Skip to comments.Keeping Capital In A Depression
Posted on 05/13/2011 7:46:55 PM PDT by blam
Keeping Capital In A Depression
By Doug Casey
May 13. 2011
05/13/11 Nothing is cheap in todays 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 theyre 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-mans 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. Theres obviously some degree of overlap with these things, but they are essentially different in nature.
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 todays 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 its much easier to tap small business than taxpayers at large. Big business (which Ill 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 theyre much more able to absorb the cost of new regulation and can hire lobbyists to influence its direction. Only a business thats too big to fail can count on government help.
Its clearly a double-edged sword, but running an active business is increasingly problematical. Unless its a special situation, Id be inclined to sell a business, take the money, and run. Its Atlas Shrugged time.
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.
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 arent 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.
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 cant even hoard nickel and copper coins anymore because (unbeknownst to Boobus americanus) theres very little of those metals left in either nickels or pennies both of which will soon disappear from circulation anyway.
Weve 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. Im 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 Im 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 wont have any resulting taxes, as you would for a successful investment. And youll beat the VAT, which well surely see.
Volume Savings When you buy a whole bunch at once, especially when Wal-Mart or Costco has them on sale, youll greatly reduce your cost.
Convenience Youll have them all now and wont have to waste time getting them later. Especially if theyre no longer readily available.
There are hundreds of items to put on the list and much more to be said about the whole approach. This is something absolutely everybody can and should do.
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 isnt an easy business, and it has plenty of risks. But theres 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? Theres still plenty of potential farmland around the world thats wild or fallow, but politics is likely to keep it that way. Population wont 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.
Im not crazy about commodity-type foods, like wheat, soy and corn; these are high-volume, industrial-style foods, subject to political interference. And theyre not important as foods for wealthy people, which is the profitable part of the market. Besides, grains are where everybodys attention is directed.
But there are other reasons Im 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. Im not sure I really care if its 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 wouldnt be surprised if someday the giant monocultures of plants, all with totally identical purchased seeds, dont result in some kind of catastrophic crop failure. This is a subject for another time, but its a thought to keep in mind.
In any event, agricultural land is no longer cheap. But I dont 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 US national, state and local governments make the small commercial producers lives absolutely miserable. Maybe you can grow stuff, but its 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 isnt the time for business as usual. Youll notice that Working in a conventional job didnt occur on the list above. And I pity the poor fools working for some corporation, hoping things get better.
My buddy and I were discussing today what we'd do when FEMA (bullies) shows up to confisticate our 'supplies' for re-distribution to the needy downtown.
We’ll soon be using dollar bills for rolling papers...
My wife is ever afraid that I will be featured on an episode of “Hoarders, Buried Alive”
“when in the course of human events ...”
I heard a prophet several years ago say he was given a vision, that there would be some kind of disease that would affect these genetically altered plants(hybrids) and there would be a catastrophic crop failure leading to massive starvation.
We use only heirloom seeds and prayer ;) We've done this for the past several years. It's probably the best way to go. The heirloom plants seem to do as well as the hybrids and personally I think the veggies taste better. But, maybe it's just my imagination.
we are really into liquor....not that we drink much...hubby likes the 12 Macallens...but AFAIK, it doesn’t go bad...
December 27, 2007
Coloful houses lie near the mountains in Longyearbyen, a village on the island of Spitsbergen, part of Norway's Svalbard archipelago.
A mountainside near the town was chosen as the home for the Svalbard Global Seed Vault, a "doomsday" seed bank that will store backup copies of as many as three million different crop varieties in case of a worldwide catastrophe.
The high-tech vault, which will open for storage in February 2008, is going to "put an end to extinction [of] agricultural crops," said Cary Fowler, executive director of the Global Crop Diversity Trust in Rome, Italy, which is the leading force behind the project.
The mission is crucial, Fowler noted, because the stored seeds provide researchers with the raw genetic materials needed to adapt the global food supply to survive climate change as well as water and energy shortages.
Thanks for the heads up on this, very interesting!!!!
BUMP to re-read later. Several times...
That disease is just as likely to attack heirloom seeds, in fact, more likely. Hybrids are bred to resist the most common diseases like fusarium and verticilium wilt and while hybrids are unpredictable when the seed is saved, you would still get some form of what you planted.
Hybrids are also heavier yielders. If everyone had to plant heirloom seeds we would very soon have famines by the same scenario as the hybrid and GM seeds getting some dread disease.
For the same reason if all farmers were forced to go organic there would be widespread famine.
I too, have my stash of seeds and it contains open pollinated and hybrids.
Oh yeah, hybrids aren’t what you call genetically modified. They are cross bred with like type plants in an effort to take advantage of the best features of both parents.
GM plants have totally unrelated genes spliced into them.
Dry beans and rice, canned goods and a side of beef in the freezer. Just keep rotating, and hope the power stays on, or there will be a big bbq, with a barter system set up for a beef meal.
Get salt, you can dry the beef. I just use soy sauce, or smoke sauce, some just with salt and pepper and some with red or green chile powder. I rarely do beef just elk and deer. I even have a thingamajig that my son bought that squirts out ground meat for jerky.
You can also plant some of those dry beans. You can eat them green if you string them or raise them to maturity.
You can make jerky from ground meat? I have the grinder, sausage maker, but never figured out how to make jerky out of it. What kind of salt, and how much is recommended? It is also a good barter item, along with quality bar soap.
I don’t have recipes, I just judge it by my own standards and I use regular salt. We just experiment.
The thing that does the ground meat is like a big syringe with different shaped ends and I think he got it from one of the large sportsmen’s stores.
Now that’s scary. I don’t buy the hybrids cause you can’t take the seeds from the veggie, like tomato and such and grow another plant. Wouldn’t that be kinda the same thing though? I mean if they get a diseases and there is a mass whip out of hybrid veggie plants, that’s it.
Ok, but, I can save the seeds of a heirloom plant and replant later. Like you said about hybrids could you save the seeds and replant and get anything? And even if you could, would you get something the next year, or the next? Probably not. With heirlooms you can save the seeds and replant for decades. At least my grandmother did.