Blue-Light Specials

As many readers will understand, the cost of living well has - for the past six years - far outstripped the cost of simply living, certainly that as measured by the Hedonized, Boskinized CPI, but even that of the more real Carter or Shadow CPI. Be it a case of Veueve NV, or first growth Bordeaux, a day on a 100' sailboat or a night at the Ritz, an ounce Gold, or an ounce of caviar, a year's rent in a Park Ave apartment, or a year at a fancy private boarding school - be US or UK domiciled, a pair of nice Italian shoes, a pair of Italian supercars, or a pair of surgically-enhanced ummm...errr... However calculated the cost of living "well" has been skyrocketing.

Finally, however, The Rich or merely well-heeled are getting some respite. Asset prices (excepting precious metals, oil, and certain softs), are being hit harder and harder, as credit in all forms becomes more parsimoniously available as a result of tightening standards, more rational pricing, and restraints upon quantities on offer. American and British (oh and Australian) shopping centers are 40 to 50%-off! BBB reinsurance preferred shares are 30%-off offering yields 200bps better than a few months before. Industrial equities are off perhaps 20%, USA retail and restaurants have been marked down 50%, (all in nominal terms) and if you want to buy a portfolio of unsold suburban homes/condos in the hope of becoming a genteel landlord, just spin the wheel and make a bid.

Japanese asset prices, too, are on-sale. TOPIX is more than 20% off recent highs Japanese REITS have been cut in half, has my favorite little Osaka commercial landlord, Keihanshin (#8818) also more than 50% off from its highs where I sold it mid-year 2007, (though also 20% below where I bought it back in Q4!), now at an undemanding 0.5x book and a mere 10x next year's earnings. Relative values too are wackily disperse, depending upon the bias of recent revision changes. For example, undiscriminating specs and less-than-salubrious MFs have, in 2007, ramped the shares of MEMC (WFR US Equity) to more than 10x book and more than 20x forward earnings, whilst poor old SUMCO Tech IX (5977) fabricating similar silicon wafers can be had for a mere 1x revs and 8x forward earnings, leaving it rated on a paltry 3x ev/ebitda. Dispersion indeed, precisely the kind that has haunted quant and value managers through the 2H of 2007!! Moreover, small caps the world over are getting crushed, on the vanguard of discounting in time-honoured fashion the hard-times-a-head. While this undoubtedly provides the un- and underinvested with an opportunity to buy some of investment asset things cheaper than before, remaining bulls on both equities and the economy should stop and take note of some these goings-on for they be tell-tales, whatever the likely bear-bounce we'll see from present over-sold values.

For the problem - even for the rich - is that they (and the system in general) is already invested, if not over-invested, and already (if hedge-fund participation is any guide, leveraged, whether directly or indirectly. A simple gander at outstanding USA debt-to-GDP puts the present into an historical context, "dark matter" notwithstanding. Yes, the assets have already been bought, they are already long multiple residences, (or timeshares for the life-style aspiring), boats, planes, art, and collectible cars. And this IS the crux of problem: the price of almost everything is correlated to credit and leverage, which many increasingly believe is unwinding. This begs the question, who has dry powder and who, in an increasingly momo-world, if any, will buy today when tomorrow is likely to offer an even better price??!?