Mysteries Investing In Real Goods

Real Goods is up over 100% in the last five days. That’s Real Goods as in the stock, RGSE, for the company Real Goods Solar, Inc. That’s not for real goods as in really good things, well, maybe but that’s a very subjective thing; one person’s real good is someone else’s real bad. But, that’s another story. I wrote a very short synopsis about RGSE in my Semi-Annual Portfolio Review because the company has been shrinking despite being in an expanding market. Somehow they were chasing away investors and not making profits in an industry and a technology that is in high and growing demand. I couldn’t find a definitive answer for the fall, but I suspect management in such situations. Now, the stock is rising, and I can’t find any news about that, either. Small companies can be the easiest and, paradoxically, the hardest stocks to invest in. Welcome to my exercise in futility and hope.

As I relayed in my other main blog, PretendingNotToPanic.com, solar power is becoming so inexpensive, is so much in demand, and has become so pervasive that it and wind are now seen as far more appealing than hydroelectric power. For decades, dams were the premier low-pollution choice for power. Solar was too inefficient. So was wind, but for different reasons. In 2015, the two combined added 118,000 megawatts of power while hydroelectric added only 22,000 megawatts. Solar power panels have increased efficiency, decreased cost, and have expanded their map of most affordable option. Solar power can be decentralized so well that individual buildings and homes, even street signs, can be electrified without tying into the greater grid. Tie into the grid, and switch from being an expense to being an income. That sounds like an easy business to be in. Evidently, not.

Real Goods Solar has been in business since 1978. I knew about them back then, and have followed them sporadically since. Thirty years ago, solar was a statement. It was inefficient, but people installed systems to disconnect in comfort, to demonstrate their desire to disconnect from Middle East and corporate influences and wars, and to experiment. Real Goods was there with a mail order business that provided everything someone needed to go off the grid: solar panels, batteries, converters, regulators, efficient appliances, tools and supplies for sustainable gardening – even tiny hydroelectric systems that fit in streams. After the boom and bust of the Internet Bubble, America Online’s ex-CEO got involved in the company, there was a merger with the alternative health care and healthy lifestyle company called Gaiam during which Real Goods wasn’t emphasized, then Real Goods was spun off as a separate company just in time for the recent boom in solar power. The emphasis was on equipping businesses and municipalities in subsidized areas, with a moderate return to the off-the-grid market. Good timing, or at least it should have been.

I bought and sold at various times as the company changed ownership. Strategically, I believed the company was going to be in the right place and the right time by getting there first and waiting for the trend to catch up with and then pick up the company and the stock. Through mergers, acquisitions, spinoffs, and reverse splits my holdings have fallen 87%. I bought some during the 2008 IPO, have held most, but sold some for diversification – because it looked like they weren’t as well managed as they could be, but held because strategies can change within one meeting or revelation. At the end of 2008, their market cap was about $60,000,000. When I published my mid-2016 semi-annual review, their market cap was $3,000,000. There are houses in my neighborhood that cost more than that.

If the company was barely making any money, such a decline in the stock price would make sense. For the last three years, they’ve regularly had revenues of more than $40,000,000. In 2015, they lost $10,800,000. Something just wasn’t right in either the company or the investment community. Maybe they simply upset the wrong fund manager.

And then a few days ago, something happened. On Friday, July 15th, the stock rose from ~$3.60 to ~$5.10 on increasing volume. I expected it to fall on Monday as if some rumor turned out to be groundless. The stock rose a bit, but more importantly, it didn’t fall. Today, July 18th, it rose over 49% to close at $8.21 on over 33 times normal volume. I wonder what July 19th will bring.
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I didn’t just wonder. I researched. The first source: check for press releases for news the company wanted or needed to reveal – nothing. Check news reports for news that the company may have lost control of – nothing. Check the various stock discussion boards that I frequent (InvestorVillage.com, MotleyFool.com) – nothing. Check the Yahoo stock discussion boards as a last resort because it can be like wading into a drunken college party – nothing, except one post from someone else pondering the same question. Check Twitter for the company’s newsfeed (@RealGoodStore) – and find their last post was from a year ago; and check Twitter for the stock hashtag ($RGSE) – and find a few traders speculating on the move, but without a concrete news item. And yet, the stock is up 123% in the last five days. Do that for five weeks and I’ll be a happy investor. I don’t expect that to happen – but – nah – but – well – nah. And yet, it is a sign of hope.

If they can manage to simply breakeven on their $40,000,000 revenues, and if the investment community values them at a Price/Sales of 6, then the company would be worth $240,000,000, a 65-fold increase over today’s valuation. If, if, if.

Solar City (SCTY) has a Price/Sales of 6.16 and a market cap of $2,700,000,000, proving such revenues and valuations are possible. But, Solar City has lots of news and a celebrity CEO, Elon Musk. Of course, Real Goods had their own celebrity for a while in Steve Case, the ex-CEO of AOL. I’ll save the celebrity comparisons for later.

There’s a mystery in investing in Real Goods, at least for me, now. I prefer to invest in small companies because they are easier to understand and because they can eventually become big companies with valuable stock. Small companies can also be harder to track. They have less news, can decide to only reveal what is legally required, can have management that wants to hide mistakes, and are more sensitive to upsets. Some of that is true for large companies, but in those cases there are crowds of researchers and analysts uncovering stories. That’s also why I don’t invest in large companies, the competitors within the investment world have far greater resources.

Either someone uncovered a story within Real Goods that they’re buying into, or someone is convincing others such a story might exist, or the investment community has decided some stock listing criterion has been cleared, or this is all a fluke. I don’t know. I’d like to know. Eventually, I will know.

Because of the mystery, though, I won’t be buying into the rise, won’t be buying hoping the crowd is wise, won’t be buying until the mystery is resolved, or not buying at all. Mystery changes a stock from an investment into a speculation. Since the Great Recession (or as I call it, the Second Great Depression) it seems that the small companies I am invested in are saying less. Maybe they’re hiding their successes until they are certainties. In the meantime, it feels as if my portfolio has become filled with mysteries- at least for now.

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Chicken And Egg

Which came first, the chicken or the egg? Within one lifetime that’s gone from being philosophical and rhetorical to proven and solved. The egg came first. Dinosaurs were hatching from eggs millions of years before evolution created the chicken. Sorry if I put a major crack in a favorite conversation starter, but at least we can celebrate a bit of progress. The catch phrase will continue. I regularly work with entrepreneurs, creatives, and innovators – people who have solutions and no money or people with money and questions about what to do with it. Welcome to matchmaking; and just like in the world of romance, there are lots of tenuous steps, defenses, opportunities, and maybe eventually a connection. Now’s a good time for solutions and questions to get together.

There’s another answer to which came first, the chicken or the egg. This evening it is the egg. Someone was nice enough to give me a dozen fresh eggs, which added to the dozen I already had. The supermarket had a good deal on chicken breasts, and I’ve been craving salad that includes some of that. It’s summer and the oven only gets used as necessary. Rather than heat it up twice, I decided to bake some eggs first at about 300 degrees for about 25 minutes, then up the heat for the chicken breasts which will be part of tonight’s dinner and many salads and possibly nachos to come. And yes, I notice switch from using healthy leafy greens to decadent pub grub.

The world needs good solutions. Pick a topic and there is probably something bizarre going on around it. Economists, climatologists, and even politicians are trying to find answers, solutions, or at least strategies because the world is no longer acting the way it did just a few decades ago. My pessimism climbs and my mood sinks when I listen to their problems. My optimism climbs and so does my mood when I listen to the entrepreneurs, innovators, and creatives. (Hence, PretendingNotToPanic.com.)

Entrepreneurs are developing new business models that redefine value as more than money. Strengthening their supportive community creates a more sustainable business. Even though peak profits may never climb as high, they may continue for far longer. At least, that’s the hope.

Innovators are developing new technologies or reinvigorating old technologies to do far more with far less for far more people. That includes smarter farming, more efficient housing, and cleaner transportation. Infrastructure is in retreat, but when it advances again we may manage to replace old solutions with far more appealing versions.

Creatives are developing networks and new ways to communicate that are redrawing the lines around communities. Old national political parties, grand or not, are less likely to be seen as effective as local efforts. Self-governance has a new meaning when it is based on several people mutually supporting each other. One thread I am particularly interested in is from the people who realize the US Constitution was designed to be revised. The Founders knew it would eventually be archaic. I’ve seen initiatives to amend it to shift political pay and therefore influence, and to edit contentious amendments into something clearer. Writers can spot bad writing. Why should we govern by ambiguity?

There’s a bit of a simplification there. I matched entrepreneurs to the economy, innovators to climatology, and creatives to politics. Of course there is a matrix of possibilities. That’s even better. Entrepreneurial politics may not be appealing as creative new economies; but, hey, I could be wrong.

The great frustration is sitting in the middle of the conversations and seeing the struggle between enthusiasm for new ideas and the caution around sources of resources. That’s an ancient struggle. Most new ideas don’t succeed. Fundamental flaws hide easily. Sometimes they aren’t apparent until they’re tried; which means someone who provided the resources subsequently has fewer resources – and probably more caution. Luck is involved, good and bad, which makes it a guessing game regardless of the thought expended at the start. Of course, sometimes that creates unimaginable successes; but that can be hard to remember after a dozen failed projects.

I was lucky enough to run across an unexpected confluence this week. It may not succeed, and yet it may. Three or four businesses in different stages of maturation may have surreptitiously connected to alleviate several sets of worries while providing a new and expanded service to a community that has a demand for it. Maybe. Whether it happens or not, it is a good example of how such events occur. Each was in a chicken or egg situation, but one person’s egg was another person’s chicken. Which, now that I think about it, is how chickens and eggs work.

The issue is less about any one project and more about the need for us to progress. The world doesn’t lack problems. With over seven billion people, the world doesn’t lack new ideas. The worst scenario, though, is letting fear and panic reinforce inaction as if it provided stability. Stability is taking a break. The best way to get through what we’re going through is to keep going.

If you want to help educators learn how to teach better, I know someone to talk to. If you have an invention that needs help, I know someone to talk to. If you want to help, but don’t know how to find (or talk with) the entrepreneurs, innovators, and creatives, I know people. Of course, I enjoy being part of such conversations, so I’ll include myself – partly because I think I can provide value, and partly because connecting people and ideas is a passion of mine. A surprise to me was learning that, according to Facebook’s analysis, I have a network as broad as their CEO’s. I’m still trying to reconcile that with our widely different net worths.

By the way, a short list of ideas includes: my collection of Fresh Ideas, Tidal dock powersomeone who wants to test all of Nikola Tesla’s inventions, a revolutionary new programming language, a novel flying water taxi, various edits to the US Constitution, local food production, senior services, a fascinating twist on yoga, a Holocaust museum exhibit, and you probably get the idea.

Which came first, the chicken or the egg? Tonight was the blog before dinner, which is ready now; so, I’ll post this and dine in my nicely cooled house. I found a new way to keep the house cool that worked well enough and long enough for the clouds to come in and do an even better job. Sometimes, there’s more than one solution. Sometimes it takes the chicken and the egg. It actually always has taken both – unless you’re a dinosaur.

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Marijuana And Experiments In Life

Marijuana has been available in Washington State for two years. Sales of recreational marijuana exceeded $1B in Washington State. That’s a celebration that celebrates itself. If champagne celebrated its anniversary, would it open a beer? Of course, not. Yet, marijuana has been legal in Washington State for two years. The main thing that hit the news was most at home on the business page (~$1B), not in the entertainment section. There may be no more need to post on the next anniversary; but, it does seem appropriate to point out that the fears, worries, and cautions about legalizing cannabis have faded to be one of the less troublesome bits of news; and are more likely to be mentioned because of the upside effects. Experimentation, taking on a bit of risk and taking data, can be more effective than debates. That was true for marijuana. It’s true for many things.

Our society loves to debate anything. Every new thing can be labeled a panacea or a pariah; and spark eternal rhetoric. It’s terrible! It’s terrific! Replace the ‘It’s” with many of today’s topics and you have a synopsis of the news. The news loves debates, loves dynamic tension, loves conflict. Solutions aren’t nearly as exciting as problems. Compile a list of health issues according to the ads, and think we’re all going to die because either we have the symptoms, or haven’t thought to look for them. The solution is frequently to spend billions on testing medications that will hopefully make billions (disclosure: I am invested in biotech). But the easier solution is to eat right, drink plenty of fluids, get plenty of rest, take care of stress, and exercise. Compile a list of the global worries and watch the politicians travel from conference to summit meeting to negotiations, and think the world is going to fall apart (disclosure: I run a news site for people who are eager and anxious about the future, PretendingNotToPanic.com for balance in that news). But, the easier solution is to concentrate on your lifestyle by living healthily, shopping locally, building community, and extending that reach as you can. Small actions have big effects, and are a lot cheaper that major interventions.

DSC_5109I was first in line at my local pot shop simply from curiosity. Sure, I wanted to finally buy marijuana legally simply because it was possible; but it was also a case of personal experimentation. Friends who had tried the current crops that are “new and improved” when compared to the product available when I was in college forty (40?!) years ago talked about the increased potency, and the likelihood of kicking off anxiety attacks. I took their anecdotes as evidence, but not as a conclusion. So, I tried some myself.

Evidently, like many things we ingest, everyone experiences something different. To some, the first, middle, and last glasses of wine out of a bottle are significantly different. I can taste the difference between a red and a white, and whether a wine is sweet or not; but, box wine has always been fine by me. If I concentrate, I can detect more subtle distinctions; but, I usually open a bottle with friends, and my interest in my friends is greater than my interest in wine. Besides, my friends are easier to tell apart than a Lemberger from a Grenache (those are wines). After months of trying various strains of marijuana I can somewhat tell the difference between an Indica and a Sativa because I’ve convinced myself that one keeps me awake and one puts me to sleep. And, I could be convinced that it is all in my head.

As for potency, I have yet to detect a difference. Maybe I have a greater tolerance than most, maybe I’m too wound up with stress, or maybe the differences aren’t that great from before.

I know an amazing number and variety of intelligent people. Get a few of them together, toss in a juicy topic, and the conversations can go on for hours or days. Some things are easier to talk about than to affect: the origin of consciousness, the effect of the oil price war and negative interest rates on Europe’s economy, whether any particular diet or health regimen is better than the rest. There are, however, a few topics that come up where people talk around issues they can resolve themselves. At times like those, I am equally fascinated at the tendency to talk rather than to act. Some of my friends have broken through that mode. Don’t like fossil fuels? Then, find a way to work from home and use your bicycle more than your car, even if it is a hybrid. Don’t like GMOs? Grow your own food or find someone who’s growing in a way you prefer. Don’t like a particular political candidate? Then don’t vote for them, and between now and the election get busy with other productive activities – but make sure you vote. Retirement? Well…

One of the most frequent topics in workplace America, whether it is corporate or entrepreneurial, is trying to find a way to no longer have to be involved in workplace America. After we get past wishes of winning the lottery (Powerball is up to $311M), Screen shot 2016-07-10 at 8.59.54 PMthere’s great frustration and a feeling of being trapped. I know that feeling. Fortunately for me, I also know the feeling of having retired at 38 (read my book, Dream. Invest. Live. for details); so, for me, the debate is less esoteric and more pragmatic. I know how much I need, I know I don’t have it, and I know many different ways I may get it. I tried that experiment and learned that lesson. To people who don’t know their current living expenses, trying to imagine a future with a less certain or dramatically reduced income can be scary. Rather than try a new lifestyle, they stay where they are regardless of the comfort or lack-of-comfort level because a known isn’t as frightening as an unknown.

It is entertaining to look back on my own experience. When I was getting ready to retire I had many internal debates because there were few people in similar situations. All the plans I made had little to do with what happened. I am glad I made the plans, but teaching karate ran into a political roadblock; purposely stepping away from my engineering identity was good advice – as long as the income continued, which it didn’t; coupling the effects of the economy, terrorism, and an unfortunate relationship would have been impossible to predict; and surprise, surprise, the future and life laughs at any plans.

Washington State was willing to take a risk, test an idea, take some data, and be surprised. I’ve frequently taken risks, have contemplated them as I experienced them, and have created a life that has unbelievable benefits and detriments. Washington State is still here. I am still here. Things haven’t worked out the way I had it planned. Some could say they haven’t worked out at all. But, they are working themselves out. That’s something that doesn’t just happen to me. I applaud those with more trust, more faith, and less hesitation. I hope they prove to others that it’s okay to try rather than to just talk, and to get on with living and get past worrying.

Now, after an evening’s self-imposed writing assignment, I think I’ll celebrate with a chocolate cookie or two as the sun and the ridge slide past each other. In about two hours, the cannabis in the cookies will slowly take effect and produce one of the greatest benefits my experimentation has created: a good night’s sleep.

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New Truck Tires

truck tireThe truck has new tires. Whew. That’s a purchase I’ve delayed as long as possible, without knowing how long was possible. It wasn’t an easy decision to make, but driving around on twelve year old tires can be equally difficult. Some money came in, the swap was made, and now I get to move onto the next decision. Frugality may be about living simply, but it isn’t completely simple.

Gardeners wonder about (and wander about) when to harvest. When are the potatoes ready to pull out of the ground? Ripe berries can come off with a slight tug, but a bit too much of a pull on one may shake off six more that were ready to eat. The longer the figs stay on the tree, the softer and sweeter they get; but the more likely they’ll be found by birds and yellow jackets. Walk through the garden and tug, prod, squeeze, and sniff checking for ripeness. In general, later is sweeter; so, waiting is a good thing.

Mechanical things don’t work that way. The things we make tend to wear down. Even if they aren’t used, materials can degrade, leaks can form, corrosion can progress. One solution is to continually replace everything, but that’s unrealistic except for the uber-rich – and even they won’t be bothered because the rich don’t have any more time than the rest of us. At the other extreme, there’s a solution where everything is used until it is used up. That may make sense with dinner plates, batteries, and windows; but it doesn’t make sense with truck tires. Blowouts happen. Maybe they happen away from traffic along wide roads on sunny days when the spare or the tow truck is readily available; but, a catastrophic flat tire can do more an interrupt a day’s chores.

A few years ago, my Dad gave me an old truck he didn’t need anymore. There were, and are, several things that need repair; but, he was confident that at least the tires were in good shape. He was right. There was plenty of tread. He hadn’t driven the truck much because they had a van, too. It was only after I drove the truck home that I learned that the tires were more than ten years old.

Rubber is amazing stuff, but it wants to degrade. Even if rubber isn’t used, it will degrade from contact with things like ozone and salt. The tread was good enough for me, but webs of hairline cracks were developing on all four tires. The ride got a little wobbly, or at least it felt that way. I was glad to live in a rural area, which meant there were plenty of back roads I could drive slowly, out of the way of traffic. Guests got scenic, slow tours. Every time I had to drive I knew I was wearing more miles off the tires, growing those cracks, and getting closer to a flat or a blow-out.

Worry about every part of a vehicle like and go nuts. Everything may be decaying, but things are remarkably robust, tend to degrade slowly, and frequently outlive the worrier.

My Dad died last September. He had a fascinating life, but he wasn’t financially rich. The average inheritance in America is $177,000. My family’s reality is considerably less. I’ll be glad to pay off some taxes, donate to one of his charities, treat myself to one or some hikes – and buy new tires for the truck.

As soon as I decided to buy new tires I had buyer’s remorse. Surely, they’ll last longer. I have plenty of other things asking for repair or replacement. In the last twelve months, I’ve driven the truck about 300 miles a month. Thanks to my bicycle and the fact that I can work from home, maybe I could repair something else. And then, I would imagine what could happen when a 4,800 pound vehicle is suddenly trying to balance on three tires. I bought the new tires.

Frugality is not about not spending money. Spend a bit now, save a lot later; or don’t have to spend as much for a long time. Most of the choices are guesses. When money is readily available, the optimization suggests taking care of all repairs and maintenance sooner rather than later. When money isn’t readily available, the balancing act and guesswork begins. The tires have been replaced. The ride is smoother. I’m unwinding the anxiety that’s been winding up for months. Things like an alignment, a rear brake seal, the stuck radiator cap, the random fuel gauge, the loose roof console, and whatever else will have to wait. The dent I put in the truck the first time we (the truck and I) disembarked from the ferry, well, that stays. Humility is a useful lesson.

Now that I’m more confident with the truck maybe it’s time to take some of those remaining funds, head to the hardware and garden stores, and load up the bed with wood and dirt. With this year’s nice crop of apples and figs I’m encouraged to make the garden a bit bigger, a bit easier to maintain, and a bit better protected from the other harvesters like deer, bunnies, birds, and slugs. I look forward to anticipation rather than anxiety, to producing something rather than just repairing some thing.

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Saving Money Causes A Headache

So that’s where this headache came from. Silly me. I tried to save money. Instead, I’ll be spending a day or two of reduced productivity, and maybe reduced income, because I packed and ate a sandwich. Lunchmeat, (or was it the stinky cheese?), signed me up for about two days of mental resistance training. Saving money isn’t just a matter of math. Experiments may be involved.

The good news is that I am back in a coworks, again. The longer version of the story will come out soon (after their official press release or at least a good tweet.) Ideas don’t always grow when they’re first planted, but give them some time and they may sprout. In this case, a non-profit that I’d talked to months ago about coworking found a model that may work well with their facility. The news may not be out, but I am in as the first coworker, which made me a solo-worker until the second person signed up. (Thanks, Pattie.)

If you need a primer on coworks, check out some of my previous posts. They might help. At the simplest, a coworks is a shared office that emphasizes collaboration interspersed with great expanses of concentrated work time. Some of my best gigs came from sitting with a diverse set of people and tangentially being invited to take on something they didn’t want to do, or couldn’t do. One good gig can pay for a year’s dues.

Many nomadic workers in the Gig Economy and the 1099 Economy work from a variety of places: home, libraries, coffeeshops, anywhere they can comfortably find power and wi-fi. Home can be distracting, and can lead to being a recluse cursed with self-inflicted cabin fever. Libraries are free, and great if there’s a need for lots of books; but there can be privacy issues when dealing with clients or when someone might not approve of what’s on your laptop’s screen. Coffeeshops have food and drink, for a price; and usually don’t want outside food and drink, so those prices add up. They also have espresso machines, music, and seating that is designed for style more than typing ergonomics.

A coworks costs money, but less than a shared office. There are far fewer distractions (some day I’ll get to those dirty dishes at home.) It’s quieter than most places, even modern libraries, but background noise happens. (Currently, I’m overhearing 2016’s version of teen pop. Earlier, it was someone practicing piano.) Coworkers tend to be respectful of others, so privacy is less of a concern. A coworks that allows people to bring in their own thermos and lunch means frugality leads to significant savings when compared to buying every beverage and eating out for lunch. And, that’s where I stumbled.

Langley, WA July 2013Langley, WA on Whidbey Island is an international tourist destination for good reason. The tiny city has very good food; plenty of coffee, tea, wine, and beer options; and is priced accordingly. In general, for every restaurant meal I eat, I have to work an hour or two to pay for it. Somedays, like today, I only have three billable hours. There goes that money that should go to the mortgage, various insurances, and a variety of utilities. Ah, but I like to cook, can eat simply, and can enjoy my food (which my waistline demonstrates.) Therefore, brown-bagging works for me.

Buy some eggs, cheese, veggies, and maybe some bacon and bake up some quiche that travels well. Buy some bread, lunchmeat, and cheese and layer up a lunch that is simple and satisfying. Commute by bicycle, and justify eating it all (while fighting that waistline bulge.) Combine it all and make meals for nearly the price of eating at home, with the bonus of getting in shape.

The hurdle is that I eat gluten-free. I’m not one of the evangelists that have done years of research. I accidentally experimented with my diet and menu, and stumbled across the realization that anything with wheat ruined my mood. Decades of bad moods explained by a grain. No problem. Eggs, cheese, veggies, bacon, bacon, bacon, (oops, sorry, got carried away there), and cheese don’t have gluten. Gluten-free bread is expensive, but readily available and tastes fine. Lunchmeat shouldn’t be a problem because meat is gluten-free; but (and you knew I was going to get here), lunchmeat can be different. Sliced ham, beef, and turkey are usually okay; but, lunchmeat is one way to extend meat, cutting back on the protein and the cost by adding fillers. Currently, I am cursing those fillers.

My meal savings were substantial, but the side effects made for a dismal Fourth of July (with the fireworks not helping), and a week of a fragile mood amplifying any bad news. Work ended early most days, limiting my income more than the savings. Grump.

Fortunately, the effect is temporary, for me. The unprocessed lunchmeats tend not to have gluten issues. One solution is to use a different (and more expensive) local deli that emphasizes organic, free trade, open-range, sustainable, basically healthy food. Shopping there costs more, but building lunches from there is still cheaper than eating out, so the savings remain.

People who live frugally, who live simply, tend to experiment. There isn’t one answer for everyone. People are individuals, not stereotypes. Vegans certainly aren’t going to follow my example exactly; but some of the same ideas apply. Extreme networkers know their best use of time is to purposely dine in public; they balance the cost of the meal against the potential value of every encounter. Maybe that would work for me, too; but, I’m not comfortable with that financial risk. Fortunately, simply walking around Langley is sufficiently powerful networking. Smiles and showing up are powerful and affordable tools.

Without getting into the icky details, I know what I must do with the gluten flowing through my body – get rid of it. Plenty of fluids and exercise sound familiar? Time helps, too.

The other thing that helps is the inspiration to get back into my kitchen. It has been a while since I’ve made meatloaf. Local ground meat, local eggs, leftover homemade gluten-free cornbread, an onion, some garlic, maybe some mushrooms or olives, some messy fingers and a messy kitchen, giving the mix some time in the oven, and I end up with lunchmeat that is cheaper and tastier than sandwich meat I’ve found in a deli. Oh yeah, and bacon, gotta top it with bacon (an idea I got from my Mom) – and I happen to have some nitrate-free bacon sitting at home, waiting.

I guess that math does work out, thanks to the lesson learned from a headache.

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Semi Annual Exercise Mid 2016

Welcome to my semi-annual portfolio review, a bit of due diligence that is easier when the portfolio is growing, and an exercise in openly assessing the situation when the stocks are sinking. Personal finance is easy when everything works. The last few years have been the test of the personal side of personal finance; looking at an unpleasant situation, but looking at it objectively. Just like it is easy to ignore the fundamentals when stocks are rising, it’s important to pay attention to the fundamentals when stocks are sinking. Fundamentally, the majority of the companies I am invested in are improving. Quantitatively, their stocks aren’t. Trusting fundamentals isn’t easy when there’s a large gap between cause and effect; but, that’s why long term buy and hold emphasizes the holding for a long term.

Allow me to restate my statement from six months ago.
“As usual, I expected my portfolio to end 2015 in a much better position that it was in at the end of 2014. Relative to 2014, 2015 looks good. Relative to where my portfolio was before my Triple Whammy, 2015 didn’t make much progress. The stocks bounced around a bit, with ups and downs. The companies, however, are in much better shape. Eventually, that improvement should show up in the stock price, too.”
Should is not necessarily would, and definitely isn’t did. Except for AMSC, every stock is down, RGSE disastrously so. And, even RGSE had revenues in the tens of millions. Many people will be blaming Brexit, but this has been the case for several months. Good news is followed by a declining stock price. Bad news is followed by a declining stock price. When almost everything is heading in the same direction, it probably isn’t the individual actions but is something more systemic. The world is not a happy place.

Let’s see if anything else can be copied and pasted from December 31, 2015. (The old stuff is in italics.)

AMSC may not have received the positive news from the Chinese courts about the intellectual property theft case, but they are receiving new orders. AMSC is up 23% since mid-2015.
Basically the same story, but with different numbers. Now up 37% since EOY-2015.

AST is still in early clinical trials for regrowing damaged nerves, but some of the responses have been so encouraging that for a while the stock quadrupled, until a competitor had good news, too. AST is down 14% since mid-2015.
The trials continue though, so evidently the competitors haven’t clinched the race. AST, however, is down 32%.

GERN is also in clinical trials, but it is further along and navigating the FDA and international regulatory agencies on its way to possible approval of a cancer treatment that has great implications – if they can get approval for at least one specific cancer. GERN is up 13% since mid-2015.
The trials continue, hopefully one year closer to applying to the FDA; but the stock slumps by 44%.

GIG under-promised and over-delivered by saying little, then achieving GAAP profitability. The little company is getting a lot of attention as the year closes.  GIG is up 143% since mid-2015.
Except that now it is down 18%, which may have more to do with yet another merger and acquisition action that confuses finances.

MVIS was perceived as over-promising and under-delivering, but even with that, they are making progress, have record revenues and backlog, and continue to maintain an impressive potential – that will be realized within the next few months (which has been the case for several years.) MVIS is down 7% since mid-2015.
Realized within the next few months? Yep. Supposedly “several OEMs will announce products this year.” Again. With nothing significant announced. Again. But this time will be different. Again. Right? In the meantime, down 34%.

RGSE has managed to somehow stumble in the high-growth, high-demand industry of solar power. The company is worth less than many homes in America. It dropped so far and so fast that even selling now wouldn’t buy me much of anything else. RGSE is down 50% since mid-2015.
Now it is down another 64% to about $3M, so I am regularly paid to write about houses that are worth more than a company with more than $40M in revenue.

My patience has been tested so thoroughly that it has put down its No. 2 pencil and is sitting back to see what happens with the grading. Aside from some minor adjustments, and one fortuitous profit-taking trade, my portfolio remains in a reasonably good position in terms of company progress, which has only begun to show hints of portfolio progress, and which is well-enough positioned that 2016 may be the year when I get to regularly share good news again.
Not so far. My patience is shifting to resignation. What will be, will be. Of course, that could be good.

I feel that I am witnessing a race between the advancement and progress of the companies I’ve invested in, and the troubling signs I see in an economy that is at least bifurcated and possibly destabilizing. (Much of the economic news is over on my blog for “news for people who are eager and anxious about the future” (aka PretendingNotToPanic.com). In the best scenario, everything is awesome for my companies and stocks, and the economy. In the worst scenario, everything falls into the Reprise of the Great Recession, or as I call it, the Third Depression. In a bizarre scenario, as the economy trips on itself, some of my stocks provide the economically appealing new solutions to energy, health, and information issues thereby ratcheting up their stock price premiums. It could happen. What’s most likely to happen is something I haven’t listed.
And then, there was the oil price wars, China’s slowdown, negative interest rates, and Brexit. While most of my stocks are down, they could become lifeboat stocks, stocks that are in companies that are finally succeeding while markets are falling. Supply and demand can create as much irrational optimism as the recently experienced irrational pessimism.

The likelihood of my portfolio doing well has improved. My positions haven’t changed much, and my portfolio continues to hold enough potential to allow me to re-retire, or at least to begin transitioning to something less than a seven day a week work schedule. That’s been the case for years. Patience and a Long Term Buy and Hold strategy remain that classic conundrum of doing the same thing and expecting something different (a delusion) or proving the value of perseverance. Some time between now and the next semi-annual portfolio review, I should know better. In any case, stay tuned as the story continues.
And, the story continues, and continues, and – well – patience is inherent in long term investing, though patience can be quite inconvenient when paying bills is involved.

In the meantime, I continue pretending not to panic. Photo on 2016-06-30 at 15.01

For the details of my investments, I post the semi-annual review of each of my stocks on various discussion boards. I could post the entire collection here, but 1) it would be very long, 2) the more public the conversation the more valuable it becomes, and 3) reading my posts on those boards introduces you to individuals who have different perspectives, strategies, and experiences. Collectively, those communities are more powerful than large financial institutions because the motivations and incentives are those of similar individual investors rather than that of profit-minded corporations.

Here are the links to the discussion boards I use. Feel free to comment here or there, and to pass along links to others. The bigger the discussion, the better the chance of valuable insights (as long as the trolls and flamers are moderated appropriately.)

Investor Village
AMSC
AST
GERN
GIG
MVIS
RGSE

The Motley Fool
AMSC
GERN
MVIS
RSOL
Economy and Markets

Silicon Investor
AMSC
GERN
GIG
MVIS

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Brexit Quebexit Texit Cascadiexit WhatsNextit

Photo on 2016-06-24 at 17.27I raise a gin and tonic to the Brexit. I raise it because the Brexit was an accomplishment, or at least historic. The gin seems British, though in my case it is really just vodka infused with juniper. The idea of a tonic seems to be what a lot of people could use right now, though in my case it is just sparkling water that was on sale. The glass is a mason jar, because fancy bar ware is saved for more formal occasions. The United Kingdom decided to untie itself from the European Union by a vote of 52% to 48%. The election startled many people because of the immediate implications for economies and border control; but I suspect there is a deeper, more unsettling realization that dissatisfaction is greater than people realized, and that if it happened in England it could happen anywhere. Plans are important, but one of the great fallacies of any plan is assuming things won’t change. The Brits just proved that change is inevitable, can be unexpected, and dramatic. Welcome to yet another opportunity to redraw maps, revise plans, and reconsider possibilities at every level.

One frustration I have is not being able to find a particular TED Talk from a few years ago. The topic was countries and globalization. While we assume globalization will continue and possibly lead to a New World Order that will encompass all nations, the speaker made the point that the number of countries is increasing, not decreasing. Globalization is continuing, but that is an economic unification. Politically, countries are fracturing. After we passed through the eras of tribes and kingdoms, the concept of countries was appealing. The world began redefining itself thanks to revolutions like those in North America and France. People reorganized themselves based on shared identities within specific physical boundaries. Then came World War I, after which empires vanished and faded. Then came World War II, after which colonization faded and many new countries were born – whether they liked their borders or not. The Cold War enforced a draconian consolidation until it ended with the disintegration of the Soviet Union into many new countries again. The video illustrated the consolidation then fracturing of political borders until only a few large countries remained: Russia (but with a much reduced population), China (with significant internal divisions), Brazil and Canada (with great unoccupied areas), and the United States of America (which has always had a debate about state sovereignty.) The European Union was one movement attempting to counter the trend, but it is evidently failing at political or economic unification.

The United Nations started with 49 members and now has 193 members with several non-member states.

Countries, corporations, and people are trying to quickly revise their financial plans. The effects are greatest in the United Kingdom, but economic globalization means global repercussions. The British Pound was down to levels last seen in the mid-80s. My portfolio of American stocks is down enough that I don’t want to look, but I know there was lots of red the last time I glanced at the daily chart.

I’ve written about such possibilities before. (Changing Odds) I informally study enough history to see that few nations last longer than several generations. Many have long histories, but except for dynasties, governments tend to undergo dramatic changes frequently. Historically, those were internal struggles between power centers. Now that information can flow more freely, populations are initiating such events. Sometimes the populations resort to uprisings like the Arab Spring. Sometimes the populations resort to more peaceful ballot measures, as we’ve just seen. I think part of the surprise is that analysts have a habit of watching the politicians while the real power has shifted to the people, which was the idea of democracy (though arguably not the idea of a republic.) When enough people are dissatisfied and are given the opportunity to act on it, they will – even if they don’t fully understand the consequences. To me, this election cycle for US President has less to do with him, her, her, and him (and yes, I include at least four in the running), and more to do with millions of perspectives loosely gathered around a few options. Tens of millions think a wall is a good idea. Tens of millions think Wall Street is a terrible idea. Tens of millions want moderation and change. They all want change.

The United Kingdom is not unique. The United States of America has several dissatisfied populations. So does China, Canada (yes, even there), and the rest of the European Union.

One scenario has been that if one such division happens it will encourage others. Originally, I thought Quebec could initiate a fracturing of Canada, which would inspire Texas to depart the US; but Texas separatists have been coordinating with the Brexit organizers. Texit could happen. Quebexit could happen. In my part of the world, Cascadia is considered an option that is fanciful to many and serious to others. The logic for a separate region is based on a reasonably a similar culture that extends from north of San Francisco along the coasts of Oregon, Washington, British Columbia, and into Alaska. Restrict it to similar climates and the eastern border follows the Pacific Crest Trail. While some Seattlites may welcome getting rid of Texas and its culture, some Texans would be happy to get rid of the left-leaning left coast. “You want to leave? Fine. Go.” may be a common response regardless of the division. There are enough scenarios for redrawing borders within North America that I’ve resorted to collecting them on a Pinterest board (Alternative Americas.) Base it on state borders, culture, watersheds, tribal heritage, or whatever, the states and the country don’t have to be drawn along the lines we have now.

The United Kingdom is exiting the European Union, which may untie the Kingdom. Scotland, which recently almost voted for independence from the UK (45/54), solidly voted for staying in the EU (62/38). London voted to remain. So did Northern Ireland. Check history and find that Scotland has allied with the continent before. Ireland’s status may be mean that Northern Ireland may prefer to reunify the island rather than remain with England (56/44). (You know I did a bit of Walking Thinking and Drinking Across Scotland, right?Walking Thinking Drinking Across Scotland

It has been a long time since the number of states in the United States has changed. Fifty is not a magic number. Puerto Rico would probably appreciate a change. As some have pointed out, trying to get 50 states to agree may be too many to resolve issues of budgets, rights, and goals. A series of smaller countries probably wouldn’t collectively spend as much on a military; and various regions would place different emphasis on public programs and private liberties. Deciding the details would probably take decades, and hopefully, only debates.

Whether anything similar happens anywhere else is somewhat moot, important, but moot. On a personal level, it is difficult to plan for such events and scenarios. Imagine someone in the UK planning for Scottish independence then a few years later having to deal with Brexit. To me, it is more important to be aware, realize assumptions aren’t absolutes, be flexible, consider (but not obsess about) the possibilities. Could Brexit inspire Texit which inspires Quebexit which means the US and Canada spawn Cascadia? Yes. Do I expect it? No. But, I consider it by doing things I’d do anyway: investing in local stocks and my community, thinking about the opportunities within the region, and reminding myself that the only constant is change.

Fortunately, I think juniper grows around here, as do potatoes, and the sparkling spring water is local. Limes may be an issue, but something like a gin and tonic will be possible (just ask the Hitchhikers’ Guide to the Galaxy). Cheers!

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Tiny Houses And New Old Ideas

Wow! Someone mailed me an actual letter, and it isn’t even Christmas. The someone (Steve Smolinsky, ace EOS consultant, and an excellent candidate to advise the US Postal Service on how to improve), sent me a real world clipping from the Wall Street Journal. Photo on 2016-06-21 at 17.01Well, it wasn’t as much as a clipping with scissors as a ripping from the headlines; but hey, low tech works thanks to the USPS. Sending a piece of paper probably also gets around firewalls, copyright restrictions, cookies, and pop-up ads. The article is about tiny houses, something that I’m a fan of, have stayed in, and am paid to write about despite living in a relatively palatial 864 square foot seaside cottage. That’s not tiny enough for the new crowd that’s embracing and celebrating houses that have less than 300 square foot of living space. A crazy idea? Not much crazier than being able to send a bit of newspaper across the continent in a few days for less than 50 cents.

Tiny House people are easy to stereotype, but are much more diverse in their ideas of housing, lifestyles, communities, and philosophies. Whether by necessity or choice, they are finding that conventional answers are increasingly anachronistic. Some want to live more sustainably, either for the environment, their time, their finances, or some combination. That can mean building small to keep down impact, maintenance, and costs. That can mean conventional wood frames; but also can mean rammed earth, earth bags, Earthships, cobb, straw bale, yurts, tipis – anything that provides the basics of shelter from the elements. The smaller the build, the less it costs; and ironically, the easier it is to add small luxuries that have a big impact. Build a 3,000 square foot house and get careful with floor, window, and roof selections. Build a 300 square foot house and using bamboo, etched glass, and slate becomes affordable. As a group, they vary so much that they probably couldn’t agree on politics. But, they’ve all come to the same conclusion despite following diverse paths.

Part of the problem with American housing is that it was built upon an experiment that made sense for a few decades, and then didn’t. Suburbia was a great solution to the Baby Boom, a booming economy, flight from the cities and the farms, and a shift to working in factories and business parks. There was so much growth going on that people decided it had to be controlled and managed, and the easiest way to do that was to regulate housing through zoning and covenants. Houses had to be above a certain size. Everyone had no choice except to be part of the local infrastructure of electricity, water, telephone, and sewer. Especially during the Cold War, there was a desire for conformity; ironically as a way to prove our allegiance to liberty.

Things have changed.

When the housing bubble burst, many people decided they couldn’t or shouldn’t adhere to the logic of buying the biggest house they could afford. In the long term, as there are more people and less available land, the value of the land will rise. In the short term, however, investing that way can involve taking on mortgages based on guesses about income, expenses, and economies for the next few decades. The world’s economies are unstable enough that such assumptions would look unwise in most other fields. One great encouragement I saw within the recent rise in tiny houses is that people are asking the critical questions about their needs and wants. The great majority of Americans continue to live the lifestyle of 40 hour work weeks, sports and maybe church on the weekend, a vacation or two during the year, and steadily accumulating more luxuries. Those who by choice or necessity have questioned the underlying assumptions have been trending towards downsizing, minimalism, frugality, and simple living. They don’t assume 2046 will be like 2016; so why should their houses be like 1986? Maybe 1916 has some answers worth reconsidering.

Most movements in America are not totally new. One of America’s great advantages is the diversity of opinion coupled with the liberty of personally testing new ideas. Alternative housing and communities have existed throughout US history; but they’ve been called communes, utopias, and intentional communities. Some of those have been highly positive. Some have descended into dystopias, cults, and barricaded enclaves. Here on Whidbey, there’s a town called Freeland. It was a social community founded to provide an opportunity for a community to mutually grow. It didn’t succeed officially, yet it probably has something to do with Whidbey’s distinctive alternative culture. Closer to Langley, a tourist town known around the world, there’s Talking Circle, a collection of houses built decades ago by a group of frugal friends who all wanted their own kind of housing. Now, they have a new neighbor in Upper Langley, a neighborhood of tiny houses, the 2016 answer to alternative housing that is partly necessitated by overly strict regulations and covenants elsewhere.
DSCN5593
My house is a 1965-ish 864 square foot cottage built within sight of Cultus Bay, Puget Sound, and the Olympic Mountains. According to a board member from the homeowners association, my house doesn’t meet the covenants’ 1,000 square foot minimum; but that’s probably because the house was built before the rules were written. Fifty years ago, Whidbey and other islands around Seattle were destinations for people hunting for alternative ways to live. It took more of a commitment back then to decide to live on an island. Go back far enough and there were far fewer ferries and bridges in the area. And yet, people moved here and similar places because they needed new solutions.

Now, so much of America has been urbanized, modernized, regularized, and popularized that finding places that accept outmoded norms is difficult. The article Steve sent was about a Texas town a little larger than Langley (that’s natural for a Texas town), that decided to declare itself the Tiny House capital of America. Evidently, they weren’t aware of what’s happening in Portland, OR. The idea is a good one; turn abandoned lots into housing sites which are then tax revenue generators. They’ve drawn a lot of attention, but a source of the contention is the adherence to old zoning and covenants based on old notions of infrastructure. For tiny houses, electricity can be decentralized through solar panels, wind turbines, and the use of ultra-efficient appliances and lighting. Water is always a tough issue, but capture, reuse, and xeriscaping make that less of an issue. Telephones don’t need wires; and neither do televisions or computers if there’s a clear signal. Sewer and septic systems are expensive; and now that we better understand chemistry and biology we have options like composting and incinerating toilets. People exploring and improving these solutions are how we will find more sustainable solutions for the increasing number of Americans who aren’t part of the mainstream.

There’s an irony to the land of life, liberty, and the pursuit of happiness being defined by the concepts of regulation and conformity. One thing that confuses many people watching the tiny house movement is that it is unorganized, chaotic, and driven by nothing more than a mass of engaged individuals trying to find solutions to greater problems. I celebrate that chaos that just happens to have found a similar direction.

In some ways, the tiny house movement is going back to old ideas. Cabins, cottages, and bungalows were the norm. Using very little, but not too little, resources made sense when people had less. And, being able and willing to explore concepts, innovations, and lifestyles was what brought people out of Africa, into Europe, across Asia, and by numerous paths into North America.

I like new ideas, even when they are old ideas refreshed by new circumstances. Who knows? Maybe some day, putting stamps on paper envelopes containing more paper as a means of communication may be just the solution we need to a problem we haven’t identified, yet.

In the meantime, I may just mix myself a drink, sit on my deck, enjoy the view – and then retreat to my somewhat tiny house to remotely work for yet another client utilizing yet another technological innovation. But, that’s another story.

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Finances Dancing In The Rain

It’s raining again. Ah, that feels good. Rain means water for me, my garden, and for everyone else. I like rain. When I am hiking I prefer the endless sunny days people romanticize; but even then, I hope it’s rained or snowed enough so I can find drinking water. Yes, some of us who live in Western Washington actually like it wet and drizzly. I find clear blue skies a pleasant contrast, but when they go on for too long I begin to worry. A bit of a storm, occasionally, is a good and necessary thing – even when it involves thunder and lightning. I suspect a broad sectors of our economy expect eternal sunshine. They’d even abolish the night if they could manage it. I also suspect, there are storms headed their way, our way. At times like this, the frugal motto of ‘saving for a rainy day’ becomes more than just a good idea.

Western Washington has fewer lightning strikes than most of the lower 48 states. (Here’s a bad example of siting; Southern Florida, NASA’s main launch site, has more lightning strikes than most of the rest of the lower 48. Rockets filled with fuel, big electrical bolts; it’s a wonder nothing has gone boom. But hey, orbital mechanics favor Southern Florida, so there the rockets launch.) While many will complain about the fast changes in weather, the climate is fairly benign. The good news is that most long-term residents find simple ways to deal with the rain: better clothes, a good hat (skip the umbrella), good shoes, and an accepting attitude. I’ve been asked why Seattle inspires so many entrepreneurs. I think it is because the area requires pragmatism and perseverance. Other regions do, too; but, they tend to have either brutal winters or brutal summers that interrupt projects. Here in the land of the blue tarps, we can more easily accommodate the conditions and continue.

Some of my most thoughtful posts pull in the least traffic. I’ve been writing long enough to know that the things I consider important, others consider inconsequential. If you’re a writer, don’t be surprised that your most impassioned thoughts are dismissed, while seemingly trivial comments strike deep and wide chords. If you’re a reader, don’t worry about what I consider important. You have your own priorities. Respect them, regardless of what I write.

My previous post was about Assets Chasing Assets, the global money merry-go-round played by wealthy institutions and individuals as they seek the best return on their investments. The merry-go-round is revealing itself to be a game of musical chairs as wealth tries to find safe havens. For a while, quantitative easing and the resurgent stock market provided profitable homes for wealth. Keep dancing. Waltz the money around regardless of the asset as long as it grows. Money makes money without regard for providing a service to anyone except the owner. That can work, for a while. But, like any place that is predominantly sunny, a bit of rain can cause flash floods, and the rain doesn’t always come in as a drizzle. Cloudbursts happen. Bloomberg echoed the worry about one of the last havens for wealth, bonds; which are now increasingly likely to pay negative interest rates. The music continues to play, but the players are noticing the song isn’t the same.

Another news piece went by today. I didn’t catch the link, but I remember the essence of the article. When in doubt, grow a garden. DSC_6474Money worries are solved by money, but if you can feed yourself then you are rich in the most vital product. If everyone is worried about money, then your goods and services are in demand. Gardeners and farmers are aware of the figurative economic rains and the literal meteorological rains. Water from the sky is an opportunity to grow plants. Mild economic shifts are opportunities to adjust and adapt.

I wouldn’t be surprised to find that the majority are either unaware or expect that any financial storm we encounter will be manageable with little upset to daily routines, personal finances, or plans. For everyone who survived the Second Great Depression (aka the Great Recession), can survival prove resiliency. The good news is that Americans are more likely to concentrate on getting out of debt rather than assuming raises in wages or house prices will fund living on credit. America’s middle and lower classes were definitely aware of that storm blowing through. Personal finances have improved, or at least spending habits have changed enough that shopping malls are having to redefine themselves. People got wet, some were even underwater (or at least their houses were). People have learned. Not everyone, but enough to give me hope that they’ll adjust to whatever may happen.

The people who experience the greatest change may be the least ready to cope. If they’ve always been protected from the elements, have always been able to adjust the environment or shift to a better position, then their reaction can be much more dramatic when the rains come in with wind and thunder. These are also the people who are practiced at exercising power because they have the necessary resources to engage lawyers, lobbyists, and publicists. When the elephants dance, or even stomp around, the rest of the critters scatter – at least for a while.

There are a couple of TED Talks describing system analyses of the global economy (James B. Glattfelder: Who controls the world? & Didier Sornette: How we can predict the next financial crisis). In both cases, they found the economy is unstable. The instabilities are expected to grow. The markets and the economy have always gone through swings; but now they may be getting larger. One of the analyses suggested that the next downturn would be worse than the Great Recession (all the more reason to start numbering it, as in the Second Great Depression.) If that was bad, this will be worse.

For people who adapted and adjusted based on their experiences of the last decade, any subsequent upset will likely be more manageable because they aren’t expecting eternally sunny skies. It may still be a massive storm, but they’re more likely to weather it. For people who thought they were insulated from any upset, some will be right, but many may be traumatically surprised. I suspect that any recovery will be partly defined by their reactions and the leverage they’re established.

Whether a financial storm hits or not, it is a good time to remember to; “Spend less than you make. Invest the rest.” And to remember that the best investment may be in yourself, your garden, your community. If we’re lucky, instead of a storm we’ll just have a long period of steady drizzle with a few sunbreaks – just like living in Western Washington.

(As for Western Washington’s weather, let’s also keep in mind that there are pockets that are temperate rainforests with over 120 inches of annual rainfall within a hundred miles of places with only 16 inches. Generalities matter, and so do details.)

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Assets Chasing Assets

The world of finance confuses many. The world of economics confuses many. A complete understanding of either is impossible because both are chaotic enough that at some point chance has an effect. To me, the essence of both are four familiar terms: assets, liabilities, income, and expense. Personally, I am very aware of my income and expenses, which is the nature of being an entrepreneur by necessity. Globally, I am watching assets, where they’re flowing, where they’re stuck, and what that’s possibly doing to the economy, my portfolio, and changes in society. These are interesting times.

Personal assets are usually easy to understand: maybe a house, a car, other possessions, some investments, and cash. The flow between them is simple enough. Cash is used for most of them, and debt (liabilities) is used for for a few of them. (Cheer the person who bought their house for cash.)

Assets for corporations, institutions, and the wealthy are harder to understand. The value of the assets is much greater. The leverage is therefore higher; and therefore the incentive to find the best distribution is also greater. Making an extra 0.2% on a personal savings account doesn’t greatly affect someone with a $1,000 account, but 0.2% of $1,000,000,000 is a useful number (especially if that’s the difference between your company paying or not paying you a salary.)

I’ve been listening to the consternations of the 0.1%. They are telling an interesting story.

At the most recent MicroVision stockholders(‘) meeting, the Chairman of the Board repeated something a message I’ve seen in other channels.

“The big money doesn’t know where to put its money.” (Paraphrased because no recording devices were allowed.)

The implications for small corporations like MicroVision is that potential investors are lacking confidence, and are less likely to invest. According to him, tech company IPOs have dropped dramatically. For months there have been reports of a private capital bubble. Small tech firms were receiving large valuations by institutional and accredited investors; just like before the Internet Bubble. This time, however, it didn’t make as much news because retail investors weren’t part of the party. Instead of making money through a public IPO, companies were waiting for private buyouts. The public stock market had gone private, at least to some extent.

Stocks are only one major asset class. Others are commodities, bonds, real estate, and precious metals. Each is having upsets.

Commodities were hit by two main influences. The oil price war dropped prices enough to destabilize governments and implode portfolios. The war was fueled by fracking, which encouraged some consumers to switch to renewable energy, which raised production volume, which when coupled with technological improvements dropped the price of renewable energy enough to encourage more consumers to switch. Now, solar is cheaper than fossil fuels in some places. As electric cars become more attractive, yet more demand drops. The demand drop happening during a supply glut means depressed prices (despite a rebound). Unstable countries have to sell even more to run their governments, further limiting the potential oil price recovery. The other main influence was China’s slowdown. As they reduced their demand for fossil fuels and other raw materials, the world’s mining and refining operations had to scale back, further reducing revenues. Oil and coal, and the other commodities look like risky investments.

Bonds and other lending options are in a weird position. While some destabilized countries are experiencing hyper-inflation (Venezuela is estimated to hit 720% this year), many of the more stable countries are worried about deflation. Too much money is being saved rather than spent. Without money flowing, businesses can’t grow, hire, or enable other businesses. One solution is to drop interest rates below zero. They try to scare the money out of its resting places in banks by paying back less than was deposited. As weird as that is, it hasn’t been enough to move the money. Another sign that financiers are afraid.

Real estate has been visibly weirder. Large parts of the US have barely recovered from the Great Recession (the Second Great Depression) of 2008. Eight years of patience has yet to bring many households back to positive equity. People feel trapped in their houses, neighborhoods, and jobs; and are unable to move to better situations. At the same time, many of the houses that were sold or foreclosed in distress were bought by firms that turned them into rentals. Rents are rising to the point that no state in the US has a median rent that can be met by a full-time minimum wage worker. At the same time yet again, some real estate markets are in hyper-acceleration. Prominent cities like London, New York, and San Francisco have housing markets defined by large cash purchases. If that was because of accelerating economies and the increased workforce that would be appropriate, but in many cases the money is coming in to buy houses and leave them empty. People are buying real estate because it is tangible, it is an easy way to park large sums of money, and things like renters are nuisances that can be ignored. The liquidity of the houses hasn’t been tested, yet. If there’s a crash, the prices may drop enough to let the original buyers back in; but in the meantime the local economies are struggling because the local employees can’t afford the neighborhoods and the neighborhoods have fewer neighbors to support the businesses. Businesses and employees can’t wait forever.

Precious metals have always been a hedge, a safe zone. Over the last few months, gold has begun to recover. It hit a peak in 2011, dropped as the stock markets recovered, and has begun climbing again as the markets have stalled. Even here, though, there has been a hesitancy because of exploitation of people in conflict zones. With everything else going on, that hesitancy may not be significant.

As if it wasn’t bad enough for the 0.1% (cue the very tiny violin), the Panama Papers proved that secrets about tax havens are only as secure as the emotions of the employees. One person proved that 2.6TB of data can walk out the door and into the world. A $300 drive can capture that and more, and fit in your pocket or purse. The Panama Papers have already affected governments and politicians, and that was a small leak that was mostly about people outside the US. A scandal for them, but less important to most Americans. The money hidden in havens managed in Delaware, Wyoming, and Nevada are equally vulnerable, and more likely to reveal Americans who are hiding money from America.

If you’re managing those kinds of finances, moving the money doesn’t look good, and neither does letting it sit somewhere. There are some radical notions, like acting like a business and accepting the risk of investing it, acting like a citizen of some country and paying the taxes, acting like the head of a corporation and properly paying the employees; but, none of those options are evidently attractive. All the more reason to buy another company, sports team, mega-yacht, or more influence.

One measure I’ve been tracking is Bitcoin (and other cryptocurrencies.) Within the last year, major financial institutions and some governments have been experimenting with Bitcoin, et al, and its Blockchain technology. There are some attractive aspects for their businesses; but the aspect I’ve been curious about is whether wealth will consider the privacy and increasing legitimacy of digital currency to be a new place to park wealth. Within the last month, Bitcoin has risen from ~$450 to ~$700. That’s an attractive return. Bitcoing has always been volatile, but it is also new. Growing up is a bumpy process. It may be attracting suitors who realize it isn’t just kid stuff.

Screenshot 2016-06-14 at 15.08.51

If none of the other assets change, and Bitcoin, et al, continues to rise, it may be a sign of desparation or legitimacy or both. In either case, that suggests a significant shift in the basic nature of investing and our economy.

In this election year, there’s increased political incentive for someone who opposes a candidate to reveal the reality behind some candidate’s wealth or lack of it. If that happens before November, the repercussions will affect US politics, the US economy, and the rest of the world. As if the world wasn’t uncertain enough, what would happen then? I don’t know (though I have a long list of guesses). I suspect there will be shift in my personal finances; but it will be far less dramatic that the shift some billionaires, corporations, and governments will have to negotiate. Interesting times, in deed.

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