My 1st Million At 33

Money or rather credit will be increasingly unavailable to many. This is the sign of the time going forward, probably at least for another 3 years.

Look at the headlines:
Linens’n Things files for bankruptcy.
Aloha airlines files for bankruptcy.
Frontier Airlines files for bankrupty protection.
Borders Bookstore may put itself up for salfe after running short on cash.
US credit crunch rocks student loan business: 46 lenders stop making federally guaranteed loans
Auction-rate market for US municipal bonds srinks with failure rate at 71%.

In the US, due to past credit market expansion, we just had too many retail space per capita of population. Those who invest in retail space or commercial real estate will experience pain going forward. Likewise, those business who rely on city budgets for continuing spending freely on constructions and services will see their business shrinks or evaporates. And college students who plan on taking on loans may see their college years stop in the mid-way. Students may be forced to drop-out while college budgets will shrink.

Don’t think everything is going to be fine again really soon. The peak of credit bubble is behind us, NOT ahead of us. This is extremely significant as a turning point of the society (except many will realize long after the party is over). Contraction of credits (the great unwinding) is going to make those businesses and ventures (including going to college) which are leveraged to fail. Only the people with CASH & true cash equivalent will stand in the remaining. If you are the one with cash, you must make sure that your cash doesn’t disappear into nothing in a bankruptcy by banks or businesses. Stock markets are likely to roll over later this or next year too.

What’s the upside from the credit contraction, if there is any? Actually, there is. Things (but not everything) that used to cost a lot and requires financing will actually go down in price on an inflation-adjusted basis. This includes real estate, college education. Things that requires many consumers to keep the scale of economy may actually go up in price (inflation-adjusted) such as cars. And from a consumer society, we may be moving back to a society that saves.

Jim Roger moved to Singapore. What kind of things compel a manager to do such? There must be very good reasons according to him. Certainly, credit will be more available to more credit-worthy people in Asia, rather than the investment bankers who lied on Wallstreet and all the house-flippers on the mainstreet.