Digital Sandbags and the Rising Floodwaters

# 019 April 5, 2009

Yesterday was a beautiful day, one I enjoyed tremendously with my family. Great sunshine, nice breeze… perfect for helping to dry out our soggy little corner of the world. These are all the ingredients that make life special.

Today, however it is raining again...Ouch.

In some ways these past few days are a good analogy for our current economic situation… rain, rain, rain, then a wonderful sunny day (hope)… and then more rain.

On the sunny side, the DOW finished with an upswing this week, breaking the 8,000 barrier – cheers, cheers. Other good news:

If you are looking for a yacht, word is you can buy a 43’ Hatteras for about $45, 000! This is amazing, since the Hatteras is the standard for large cabin cruisers. Just a couple of years ago you would have paid about $150,000 or more for the same boat!

Home prices are falling lower each day. As a matter of fact they are down about 18% this month and still dropping. Interest rates are at a multi –year low. This is truly a buyer’s market, there are a tremendous amount of homes for sale today with very motivated sellers. You can actually buy a home today for about ½ the price you would have paid in 2005. Now that’s good news (if you are a buyer)!

Car sales were up in March. Well, up over the number of sales in February. Which sad to say was one of the slowest months since WWII.

Let’s not forget the great news coming out of the much hyped G-20 summit. Here are a few tidbits of the answers our great leaders produced:

$1.1 Trillion in loans and guarantees for poor countries (I’m sure the USG can print our part of this money first of this week).

An agreement to set up a new global “Financial Stability Board” to serve as a sort of financial early warning system of systemic crisis in the future (wow, just the sound of that makes me think of sunny skies and happy days).

In another step that almost makes me feel the warm rays of the sun beating down on me, they pledged (at the urging of the European leaders) to extend (and add more) regulations to cover hedge funds.

And last (but not least), they vowed to take action against Switzerland and the Caribbean nations, “declaring that the era of banking secrecy is over.”

It’s all ok, because our own President Hope called the G-20 summit the “turning point” in the global economic meltdown and praised the nations’ joint efforts as a historic step on the road to stability.

It all made me feel so good…

But alas, the sun has disappeared and today it is raining again.

The beauty of the summit was that our leaders were able to come up all these great ideas without once addressing the $684 Trillion in worldwide derivatives that are about to default. Or the fact that over $600 Billion in commercial loans are coming due in the U.S. alone this year… commercial real estate and commercial real estate development has been hard hit these past few months. When these loans come due will the USG have to fund another round of loans to save “those too big to fail”?

The USG announced Friday that unemployment was at 8.5% in March, up from 8.1% in February.

MSN Money ran an article the same day, stating real unemployment is at 15.6% (see the entire article here: http://articles.moneycentral.msn.com/learn-how-to-invest/The-real-unemployment-rate.aspx.) The article states the official USG unemployment rate does not include the 3.7 million (or more) that are working part time because they cannot find a full time job, it does not include those that have quit looking because they cannot find a job at all, nor does it include the massively underemployed that are working at half their previous pay, just to try to make ends meet.

The article gives an example of attorneys taking jobs as paralegals because that is all that’s available.

We may well become a majority nation of underemployed workers in very short order as a result of the serious contraction in the job market. This, coupled with the truly grave possibility of widespread inflation in consumer goods, could be the final nail in the coffin of our already weekend economy.

Every major indicator except the rising stock market spells more rain in the forecast. Rain is good. It cleans the skies, it refreshes the earth. It washes away the pollen, it replenishes our rivers, lakes and groundwater supplies. We must have rain. But what happens when it rains too much? Take a look at what the fine citizens of N. Dakota and Eastern Minnesota have been going through. Take a look at New Orleans even today, years after the floods (and how much money has the USG poured into New Orleans?).

Too much rain floods our land. It washes away our homes and everything in it. Flooding washes debris and trash into our topsoil rendering the land useless for farming… too much rain drowns us… kills us… and washes us away. There are few tragedies more devastating than a flood. You can fill all the sandbags you want, but they will not hold back continually rising floodwaters. Sandbags only work when the flood water is leveling or is receding.

The USG is printing digital sandbags as fast as they can to hold back the rising flood waters. Sandbags can only hold back so much water, and digital money can overcome only so many defaults. Will these digital sandbags be enough to stop the rising floodwaters?

Eventually the rain stops. The floodwaters recede. Live begins anew. The longest rain in history was 40 days and 40 nights. Humanity eventually recovered. It took a while, but we recovered. I wonder where we would be if Noah had spent his time filling sandbags and stacking them around his house instead of building the ark (in between attending summits and press conferences).

What are you doing to prepare for the flood? Stacking sandbags or building your ark? Just asking!

With warmth and regards (as always),

Allen

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