Friday, November 20, 2009

Meridian Commentary: Monopoly Money

Monopoly, the still popular empire building game was introduced to America during the Great Depression, 1935 - it was an instant hit. Monopoly is my favorite board game, I'd rather play it than poker or video games (though fewer share my passion and thus I rarely get to play - though I can now play it on my iPhone.....not the same). Why bring this up today? I bring it up because the U.S. is beginning to look and sound like a Monopoly board. Not in the since that we are a nation of monopolies - though replacing Boardwalk and Park Place with the Federal Reserve and Wall Street Banks might feel appropriate, but because two of the more popular "properties" the utilities and the railroads are suddenly popular again. I always go for the railroads...consistent income and each additional one you own multiplies the rents.

Warren Buffett just spent a fortune buying....a railroad. In the age of technology and nearly 75 years after railroads appeared on the monopoly game board.....we're still buying them. Then famed Bond Guru Bill Gross yesterday comes out with the notion that one should be buying Utilities. Two investment legends buying old school railroads and utilities during a time that can only be marked by the term Depression. Now, I can't exactly relate the rest of the board game to today's realities - Real Estate is in terrible shape and building homes and hotels seems like a loser's game. What today really feels like in terms of Monopoly is the "hunker down" method of playing - you know, when you are nearly out of cash, but have lots of property (but all different colors and they are all overleveraged) and you realize that one false step (bad roll of the dice) will force you into bankruptcy? Your only play is hope that your roll of the dice gets you to a safe no or low-rent property or jail, God forbid you roll doubles. The hunker down mentality is also that of the Federal Reserve and its member banks (which is ironic considering they can print money and essentially they are the banker). They are just hoping to pass GO enough times to build up their balance sheet (the banks balance sheets) and cash for when the next roll of the dice yields a free pass to Boardwalk...which they just lost to a hedge fund that has now fully leveraged it and is charging outrageous close to passing Go, unfortunately it becomes the last roll as Boardwalk bankrupts - not even China (another player at the table) can bail them out (of course they try).

When will the US hit its Boardwalk moment? Can we Pass Go enough times to rebuild our balance sheets? Should we be buying railroads and utilities? Not since the debut of Monopoly have so many people hoped for a "Chance" card that will either given them the jackpot or send them to jail (where they are relieved of rolling for a bit).

My point...I really just thought it was interesting that two famed investors were buying railroads and utilities, but the more I think about it the more I hope we can get out of this Monopoly game (ironic that the dollar is now being talked about as "monopoly money") and play a game that is based in reality, perhaps the game of Life!

Scott Dauenhauer CFP, MSFP, AIF