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2010 Year in Review

2010 Year in Review:
Fugly Gives Way to Muddling

David B. Collum
Professor of Chemistry and Chemical Biology
Cornell University
dbc6@cornell.edu

Background

Every December I write a Year in Review. Last year’s was entitled, 30 Years of Investing from the Cheap Seats [1] and posted at Jesse’s Cafe Americain. It provided personal context not to be repeated here, looked back over 30 turbulent years of investing, and attempted to look forward. To my surprise, emails poured in from money managers and investors, including some that would legitimately be called Masters of the Universe. This year’s is similar with redundancy avoided where possible. It opens with a highly personalized survey of my own efforts to get through another turbulent year en route to a stable retirement. This is followed by a brief update of what is now a 31-year quest for a soft landing. I conclude with a snapshot of thoughts and ideas that are currently on my radar. The view is somber, bordering on pessimistic. The commentary is largely stream-of-consciousness from memory with minimal references or documentation. The PDF format eliminates hotlinks; references cited in brackets will afford access to the most determined reader(s). Although attempting to imitate Will Rogers and Mark Twain it is probably more Andy Kaufman and Sam Kinison.

This year’s survey describes a transition from fugly, which certainly describes 2008, to what John Mauldin (and now everybody else on the planet) calls a muddle. We muddled through the inflationary 70s, the deflationary 30s, several world wars, a civil war, and a revolutionary war. Shards of the Roman Empire muddled deep into the Middle Ages despite some intense M&A activity beginning in the 5th century. And, of course, Europe muddled through the Middle Ages. We will certainly muddle through this mess too.

There are a lot of questions requiring answers up front. Why do I summarize the year? Why should you read a blog from a rank amateur with a ‘tude? Why should any of us pay attention to all this financial baloney when there are professionals to do this for us? I summarize each year quite simply because my views are extreme. My investments have rarely been diversified. I simply don’t buy the model that you should own pieces of garbage simply to check all the boxes. I also became a devout follower of Austrian economics starting in the late 90s, which, at the time, was on a par with joining NAMBLA. I must ensure that being a wingnut is not undermining my financial stability. As to why you might wish to keep reading I have several arguments. Whatever it is I am doing has worked remarkably well. In 31 years I had only one year in which my total wealth decreased in nominal dollars. (Peek ahead to Figure 3 if you wish.) In addition, any economist will tell you that when the free market fails a black market emerges. The blogs are the black market of information. Noted economist Russ Roberts once asserted that reading five blogs is probably better than going to an economics lecture. The blogs, in conjunction with a serious filter, protect you from those who traffic in financial products and misinformation. I ride the blogs pretty hard and am pretty good at distilling complexity down to the extracts of beets and carrots. I should add that the best—the guy saw this whole mess coming from years ago and wrote about the coming problems in all their splendor—is Doug Noland of the Prudent Bear Fund. Doug, you are a genius and my hero.

(continued in downloadable Word attachment (with hyperlinks) or PDF attachment (without hyperlinks)

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