OT: update on my life

I apologize for not keeping the Doppler Value Investing blog up-to-date.  I have been busy with a number of matters in the past several months.

Last fall, I started a new job and moved to central Minnesota about 60 miles west of Minneapolis.  Hopefully, no more disasters will follow me here, such as the Cedar Rapids flood of last year, the Beltway Sniper spree of October 2002 (when I lived in northern Virginia), or the September 11th attacks (also when I lived in northern Virginia).  The current flooding along the Red River along the Minnesota/North Dakota border is a reminder of what I witnessed in Cedar Rapids, Iowa last year.  I feel like the character Sidney Prescott from the Scream trilogy.  At least I wasn’t directly affected by these disasters, but it is freaky.  Also, I’m not the same gender or as good-looking as Sidney Prescott (or Neve Campbell).

Since moving to Minnesota, I now understand the meaning of the word “cold”.  This has been the coldest winter I ever experienced in my life.  I grew up in the Chicago area, and even the legendary bitterly cold winters of the late 1970s and early 1980s weren’t this cold.  Here in central Minnesota, subzero morning temperatures in winter are common.  We even had multiple mornings with temperatures colder than -20 degrees and a mid-March morning with a temperature colder than -10 degrees.   A large number of people around here own snowmobiles, compared to just a small percentage in the Chicago area and Cedar Rapids.  Many people go ice-fishing around here, whereas nobody does that in the Chicago area or Cedar Rapids.  I learned that people use fish houses for ice fishing.  All those silly cartoons I watched as a child led me to picture ice fishing as cutting a hole in the ice and then spending the day sitting in a chair and shivering while waiting for a bite.  In reality, people sit in the comfort of an insulated and heated fish house while waiting for the fish to bite.

I have been meaning to buy stocks for both my real portfolio and model portfolio.  However, I haven’t gotten around to this.  Given the performance of the stock market since I started this blog back in May 2008, you and I should be thankful for my procrastination.

I intend to buy undervalued stocks in the weeks and months ahead.  I have NO IDEA how much lower the stock markets will drop or the timing of the market bottom.  However, bargains are much more common now than was the case when I first started this blog.  I will share some of my research here on this blog.  I will NOT wait for the market bottom to buy stocks, because I have NO IDEA when that will be.  Cash continues to be an unattractive asset class due to submicroscopic yields on Treasury Bills and the growing risk of higher inflation in the future.

I believe the risk of hyperinflation has increased since I first started this blog.  Trillions of dollars have been appropriated for bailouts, and the Fed has become more and more willing to buy various debt instruments, including Treasury Bonds.  When the central bank buys debt instruments from its own government, this is called monetizing the debt.  The US government doesn’t actually have trillions of dollars in cash lying around, so it has to borrow money buy selling Treasury Bills, Notes, and Bonds.  The Fed has announced that it is more than willing to buy these Treasuries.  So the Fed ends up printing money to bail out the greedy and careless bankers.  Printing those extra US dollars dilutes the value of each individual unit.  Buying those Treasuries means that prices are pushed up, and the yields to maturity are pushed down.  The resulting low interest rates fail to keep up with the latent inflation, which only increases the inflationary pressures further.

Although deflation seems to dominate at the moment, I believe that it will eventually give way to high inflation.  I have NO IDEA when the transition will happen.  However, I am certain that many people will become poorer in the deflation, the inflation, or both.  I am also certain that virtually nobody will time the transition accurately.  Trying to conserve capital during both the current deflation and the later inflation will be tricky.  Treasury Bonds do well in deflation but are a death trap in hyperinflation.  Commodities and metals will do well in the hyperinflation but may fare very poorly in deflation.  There really is no such thing as a safe investment anymore.

I’m OK and out of harm’s way

As you know, Cedar Rapids has been in the news, and this news has nothing to do with the Iowa caucuses, Ashton Kutcher, or Elijah Wood. Yes, the Cedar Rapids, Iowa flooding shatters all previous records. This is a disaster movie without the movie. Fortunately, I live on high ground and well out of harm’s way. Despite the indirect effects of the flooding, I am among the lucky ones.

I have never, ever in my life witnessed such widespread flooding or destruction. I grew up in Chicago’s southwest suburban Palos Hills. We never had flooding in our house, because we lived on high ground. There were several times that flooding struck parts of the Chicagoland area, but the flooding and its effects was very localized.

Cedar Rapids is not a small town – it has a population of around 120 thousand people, roughly on the order of Champaign-Urbana, Illinois (where I attended undergraduate school at University of Illinois). Most of downtown Cedar Rapids was flooded at the crest. All the neighborhoods bordering the Cedar River were flooded. Many smaller towns around Iowa are completely flooded. Although the water level is finally retreating, it will be many days before it returns below flood stage, and no property can be cleaned up until the floodwater has completely departed. At least 20 thousand people (or 1/6th of the Cedar Rapids population) have been evacuated from their homes.

Even those of us lucky enough to be out of harm’s way have still face hardships. All but one municipal water well is out of service, and that one working well is only at partial capacity. For the last few days and until just a few hours ago, we were ordered to use tap water for drinking only. We were told to avoid showers and even avoid flushing the toilet. Avoiding a shower isn’t that bad given that the weather is mild, so I’m glad this flooding hasn’t been accompanied by 90-degree heat. However, having to avoid flushing the toilet stinks – literally. I was about to buy a big bag of kitty litter (despite the fact that I am not owned by a cat) when I finally heard that more water capacity has been restored. We’re still far from full water capacity, but at least we can flush the toilets.

Driving around the STATE of Iowa is a challenge. The floodplains are SO big and the flooding so widespread that parts of even the Interstates are closed due to flooding. Here in Cedar Rapids, Interstate 380 is the only route over the Cedar River, because all of the other bridges (which are lower) are flooded. Nearly ever road crossing the Cedar River or Iowa River is flooded or even washed away. Even Interstate 80 has been engulfed by the Cedar River, and even Interstate 380 has been engulfed by the Iowa River. Anyone trying to cross Iowa from east to west on Interstate 80 has to take a long detour – north on US 61 to Dubuque, west on US 20 to Interstate 35, and south on Interstate 35 to Des Moines to return to Interstate 80. a trip from Cedar Rapids to Iowa City by car is 280 miles instead of the usual 20.

This disaster reminds me of the September 11th attacks, the Indian Ocean tsunami, and New Orleans after Hurricane Katrina. Believe it or not, I lived in northern Virginia during the September 11th attacks, the anthrax attacks, the serial sniper spree, and the Hurricane Isabel remnants. These other disasters I witnessed were also tragic in their own ways, but NONE of them destroyed such a large part of the infrastructure over such a wide area as the Iowa flood of 2008.

My advice on how to avoid flooding:
1. Live on high ground. I have always been afraid of floods, and I have always sought out high ground when looking for a place to live. You don’t need to be an expert on drainage systems or hydrology. You don’t need any special tools. Make sure you aren’t next to a creek or stream, and make sure you are at a land elevation substantially higher than all of the local creeks and streams and a fair distance away from them (particularly if the land is flat, as this means a slight rise in the water level goes a long way). Make sure that your home isn’t at a lower elevation than the surrounding land. Be sure that there are visible places for excessive water to drain to besides your home.
2. PLEASE do not live in a location that relies on a levee, dike, or dam for protection. These structures fail precisely when they are needed the most. Yes, I am aware that the Dutch would take offense at my statement, but the rest of the world does not have Dutch levels of expertise, maintenance, and construction quality.

I hope that when the rebuilding takes place here in Iowa, the role of wetlands will be taken more seriously here and across the entire world. Yes, the weather has been unusually wet since last winter. However, the destruction of wetlands over the decades exacerbates flooding, because nothing else absorbs excess water more effectively. If the land changes, then the old definitons of the 100-year floodplain and 500-year floodplain are no longer valid. What had been the 100-year floodplain might become the 10-year floodplain. To bring this post on-topic, if James “Mad Money” Cramer were put in charge of Berkshire Hathaway, it would cease to be a conservative stalwart blue chip, no matter how much CNBC touted Berkshire Hathaway’s past performance record.

I’ve also been shocked by the number of Iowa towns that are protected by levees. It’s one thing for one small and insignificant part of a river to be affected by levees. However, when there are levees along a large part of a river and not enough wetlands to absorb excess water, the swollen river has no place to go other than over its banks. I hope that the rebuilding takes place on higher ground that doesn’t rely on a levee for protection.

A few more thoughts:
1. If you are ever impacted by a disaster, PLEASE be on the lookout for scam artists. I’m hearing that the scammers are already out looking for desperate people to fleece.
2. I am amazed by the outpouring of support. When a need for sandbaggers is announced on TV, crowds of volunteers show up at that location in a matter of minutes. Many amateur radio operators are helping to provide communications at shelters and the local hospital. As an amateur radio operator myself, I will be helping at St. Luke’s tomorrow morning.