Posts
It is difficult to predict what might happen if the you know what truly did meet up with the fan, but here are some thoughts on what might offer at least some protection. It isn't always easy to figure out what to stockpile. Many items have a shelf-life. For example, I'm not quite sure how much laundry detergent I can hoard. I figure more than several years is probably pushing it. On the other hand, one might think it would do at least as well as shampoo (something I'm also willing to hoard).
Should I be afraid of three-year-old shampoo?
The FDA doesn't require expiration dates on cosmetic products with a shelf life of three years or more.
The following site claims laundry detergent has a one year shelf-life. It also claims pasta has a one year shelf-life. It seems to me that's a bit more conservative than need be, unless your home is experiencing humid 100 degree days on a regular basis.
Surprising Expiration Dates
Here's a site on the other end of the extreme.
STORAGE LIFE OF DRY FOODS
I'm certainly comfortable with 2-3 year old pasta. The Costco pasta I just bought says 2010 is the expiration date. I'm fine with that.
I'm not really preparing for war or actual product shortages, but I'm a buyer of many of the items on the following list anyway (my last big purchase was #84, which has simply been put into storage).
100 Items to Disappear First
I am particularly amused by item #30 ("Toilet Paper, Kleenex, Paper Towels") and its further description at the bottom. I can't seem to get enough of all three of those items.
After awhile, even gold can lose its luster. But there is no luxury in war quite like toilet paper. Its surplus value is greater than gold's.
Toilet paper priced in gold is about the cheapest it has ever been. I joke about that from time to time, but I'm also quite serious.
November 12, 2007
The economics of toilet paper
I was reminded of the commercial recently when Kimberly-Clark announced that it would raise the price of its Cottonelle and Scott bathroom tissues in February. Prices on toilet paper and a number of child-care products will rise between 4% and 7%.
February is almost here. The one year treasury note currently pays 3.04% and you are taxed on your gain. Toilet paper currently pays "between 4% and 7%" (in savings if you buy before the increase) apparently and you are not taxed on your gain.
I am still stagflationary long-term. Further, I'm even beginning to question my short-term deflationary outlook. Go figure.
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
-
At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
17 hours ago
22 comments:
Hoarding food is pretty futile except in an extreme inflationary environment. The cost of everything else (energy, communications, clothing, housing, taxes, etc.) far outweighs an American's cost for food. Besides, fresh food is a really good thing.
The best way to save on food costs is to not eat out.
F. Frederson,
I don't think food hoarding is completely futile. Granted, my food costs are only about 8% of my budget, but they would be much higher than that if I didn't take advantage of grocery store sales and/or make bulk purchases at Costco.
Further, in order to have a balanced long-term budget, the areas I do have control over (things like food) have to make up for the areas I have no control over (things like taxes).
I truly wish I did feel comfortable enough about the long-term to eat more fresh food. I'll give you that. Fortunately, there's still plenty of value to be found in the fresh food section. For example, I love bananas! :)
As for eating out, your advice doesn't bode well for our many restaurants should push come to shove (not that I would disagree with your advice).
You rotate stuff and keep replacing it as long as you can. One of the folks on the prep list I am on has been through an actual refuge experience. I'll see if I can find some of her comments for you.
Teri,
We take so much for granted in this country, and one of the biggest of all is probably "Always Low Prices, Always."
SM - let me say I differentiate between bulk purchases and hoarding. Hoarding, to me, would be keeping 6+ months of many basic goods on hand. Bulk purchases, on the other hand, means buying in quantities or packaging that reduces cost. I buy larger quantities when it makes sense, so sometimes I have several months of one thing or another on hand. On somethings I am actually moving the other way - I buy loose spices from the "bulk" department at my hippie-dippy co-op because they are fresher than the tinned kind. A tin of cloves would last me decades. So I just get a few.
PS - if there is a co-op near you, join and do member work. I get a 12% discount for doing 4 hours of work per month. It's a good deal if you aren't pressed for time.
F. Frederson,
To me, hoarding means buying anything now on the thoughts that it will be harder to obtain in the future. That would generally be because its price is increasing faster than our ability to pay for it and/or because it will be in short supply.
There are a lot of items I'm trying to hoard these days (but never in quantities that would see them expire worthless, as would relate to perishables for instance). Vacuum bags were my most recent addition. I've got MANY years worth.
In a nutshell, as a saver I feel pretty good about my vacuum bag investment. Unlike most capital goods I might invest in, the government can't tax me on any capital gains my vacuum bags might experience over the years. I never plan to sell them (especially once they fill up ;)).
Stag,
Have you considered vacuuming out the vacuum bags?
Double u's (not w) in vacuum? Odd word.
What word in the English language has three different, double letters in a row?
MAB,
Have you considered vacuuming out the vacuum bags?
I had a bagless vacuum once. I did a lot of extra vacuuming after dumping its contents into the garbage (once the dust settled). Does that count?
What word in the English language has three different, double letters in a row?
Bookkeeping!
My stubbornness helped considerably as did a tool which helps find words!
http://www.morewords.com/
Stag,
I think I've figured out how to help balance the federal budget.
We issue heavier stamps. Along the lines of war bonds in the past.
Every time one of these patriotic, heavy stamps is placed on a letter, additional postage is due.
Stag,
I've got a feeling investors and banks will be more careful with their money going forward. Not quite hoarding, but certainly a step in that direction.
Today's 75bp cut by the Fed was cheered by global investors. Its sure to help, but maybe not as much as the cheerleaders would have you believe.
Remember, we had a 1% Fed funds rate under Greenspan for an extended period of time. The 1% rate in and of itself was not enough to fully revitalize the economy. A suspension of prudent lending standards and rational beliefs was also necessary. Think no doc loans, NINJA loans, liar loans, straw buyers, negative-am loans, option arms, bogus AAA ratings, securitization, etc. The lending foolishness extended beyond the widely publicized residential loans into commercial and private equity loans as well.
None of these shenanigans are likely to be repeated for a long, long time. Decades perhaps. In fact, downpayments and collateral are back in vogue. Many borrowers don't have the means to post a downpayment and/or collateral. Many more just don't have the stomach. Plus, the pool of greater fools is likely to be smaller as most fools have no money.
Greater scrutiny and a "well anchored" distrust of wall street will make the next bubble harder to inflate. Monetary and fiscal growth policies will likely be less effective this time around. But it won't be for a lack of effort. Politicians just love to spend.
Higher lending standards = lower growth.
Lower growth = lower gov't revenue = higher deficits = weaker dollar = higher inflation = higher rates.
Higher Gov't spending = blah blah blah = 1970's.
I gotta hand it to you, this sure looks like a 1970s rerun.
One more thought, Bernanke is NOT a Volcker!
MAB,
One more thought, Bernanke is NOT a Volcker!
Next you'll be telling me that George "Guns OR Butter" Bush is not the best nickname either. ;)
Lower growth = lower gov't revenue = higher deficits = weaker dollar = higher inflation = higher rates.
That is certainly not the sort of thing that drives up real yields (once again if the 1970s are any indicator). I'm locking in about 15% of my net investable worth in the 20-Year TIPS auction held on Thursday. It's looking like it will have a real yield less than 1.7% (as it continues to fall). If inflation goes to the moon, I'll be wiped out in no time even with the inflation protection though.
That being said, at least I should be closer to the end of the "wiped out" line if it starts to really hit the fan.
Check out the real yield on the 5-Year TIPS. It is just 0.54% as I type this.
http://www.bloomberg.com/markets/rates/index.html
Stick a fork in it. It's about done (0% is the absolute minimum for TIPS). Meanwhile, the yield on the 5-Year nominal treasury is 2.55%. That implies an expected inflation rate of 2.01%. The expected after taxes and inflation return in the 20% tax bracket (for both treasuries) is therefore a whopping 0.03%.
(1 + 0.0255 x 0.8) / (1 + 0.0201) - 1 = ~0.000294
A 0.03% annual return on a $3,000 investment will provide a real gain of ~$4.41 over the 5 year period (assuming you can trust the CPI completely). Starbucks must be seriously salivating over what might be done with the profits!
That brings me to another investment idea.
Stagflationary Mark's Mid-Term Low/High Yield/Fee Front/Middle/Back-End Loaded Domestic Wealth Depravation Vulnerability Fund
I'm thinking it might need a color brochure that uses a lot of earth tones to help promote the natural splendor of the investment scheme. Since hedge funds are so popular these days, I figure I could keep 20% of any profits/gains it might generate (before taxes of course) as an income stream for my personal toilet paper hoarding. A yacht might be nice as well, but let's start with the basics first. All of this would be clearly disclosed in the fine print (using a natural earthy light tan ink to complement the natural earthy light tan paper).
Cheers!
(I probably shouldn't be writing this sort of thing. The professionals certainly don't need more ideas of worthless/useless things to peddle to the masses.)
Stag,
Its seems clear that the current "implied" yield from TIPS has little if anything to do with true inflation expectations. TIPS and Treasuries are just the cheapest and safest parking lots in Manhattan right now. Its that old return OF capital thing.
Our current trade imbalance of 750 billion/year represents roughly 1.3% of Q3 2007 total household net worth. Of that net worth, approximately 70% is overvalued stocks and houses. Using historic stock and house valuations, I peg our yearly trade deficit at 1.6% of household networth. That seems statistically significant and excessive to me. Not a good trend for long term wealth building. Interest works 24/7.
Worse yet, for ten years running, Treasuries have outperformed stocks. This means, on a relative investment basis, our creditors are getting richer.
Maybe its me, but it doesn't seem like we are using the borrowed funds (debt) in the most efficient manner. Granite counter tops and coach hand bags are nice, but at what cost?
I have no doubt that Bernanke and Greenspan are academic titans. But I don't think they understand value, utility or human nature very well. Just consider that both viewed the irrational pricing of the dot-bomb and housing booms as wealth. As if! Cheap money is exactly that. CHEAP.
One day all these IOUs we've made to ourselves and foreigners will come due. Can we meet our obligations? Growing and spending our way to prosperity (via asset inflation and Gov't spending policies) doesn't seem to be working for the majority. Maybe we should try the old method of saving and investing.
How many investment firms were pushing Treasuries a decade ago? How many were pushing tech? Until recently, they were all pushing mortgages and stocks. I don't know what's next, but I know they have to push something. Cheaper and cheaper money from the Fed make this a certainty.
TP and canned goods do look like good values here.
INCONCEIVABLE!
MAB,
Its seems clear that the current "implied" yield from TIPS has little if anything to do with true inflation expectations.
I completely agree.
Inflation expectations (as seen in the spreads) barely budge no matter what happens. Yet, as we know actual inflation can budge. How can the recent boom in treasuries seemingly ignore what future inflation may or may not be? 100% confidence in the Fed? The very Fed that was blindsided by the quickly deteriorating housing boom? The very Fed that recently panicked with an emergency rate cut as it was blindsided by the recent weak economic data? As one trader put it on the TV this morning, the Fed does not have a crystal ball any more than the rest of us. Should we pull the curtain aside, we might just see a guy playing with the levers.
There's no place like home!
I went to sleep last night watching all that money flood into nominal treasuries and TIPS. It was enough to make me want to cancel my auction participation (scheduled for tomorrow), sit on the sidelines, and await what might be some serious bargains elsewhere. However, I could still see no better place to put it than in treasuries tied to the inflation rate and sitting on the sidelines can turn into a permanent negative real yield situation (should the market merely decide to muddle through).
I awoke to see that the flood is sloshing back into stocks again and real yields are therefore popping up. Woohoo!
There was a guy on the TV this morning discussing the Fed's situation. I wish I could remember his name. He understood what it means to have negative real yields. His advice to those investing in the treasury markets was that the easy money had already been made. The point of investing is to have MORE money in the future, not less. Locking in negative real yields implies you'd be better off buying something today instead. He didn't mention TIPS though. Almost nobody does. They are the unwanted puppy at the pound apparently. That being said, he'd probably approve of toilet paper hoarding, at least in principal/principle (both words seem to apply, lol).
In my world, value has little to do with the price I pay. My dog was "free" as she was an unwanted puppy. To make a long story short, her (unexpectedly) pregnant mother was adopted at the pound by someone else. My dog was one of the surprise bonus puppies. Rather than take the puppies back to the pound (the pound offered to take them back and euthanize them) the owner opted to give the puppies away for free to a good home. Thank goodness!
In a nutshell, the value of "Honey" is worth a LOT more to me than nothin'. ;)
http://illusionofprosperity.blogspot.com/search?q=honey
P.S. I posted Retail Sales through December yesterday in case you missed it.
Stag,
Nice looking dog. I grew up with golden retrievers.
Oddly, a dog show got me started in the stock market. Unfortunately, early on anyway, most of my investments WERE dogs.
My family had entered one of our dogs in a show at the newly opened Resorts International Casino.
At the time, Resorts was the only casino in Atlantic City. While at the show, I learned that Resorts' stock had absolutely soared. I decided to invest in what was rumored (by a black jack dealer) to be the next casino company granted a license, Bally Manufacturing. My investment doubled or tripled in no time. Now I had the bug. It was easy. I was smart, and not even in high school yet.
I took my winnings, less the huge brokerage fees of the late 70's, and doubled down on Ceasar's World warrants. The warrants offered more upside. This investment was a loser, as were many others. Now I realized I was not so smart. I also realized that stock brokers new absolutely nothing, except how to generate fees. My education had begun.
Most people today would not believe the size of the brokerage fees paid at that time. And all for the worst churn and burn type of advice possible.
Thats when I read about Charles Schwab. He had just successfully petitioned congress to allow discounted stock sales without any brokerage advice. Much to the chagrin of traditional chop shops like Merril Lynch. My Schwab account came with a booklet explaining the long term negative effects of fees and taxes. I've been an indexer ever since. It worked great until EVERYBODY started doing it. I've never liked crowds. I've seen their wisdom. Today everthing is crowded, except open houses. Even fixed income is crowded. There really is no easy answer here.
Except maybe patience.
MAB,
I also realized that stock brokers new absolutely nothing, except how to generate fees. My education had begun.
Fortunately, I've always been skeptical of anyone who claimed they knew something (that often included me and still does!).
Most people today would not believe the size of the brokerage fees paid at that time. And all for the worst churn and burn type of advice possible.
Let's not discount the value of the nice offices though. I remember paying $200+ in fees while looking out at the lovely scenery of Puget Sound. Further, they did validate my parking, lol.
Except maybe patience.
Patience may someday be my undoing. If inflation does continue to pick up in the coming years (after this potentially disinflationary mess), I'm planning to patiently ride it out in TIPS and I-Bonds (for the rest of my life if need be). However, should we actually slip into a serious Weimar style hyperinflation, my patience will see to it that I'm the last one in line to hoard bedpans!
Patience served me well today though. As a bear and a non-trader, it was a very good day to do absolutely nothing. I'm VERY pleased that the real yield on the 20-Year TIPS jumped higher. Hopefully that behavior will hold up for the auction tomorrow. I'll certainly be glad when the auction is over. My brain may be patient intellectually, but it is a basket case emotionally. I've tried to walk off (30+ miles) much of this recent market volatility in the last week.
That's not an exaggeration by the way. I walked three miles around the neighborhood the other day when I saw the futures pointing to a 400+ point drop. When I got back and saw that Bernanke lowered interest rates by 75 basis points in an emergency move, I headed back out to walk another three miles. What a week!!
Here's what I really want during tomorrow's auction: momentum players jerking around an otherwise stable and somewhat decent real yield. SARCASM!!
I sense another six mile walking day tomorrow, perhaps even nine!
Stag,
"His advice to those investing in the treasury markets was that the easy money had already been made."
More like the easy money has been lost. I don't see how negative yields on long dated treasuries can ever make sense. We are not Japan. Bushido culture stresses discipline and respect. Foreign concepts to the American consumer and Helicopter Ben.
MAB,
The #1 question I ask myself when making any sort of investment is:
Am I counting on a greater fool to bail me out or am I comfortable holding this forever?
I'm planning to hold the 20-Year TIPS I'm buying tomorrow for the full 20 years. The yield is good enough for government work, lol.
I'm reminded of a coworker who asked me about Power Computing (an Apple Clone manufacturer) in the mid 1990s. He was excited about their short-term prospects. I asked him how he thought they'd do long-term. He said he didn't think they'd do so well. I told him that he already knew what I'd think of the investment then, lol.
http://en.wikipedia.org/wiki/Power_Computing
Power Computing was a short-lived manufacturer of Apple Macintosh-compatible computers.
You might say we were both right.
I saw an interesting interview with Warren Buffett recently talking about how long-term durable competitive advantage is very important to him. He spoke of how people in the eastern states once tended to measure their wealth in looms while those in the western states tended to measure their wealth in land. Textile manufacturers were enormously profitable. Unfortunately, they did not have a durable competitive advantage.
Stag,
"I'll certainly be glad when the auction is over. My brain may be patient intellectually, but it is a basket case emotionally. I've tried to walk off (30+ miles) much of this recent market volatility in the last week."
That stress you feel is REAL. You're making big, important decisions and stress is natural. Its your subconcious and the world telling you that this is not a dress rehersal. Exercise is great, especially if it helps you gather your thoughts and focus on the issue rather than shelve it.
Anyway, from what I've gleaned, your plan doesn't seem overly risky. And it is certainly not irreversible. Well thought out imo.
The big, big problem you have is that the system is set up to steal from retirees. Ruthlessly during difficult times. A pre-death, death tax. Most retirees are old and out of gas. Easy targets. No blood no foul.
Being retired at 35 you simply don't fit into the economic confiscation scheme. Unless you started working at age zero, you won't ever qualify for full social security benefits.
Paradoxically, you now have to work to ensure your early success does not become your failure. On a bright note, I'm sure many wish they ONLY had your problems.
Its the journey, not the destination.
MAB,
Being retired at 35 you simply don't fit into the economic confiscation scheme. Unless you started working at age zero, you won't ever qualify for full social security benefits.
Unfortunately, I don't think anything before age 21 counts, lol. I barely even qualify for social security (have just over the minimum number of credits). I might even have to work a few more years if they change the rules. This is just one of the many ways I could see myself working again (the simplest being that we embrace inflation in a major way).
That being said, I will say the government seems to be rather generous to me based on their estimates of my future benefits. It allows those at the lower end of the average income payscale to keep a higher percentage of their preretirement income (and by not working, my average is rather low to say the least).
Stag,
"How can the recent boom in treasuries seemingly ignore what future inflation may or may not be? 100% confidence in the Fed?"
All I can say is that this can't continue forever. It can, however, persist for a LONG time.
Inflation expectations are indeed well anchored. Underwater!
There IS a crucial difference between well anchored and "permanently anchored." though. I read somewhere that the distinction greatly affects the value of boats and homes.
Heck, many still harbor well anchored beliefs that stocks will average 10 - 15% gains over the next ten years. Dave Ramsey preaches this nightly on his new Fox television show. Look at all the bag holders waiting for Yahoo,Dell and other former darlings to return to their previous glory. These people are in serious need of demotivators.
And how about the Nasdaq for cryin out loud. Prior to the recent sell off it was trading at 35 times earnings. That can work for select stocks, but for an index? No way. In my view tech's downward price trends and rapid pace of change argue for a discount, not a premium.
I have a hunch that our anchors aren't big enough.
Anecdote -
In the early 70's, a local food manufacturer was going out of business and throwing away maybe 100K logo'd freezer bags. My mom figured with the oil shock, plastics would become unobtainably expensive, and she stocked up the shed with the bags.
She's still using them, 35 years later.
I would say
1. Hoarding is harmless.
2. Armegedon will probably not arrive on schedule.
Anonymous,
My mom figured with the oil shock, plastics would become unobtainably expensive, and she stocked up the shed with the bags.
Fantastic anecdote!
Your mom is proof that a well reasoned and sound argument is no guarantee of anything. In fact, I too have a LOT of freezer bags (not nearly as many as your mom must have had, lol) under the possibly misguided assumption that they won't be getting any cheaper.
Hoarding is harmless.
In finance (and medicine), first do no harm. I see very little downside risk in owning a lot of freezer bags. First, I know I'll someday need them. Second, the government can't easily tax any capital appreciation they might experience. Third, I will never depend on what other people are willing to pay me for them (since I haven't bought more than I will ever need).
Armegedon will probably not arrive on schedule.
As an owner of TIPS (vs. the gold and silver I owned from 2004 to 2006) I'm pretty much betting that it will be delayed (hopefully well past the end of my lifetime). That doesn't mean we won't continue to get a taste of hell on earth (or more specifically the aftermath of overpriced homes sitting on earth) though.
As a side note, I'm seeing more ads on TV promoting gold sales. I continue to believe that either toilet paper is too cheap relative to gold and/or that gold is too expensive relative to toilet paper. The "harmless" bet (hoarding toilet paper you will someday need vs. hoarding gold others may someday want) seems the far safer bet these days (since gold is up ~300% in recent years while toilet paper is not).
Post a Comment