A Time of Thanksgiving
A Time of Reflection
By Tony Allison, November 29, 2004
With the celebration of Thanksgiving last week, it is important to pause and observe how blessed we are, and how much we take for granted in our hectic lives. To be able to reflect on the love of family, the beauty of the fall colors against a crystal blue sky, and even our good health is rejuvenating. It has been said many times, but the average citizen lives a better, healthier and longer life than the world’s royalty did a few centuries back. It is unfortunate we need a holiday to remind us to count our blessings.
Thanksgiving is also a time to take stock, and look ahead. It is this element of the holiday that most of us ignore, preferring to focus on leftovers, football, and “Black Friday” shopping expeditions. However, the world keeps spinning, and for those willing to investigate, there are changes on the horizon, many of which may prove quite unpleasant.
As history has shown time and again, there is no free lunch; no matter how long you wait in line. Try to find an example through the thousands of years of history of a successful financial system based on increasing levels of debt and inflation. You will search in vain. The lunch bill must ultimately be paid. Individuals, and even governments cannot live beyond their means forever. Every dime of the trillions borrowed will be repaid in the form of higher inflation, higher prices and higher taxes. The iron laws of economics eventually have their way.
It is apparent that our government is finally taking action against our financial house of cards. Not by cutting spending or asking for civic sacrifice mind you. No, the only way to pay for that lunch is to make the bill cheaper by inflating it. As the US dollar continues to sink, the Fed and the Bush Administration will stand aside, now that the election is over. Realistically, they can do little else. They must protect the banking system and the real estate market, so they will accept an orderly decline in the dollar and the inflation that comes with it. If the decline ceases to be orderly and turns into a rout, then the financial storm becomes a hurricane. No one knows if this will happen, but it’s best to have plywood and provisions nearby.
Albert Einstein, scientist and philosopher, once said, “Only two things are infinite, the universe and human stupidity, and I’m not so sure about the former.” Perhaps Dr. Einstein was a tad harsh, but our human frailties usually fail us in times of great flux in the markets. Few people see inflation on the horizon. When they do ultimately become fearful for their disappearing purchasing power, they will pile into inflation hedges; commodities, energy stocks, precious metals, collectables in a mad scramble to find a safe haven. Unfortunately, those who finally notice that raging inflation is all around them (as in 1980) are usually too late to the party.
It is infinitely better to prepare for inflation early, even if it means not buying Google and looking like an alarmist at holiday cocktail parties. Those who watch the horizon and prepare will have much to be thankful for in the years ahead.
The markets were mixed as traders and investors returned from a long holiday weekend. The Dow was off 46.33 to close at 10,475.90. Wal-Mart was a key contributor, off nearly 4% on a sales warning over concerns about a weaker dollar (but you already knew that about Wal-Mart). The Nasdaq climbed 4.9 to close at 2,106.87. The S&P 500 Index fell 4.08 to 1,178.57. The bond market took a dive on concerns the Fed will have to raise rates faster to keep dollar denominated assets interesting to foreign investors, who are obviously getting nervous about their billions in dollar assets losing value. The benchmark 10-year Treasury fell 23/32 to 99 11/32. Its yield rose to 4.33% from 4.23% on Friday. As a final note to the day’s proceedings, gold closed above $453 per once for the first time since July 1988. Perhaps the markets see inflation looming over the horizon as well.
Have a great week.
© 2004 Tony Allsion