Friday, November 27, 2009

THE VALUE OF A PERSONAL ECONOMIC VIEWPOINT – PART TWO

We described the reasoning behind our current assessment of the US economy being in a fierce local deflation with simultaneous international inflation and a devaluating US dollar in our previous part one blog. We are using this personal view of the economy to develop our plan so we (hopefully) can flourish in this rapidly evolving global economy. We believe every family’s situation is different, and though our approach might work for us, it may be useless to others. We share it with the hope that it helps others to think about different views of the future to see their potential opportunities for income and happiness.

Investments

When we were employed in Silicon Valley, we created a “personal mutual fund” of stocks.
We have been monitoring our stocks and some, like natural gas, have done very well while others have lost a lot of value. Our plan is to hold on to stocks in U.S. companies that are producing internationally exportable raw materials as we believe they will have expanding markets and profitability. We are reducing our holdings in stocks with less exportable products such as domestic natural gas producers because it is difficult to make it exportable (converting it to LPG) and we expect depressed prices for piped natural gas in the US for many years. We expect stocks in US retail markets to continue to decline and will exit them if there is a market rally. We only hold stocks from US stock markets due to our belief that the oversight of financial reporting in the US, though often disappointing, is still higher than stocks in international markets and investment information about US companies is more reliable than other county’s at this point.

We mentioned in a previous blog
that our real estate holdings in Hawaii have been severely deflated, off over 50% and still dropping, but we will hold on to them even though we expect local deflation to continue to lower their value for the next year or more. We believe real estate in Hawaii will ultimately rise spectacularly in price as the deflating dollar makes Hawaii real estate cheap for affluent Asians and Europeans. We sold our house in California and are enjoying the freedom of mobility that renting gives us, however, if the prices for Hawaii real estate continue to plunge, it will at some point be smarter for us to buy a house or condo than to continue as renters. We are closely tracking the price of foreclosures in Hawaii County and watching in awe as the prices drop, particularly on the west side of the island.

Cost of Living

We are constantly looking for ways to cut back our expenses and preserve as much of our savings as possible. Prices of imported food, gas and materials are rising which drives us to find local replacements or live without where possible. We have dramatically changed our lifestyle from our corporate days in Silicon Valley to our laid back lifestyle in Hawaii. We eat less, exercise more, sleep more, and use less energy. We are monitoring the cost of living in every part of Hawaii County and noticed that west side prices are more deflated, particularly for rent, compared to the east side, perhaps due to the huge decrease in tourism on the west side and the growth of University enrollment on the east side. We expect deflation for local products, such as rent, services, and locally grown food, to continue as the State and County furloughs and layoffs continue to lower income in the east side economy. As we study the rents on the west side, we are considering a move to reduce our monthly expenses, though we are concerned about the intense VOG (volcanic emissions) on the west side.

Income and Employment

We have been jobless for over two years now and getting another job seems unlikely as the local and national economy continues to shed jobs. Where in the 1990’s and roaring 2000’s earning an income seemed effortless, now it seems impossible. The fact that major companies such as Sony, GM, and Citibank are struggling to make an income with their huge market share and experience, makes us feel a little better about not having a job right now.

We are viewing our future income producing activities as needing to be self created rather than dependent on a job. We are focused on developing a product or service that we enjoy and will make a valuable difference to others. We are assuming that social security and Medicare won’t be there for us by the time we would qualify in a decade and a half, so our income producing plan has to be something we can do for a very long time. We are thankful that our savings and downsizing efforts are allowing us this precious time to enjoy Hawaii and gain new skills in this rapidly evolving global economy. Though it takes time, we will constantly reassess our plan as the local and global situation changes.

We are eager to hear from others about their approach in this current economic situation and how they plan to flourish in these current times.

3 comments:

Panjandrum said...

We moved from Manhattan to Oahu two months ago and love it. We are very lucky to live here: my wife found a job in health care, and I have been able to make money in the stock market. The time difference means I get up at ungodly hours to check on the markets, but since that's often when the baby wakes up too, and since I am naturally insomniac, I don't mind. Things are much more efficient here than in Manhattan: a five-minute phone call to set up utilities would have been hours of frustration in New York. I find people can be friendly everywhere; they are less intense here, which can be both good and bad. Like you, I am interested in organic farming. I love the Kailua farmers' markets, and I want to start growing my own tomatoes, plant an avocado tree, etc. Thanks for your posts, they are always interesting.

Anonymous said...

Interesting reading. I live in the San Francisco area, and have visited the various islands in Hawaii many times.
One thing you overlook, is the fact Hawaii is totally dependant on the outside world for nearly everything. Energy is imported in the form of coal and oil. Electricity is substantially more expensive.Most food is imported from the mainland or South America. In the event of severe economic problems, or civil unrest on the mainland, the two places you do NOT want to be are Alaska or Hawaii. Neither state is self sufficient, and minor disruptions (such as no food or energy shipments for 2 weeks, would result in total chaos and civil unrest.
For most people, Hawaii is poverty, with a view.

Steve said...

Just ran across your post. My family of 37-34-10-8 are visiting Oahu and Big Island in late February. I studied economics in college and have continued since. I couldn't match it with what was happening in reality until I started reading Austrian economics...especially at mises.org. I have a very clear idea of what is happening and why now and feel much better prepared to make plans.