Lets consider an optimistic viewpoint entitled A CARBORUNDIUM – HOW TO HEDGE A RETIREMENT? written of course by “The Optimist”.
Now I am not sure why an optimist would be concerned about inflation, deflation, stagflation, how to hedge, or for that matter anything else, but here it is in black and white:
The Optimist apologizes for presenting a topic which will be of little interest to investors who want to primarily protect against deflation. If the USA is on a path to deflation in the not too distant future, then there is no need to worry about hedging a retirement, or even to consider various investment strategies. A deflationist would need only to convert all assets to cash, or to a super safe T-Bond equivalent, and then wait for precipitously plunging prices of everything to multiply the purchasing power of cash. A retirement or Social Security check each month for a fixed number of fiat dollars would automatically gain purchasing power during a deflationary contraction. There would be no need to do much more investment work than to sing another verse of “Don’t worry – Be happy” as falling prices everywhere magnify the wealth of cash equivalents. The ease of positioning investments for deflation makes it tempting to convert to that belief system, but the Optimist will not yield to the easy side of the force. For the last 70 years, inflation has been the American Way of truth, justice, and financial integrity. The Optimist steadfastly continues to support that proud and time honored heritage.
The optimist “will not yield to easy side of the force” and steadfastly continues to “worry and not be happy” because inflation is a proud and time honored heritage. Good grief! Just what kind of optimist is that?
Furthermore the optimist advises people that “A deflationist would need only to convert all assets to cash, or to a super safe T-Bond equivalent, and then wait for precipitously plunging prices of everything to multiply the purchasing power of cash.”
I am trying to figure out if that advice is really for optimists or pessimists or just plain worriers from both camps. Consider the following:
1) Just who would the deflationist sell out to and at what prices if everyone attempted it at the same time? Perhaps that’s optimism that it could be done. Then again, if one was optimistic why would one be cashing out at all? Is “The Optimist” really an optimist or a pessimist? I guess I am generally confused.
2) The optimist being what he is, fails to consider that if most people converted their assets to cash and paid off all their debts would not have a dime left. Indeed many would be in a hole. Debt as a percentage of GDP is staggeringly high. People have enormous credit card debt, housing debt, obligations, etc. Just how much money would be left after “cashing out” (if anything) and could that possibly support retirement? Now an optimist might think that everyone could cash out and that would support retirement, but then again an optimist would see no need to do so in the first place. So once again I am confused.
3) The Optimist writes “Consider the impact if the CPI does not move up as fast as the real cost of living, as the Optimist considers likely”. There you have it. That is evidence that the optimist needs to change his name to “The pessimist” on the other hand it conflicts with pervious optimistic statements.
Now perhaps this was all tongue in cheek by the optimist. Then again perhaps this is all tongue in cheek by me. Let’s continue:
The “****ist” since we have no clear cut evidence of “whichisittism” writes:
After considering the monochromatic offerings the Optimist can present, however, readers might shout Nuts!, and bolt from this discussion. This is the best the Optimist can do. Buy more silver and gold. That seems to pass most of the “Does it walk like a duck?” test. If the retirement value is lost, or other investments deteriorate, or the house is destroyed, equity will remain in the gold and silver, and that equity would be easily available to use for financial reconstruction. The annual costs of owning silver and gold are relatively low, the value of silver and gold will probably rise faster than inflationary increases in costs, and silver and gold will still be there for you when many companies are fighting for position at the take a number machine outside the bankruptcy courts.
We have a leap from nowhere to “buy more silver and gold”. Hmmm, is that optimistic or pessimistic? How about this? “The annual costs of owning silver and gold are relatively low, the value of silver and gold will probably rise faster than inflationary increases in costs, and silver and gold will still be there for you when many companies are fighting for position at the take a number machine outside the bankruptcy courts.”
I sense general optimism in that a recommendation was made that gold and silver will “probably” rise… but what’s with this probably stuff? What kind of real optimist writes “probably”? Furthermore what kind of optimist thinks that “many companies are fighting for position at the take a number machine outside the bankruptcy courts.” Bankruptcy courts? Is that optimism?
Once again let’s proceed looking for additional clues.
The optimist writes: “the Optimist can confess that he did briefly harbor another thought. If the coming bad times will coincide with rising long term interest rates, then a simple hedge would be to sell short a T-Bond future, and to subsequently just roll it forward. As with most simple solutions, however, his one has a potentially fatal flaw. Long term rates might not drop! Despite rising real inflation and a world wide economy that is booming (that description mostly applies to Asia of course), long term rates have persistently declined instead of rising as would be rationally expected.”.
The optimist is worried about bad times with a fatal flaw? The optimist is briefly harboring bad thoughts? I am sorry, that is the final straw. The asterisks just have to go. The optimist is clearly not an optimist or an “****ist” but a deeply confused pessimist.
Is that so bad?
Personally I think not.
Besides, I kind of like the guy.
It’s not easy for a bona fide pessimist to stick his neck on the line asking for comments and in bold typing “Readers will tell me where to go!”.
Damn. That’s optimism if I ever saw it!
PS. Jim, this was all supposed to be in good fun.
Hopefully you took it that way.
By the way, I am “mildly optimistic” on gold and silver myself, currently long both.
Mike Shedlock / Mish/