June 18th, 2008

Deleveraging = Selling Boardwalk and Park Place?

Remember playing Monopoly as a kid? Many of today’s traders and investors got their first exposure to business, economics, trading and, yes, real estate from that wonderful Depression Era board game. Much of what I hear and read today reminds me of the days when I had some unlucky throws of the dice, landed on somebody else’s fully developed properties, having to pay high rents, running out of money and needing to either buy or improve my properties … just like today’s banks, hedge funds and corporations “deleveraging” (finding new capital, selling off investments, deleveraging, reducing risk).

Do you remember anyone who was able to come back and win a game of Monopoly after having to mortgage or sell off their properties? I never did. There’s little anyone can do once you start depleting your income producing assets (probably the highest valued properties first, likr Boardwalk and Park Place) in order to generate sufficient cash to pay rent to other players.

You can’t survive long doing that in Monopoly and the U.S. can’t survive doing that very same thing in the real world today. In order to heat and light our homes, fuel our cars and planes, energize whatever manufacturing plants we still have in this country and, finally, run our tractors and fertilize our farmland, we’re selling off our income producing assets. Perhaps not whole businesses or infrastructure (like the failed Dubai Ports transaction) but often significant ownership shares at distressed values (like major stakes in Citigroup, Merrill Lynch, Chrysler Building).

Other than “accidentally” flipping the board over when it was clear we were going to lose, what can we do today to save our country, economy and, in turn, the stock market. The clearest answer is to wipe the slate clean, start a new game with a different strategy, under different rules. What’s required is an apolitical objective view and commitment (as traders, we eternally remain optimistic, even when it comes to politics). I’m in the camp that believes 9/11 did change everything, a wake up call that I’m not sure either party or candidate has yet addressed with a sense of urgency and creativity.

Our National priorities are defined by our founding fathers and the Constitution they crafted. They include: national defense, international relations and trade, trade among the states and the protection of our individual liberties. Anything else is a distraction and diversion.

If you watched any of the primary debates for more than 15 minutes you would have seen what all these distractions and diversions are since that’s what most of the questions and debates focused on. I blame our media and press to a large extent because instead of raising the level of economic and political discourse, they usually take it down to the lowest common denominator. Rather than educating and raising our citizens, along with the politicians they pander to splinter interests.

Please excuse this diversion from the usual discussion about things of interest to investors. But this game of Monopoly is nearing its end since most of the money on the board has gone to those who’s ownership is nearing a monopoly (the oil producers). I have to rant. I’m ready to forfeit the old game so I can start a new one. I understand the rules, know the questions, listen to the discussion and hope to hear some new answers. Anyone else ready to start over again?

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