Investment legend Warren Buffett stated in his 2021 shareholder letter that the future is “bleak” for retirees and fixed income investors. He compared Sept 1981, when retirees could earn 15.8% on deposits, to the c.1% available now.
Admittedly, inflation was higher in the 1980’s, but even allowing for inflation, the net return to investors was a healthy 5.7%.
Today, US 10-year bonds yield 1.4%, and the official (conservative) US inflation rate is 1.4%. Retirees and fixed income investors now receive 0% returns (negative returns, if allowing for taxes or higher inflation).
Publicly available reports indicate that safety nets such as US Social Security funds may run out as early as 2029.
Buffett lamented that some investors seeking higher yields would look to more risky fixed income streams, from higher risk bonds, or overinflated stocks, which could result in large capital losses.
One of Buffett’s largest holdings, Coca-Cola stock, has seen its earnings slashed by 30% in the past decade, whilst at the same time, its debt has tripled.
One would expect Coke’s stock to have dropped by around 30% along with earnings, but the price has doubled to unsustainable levels, and could easily drop by half in the near future. Buying many stocks now could be unacceptable risk for poor returns.
Hinting at some breakouts, Buffett indicated that farms, property and some businesses may do well in future.
Buffett remains bullish on gold, and claims to not like bitcoin, but… Despite decreasing his stake in many large banks, Buffett has increased his ownership in Bank of America Corp (BAC). BAC happens to have almost 100 blockchain patents, more than MasterCard or Paypal, which both allow crypto for their customers.
Hmmmm… is this a sneaky way for Buffett to gain a backdoor investment into crypto, without admitting he was wrong, and without getting his traditional investors offside? We will have to wait and see.
It’s OK: the image of the monster in the basement is supposed to scare you. But it is not supposed to scare you into inaction. If you know the moster is there, you would be better to take some serious weaponry or powertools, not just a flashlight. “Be prepared”, as the boy scouts used to say.
We first warned you of the monster back in October 2020, with some earlier warnings in February 2020 and May 2020. For those who paid attention to the warnings, and took appropriate action, you are most probably in a good position already. Feel free to pass this article onto others.
The COVID19 bogeyman is slowly being wiped out, but the cleanup will take a long time. Stimulus funds and rampant dollar-printing by central banks has seen outcomes which would have seemed incredible just one year ago.
M2 money supply shows that 25% of all US dollars were created in the past year. For every four dollars you used to have, they just printed one more. Guess what will happen to your purchasing power? If money supply has increased by 25%, guess how much the cost of your groceries will rise?
The Federal Reserve continues to add $120 billion per month to its balance sheet. US government spending recently hit $32 Trillion. There is no end in sight to this reckless printing and wanton spending.
After languishing for months, oil, copper, silver and coin have taken off; scarce commodities are now up around 50% in price for the year. Prices for bread have seen Real World Inflation increases of 14.4%; milk is up 6.6%, ground beef is up 5.1% and the cost of a base model bicycle is up over 39%. Have you noticed the prices rising around you? If not, just wait…
The banks are paying neglible (or negative) interest. Ten year US government bonds pay a miniscule 1%, with two year bonds paying 0.11%. Despite a perceived inflation rate over 4-6%, the government only admits that “official” inflation is around 2%. But even with 2% inflation and 1% on earnings, your money is going backwards. That is assuming zero tax, which further erodes your already miniscule (or negative) earnings.
If you have read the previous articles on de-basement, you would know that a government debasing their currency is not a new thing. We saw it 1000 years ago in China, a few centuries ago in England, a hundred years ago in Germany, and several times in the past few decades (Venezuela, Chile, Argentina, Zimbabwe). In the vast majority of cases, anyone who earned, owned or stored paper currency saw their wealth wiped out. Those who earned, owned or stored scarce commodities became wealthier.
Learn the lessons of history and be prepared. Recently we have seen many billionaires and billion-dollar companies putting large chunks of their “cash reserves” into scarce commodities such as gold and bitcoin. The writing is on the wall, and has been for some time. Dollars are dying. Debasement has a monster. If you are earning, holding or hoarding paper dollars, it is time to “get out”.
These days I check my credit card balance every day; sometimes several times a day. It always makes me smile.
There was a time, many years ago, when I feared the arrival of my credit card statement. It represented, in black and white, my past sins and my future fate. It showed me how much money I had spent, on which frivolous items I had frittered away my earnings, and how I would be penalised. It showed me how much money I did NOT have.
If I did not pay off the card amount in full, interest was accrued on a daily basis, often up to 18% compounding. The figures did not even give the extent of the horrible truth, until banking regulators forced the fine print into existence. Often I would see a line such as “if you pay the minimum monthly balance, this card will be paid off in 37 years…” The financial millstone was worse than a so-called “life sentence”.
Things changed, and with persistence I managed to become free of the burden. Vowing never again to accumulate debt on consumer items which depreciate in value, I have not held a credit card for many years. Until things changed again.
By now, most people have heard of cryptocurrency and the blockchain. It is many things, including a new asset class, an alternative investment, an evolution of the internet, an inalterable record-keeping system and more.
Even if you never invested into cryptocurrencies and do not care what a blockchain does, there are some things you need to know.
In the early days of the internet, not many paid attention. OK, so someone from some university sent a document to another nerd and it only took 60 seconds, instead of 90 seconds for a fax; big deal. It was a few years before more customer adoption and faster speeds meant that people could actually surf the internet ‘for fun’ as well as for academic purposes.
With the first wave of internet mainstream adoption, people began to ask “OK, it’s a faster fax, with pictures. What’s in it for me?” You should be asking the same question of blockchain and crypto.
Nowadays it is hard to imagine the world without the internet. We use it for work, schooling, playing games, watching movies or TV shows, keeping in touch, sharing information and researching the heck out of things. Now that you have it, you would find it difficult, or almost impossible to go back to the old ways. If you had to buy a postage stamp for every email you sent, and wait a week for a response, what do you think would happen?
The important thing to understand is that blockchain and crypto is not just Bitcoin going up by $1000 and down by $5000. Like the internet itself, blockchain is a global connection for not only finance, but insurance, news, music, art and a plethora of other materials. It enables faster speeds of communication and calculation. But, I hear you ask, “I don’t want to buy bitcoin. What’s in it for me?”
Back to the banks. Many traditional bank credit cards have reward systems. For every dollar you spend, you may receive an airline mile or some similar token of non-monetary value. This was all well and good in the year 1 BC (before covid) when you were actually allowed to fly, and no airlines had gone broke.
Those old cards often came with an annual card fee, cash advance fees and other costs, in addition to the exorbitant rate of interest if you did not pay them off in full every month. The banks charged undisciplined cardholders 18% interest, kept a huge profit, paid bank investors 4% and for the most part, everyone was happy.
Until we were not. With new advances in technology, a telco no longer charges you ridiculous long-distance or international call rates; you just use the internet and make a call for peanuts. The internet disrupted telco’s, postal services, video rentals and more. Now the blockchain has come to disrupt the banks.
Twenty years ago, Alex Mashinky was the father of VOIP (voice over internet protocol), the destroyer of the monopoly of telco’s, and he is godfather to every skype, zoom or google call you make. Recently Alex has become the father of MOIP (money over internet protocol) and he has plans to #unbank the world.
Whilst the traditional banks pay you less than 1% interest on your cash, Alex’s Celsius Network will pay 4%, 6% up to 12% on your money. Whilst older banks take in massive interest and fees, retain 90% for profits and pay a pittance to investors, Celsius flips the script: they retain only 10% of incoming interest and pay out 90% to savers and investors. It is called “DeFi” or decentralised finance, so you will not find a branch, a teller or an ATM. Everything is online, but for the rates of return you can get on USD, HKD, AUD or CAD, you will forgive them.
Currently Celsius is a great place to hold your ‘digital dollars’ and receive far better rates of return than a traditional bank. They will also pay you interest on your bitcoin or other crypto, if you are into that type of thing, but you do not need to be a high-risk investor to use CEL; you can simply deposit digital cash and receive interest. CEL is an excellent #unbank for earning, but does not have a credit card yet, which is why I use…
The CRO rewards card from Crypto.com: this little piece of solid metal card weighs a lot more than a traditional plastic card, and there is good reason. Forget the rewards of flier miles or bonuses which you accumulate and have trouble spending: this card, accepted anywhere Visa is used, pays you cash-back* in an instant.
This is one of the reasons why I check my balance several times a day and smile. For every purchase, you receive a “*cash-back equivalent” which is paid in cryptocurrency. (I know, you did not want to buy or invest into crypto, but this is free crypto, so it’s better.)
The cash-back rewards can be held on for the longer term growth, or used instantly to purchase other cryptocurrencies such as bitcoin, or even exchanged for free US dollars (Tether).
How much cash do you get back? The majority of Visa card purchases will give you a bonus of 1% or 3% cashback, if you start with the lower-level cards. There is no annual fee, no monthly fee, no ATM fee (free cash withdrawals under $800) and no nasty surprises.
The base level card attracts 1% cash back on all purchases, and is totally free to apply for, with no commitments.
The Ruby level card gives 2% cash back on all purchases, with 100% back on Spotify. This streaming service bonus alone saved me $12 every month. It requires you to invest or ‘stake’ 2500 CRO tokens (worth around $0.10 at time of writing). Whilst looking like a quasi-card-fee, this approximately $300 investment is yours, and will earn up to 16% whilst it sits in your account, until you want it back. Investing around $300 to save $140 per year on streaming is a great deal, plus you get the other cashback rewards.
The Jade Green or Indigo cards give you 3% back on all purchases, with 100% cashback on Netflix and Spotify. This is where you save around $30 per month by not paying for these services. This level requires a staking investment of 25 000 CRO (approx. $2500 at time of writing), but, you will most likely earn this investment back within a few months on streaming service rebates and cashbacks on other purchases. Plus, unlike most card application fees, you can get your stake back, if you ever want to stop getting rewarded.
Using your Crypto.com account, it is also possible to invest into other cryptocurrencies, and even earn interest on a bitcoin deposit, but that is a lesson for another day. For starters, just get the card, do your normal shopping, and get cashback rewards.
There are a couple of higher card levels, which require additional CRO staking and pay additional rewards: up to 8% cashback on all purchases and 10% cashback on AirBnB, plus free airport lounge access and much more. I would suggest that these higher levels may be handy for customers who have corporate cards or those who use their Visa card for business purposes.
If you are new to crypto rewards cards, it may be wise to start with one of the bottom four CRO cards, and upgrade after you have been comfortable using it for a few months.
Just as most internet users do not understand HTTP or Java, blockchain and crypto can seem confusing or weird. You know that you do not need to be a programmer to benefit from social media or email, and you do not need to be a nerd or crypto trader to benefit financially from blockchain technology.
Start by putting a few dollars into an #unbank such as Celsius and apply for a crypto rewards card such as CRO. If you don’t like it after six months, feel free to go back to your old bank where they make you pay for a cheap plastic card and keep 90% of the profits away from you. Personally, I like to carry a metal card and be highly rewarded.
De-basement is not just the place where Americans store their junk. It’s also silent robbery, a killer of your wealth, and usually sanctioned by your government.
Starting from the day before the pyramids were built (commonly known as Keith Richard’s birthday) around 10 000 BC, gold and silver have been used by humankind as money.
Yes, the Chinese created paper money WAY before it was used in Europe (and the Chinese also led the world in hyperinflation, when the rulers of the Song Dynasty printed too much paper in the 1100’s and collapsed the economy).
Despite occasional paper, fiat or full economic crashes throughout history (more frequently than every century), gold and silver have ruled supreme for millennia. Back when the USA was on the Gold Standard (and the British used silver, hence “pounds sterling”), the economy was stable, predictable and functional.
Paper money could be redeemed for its equivalent value in precious metals without question at any time. As some may be aware, the USA moved from a full gold standard to a partial gold standard after World War Two, and then abandoned the gold-backing altogether in 1971.
Since then, the paper dollar has increased in volume and decreased in value. When someone takes pure precious metal and adds some junk filler, it is called debasement, literally a lowering of the actual value, even though the face value may increase. You feel like you are holding a fortune if you are given a $100 bill, until you try to redeem it for the “eternal money” of precious metal.
One US$100 note would now get you around TWO GRAMS of gold. Back in the Great Depression of 1933, $100 would have gained you around 100 grams of gold. After WW1, in 1919, you could have held 150 grams of gold for the same $100.
As paper money has been debased slowly over time, most people do not notice. It’s a robbery by stealth.
Prior to 1964, the USA minted coins which were solid silver. Was it the silver price rising, or the devaluing of the dollar which made the government start debasing the coins? There is the same amount of silver on planet earth which existed 10 000 years ago, but the amount of paper money just increases exponentially.
In 1965, the USA coins were 90% silver, and went down over time to 40% and then 0% by 1971. A 1964 USA Kennedy silver half dollar (face value $0.50) can easily sell for US$12 or more now, due to its silver content. In Australia, a 1966 silver 50-cent coin (face value $AU0.50) can sell for $AU15 or more, due again to its silver content.
Be warned that if you take the coins to the local bank, they are obliged to only give you the face value (the government agreed value), not the value of the underlying asset. How many people have made the mistake of emptying grandpa’s old piggy bank and being given a tiny fraction of the coin’s actual intrinsic price? Note that it is against the (government) law to melt down your old coins into precious metal, however, it is definitely legal to sell them to collectors, buy them from reputable sources or trade them for goods and services.
As many governments around the world initiate “cash bans” where it is illegal for citizens to hold more than $5000 or $10 000 in ‘cash’, consider that you may be able to legally hold coins of say, 10 000 silver half dollars (face value $5000, but tradeable value of over $150 000.
This could be a useful idea for someone who knows that bank interest rates are barely keeping up with government inflation (another “robbery by stealth”), or anyone who has been watching government bonds in many nations hitting negative rates of return. (It’s true, buy a government bond in many countries for $100 000 and in ten years you will have around $90 000. If hyperinflation kicks in, you’ll need that $90k to buy a loaf of bread in 2030. Not kidding: refer to 1920’s Germany, 2008 Zimbabwe, Venezuela, Argentina and more).
The rules of the investment and wealth game have changed. It’s time to change the way you play. Watch out for the killer in de-basement, and do your own research (DYOR) into scarce commodities such as precious metals and (some, not all) cryptocurrencies. #gold #silver #copper #bitcoin #bostoncoin
Gold is going up and dollars are going down: there are many ways you can play this game
In times of global or local uncertainty, people may lose their faith in artificial paper currency and return to an asset which has been globally recognised as money for almost 10 000 years.
We have seen demand for gold increase when paper currency is in trouble, including in the Chinese Yuan dynasty in the 1200s, in 1920’s Germany, 1933 USA, 2008 Zimbabwe and 2020 “the world”.
It is interesting to note that whilst prices for physical gold have risen around 30% in the past year, prices for some gold mining companies may have risen by 100% or more.
Gold stocks may climb faster and farther than gold because the companies have expenses which may stay fairly constant when the gold price increases, thus dramatically increasing their profitability.
For example, XYZ mining company may have a cost to mine an ounce of gold at $1000. When gold prices were $1100, they made a 10% profit. When gold jumped to $1500 in September 2019, their profit was 50%. As gold closes in on $1800/oz, the company profit may exceed 80%, with expenses staying around the same.
A selection of gold miners known as “GOLD BUGS” (Basket of Unhedged Gold Stocks) increased by 50% when gold went up 30%. Individual companies such as Great Southern Mining (ASX GSN) are up 300% in value over the same timeframe.
Obviously, some companies may get into trouble or go broke, and you could lose all of your money when your investment is backed by a mining company and not the physical metal. But a return of 300% versus a return of 30% may have you considering that to be an acceptable risk.
Do your own research into different companies, and different industries, as some other commodities (eg. silver, copper, platinum) may also be attractive. Do lots of reading, and always speak to a professional before making any investment decisions.
To get you started, here are some Aussie mining companies whom you may wish to examine more closely. The list is in no particular order, and we make no recommendations on any of them. Please do your own research and talk to an expert before taking any action.
Gold/silver miners on the ASX
Do Not Be Fooled: the stock market may be at record highs, BUT the stock market is NOT the economy.
Most people are familiar with the image of a duck, seeming to cruise effortlessly across a lake. Many people do not realise, that, hidden just below the surface, the duck’s little legs are paddling furiously quickly. If the fast and furious feet stop or stumble, the seemingly effortless image of calm would stop or crash.
As at May/June 2020, I see a lot of “Covid-washing” by companies: many are saying they have had to lay off staff or close their businesses “due to the CoronaVirus”; however, this may not be entirely true.
If we examine how many retail stores announced closures in 2019, the vast majority of these occurred before October 2019; long before the virus had been discovered. It was not so much the Covid19 (COrona VIrus Disease 2019) which brought about the unfortunate demise of so many industries, it was a combination of bad management, and COVID08 (Creation Of Virtually Infinite Dollars 2008).
When the GFC1 hit in 2008, central banks responded by bailing out troubled and troublesome banks (which should have been left to fail), and the creation of virtually infinite dollars by a process known as Quantitative Easing (QE).
The QE process of printing trillions of dollars of fiat currency is supposed to be a tool which prevents bank runs, as were witnessed in the Great Depression, with people lining up for days to access their money.
The QE is now used by governments and central banks to purchase stocks and bonds, thus artificially propping up the investment markets. Do not be fooled! The stock market is NOT the economy. The market is the price of a stock, the economy is the underlying earnings of a company.
Historically, stock prices have reflected underlying earnings in a ratio of 12-20 times. This means that a person would pay $100 for a stock which earned $5; which is similar to buying a $100 000 house which rents for $100/week ($5 000 pa) or having a $100 000 term deposit which pays 5%. This rule of thumb has worked for centuries, and when it gets out of alignment, this is when we have massive crashes.
Stock prices and earnings were out of alignment in 1999 (cue the ’99 “Tech Wreck”). They were out of alignment in 2001 (post-9/11 stock crash), and they were definitely out of alignment for the ’87 ‘Black Monday’ crash, and the 2008 GFC.
I predicted a 2020 crash as far back as September 2019, starting the hashtag #GFC2 on social media. Anyone who was aware of corporate debt levels and national debt levels, could see that things were beginning to become unsustainable. As the USA soars over 100% debt to GDP ratio, it is a warning sign to anyone who invests into US companies, or has dealings with the USA (this is much of the world).
GFC2 and QE 2020 has seen more cash printed in three months than was printed for the entirety of the GFC1 (2008-2012) and it does not seem to be stopping. Printing more dollars devalues the ones in existence, so we could all soon be millionaires on paper, yet, like Germany in the 1920’s or Zimbabwe in the early ‘noughties, we cannot afford to buy bread.
Job losses which occurred in early 2020 had been coming for a long time throughout 2018-2019 (when retailers blamed softer earnings on “the Amazon effect” and online shopping. Now they are blaming Covid19, when in reality, the fault was poor planning and no future vision.)
The jobs which disappeared in an instant will take many months, if not years, to return. Anyone who has run a startup (I have had 13) will know that in the early days, everything is either done solo, or outsourced to contractors in the gig economy. It is usually a long time before full-time jobs are able to be afforded or created.
I may sound pessimistic, and I wish I had some happier news. However, my past predictions have always come true, as the only lesson we learn from history is that we (especially bankers, economists and politicians) do NOT learn from history.
Despite the past pandemic warnings of Black Plague, Spanish Flu, SARS, MERS, Ebola etc, the world was not prepared for Covid19. Despite QE policy having never worked, central banks keep doing it (the US dollar has lost 93% of its value since its creation only a hundred years ago, as have other world currencies. The British Pound kept its value for over 300 years before they tried QE.)
Many industries will fold up. Millions of jobs will be lost. Companies who have adapted to social distancing will find that, not only can bank ATM’s replace tellers, but screens can replace order takers in fast food drive-through as well as in standard restaurants. Staff in many service industries can work from home and be offered a part-time wage or subcontract position, without the benefits of full-time work such as job security, sick leave, holiday pay and workers compensation.
The outlook for the next few years may be bleak. But to quote the “world’s greatest treasurer” Paul Keating, “This is the recession we had to have.” We had lived far too long overspending and not saving. This is the hangover from when we woke up hungover in 2008 and decided to drink vodka for ten years to make the headache stop.
Anyone who saves 10% of their income will know that one bad month will wipe out a year of savings. A bad year can see you lose a decade of progress.
Yes, the country will recover. The world will recover. Jobs will recover. But it will be a slow decade from 2020 to 2030. Be sure to be flexible, adaptable, take nothing for granted, and definitely have a Plan B.
Are you feeling bearish? There are TWO bearish BetaShares ETFs on the ASX.
These are BEAR and BBOZ. BEAR is inverse (if market goes down 10%, BEAR goes up 10% and vice versa); BBOZ is inverse with leverage
check the BBOZ climb when the ASX 200 fell -37%.
BBOZ went from $8 to $19…a gain of 100+%
BE WARNED— if the standard market goes up, BEAR will go down and BBOZ will go down significantly. You can lose a lot if you’re wrong.
If you really think ASX is going south, take a ‘B’ position. If you think ASX is going up, buy a standard index. If you are unsure, consider emerging markets (eg. China, Africa etc) or precious metals or crypto 🙂 #gold #silver #bitcoin #bostoncoin
Always have a #planB 🙂
Perf from March 2 to June 2 2020 Sth Korea Index 9.94% Bitcoin 20% Gold Miners ETF 38.77% SuperLoop 41.56% Silver miners 45.28%
Jeremy Britton DFA SA(Fin)
financial planner since 1992. Money Magazine award-winning best-selling author. CFO #BostonCoin, world’s first crypto-ETF BostonTrading.co
The International Monetary Fund predicts 2020 to be the worst downturn since the 1929 Great Depression. The Minneapolis Fed says unemployment rates could surge to Great Depression levels. Barron’s News & Finance said, “perhaps it’s better to think in terms of biblical disasters.”
So why do markets not seem to be pricing this in?
Many people see an upward trend on the stock market and think that the economy is going well (despite the anecdotal evidence of millions of people out of work and thousands of closed shopfronts).
To gauge a clearer picture of stock values, I like to compare them to property and bonds by doing simple division. We divide the price of the asset by the income it is bringing and get an answer to the question: “How many years do I need to hold this to get my money back?”
From the 1970’s through the noughties, US interest rates averaged around 5%, or 5 divided by 100. This meant that if you held a term deposit account, it would take 20 years (5/100) for you to make your money back, just in income. You would also get the capital back (hopefully you would get the capital back, but as we have found out with some bank collapses, this is not 100% guaranteed).
Twenty years is an acceptable timeframe for many investors, as we can foresee that in our lifetimes, and it’s about the time you would be responsible for a child or a mortgage.
To understand why stock prices, property prices and bond prices will fluctuate (in a rational market), we see that sometimes, an investment may pay more than 5% income, making it seem more valuable than cash at the bank.
For example, a bond yielding 6% would see your money return in just 17 years, so we would expect the price of the bond to rise, as it is more desirable than (the 20-year timeframe of) bank interest. If a property was paying 7% rent, your money would return in just 14 years, so we would expect that the increased desirability would cause the price of the property to increase proportionately.
Unfortunately, humans are not always rational, and so our markets are not either. Sometimes, rumours or hype will inflate a particular asset by too much, and it may (briefly) trade at 30, 50, or even 100 or 1000-year timeframes. Such hype is often followed by massive corrections (eg. the “Tech Wreck” of 1999)
Right now, the world is dealing with COVID19 (COrona VIrus Disease 2019), a disease which emerged in 2019 and takes lives and closes businesses. We are also dealing with COVID08 (Creation Of Virtually Infinite Dollars 2008), a disease that started with Quantitative Easing (mindless money printing) measures during 2008’s GFC1, which erodes the wealth of ordinary citizens by inflation.
As the central bank prints another $9 Trillion in unbacked fiat currency, banks and government can use these funds to purchase stocks and bonds, propping up the prices. The problem is, with severely slashed earnings, the stock multiples are way out of historical alignment.
Students of history will know that when banks or governments start to print infinite dollars, hyperinflation follows and the wealth of the working class is wiped out. Germany did it in 1920’s, Zimbabwe did it in the early noughties, and eventually, a Trillion dollar note was not enough to buy a loaf of bread.
Printing infinite dollars has never fixed an economy, ever. Not ever.
In fact, the world’s first fiat currency, the Chinese Yuan dynasty’s Jiaochao suffered hyperinflation from overprinting back in the year 1260.
Whilst central banks concentrate on “big name” stocks that grab headlines (eg. the ‘FAAANG’ stocks or Tesla), it may be possible for investors to find value in smaller labels. Judging by long-term dated bonds or bank deposits, standard bank interest looks to be sub-1% for the next five to ten years. Therefore, any stocks, bonds or properties which yield 3% or over could seem attractive to investors.
If you can manage to find a legitimate asset which has a sustainable yield of 5-6%, be prepared that its price may double when others discover it.
The economy will be in *truly* good shape, when
a) asset prices drop precipitously to levels where current yields return to a more normal 20-30 year timeframe instead of 100 or 1000-years (eyes on Visa, Tesla, Facebook), or
b) earnings dramatically increase so that current prices return to 20-30 ratio rather than 100 or 1000
Most people understand enough math to know that, if you set aside 10% of your income into savings every month, just one bad month will knock out your profits for a year, and one bad year will knock you out for a decade.
We have seen that most companies have either not saved enough, or have paid out too much, and cannot sustain themselves through a bad 2020.
I feel that, after a very bad 2020, it is unlikely that corporate earnings will bounce back dramatically within the next 2-5 years, so my bet is on a fall in asset prices. It’s simple when you think about the math. Far too many people invest on emotion, and that is where they can come unstuck.
Just because I may love the look of a Tesla Roadster, or the allure of a new iPhone, does not mean I should buy their stock. Use your emotions, by all means; but check them against cold hard math. If the ratios are beyond your comfort or comprehension, then perhaps sit this one out.
As this is pressed, legendary stock investor Warren Buffett is holding around US$128 Billion in cash. We all know the earnings on this are under 1%, so perhaps the Oracle of Omaha is stocking up on cash and waiting to buy at much lower multiples than those which are currently available. This was exactly what he did during GFC1; making over $10 Billion when markets dropped and laid their bargains bare.
For #GFC2, Buffett is sitting on more cash than he ever has in his 70+ year investing history. A patient man, Buffett is “afraid when others are greedy” and “greedy when others are afraid”. Those who wish to invest wisely could emulate the best investor; using prudence and patience in equal measure.
There is a time when bronze beats gold… not in the Olympics, but in Economics.
Bronze is an alloy made of a few things, with around 80% copper. Copper is an essential component in cars, houses and electronic devices. It is also a harbinger of booms and busts.
In economics, it is actually copper which comes first, and tells you where the gold will be.
Recently we have seen the stock price of Tesla soaring, as people become more interested in electric vehicles (EV’s). This is great news for those concerned about pollution and peak oil, and there is little doubt that EV’s will make a cleaner, greener world.
BUT — Watch out for the copper: a standard fuel car has around 10-20kg of copper wiring. An electric car has more than TRIPLE that amount. So, when people buy more EV’s, copper demand should go up, and copper prices should rise also, right?
Smart vehicle forecasters have said that current demand for EV’s will rise from around 3 million now, to around 130 million by 2030. This should be good news for copper.
But the car-makers are not economists, nor are they investors. Investors have been dumping copper and pushing the price down. Copper prices have just had their worst fortnight in recorded history.
Any copper which will be used in smartphones, electric vehicles and smart houses in 2021-2022 has already been bought by manufacturers. For copper prices to be going down, it seems to indicate that manufacturers are forecasting fewer sales in future, not more.
Manufacturers make money when we buy more things. If they are buying less copper and making fewer things, then they must be expecting a downturn. Nobody goes into a growing market with shrinking inventory.
If you are not planning to buy a new smartphone, electric vehicle or upgrade to a smart home appliance in the next year or two, then consider that maybe millions of others just like you, are also delaying purchases.
What are you waiting for? What would it take to get you to buy more electronic gadgets? A raise, a promotion, a new president or a booming economy?
You may be waiting a while. And it seems that manufacturers may know a dirty little secret: the economy may get worse before it gets better.
Manufacturers are buying less copper, presumably creating less inventory, and arguably staring at reduced forecast profits and earnings.
If the stock in Tesla, Apple, and other makers of electronic gizmos are going to head south sometime in the next few months, it may be well to avoid copper, avoid tech stocks, and accumulate gold: both physical (GOLD, BUGS) and digital (BTC).
You could also look at silver: both physical (ETPMAG) and digital (ETH, EOS, ATOM).
Remember that 20 years ago, some former “blue-chip” investments headed south very quickly, dropping by half or two-thirds or even more:
(Image: Marlen Esparza, USA flyweight bronze medallist)
DISCLAIMER: the author may hold positions in physical metals and digital currencies (crypto). Nobody ever said he was impartial, but a few people said he can be clever occasionally 🙂 Do your own research; this is general financial education, not specific financial advice.
There are many new-age ultra-spiritual gurus around who will give you advice on how to make money flow to you, for example: burn sage, pray, tithe to your church, dance naked under the full moon, sacrifice virgin black goats to the pagan money gods… (you can burn pictures of goats if you’re vegan or squeamish).
Unfortunately none of these methods have any basis in science or economics, and they only seem to make the gurus richer, not you.
So here’s *really* how to do it, scientifically proven, from someone who knows…
Use a Mantra
One money mantra of mine is “I do NOT do free advertising for multi-billion-dollar companies“.
Search my entire wardrobe and you will not find a single shirt, hat, belt or any other kind of outfit which is emblazoned with a brand name on it.
Ralph Lauren doesn’t need his ad for free on your chest, neither does Nike or Adidas need their name on your pants. Unless you have a sporting or sponsorship deal where they pay you to market their brand, purchase a *good quality* unbranded outfit and save the difference into an investment account.
If all of your friends are wearing Gucci, Tommy, Kloe etc, then feel free to invest into those trending companies by buying stock in the company (you can use a discount broker such as RobinHood to buy as little as $50 worth of stock). Own the companies. Get paid by the companies for investing into their stock. Do not work for them for free.
You are not sacrificing quality, status or anything else by refusing to wear branded goods; you are reclaiming your sovereign nature, and realising that your body is worth more than being a free billboard for some faceless mega-corporation.
Take notice of what billionaire Steve Jobs wore, or what Bill Gates, Mark Zuckerberg, Warren Buffett or Richard Branson wears. These billionaires value their bodies and do not do free ads. Buy good quality so it lasts a long time, and only wear brands if they pay you to do so, otherwise, make them pay you by owning stock in their company.
2. Use another Mantra
Another mantra I have used for many years is, “If I didn’t own it, would I buy it now?”
This mantra arose after I had been successfully investing into the stock market, and had made gains of 450% up to 800% *but I did not sell* and the market crashed. Ouch! Nothing sobers you up faster than when your ten-cent stock rises to $2 (I’m a genius!) and then crashes to five cents the following year (oh crap!).
This mantra was a reminder that the stock which was “a bargain” to me at $10 was no longer a bargain to others when it reached $100. If I wasn’t willing to buy it at that price, others may also refuse to buy it, and the value could soon plummet.
“If I didn’t own it, would I buy it now?” became a mantra I printed out and stuck up above my PC so I would see it every day. It reminded me to sell when a stock or property or any other asset looked overpriced.
Over time, I came to apply this mantra to many other things, such as objects around my house.
My barbeque, for example, was only used once a year on my birthday, and otherwise just sat there taking up room and looking untidy. Using the mantra, I thought, “No, I would not buy it if I didn’t own it”, so I sold it. I decided to rent a BBQ once a year, and put the capital money into investments. I later did the same with old clothes and other unwanted items (sell them or donate them to charity).
It is a spiritual law that Money likes *FLOW* and the faster you are rid of clutter (old investments or unused belongings), the faster the new money can flow to you.
3. Use another Money Mantra
Another favourite mantra of mine is “Invest where you spend” and it can be used for many companies, not just clothing labels, banks or takeout. You can purchase stock in your daily utility companies, such as power, phone service provider etc.
Wherever you spend money on a weekly or monthly basis, may be a great investment for the longer term. Remember to DYOR (Do Your Own Research), apply the second mantra to check for value, and remember to sell your stock if your own or your friends’ interest wanes. Some companies may trend like a fad and then pass, so #staywoke and watch where the flow is going now.
You can use the book “Who’s Taking Your Money?” to discover many of the corporations behind thousands of brands, or do your own research on Google.
Even the company who has your mortgage, car insurance or where you buy fuel: invest a little bit of your money into ownership of whoever takes a piece of your paycheck, and you too, can get some of your money back.
Silver has a Golden Secret: a magical ratio which has been around since Egypt, Rome and before modern countries and currencies existed. Learn the code and prosper.
The case for silver:
Geologists know there is 17x as much silver in the earth’s crust as gold. If silver is 1/17th as scarce, it should theoretically be 1/17th as valuable as gold. Historically, it often has been priced at a 17:1 ratio. Right now, the ratio has gone nuts.
Ancient Romans fixed the price of gold vs silver at 15:1, thousands of years ago, before there were geologists, and before there even was an AD or CE after the date.
The gold/silver ratio was fixed at 15.5:1 by European law in the 1700’s, and by the USA in the 1800’s, and held true up until the 1840’s, when people went crazy.
The famous 1850’s “Gold Rush” saw people get “gold fever”, gold prices increase rapidly and silver lag behind. The long-running 15:1 ratio became 20, and then 30 as gold became seen as more ‘trendy’ than its cousin.
The gold/silver ratio was out of alignment even leading into WW2, with the gold/silver ratio peaking at 97:1 in 1940 as Nazis and Allies sought to accumulate as much gold as possible.
When you stretch a rubber band too far, it has to snap back. After WW2 ended, the gold/silver ratio dropped back to the more normal historical territory. Gold prices scarcely moved by more than a couple of dollars over the next 30 years, whilst silver prices went up over 470%
When the USA dropped the gold standard in 1971, the next decade saw $US fall in value at the same time as gold was in demand. Gold prices rose 1700% and silver lagged a little, increasing around 1000% in less than 10 years.
Heading into the 1990’s (a decade of high interest rates), gold prices dropped almost 50% and silver dropped further, around 75%. Cash was king, but with silver dropping far more than gold, the old ratio was out of alignment; once more over 90:1.
Gold prices dropped steadily whilst silver stayed firm. It took gold almost 13 years to go back to its previous highs. From 1990 to 2003, gold went backward whilst silver piled on 20%. The long-running ratio was proving itself once more.
Although gold prices picked up 240% during the lead-up to the GFC, silver piled on more than 300% over the same period. The gold/silver ratio had dropped from 90+ to just 58; and by 2011, to 44.
In 2019, with Trade Wars, negative interest rates, fears of hyperinflation in the west and inverted bond yields, gold has risen to new highs, and receives a lot of media attention.
What the news fails to tell you, is that the ratio is again nudging 90:1, and it may not stay there long.
Mark Twain said, “History may not repeat, but it definitely echoes“. The last few times that the gold/silver ratio nudged north of ninety, it has dropped back to 50 or below within a couple of years.
To get back into ‘the zone’, one of two things would need to occur:
1) gold prices would have to drop by half from current levels (which is very unlikely), or 2) silver prices would have to double.
I am not saying that the current silver price of $27 per ounce will again hit or exceed $49 per ounce (like it did on April 29th, 2011), but do not be surprised if the ratio which has been around for over 6000 years, still holds true in a modern world filled with lies and politics.
It’s hard to argue with historical precedent, and it’s impossible to argue with geology 🙂
**Disclaimer: the author has been stacking silver throughout 2019, as he is a firm believer in historical echoes and not hysterical pricing. He also owns stock in silver mining companies (bought late 2019) and other scarce commodities such as bitcoin and ethereum cryptocurrency. The above information is for educational purposes and is not financial advice. Stay woke: turn off the TV and pick up a history book. See you after GFC 2.0 😉