Sunday,
April 20

 
BUSINESS

I miss the great recession already

I’m just going to come out and say it, OK?  I miss the Great Recession already.

I miss it for two reasons: first as an investor and second as a human.

As an investor, the Great Recession represented the good times, now past.1 Recessions – or at least their financial unfolding via changes in asset prices – cause not only wealth destruction, but also wealth creation. For investors2 in particular, a recession is often necessary in order to deploy capital at attractive prices.

Warren Buffett famously gets irritated about the lack of investment opportunities in his annual Berkshire Hathaway letters during boom times, like his 1999 letter3 and 2007 letter4, because prices of public securities outpace intrinsic value. Conversely, he gets very busy and active buying companies when prices drop and other investors flee. Recessions for Buffett, as well as for many investors, represent the best time to accumulate wealth. Which is why he famously says: “Be fearful when others are greedy, and be greedy when others are fearful.”

Another famous value investor, Shelby Collum Davis5, said more pointedly: “You make most of your money in a bear market. You just don’t know it at the time.”

If you believe Buffett and Davis, as I do, then you, too, will think wistfully of the Great Recession because, as an investor, the good times are in the past. Now, with US equity indexes up more than 100 percent from their March 2009 lows, investing consists of purchasing expensive assets and hoping they get more expensive. Which has a lot more to do with gambling than it does with investing.

Of course, this may sound awfully callous from a human perspective, and I don’t mean to diminish the real human suffering of the Great Recession. In fact, on the contrary, it’s the humanity that emerged during the Great Recession that I want to call attention to, as the part I’m going to miss the most.

Remember when your 401k lost 5 percent of its value every month – month after month after month – between August 2008 and March 2009? Remember that you just stopped regularly checking its value – or any part of your supposed net worth – by about December 2008, because the whole thing just became too painful to contemplate?

At that moment, falling into the Great Recession, we all confronted, in our own way, the painful reality that our human worth had to be something other than our financial net worth. Because otherwise we just became half of who we were.

Remember when, in the space of just a few short months, either you – or someone you knew well – lost a job, a house, or a business?

As awful as that was, our collective acknowledgement of suffering changed the way we acted on a daily basis. For people relatively well off, the new austerity forced a kind of back-to-basics approach to living. Luxury consumption plummeted and staycations soared in popularity, if only out of solidarity with those who suffered even more.

I personally lost money in the Great Recession. But what turns out to be even more painful, as a fiduciary, is losing other people’s money. I dreaded calling investors on the phone to report a loss, and I dreaded, worse yet, seeing them in person. To make it more painful for me, my investors, unfortunately, were often my friends and family. The thought of it kept me awake and tossing in bed in the 1-3 a.m. hours. For a couple of years. Not good times.

Would you like to know what reduced me tears, however? It was the investors who told me it was going to be OK, that they still believed in me, and that the lost money didn’t mean they valued me less as a person. Even as I write this now, it gets a little dusty in the room when I think of that.

There’s a human element that only reveals itself in the bad times.

My sense is that sometime between Groundhog Day and Mardi Gras 2013, the Financial Infotainment Industrial Complex will peak out at the nation’s Great Recession shadow, and officially declare the long Winter finally over.

That declaration will signal it’s time for luxury living again and real vacations. Masters of the Universe will know they can safely begin to channel their inner Patrick Bateman in public again. In that smooth shift from Recovery to laissez les bons temps rouler, I’m certain we’ll go back to checking our net worths in the mirror more often, and possibly our human worths less often.

But I hope we’ll hold on to the memory of what we had, and lost, and recovered, during the Great Recession.


Michael is  the founder of Bankers Anonymous, a site for financial discussion and commentary. Online at www.bankers-anonymous.com; on Facebook: Bankers-Anonymous; on Twitter: @bankeranonymous

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1 I acknowledge I’m being colloquial, not academic, about what I mean by a recession generally and the Great Recession in particular. I don’t mean an economist’s definition of recession, which would refer to changes in GDP. I also don’t mean to quibble about a US equity “bear market,” as it’s been a few years since that occurred. What I really mean is a holistic sense that, with unemployment below 8 percent nationally and the general level of stocks approaching their 2007 highs, the national mood has swung away from Recession and toward Recovery and I’m confident soon enough we’ll be in Boom Times.

2 I mean “investing” as distinct from “gambling,” which is what most of us do when we purchase public securities.

3 Which I’ve helpfully linked to here. I would call your attention in particular to page 16, in which Buffett anticipates the bursting of the tech bubble and the bursting of the equity bull market in general.

4 Which is linked to here. I’d call your attention to pages 18-20, in which Buffett tries to lower expectations for equity returns going forward.

[5] Whose son and grandsons run Davis Advisors.

All dollars are not the same

Nerdy finance-blog nerds, Nobel Prize winners, and political satirists spent early January discussing the Mint The Coin movement, a currency trick to allow the Obama administration a way around the pesky debt ceiling via a platinum coin with a  $1 trillion denomination.1 The $1 trillion coin suggestion came about because the debt ceiling allows Congressional leaders another crack at pushing a fiscal austerity agenda.2

What if I told you about a different Mint the Coin movement we can all participate in, that could save $5.5 Billion over the next 30 years that could be applied toward the federal deficit? What if I told you that it wouldn’t cost you or any taxpayer anything at all? On the contrary, what if I told you that your simple actions would actually save millions in storage costs for the federal government? Would that be something you’d be interested in?3

For the past two years, I have personally led my own Mint the Coins movement, by ordering and paying virtually all of my cash transactions with $1 Presidential gold coins. Because ethically I am a Neo-Kantian,4 I believe it’s my moral duty to act as a one-person Mint the Coin(s) proponent. If everybody else ordered and used the $1 gold coins, we could all help reduce the deficit at precisely zero costs to ourselves and the government.

I will now admit that when I first began ordering the $1 coins directly from the US Mint, I acted more from a Locke- or Smith-style enlightened self-interest, not Neo-Kantian ethics, as the US Mint created a perpetual airline miles accumulator by offering free shipping for credit card orders.

But even after the US Mint shut down that opportunity for enlightened self-interest, I continued to order the coins from my local bank. My bank teller always looks at me funny when I order the next box of coins ($1,000 minimum per box!) but it’s their obligation to request them for me, for free.5

My Sunday-night poker competitors know that my buy-in will consist of a $25 roll of Lincolns.6 Or Jacksons. Or, like a month ago, the dreaded Buchanans.7 My dry cleaner knows she’s getting the gold cha-ching. The guy at the local coffee place tells me has an entire jar full of my $1 coins. The new bakery, with those amazing scones, gets paid with my special gold pirate booty. In all of my local neighborhood cash transactions, I’m that guy. The gold coin guy.

And I’m the only one in my city of 1 million plus who does this.8

By the way, how do I know nobody else uses these $1 gold coins, besides the fact that the US Mint has a warehouse full of $1.4 Billion of untouched, unwanted gold $1 coins?

I know because 99.5 percent9 of the time I pay with $1 coins the recipient reacts with surprise10 and announces a plan to pull the coins out of circulation and save them in a special drawer.

And so, my spent coins never get placed back into circulation, thereby ensuring the failure of the program. Also, at least as of a few years ago, Americans reported an overwhelming preference for $1 bills, despite the fact that no other country keeps paying such small denominations in bill form.

With the $1 Presidential coin program a flop, the US Treasury announced a roll-back of new Presidential $1 coin minting, following the issuance of the highly sought-after 21st President Chester A. Arthur’s coin.

Oh … it’s a lonely road out here, pursuing my own mint the coin(s) project.

Michael is  the founder of Bankers Anonymous, a site for financial discussion and commentary. Online at www.bankers-anonymous.com; on Facebook: Bankers-Anonymous; on Twitter: @bankeranonymous

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1 You may have paid attention, or you may not have paid attention to the #mintthecoin platinum coin movement. Mostly it depends on how much of a nerdy finance-blog nerd you really are.

2 One side claims fiscal prudence, the other side claims “hostage-taking.” Can’t we all just get along?

3 Is that something you might be interested in? It’s so worth your time to watch those scenes from Entourage. But I digress.

4 How should one act, according to Kant? “Act only according to that maxim whereby you can at the same time will that it should become a universal law without contradiction.”

5 For that matter, did you know that you can ask your bank to specially order $2 bills for you?  They’ll do it for free. Stacks of them. $2 bills are rare now, but they wouldn’t be if we just asked for them at the teller and circulated them normally instead of giving them to our kids under the pillow when the tooth fairy visits.

6 In a related story, about a dozen guys in the neighborhood regularly find themselves carrying around $25 rolls of $1 Presidential coins. I got poker skillz.

7 Dreaded because he’s the worst president in history. So I figure it’s only a matter of time before those $1 Buchanan coins trade for less than $1, right? Or have I misunderstood something?

8 OK, there’s actually one other guy, who told me about the airlines miles scam two years ago.  But he and I are it. I’m sure of it.

9 I rounded down, to be conservative.

10 And, I’d like to think, momentary delight.

Aspen panel examines border strategies

I had the distinct privilege last month of serving on a panel with Admiral Thad Allen, a senior vice president at Booz Allen Hamilton and the former commandant of the U.S. Coast Guard, and acting Customs and Border Protection Chief Operating Officer Thomas Winkowski. The discussion, moderated by former CNN reporter Jeanne Meserve, was titled, “Strategies for Border Management in a Globalized, Networked Environment.”

The forum was hosted by the Aspen Institute, a prestigious think tank that convenes some of the world’s most prominent scholars and thinkers, so I’m not kidding when I say it was a privilege to be asked to participate along with such esteemed company at a renowned institution like Aspen.

Our discussion is available online at Aspen’s website, but I want to share some particularly interesting items.

Read more...

That hydrogen sulfide has to go somewhere

Illustration by Martha StroudIs a complaint about a leaky disposal well a business squabble or a percolating health risk? A Railroad Commission hearing could help answer that question.

Houston-based Layline Petroleum is pressuring the Texas Railroad Commission to hold a hearing about the safety of a key disposal well that stores toxic waste from more than 180 gas and oil wells in the Eagle Ford Shale.

The disposal well and the pipeline that serves it, both operated by Regency Field Services of Dallas, were shut down for five weeks in late summer and early fall while Layline plugged a nearby oil well that had become contaminated with hydrogen sulfide – a common natural-gas companion that’s lethal at 1,000 parts per million and can cause serious physical injury at concentrations as low as 50 ppm when inhaled. (By comparison, hydrogen cyanide, once a popular bedbug remedy and an Agatha Christie favorite in the form of potassium cyanide, summons the Grim Reaper at 3,500 ppm.)

Since then, unexpected levels of hydrogen sulfide have been detected in at least two other production wells in the area.

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Walkin' on sunshine: Nexolon deal's a go

A map showing future development sites on Brooks, with green stars indicating areas for potential infrastructure investment. Image courtesy COSACouncil Thursday approved a package of incentives for Nexolon America LLC, a key manufacturing partner for OCI Solar America, which landed CPS Energy’s contract for 400 megawatts of solar power earlier this year. In return, Nexolon will build a plant and headquarters on 86 acres at Brooks City Base at an estimated investment of $115 million and provide jobs for 404 workers that pay at least $11.08 an hour, the current living wage.

The standard incentives – an economic-development grant, tax abatements and fee waivers worth almost $4 million – were enriched with a more unusual gift: $12 million in future funding for Brooks, the South Side technology campus and housing development that’s emerging slowly from the remains of the former Kelly Air Force Base.

The $12 million makes up the difference in the purchase price for that 86 acres, which has been valued at $17 million by Brooks and the City. Brooks’ policies require it to receive fair market value for its property, but Nexolon will pay just $5 million for it. The payment will come in the form of upfront rent for 10 years, but during Council’s questioning on Thursday, it emerged that Nexolon will own the land at the end of that decade, and can take title to it at any time after the full payment has been made.

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