Hi ski,
I remember the late 70's and early 80's.
I was engaged to be married. We both had good jobs in Chevrolet and had quarterly COLA payments compliments of the UAW negotiating it for their workers and management included it for the salaried workers.
We put money down on a new house 25% ($34,000), and bought it before we got married. Jan owned a Condo which we intended to rent. Back then you could not save enough to keep up with price increases and being in debt was your friend. You paid off debt with depreciated Dollars. Inflation was running at 14% at the peak as I recall.
As long ago as that was, we may be seeing the early stages of a very similar situation now.
In 1981, Volker's rate increases had mortgages at 18% put the kabosh on home building. If you were a new first time homebuyes, you would pay hugely more for a home that had a transferable clause to the buyer,and you could enjoy a rate at half the going rate (a 6 to7 percent 30 year Mortgage vs 18%).
That's when the world came crashing down on us. I got a promotion to be a 7 level manager in a field zone office, after traveling for 30 months on the road teaching retail employees a new computer system.
Trouble was my new job was in Houston - the heart beat of the oil patch. Oil had spiked to triple the past price and unlike the country was BOOMING!
It had decimated Chicago and Detroit - they were labeled the RUST BELT.
No one bought our house and GM's real estate division bought it from us. I got told I had simply paid too much for it, as they handed me my remaining equity $5000.00. A three year loser of $29,000.
To add insult to the whole promotion, Houston's housing was rocking, as everyone who lost their job up north was moving to Houston. Housing was HOT!
So I sold my new 1980 Corvette we had paid cash for, and rented a cheap home in a low end but new development, only to get broken into and robbed of anything of value that could be carried away.
Welcome to Houston!
We took our lumps and started over at the age of 29.
I vowed to get out of debt and never do it again. We did buy a new home again in 1983 and had a 7.625% mortgage and refinanced it several years late with a 15 year mortgage. My only stock holding took off and did a 3 bagger and I paid the mortgage off completely.
During that time period I used margin and did not know that treasuries would offer up capital gains if/ when rates reversed - with time the inevitable result of Volker's 18% fed funds rate.
I was not in a position to have treasuries as I had margin and everything at that time was not going up - they were going down.
I had eliminated my debt by 1989, but still utilized margin. I was young and swinging for another homerun.
Cohu did that for me in 1995 ish and again in 1999/2000 top. It was after that I got out of margin and have stayed that way since probably 2005 or so.
Everyone knew debt was good and would keep you ahead of inflation, UNTIL inflation was considered an untenable tax on the poor and everyone else.
Since then I've said to myself if, I ever see rates climbing to 6 or 7 percent, I'll sell into a good market and prepare to earn 7% (which would not keep up with inflation) but allow a guaranteed income and RETURN of my cash.
For the last 40 years that was just a dream. a dream that was totally impossible to obtain.
Fast forward to today, it has the looks of a repeat in the making.
If one lives long enough, everything rhymes - who knows?
Surely 7% yield when inflation is rocking along at 14 % is not comforting at all. During that Volker time period where fed funds rate were 18%, I had sold my vette and turned it into GM commercial paper which paid 15% for 90 to 120 day periods. That I did do, but missed the 30 year treasuries at 7%.
7% for the next 30 years guaranteed. The thing to know is the 18% money went to very low rates after the economy had been halted in its tracks. Not sure what those 30 years sold for 5 years later but it probably was a double and taxed at capital gains.
I still love my dividend paying stocks, but there is a place for treasuries when they pay well and for long.
Heck at the age of 70 , I do not need a 30 year treasury note, but I make a trade out of it.<smile>
It will soon be time to decide just how many shares one wants to hold for a long time. They'll have to be bullet proof and great companies with products that have solid demand in the future on a long term basis.
In my case, the wheels fell of from an energy spike in the late 1970's, much like it had in 1973/74 while I was in college.
It followed again in 1990, 2001,and 2008, so don't tell me it can't happen again.
Granted EV's may well reduce demand for gas, but not all the other uses of crude. With a fleet average age of 12+ years, gas.jet fuel,diesel and natural gas will be around for a long time.
The key to note is every recession we've been through was after an energy spike. Energy spikes create inflation in gas, electricity and anything grown and or transported = sticky inflation.
There have been two periods of rising interest rates to control inflation that did not result in a recession. What they did create was an energy spike where the price of crude triple to quintupled 1985 and 1990.
Some times the Fed starts it with rates and some times a demand induced blow off top on the price of crude brings about A RECESSION.
When interest rates don't cap energy prices, the price of energy will spawn a global inflation that will cause a recession.
With Biden's continuously stifling moves about restricting fossil fuels, and Powell's steadfast commitment to curb inflation, it seems a no brainer that higher interest rates for longer are in our future.
I truly hope and expect that the voting American public can tie the dots together and realize that our God given natural resources are a huge wealth creating event if we:
1) keep energy costs for our personal consumption, as Trump benefitted from.
2) Can provide wealth by exporting it to the world and pay down our ballooning debt. To create a trust fund much like Alaska has that can be invested in, with all profits specifically targeted to reduce our national debt (much like the sovereign trust funds like Norway, Kuwait or Saudi Arabia have benefitted from MUST BE ESTABLISHED FAST AND WITH CONSERVATIVE DISCIPLINE.
Selling our resources to a needy world is perhaps the only wealth driver big enough to get us out of the hole our politicians of both sides have dug us into.
It is nice to have modern renewable energy sources backed by fossil fuels, but why not harvest and sell to the needy world our resources. China is making 2 coal fired energy plants a day!
If any one should be harvesting energy and selling it to the world it should be the cleanest and most climate friendly producer and THAT IS US!
Its time to put our business man hat on and think about how we can pay down our debt. High interest rates will make the point whether we like it of not.
Taxing the rich and making American Businesses noncompetitive globally is not the way to success. It is the way to greater debt and failure.
We need growth of huge scale and our fossil fuel resources are the best single approach I can think of to pursue.
It is time to go to business and not political theater.
All those students who voted for Biden's debt forgiveness, need to learn a lesson about politicians.
They produce nice sounding ideas.
They don not produce wealth.
They take wealth and buy votes for them with your earnings.
One thing all should be able to agree on is: WEALTH CAN NOT BE SHARED UNTIL IT IS CREATED.
Let's get to business!
End of RANT!
Bob |
