|
Nothing
is cheap in today’s investment world. Because of the trillions of
currency units that governments all over the world have created – and
are continuing to create – financial assets are grossly overpriced.
Stocks, bonds, property, commodities and cash are no bargains. Meanwhile,
real wages are slipping rapidly among those who are working, and a large
portion of the population is unemployed or underemployed.
The
next chapter in this sad drama will include a rapid rise in consumer prices.
At the beginning of this year, we saw the grains – wheat, corn,
soybeans and oats – go up an average of 36% within one month. In the
same time frame, hogs were up 30.7%. Copper was up 29.1%. Oil was up 14%.
Cotton was up 118%. Raw commodities are the first things to move in an
inflationary boom, largely because they’re essential to everything.
Retail prices are generally the last to move, partly because the labor market
will remain soft and keep that component down, and partly because retailers
cut their margins to retain customers and market share.
We
are in a financial no-man’s land. What you should do about it presents
some tough alternatives. “Saving” is compromised because of
depreciating currency and artificially low interest rates.
“Investing” is problematical because of a deteriorating economy,
unpredictable and increasing regulation, rising interest rates and wildly
fluctuating prices. “Speculation” is the best answer. But it may
not suit everyone as a methodology.
There
are, however, several other alternatives to dealing with the question
“What should I do with my money now?” – active
business, entrepreneurialism, innovation, “hoarding” and
agriculture. There’s obviously some degree of overlap with these
things, but they are essentially different in nature.
Active Business
Few
large fortunes have been made by investing. Most are made by creating,
building and running a business. But the same things that make investing hard
today are going to make active business even harder. Sure, there will be
plenty of people out there to hire – but in today’s litigious and
regulated environment, an employee is a large potential liability as much as
a current asset.
Business
itself is seen as a convenient milk cow by bankrupt governments – and
it’s much easier to tap small business than taxpayers at large. Big
business (which I’ll arbitrarily define as companies with at least
several thousand employees) actually encourages regulation and taxes, because their main competition is from small
business – you – and they’re much more able to absorb the
cost of new regulation and can hire lobbyists to influence its direction.
Only a business that’s “too big to fail” can count on
government help.
It’s
clearly a double-edged sword, but running an active business is increasingly
problematical. Unless it’s a special situation, I’d be inclined
to sell a business, take the money, and run. It’s Atlas Shrugged time.
Entrepreneurialism
An
entrepreneur is “one who takes between,” to go back to the French
roots of the word. Buy here for a dollar, sell there
for two dollars – a good business if you can do it with a million
widgets, hopefully all at once and on credit. An entrepreneur ideally needs
few employees and little fixed overhead. Just as a speculator capitalizes on
distortions in the financial markets, an entrepreneur does so in the business
world. The more distortions there are in the market, the more bankruptcies
and distress sales, the more variation in prosperity and attitudes between
countries, the more opportunities there are for the entrepreneur. The years
to come are going to be tough on investors and businessmen, but full of
opportunity for speculators and entrepreneurs. Keep your passports current,
your powder dry, and your eyes open. I suggest you reform your thinking along
those lines.
Innovation
The
two mainsprings of human progress are saving (producing more than you consume
and setting aside the difference) and new technology (improved ways of doing
things). Innovation takes a certain kind of mind and a certain skill set. Not
everyone can be an Edison, a Watt, a Wright or a Ford. But with more
scientists and engineers alive today than have lived in all previous history
put together, you can plan on lots more in the way of innovation. What you
want to do is put yourself in front of innovation; even if you aren’t
the innovator, you can be a facilitator – something like Steve Ballmer
is to Bill Gates. It will give you an excuse to hang out with the younger
generation and play amateur venture capitalist.
This
argues for two things. One, reading very broadly (but especially in science),
so that you can more easily make the correct decision as to which innovations
will be profitable. Two, building enough capital to liberate your time to try
something new and perhaps put money into start-ups. This thinking partly lay
in back of our starting our Casey’s
Extraordinary Technology service.
Hoarding
In
the days when gold and silver were money,
“saving” was actually identical with “hoarding.” The
only difference was the connotation of the words. Today you can’t even
hoard nickel and copper coins anymore because (unbeknownst to Boobus
americanus)
there’s very little of those metals left in either nickels or pennies
– both of which will soon disappear from circulation anyway.
We’ve
previously dismissed the foolish and anachronistic idea of saving with
dollars in a bank – so what can you save with, other than metals? The
answer is “useful things,” mainly household commodities.
I’m not sure exactly how bad the Greater Depression will be or how long
it will last, but it makes all the sense in the world to stockpile usable
things, in lieu of monetary savings.
The
things I’m talking about could be generally described as
“consumer perishables.” Instead of putting $10,000 extra in the
bank, go out and buy things like motor oil, ammunition, light bulbs, toilet
paper, cigarettes, liquor, soap, sugar and dried beans. There are many
advantages to this.
Taxes– As these things go up in price and you consume
them, you won’t have any resulting taxes, as you would for a successful
investment. And you’ll beat the VAT, which we’ll surely see.
Volume Savings –When you buy a whole bunch at once, especially when Walmart or Costco has them on sale, you’ll greatly
reduce your cost.
Convenience –You’ll have them all now and won’t have to
waste time getting them later. Especially if they’re no longer readily
available.
There
are hundreds of items to put on the list and much more to be said about the
whole approach. The idea is basically that of my old friend John Pugsley, which he explained fully in his book The Alpha Strategy. Take
this point very seriously. It’s something absolutely everybody can and
should do.
Agriculture
During
the last generation, mothers wanted their kids to grow up and be investment
bankers. That thought will be totally banished soon, and for a long time. I
suspect farmers and ranchers will become the next paradigm of success, after
being viewed as backward hayseeds for generations.
Agriculture
isn’t an easy business, and it has plenty of risks. But there’s
always going to be a demand for its products, and I suspect the margins are
going to stay high for a long time to come. Why? There’s still plenty
of potential farmland around the world that’s wild or fallow, but
politics is likely to keep it that way. Population won’t be growing
that much (and will be falling in the developed world), but people will be
wealthier and want to eat better. So you want the kind of food that people
with some money eat.
I’m
not crazy about commodity-type foods, like wheat, soy and corn; these are
high-volume, industrial-style foods, subject to political interference. And
they’re not important as foods for wealthy people, which is the
profitable part of the market. Besides, grains are where everybody’s
attention is directed.
But
there are other reasons I’m not wild about owning any amber waves of
grain. Anything you want to plant will practically require the use of a
genetically modified (GM) seed from Monsanto. I’m not sure I really
care if it’s GM; all foods have been genetically modified over the
millennia just by virtue of cultivation. And $1 paid to Monsanto typically
not only yields the farmer $5 of extra return, but produces lots of extra
food – which helps everybody. But I wouldn’t be surprised if
someday the giant monocultures of plants, all with totally identical
purchased seeds, don’t result in some kind of catastrophic crop
failure. This is a subject for another time, but it’s a thought to keep
in mind.
In
any event, agricultural land is no longer cheap. But I don’t suggest
you look at thousands of acres to plant grain. Niche markets with niche
products are the way to fly.
I
suggest up-market specialty products – exotic fruits and vegetables,
fish, dairy and beef. The problem is that in “advanced” countries
– prominently including the U.S. – national, state and local
governments make the small commercial producers’ lives absolutely
miserable. Maybe you can grow stuff, but it’s extremely costly in terms
of paperwork and legal fees to sell, especially if the product is animal
based – meat, milk, cheese and such. Niche foods are, however,
potentially a very good business. Eternal optimist that I am, I see one of
the many benefits of the impending bankruptcy of most governments as again
making it feasible to grow and sell food locally.
Above
all, though, this isn’t the time for business as usual. You’ll
notice that “Working in a conventional job” didn’t occur on
the list above. And I pity the poor fools working for some corporation,
hoping things get better.
[Get
more valuable advice on how to survive in a crisis in The Casey Report
– a monthly newsletter brimming with top-notch analysis of U.S. and
world events, economic research, trend forecasts and investment advice for
the big-picture investor. Details
in this free report.]
Adrian Ash
Head of
Research
Bullionvault.com
You can also Receive your first gram of Gold free by opening an
account with Bullion Vault : Click here.
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment gold,
vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
|
