Gathering Intrinsic Value in the Aftermath of the Credit Bubble
I’m a contrarian–and a rebel, and I am fed up with people telling me that the days of America’s greatness are over and we’re all going to have to settle for drab, uncertain, very low-end lives to repent sins of the past and so that the rest of the world can have their “fair share” of good things. Well, perhaps some people have dug themselves holes so deep they will never manage to get out, but some of us haven’t, and I suppose a lot of W&G readers are in that category or you wouldn’t be here.
For what you care to make of it, here is an oddball way to analyze what you should buy and to diversify your holdings pleasurably, and probably far more safely than what is left to try. There are two basic choices: give the other half of your shirt to someone like Edward Jones and see how long it takes to lose it, or put everything into cash, metal, and gold sands, volcano power, or something else totally outside normal stocks and the ken of mere mortals. Agora Financial comes up with a lot of interesting propositions in areas I am totally ignorant about, so I decided to stick with what I know, which is luxury items and grocery stores. Huh?
At present fundamentals are roughly as safe as downtown Beirut, and Technical Analysis isn’t working well because volume is controlled by a few enormous funds, while government intervention is playing havoc with individual stocks, whole industries, the value of the dollar, interest rates, and so forth.
What we could use is a way to “read” what volume, movement, and patterns once told us, and some sensible way to decide what will store intrinsic value best. Never mind profits, just holding on to the current value of what we have will do nicely in a world with 1/4% interest rates on a CD.
If you want to know what the average Joe is thinking don’t pull out your big blue book of ten-year stock charts and start looking for cycles. This is a whole new game and requires modern tools. Two you need are absolutely free and available 24/7 on your Internet and the other is usually set out on Thursdays, free to pick up. The hopes and fears of these bad years are to be found on Craig’s List and e-Bay and in what I will always think of as the “Thrifty Nickel,” now called “American Classifieds.” Those will tell you a lot more about economic and psychological conditions than the S&P will. Not a Keynesian in the bunch. What is fascinating is how the offerings demonstrate traditional Technical Analysis basics, including volume, support and resistance levels, and trends. Best of all, they are totally independent from the actions of managers of large funds peering at each other in terror wondering what “a prudent man” should be doing. Glory be, there’s a way to take the pulse of the country at the most fundamental (pun intended, of course) levels, ranging across a wide socioeconomic spectrum.
The prevailing mood of the country, measured by this method, demonstrates two factors clearly: at ground zero individuals are still having to turn loose of their toys to survive, but there is a sense, through recovering prices in some areas, that the economy is looking up in many eyes.
It may seem a little odd to analyze the economy in terms of what luxury goods in private hands are available and bringing, but consider that those are where intrinsic value was stored when times were good in the past. Many Americans are being divested of past treasures because the credit-based consumerism of the last couple of decades had most people believing that times would always be good and that their houses were a sure source of ever-increasing equity, much better than old-fashioned savings accounts and paying cash. They raided their brick piggy banks consistently, and then the housing market smashed. No savings, upside down mortgages, houses such a glut on the market that in some cases banks have demolished–literally–brand new “MacMansions” complete with the de rigueur granite kitchen counters, rather than see them destroyed by squatters. The stock market plunged half way to ruins and despite a hefty Spring Fling a lot of folks see it going down again sometime soon. That left the Baby Boomers more than a little concerned about what were supposed to be their golden years, and those ten years or so younger in agony over the paper profits despite being warned for a couple of years to get out. Yes, it cost a nasty sum to get out of the fund a manager had locked you into until ’10, but not nearly as much as leaving it there would have.
Back down in the trenches it is even possible to read a lot from the sequence in which goods have come on the market. First went the toys bought by young men who put windfalls into bass boats, fancy trailers to haul them, and bigger or extra trucks. Life was good, jobs seemed secure, no wife or kiddies, buy that value on credit…and then hours started being cut and jobs lost [Painfully close to home—Ed.].
Farmers in trouble from rising fuel, feed, and power costs had to start turning loose of “extra” tractors and implements, almost unheard of in the annals of mechanized mules which are good for many, many decades of service. It is amazing how many tractors seem to be needed; we’ve got four and still don’t always have just the right one for an atypical job. Given the choice of giving up a perfectly good 1954 John Deere or his youngest, some men might have wistful thoughts before listing Big Red for sale. This is part of knowing both the value and price of everything as well as what people set the most store by, not useless information.
The $150/barrel crude oil hit independent truckers an unbearable blow, and many small firms had no choice but to shut down. I have trucker friends who said it wasn’t worth the wear and tear on their rigs at what they would make on a job with Diesel rising four dollars. The man we got Black Dog #5 (the pride of the now defunct Long Shot Trucking Company) from had tears in his eyes when he had to sell the Dawg, his joy and the last “tractor” to go, and spent half an hour pointing out all the glories of that beautifully-maintained beast that will haul a dry van box with 55,000 pounds of goods in it after he had clinched the sale. What we paid for it is practically a sin, but he couldn’t hold out “until times get better.”
Then the “We’ll travel when I retire” dream popped, and motor homes and big travel trailers started coming up for sale, along with golf carts, and finer cars. Reduced income, 401Ks in the cellar, houses that can’t be sold without the most horrifying loss, “down-sizing,” and something had to give.
This time last year we bought six used motor homes and travel trailers in excellent shape for fifty dollars a running foot, never more than a hundred. These days the price is more apt to be $150/rf. The high-end models still aren’t selling, and little is as sad as a dealer’s lot, but either all of the more modestly priced rooms on wheels have changed hands or those who own them are feeling a little less frantic.
Grandma’s sterling silver that was only used at Thanksgiving has been all but a glut on the market for months…Silver has a special place in my heart, and the thought of treasures that have been in the family for perhaps a couple of centuries cast on the altar of believing things would never change, the house would always provide extra income hurts. Silver is rising dramatically on e-Bay; it requires more and more knowledge and research to find bargains. Last month I was buying sterling flatware at roughly $10-12/utensil, and tonight people are asking $15-$17 for standard patterns. The latest trend is also turning loose of fine china at bargain basement prices.
I still won’t buy the classic hedge of postage stamps (very fragile, don’t know enough), loose diamonds (not sure the IDC can maintain inflated prices; am buying sapphires and rubies), or antiques other than jade and bronze (more portable, sturdier.) This weekend good antique furniture appeared in large amounts suddenly, although the prices are “overly sanguine,” shall we say?
In some ways storing intrinsic value in items like the last two may not sound exceptionally bright, but that’s one of the hazards of shopping. You find things you just can’t resist. I have a printout on my desk right now for a 1985 XJ6 Jaguar we’re going to go look at tomorrow: one owner, always garaged, 138,000 miles, custom wheels worth two-thirds of the asking price, engine you could eat off of, all of the touches for which a real Jaguar is famous, and she’s got to go. He’s asking $1200 for a very luxurious car with at least another hundred thousand miles in her. In short, it is a grand time to want to buy cars if you have cash, even new ones.
A classic Rockefeller story is of purchasing a yacht early in the thirties for a thousand dollars a running foot, which, he said, “Seemed like a very good price for a yacht.” Indeed, it was…and he had the cash at the right time.
The moral of this tale is to use what you know best to manage your cash correctly now. Other than that, put it in gold, silver, survival supplies and equipment…and even a few things that merely make your eyes light up. Life is short, and beautiful objects of intrinsic beauty will gladden your heart and are a lot more pleasurable than giving in to that urge to get back into the market.
I saw in 1992—when the interest rate dropped to a shocking four per cent—that in years to come widows and retirees were going to be in for very bad times. Why didn’t anyone else who isn’t a professional analyst? Why didn’t they believe their “men of affairs,” as financial advisors used to be called?
I expect that this will turn out better than a prospectus promising that if we buy six stocks two will fail, three will do reasonably well, and one will give us thousand per cent returns. If I’m wrong, I’m buying at 25 cents on the dollar in a lot of instances, and a Jaguar will always be a Jaguar. The world seems to be one giant yard sale, and I submit that traditional luxuries will recover sooner than Government Motors will.
Regards,
Linda Brady Traynham
May 14, 2009
Linda Brady Traynham
Linda Brady Traynham is a former editor and analytical project report writer and is now a Whiskey & Gunpowder field correspondent on a ranch in the Republic of Texas. She studied Counseling at Boston University and got her Masters degree in Philosophy from the University of Hawaii.
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There’s a lot in your article that I agree with. They can throw out the old books on how to play the market…this is one market that just refuses to be played. The thinking caps have to come off and new ways have to be implemented. That’s one reason I get so mad when I try to watch CNBC, they just keep trying to do things the old way and never get it when the old way doesn’t work. I live in CT, and I heard that Larry Kudlow was thinking of running for Congress. I was keeping an eye on that, because if he did, I would have moved mountains to keep him out of Washington.
When you were talking about equipment later in the article, it reminded me of my father. He survived the Great Depression, and he always was an advocate of making do, never buying anything new unless he absolutely had to. He died on his farm in Kentucky a few years back with the same tractor he had farmed with all his life, a tractor that was built in 1940. He repared it himsef in the barn, preaching what i used to call his “Sunday Sermons” after church as he was trying to weld something back onto it yet again. Thanks for beinging that memory back to me.
I have a lot from my parents. They taught me to be frugal. They taught me how to grow and can my own food. They left me heirlooms of many things, gold and silver, that I can either use for money while I’m alive or pass on to my kids after I’m gone.
The choices you make decide the life you will have. My parents told me that a long time ago before they turned me loose onto the world.
Everything in life is a choice – just make an informed decision and choose well.
[...] See the article here: Gathering Intrinsic Value in the Aftermath of the Credit Bubble [...]
Linda, be careful of those nice old Jags, they can cost a lot of money to maintain. A couple of things to be wary of, number one is RUST. Number two is the scourge of British Electrical Components, the computer goes and the car goes nowhere. Otherwise, nice simple and elegant interiors but not as plain as Mercedes. Good to drive, four door Jags feel like two seater sports cars. I know, I have three XJ’s in the 1980′s, but I fix them myself. Hope yours turns out okay, Best regards, CanadaNorth
[...] Gathering Intrinsic Value in the Aftermath of the Credit Bubble [...]
Ich bin ein “whatever” May 14th, 2009 2:20 pm :
DEAR JELLY DOUGHNUT:
I USED THAT ONE BECAUSE I WILL NEVER GET OVER CHUCKLING OVER JFK’S MISTAKE IN BERLIN.
There’s a lot in your article that I agree with. THANK YOU. They can throw out the old books on how to play the market…this is one market that just refuses to be played. The thinking caps have to come off and new ways have to be implemented. That’s one reason I get so mad when I try to watch CNBC, they just keep trying to do things the old way and never get it when the old way doesn’t work. I live in CT, and I heard that Larry Kudlow was thinking of running for Congress. I was keeping an eye on that, because if he did, I would have moved mountains to keep him out of Washington.
When you were talking about equipment later in the article, it reminded me of my father. He survived the Great Depression, and he always was an advocate of making do, never buying anything new unless he absolutely had to. “USE IT UP, WEAR IT OUT, MAKE IT DO, OR DO WITHOUT,” THE OLD ADVICE WENT. He died on his farm in Kentucky a few years back with the same tractor he had farmed with all his life, a tractor that was built in 1940. He repaIred it himsef in the barn, preaching what i used to call his “Sunday Sermons” after church as he was trying to weld something back onto it yet again. Thanks for beinging that memory back to me. WHAT A HEART-WARMING STORY! MY FATHER USED TO SAY, “FIX IT BEFORE IT BREAKS AND RUINS SOMETHING ELSE!’ HE, TOO, DID HIS OWN WELDING, CARPENTRY, PLUMBING, ELECTRICAL WORK, YOU NAME IT.
I have a lot from my parents. They taught me to be frugal. They taught me how to grow and can my own food. They left me heirlooms of many things, gold and silver, that I can either use for money while I’m alive or pass on to my kids after I’m gone. WHAT I LEARNED FROM MINE ARE THAT (1) YOUR LIFE WAS A WASTE IF YOU DON’T PASS SOMETHING ON, AND (2) MONEY HAS THREE PURPOSES, IN THIS ORDER. FIRST, LONG-TERM SECURITY. SECOND, CURRENT LIVING EXPENSES. THIRD, IF THERE IS ANYTHING LEFT OVER AT THAT POINT YOU MAY SPEND IT JOYOUSLY!
The choices you make decide the life you will have. My parents told me that a long time ago before they turned me loose onto the world.
Everything in life is a choice – just make an informed decision and choose well.
WHAT A TERRIFIC LETTER, ICH BIN! I ENJOYED EVERY LAST WISE BIT OF IT, AND I HOPE YOU WILL WRITE AGAIN.
LBT
Linda, be careful of those nice old Jags, they can cost a lot of money to maintain. ALL CARS COST A LOT TO MAINTAIN! A couple of things to be wary of, number one is RUST. Number two is the scourge of British Electrical Components, the computer goes and the car goes nowhere. Otherwise, nice simple and elegant interiors but not as plain as Mercedes. Good to drive, four door Jags feel like two seater sports cars. I know, I have three XJ’s in the 1980’s, but I fix them myself.PLEASE WRITE AND TELL ME ABOUT THEM. Hope yours turns out okay, Best regards, CanadaNorth
DEAR CANADA NORTH:
Thanks for the great advice. I am blessed with a couple of mechanics who live on the place, and we don’t go for the new genre of cars with so many computerized electronics that they can’t be worked on at home. Among other reasons, we consider EMP. Mostly, the guys’ idea of fun is tinkering with cars. You should have heard last night’s discussion on synchronizing triple Weber car-bew-ret-ors.
We were exceptionally lucky this week and came across a 1966 Mark X! Fabulous exterior and motor, no rust, but the interior is a disaster. I’m going to remove and refinish the dash and door trim myself, but she’ll need a small fortune in professional reupholstery beyond my modest skills of fabricating a taut tonneau cover. She has right-hand drive and is a manual!!! Complete with RAC badge and a STARTER button!
We also picked up an ’85 XJ6, a little external rust, but marvelous interior and the motor in good shape. It won’t take much to have the little white one (tags and inspection about to expire, but at least she was registrable last year) in good enough shape to be my “every day” car for a while. (I go anywhere as seldom as possible because everything I love is here on the ranch.) Only 128,000 miles. The Ten only has 46,000! Right-hand drive, MANUAL transmission, be still, our hearts! She’s what Americans call “British Racing Green.” No AC, of course, which means we won’t be able to drive her more than three months out of the year other than a few nights. Unless my darling Charles comes up with a way to put an AC unit in the boot! Sacrilege or common sense?
Hey, other readers, there is more to life than the stock market and fearing the government that fears your guns! Canada North and I are twin souls bonding, here, and happy as can be.
Canada, got any idea on what to do with my ’96 which got bumped over something (NO, I did not do it) and has it in her head she’s been cat-napped or been in an accident? She’s shut down her fuel pump and refuses stubbornly to let it be re-set. Second, due to a serious mishap, all the keys to an ’87 (perhaps as beautiful a Jag as ever made) are lost irretrievably. The local “master locksmith” came in and announced cockily, “I’ve never seen a car I can’t cut a key for.” He has now! Short of replacing the entire ignition system, any ideas?
Golly, it feels good to take a break from the woes of finance, politics, and corruption.
BIG hug to a fellow Jag-u-ar lover, Linda
Another great are to look into, if you have the knowledge is sports memorabilia. I have picked up items that I have been wanting to complete my collection for 15 years at 20% of what they have been at for a decade. Like any investment it pays to know what you want, makes sense, and keep emotionally distant while evaluating it and bidding/negotiating price. In the past week I have picked up autographed team baseballs of my favorite city for $78 and $90. These balls have regularly gone for $500 and $1000. Like you mentioned, for those who have the cash and knowledge now is a great time to invest in what you know.
Mike May 18th, 2009 9:41 am :
Another great area to look into, if you have the knowledge is sports memorabilia. I have picked up items that I have been wanting to complete my collection for 15 years at 20% of what they have been at for a decade. Like any investment it pays to know what you want, makes sense, and keep emotionally distant while evaluating it and bidding/negotiating price. In the past week I have picked up autographed team baseballs of my favorite city for $78 and $90. These balls have regularly gone for $500 and $1000. Like you mentioned, for those who have the cash and knowledge now is a great time to invest in what you know.
Dear Mike:
Thanks for the nice letter and a great idea. I wish I had the knowledge you do, because I know that stamps, trading cards, autographed balls (basketballs, baseballs, golf balls, and probably even soccer balls, although I’m so old I will never really think of soccer as a sport Americans take part in!), comic books, and even toys and dolls ARE items with scarcity, historical, and “condition” value, and the older they get (very short in terms of furniture or china) the more they appreciate. I was amazed at what an autographed photo of Ben Hogan fetched a few years ago, my son-in-law’s Christmas present.
Naturally, I like that you’re with me on using current conditions to complete your collections–which will be worth more, then! When complete, that is.
Here’s a thought…if times get worse and franchises start to disappear, won’t items which are relatively common now become more valuable than they would otherwise? One of the problems is keeping people from throwing “that old junk” out for the first twenty years. Another is deliberate flooding of the market, as in constant changes in US stamps and the silly quarter collections. Any time the government can get us not to redeem those on the assumption they will be more valuable eventually…
I really like your idea, and I’m so delighted that you were keeping an eye on the world around you. We have to feel sorry for those turning loose of their treasures, but not sorry enough to refuse to buy something wonderful at twenty cents on the decreasing dollar. I suppose you’re already checking Craig’s List and e-Bay?
I also like that you’ve got me thinking…what about if we pick up anything unusual that doesn’t “cost es-spensive,” as my tiny daughter said long ago, we run across? I found some autographed sheet music a while back, and at a dollar a song it seemed like a good idea to buy all three the antique store had. Library sales sometimes yield treasures. I bought one of my favorite books in hardbound for a dollar, and would have thought no more about it if I hadn’t wanted to give someone else a copy. I went on Amazon.com and discovered they only had two, like mine, and they were $250! No, mine isn’t for sale. I read it about every three years.
Happy hunting!
Linda
use this, put down the whiskey