Our best–if not only–defense against coming inflation and devaluation is seeing to it that when the government begins issuing scrip instead of other forms of “money” (as some states and localities are doing already, including IOUs for tax refunds), we don’t have any Federal Reserve Notes left to lose. Because we have turned everything we own other than current income into hard goods or overseas investments. Even money stashed abroad isn’t entirely safe, since the government is already increasing the cost of repatriating such funds. Call me a cynic, but Perth Mint Certificates would appeal to me more if I lived in Australia.

Aaah, “money” is so much harder than it sounds! In Mr. Modesitt’s “Spellsinger” series, his heroine, a middle-aged concert soprano, is summoned to a different universe by an inept sorceress and becomes Regent for a bratty teen, having to deal with a collection of 33 Lords and several foreign countries who spend a lot of time plotting against her.

She has the bright idea of using her “magic” (which works through spells she invents and sing) to find gold on her own fiefdom (bequeathed to her by a dying wizard who kindly makes her look 18 forever, although she still feels forty-something and has to eat almost constantly to keep her energy and weight up; she has my sympathies since I hate stopping to eat when I’m writing) and turn it into coins.

She realizes almost immediately that having the equivalent of more money than the entire rest of the world combined restricts her spending lest she cause inflation, and the hunky Lord who will become her consort by the fifth book, unless I miss my guess, comes up with his own version of Gresham’s law. The Lady Anna, you see, didn’t realize that local coins are only 90% gold, while hers are 100%, meaning that others will store hers and spend the lesser coinage. I find it amusing that her coins are real money, of the same weight and better quality than the surrounding countries mint, but she still cannot “create” money out of nothing. (Spain had a similar problem, you may recall, with the wealth of the Andes.) Gold is real and very pretty, but even gold “money” is a symbol for stored labor and other value. That cannot be created by fiat.

More and more I feel an urgency about turning our Federal Reserve Notes into almost anything with intrinsic value. One of my earliest childhood memories is of a precious, all but unobtainable, ham being hoarded until it was no longer edible. One of the principles of investment is to put your surplus in that which can neither rust, decay, nor be subject to maggots. Preferably in those items which are not taxable or likely to be confiscated.

It is difficult enough to come up with good places to put money now, and I have the luxury of investing in livestock and farm machinery. So long as we don’t face really harsh weather, cattle will reproduce and hold their value plus covering their keep, even though they may not actually make money. I worry about those of you tied to the city, and continue to urge you to buy land in an isolated area or form a consortium with someone else who owns a ranch or farm. What will you do with devalued money when there are no goods for sale?

I expect to see a traditional chess phrase illustrated: “Move it or lose it.” You need to think of currency (even in your hand, and that in banks and much of the stock market are far more at risk) as coupons with unknown expiration dates. All we can say for certain is that every week is one week closer to rising interest and inflation rates and the time when those ugly new bills are worth far less than their face value.

The government won’t warn you of the dangers of holding its paper, but we at W&G do constantly. America’s coinage was debased decades ago and our currency is fantasy. It can only become worth less with every quarter that passes. So long as we (all of us) are spending “real” money, cash on hand, and not contracting debt, and so long as we have prioritized with safety first, we can even justify putting money into enduring goods that are “merely” beautiful and soul-satisfying. Even with silver at $16.92 I suggest searching e-Bay and buying yourself (or your wife or your mother) at least one set of sterling silver tableware. You will get far more silver for your money than you would buying bagged 90% silver coins, far less commemoratives, both of which cost you on the order of a 20% premium, and you will have one of life’s nicer luxuries that can go into the melting pot at any time if absolutely necessary.

Real estate isn’t safe even at incredibly low prices currently because it must be protected, insured, and kept up, and is subject to taxation at the whims of tax lords on many levels. If you intend to live on it, the neighborhood appears relatively “safe,” and you can buy a house you like without a mortgage I would go for it–particularly if said house were in the country or a small town. Even granting that gasoline is nudging $3/gallon and may well go to somewhere between six and ten, it is my conclusion that a lenghtier, more expensive commute in the relatively short term could pay handsome returns in times to come. Deferring maintenance is becoming far too common; if you own your home outright, once you have purchased all the metal your plans allow for and accumulated sensible stores of food, this would be a good year to paint, replace the water heater (get an “instant on;” it costs at least twice at much, but you’ll make that back quickly in lower electricity costs.), or install burglar bars.

You probably don’t want to put your IRA in Rolex, Omega, and Piaget, but if your children’s ages are in single or even low double digits you might want to look for a better place to stash their college funds than stocks, bonds, or in interest-bearing accounts that pay only minute amounts. I wouldn’t touch Treasuries, myself. The myth of the value of a college education is wearing thinner by the year. You get a black mark if you don’t have one but no guarantee that you will ever recoup the inflation-adjusted sum it took to get a basic degree and an MBA or other Masters. Colleges, too, have priced themselves out of business, particularly considering how little knowledge most of them impart and and how many fewer jobs there are. Smile…I might even suggest “buying” a degree. As our beloved C. Northcote Parkinson noted long ago, “Only the personnel pukes know where your degree is actually from.”

I see the desperation in our land. I see how excellent craftsmen are cutting their prices in debased dollars just to keep work coming in. We closed a deal tonight to have the 3600 square foot barn roof repainted with rust-retardant paint after the expert makes any repairs needed. I paid him $400 to do that on our work room (approximately 900 square feet) three years ago. His asking price is $700 for four times that much area, plus 1500 or more square feet of the West end of the barn. (All of our bad weather comes in from the west, causing rust and deteriorating wood.) I feel bad about “taking advantage of” Ed, but I understand that working on a slim margin is far better than not working at all. Besides, he set the price and I didn’t haggle.

My very beautiful daughter, the senior mortgage banker, had their first (custom-designed) house built last summer, and due to her negotiating skills, desperation among builders, and her knowledge of the industry ended up with all the chic extras while the builder cleared a massive $1500. He felt it was worth it because what he got kept his crews working and whittled away at his inventory. She just had quite a bit of privacy fence painted professionally for little more than she would have paid for the paint.

The bottom line is that you can but count on the wine you drink today.
Unless you turn your “excess” into items of intrinsic value you will rue your decisions. I continue to urge the traditional choices of the Doom & Gloom crowd, beans, bandaids, bullets, gardens, isolation, and livestock, but it really doesn’t matter much so long as you exchange increasingly worthless dollars for something you can trade to advantage later. One Weimar Republic should have been enough for all of us to grasp that when fiat currency is involved we’re living on borrowed time.

I have suggested elsewhere that you attend to your physical needs, getting full physicals and taking care of any issues you have been putting off. It may be that the numerous states which are objecting (rightfully so) will kill Obamacare, which will take at least eight years, but caution is always advisable. We know rationing and denial of procedures for seniors are coming, along with higher prices. Don’t risk being told later that a full blood panel isn’t “necessary,” in the opinion of the Health Czar, who won’t be a doctor. I am pleased to report that my recent experience (involving enough blood to provide at least an excellent night-night snack for a vampire) reveals that I remain in splendid health. I have finally just barely tipped over the point where the bloodwork reveals that I have a touch of rheumatoid arthiritis–something most of you half my age have. Both old sins and wise decisions cast long shadows, and choices I made literally in 1972 have paid off handsomely. I do not have cancer, nor am I diabetic nor likely to face open heart surgery or aneurism. The price I paid for not being diabetic (prevalent in my maternal ancestry) was foregoing dessert other than Thanksgiving and birthday parties. Think about that, because it is the key.

What are you willing to give up for what you get? What is the value of not having your toes whittled away? As much as I adore carrot cake, creme brulee, and pecan pie, I found it no contest. Dessert isn’t worth giving up pedicures.

The same holds true in your “investment” decisions. I put that in quotation marks because I regard myself as a trader; my only long term investments are in the ranch, the decisions my darling Charles and I make, and trade goods I expect to appreciate handsomely if we have a full meltdown–and the last one may not be all that “long term.” The most starry-eyed Doom & Gloom seer I read concludes there will be a major melt down by 2015. The really glum ones are talking about this summer. The Democratic leadership felt that possible loss of both the House and the Senate was an acceptable price to pay for the damage Obamacare will cause. They have nothing more to lose and ten months to push through every other radical destructive dream they cherish, including Cap & Trade, the national ID card, the Food “Safety” Act, gays in the military, at least gun registration, “Card Check,” “amnesty” for tens of millions of illegals, higher taxes and more taxes, and pushing Israel much farther than is safe for any of us. (Note that not only is Capital Gains going up but you’ll get raped with a 3.8% Medicare tax when closing out some investments.)

Let me repeat that I am not an investment counselor. If you have serious funds to spare do give them to Byron King or Adrian Ashe or any of the other regulars here on W&G. My advice is for protecting your family and deciding how much you can afford to put into gold, energy, and emerging technologies after you have taken care of the basics in light of the worst that could happen. My private guru says the market will be up for the next two weeks…

I’m an expert in getting the most out of the money you have, and I grew up on tales of the Great Depression and The War Between The States. Never spurn the wisdom of the past; it was acquired at great cost.

Linda Brady Traynham
Whiskey & Gunpowder

March 29, 2010

The Daily Reckoning