Monday, May 21, 2012

Dimon’s Déjà Vu Debacle -

Dimon’s Déjà Vu Debacle -

First, speculation and hedging are part of life -- individual, corporate and government life,  like death, gravity and the passage of time, we can modulate them and work around them but we really can't regulate them.

A hedge is when you buy insurance ... or even a better analogy, when you rent rather than buy in hopes the price of houses goes down. Your profit would be the difference between the lower cost you can buy the home for and the cost of the rent, tax implications, etc. Of course if housing prices go up (what happened to Morgan), then your loss is the difference between what you could have bought the home for earlier and the eventual price you paid, PLUS the rental cost, tax implications, etc.

Speculation is what you do when you buy a home, a stock, land, or anything. It is why deflation is so scary -- for even consumables, people will wait to purchase during deflation in hopes that the priced will be lower, which can collectively lead to A LOT of waiting! Not good in a "consumer society".   If you buy something big like home/property on credit hoping it will rise in value, then you can end up being "underwater" on your loan if the price falls by more than your downpayment -- the condition home buyers found themselves in as home prices went down.

Right now we are in the biggest world wide government spending / borrowing bubble of all time, and guys like Krugman are screaming BUY!!!, while the Tea Party and to some degree Romney and Paul Ryan are saying SELL!! What is the "right answer"??

Well, historically, "what can't go on, doesn't". Wow, look, the market has blown through all projections, maybe it will just keep going up!! There is only so much land, it will ALWAYS go up in value! House prices can only rise! When things are at record highs, there is more "downside risk", at record lows, less downside risk, more upside opportunity.

Krugman will confidently tell you "Government is different, it doesn't need to obey any of the laws of supply / demand / finance / reality ... it can just "print money". That is why Confederate Currency, the Iraqi Dinar and the old Weimar Republic German Mark are in such "high value" today.  Ever hear "homes are different", "land is different", "this stock is different",  "this market is different" ??? If not, please just listen a bit harder

So, I may not have a Nobel Prize in Economics, but I'll bet that what goes up comes down -- and in cases other than buggy whips and horse shoes and of course bankrupt companies where they will never come back because of obsolescence / failure, what goes down comes back up (eventually). Energy, stocks, homes, gold, governments, labor -- will always be around, the values will just fluctuate.

"Too big to fail" ISN"T ... even in the case of government, and there is no such thing this side of heaven as "risk free". Trying to claim there is is just foolin mother nature ... and she doesn't stay fooled for long. Of course, we could go the way of Orwell's 1984, the USSR, North Korea, etc where we just define down to be up, peace to be war, love to be hate, marriage to be gay, and tell everyone that is the truth or shoot them.

No comments:

Post a Comment