Sunday, October 16, 2016

Is it time to bury your wealth then bury the shovel?

For those of us who have felt the market has been disconnecting from the real economy the events as of late make it appear the market is jacked up, so distorted and whacked it can go no further before melting down. Every day new articles surface declaring how it is different this time and how the Dow will soon hit 20,000 or may even soar to 50,000 while often, adjacent articles detail that Macy's has reported how it will be closing 100 stores. Another huge concern should be just how much of what we see is the result of a big boost in spending by the Federal Government. History shows economy pumping before an election is not an uncommon practice and nothing trumps the games we have witnessed played during this election.

Is It Coming To This?
All this may leave investors wondering if it is it time to bury your wealth then bury the shovel? This reference, of course, has to do with hiding or putting something in a place where no evidence of it exist. In regard to wealth, I'm talking about safety whether it be from falling markets or seizure. Many ways exist to  confiscate our wealth such as massive taxation, bank "bail-ins" or changes in currency valuation that result in inflation. Sadly, while determining where to best put your assets is not easy it is perfectly clear that with or without your voluntary participation the game will go on and economic readjustments will take place.

We must face the question of where exactly is a good place to dig, or in other words, where is the best place to hide or squirrel away what they have worked so hard to save. Savers who have been hurt by low-interest rates will be the first to testify to the pain they have had to endure during recent years. Since we do not have the ability or power to simply freeze in place the value of what we own in relationship to other assets we should at least try to minimize harm to ourselves by avoiding economic black holes. Many of these are akin to what is generally known as a "Ponzi scheme" and they exist everywhere, just because they hide behind a solid sounding moniker designed to conjure up images of stability should not fool us into thinking the promises they make will be fulfilled even when they are guaranteed.

Correctly predicting the form a future crisis might take and your preparations prior to it are particularly important in determining how you might fare economically at a time others are brutalized. Another key issue is how best and broadly you might want to hedge your bets, my personal history has shown that diversification often fails to meet expectations, while it is a great concept it does not always save your wealth. How diversified and into what areas you shift your savings, however, is the most important decision you can make when it comes to capital preservation.

The fact that certain asset classes will wildly outperform others is defiantly an issue and so is the matter of inflation.  I continue to contend that a primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large  percentage of wealth into intangible products or goods. If faith is lost in these intangible "promises" and money begins flowing into tangible goods seeking a safe haven inflation will soar. It should be noted that during times of inflation the effect on values is not even across sectors. In times of massive flooding a large rubber raft is quite valuable, but in times of drought not so much. The sad reality is there is no place to hide when it comes to avoiding how different assets react and change in value depending on supply and demand.

Years ago the common wisdom is that if you saved enough money you would be able to live comfortably off the interest in later years, currently that scenario appears to have vanished. Today a person holding a half million dollar savings account receives a paltry twenty-five hundred dollars in interest compared to ten times that before the 2008 financial crisis. To those of us who feel the world economy is a house of cards teetering on the edge of an abyss it is only a matter of time before a major reset begins that realign asset values to reflect the reality of today, this does not necessarily mean restoring them to historic norms. When this occurs those trapped in the wrong investments will pay a heavy price.

Because people often want to know if you are eating your own cooking I will tell you now, the answer is yes. A few of my favored investments fall into the category of paid for real estate, the real gems being those that are leased and returning a solid cash flow. I think bulk silver coins that can be purchased at a coin store for their silver content are also interesting over the long term, I also have a strange affinity for pennies, old copper ones are greatly preferred. I love collectibles bought on the cheap, they seem available everywhere these days as Americans often desperate for cash rid themselves of clutter. I find people will often gladly take a few dollars for high-quality items their parents bought. What I don't like is the ever growing number of paper promises like stock, annuities, and money put into a system dependent on computer kept records. 

For example, a real Black Swan event not taken seriously enough would be a devastating cyber-attack on America's power grid. This is not only possible but more likely than most people realize.  As both a country and as a culture we are shockingly unprepared for such an occurrence and one lasting for an extended time would leave many financial instruments in shambles. While the media paints both the financial system and our economy with a broad brush accepting and even promoting the idea those in power have control over what they have created remember just because someone says something does not mean it is true. An honest evaluation shows that many of the economic options and strategies open to the financial elite are unavailable to the masses or come only in some costly stripped-down form. I'm not advocating that people panic but it would be wise to remain cautious, plan ahead, and have at least some assets tucked away in a safe place.


  1. I envision wealth existing as part of a society. When you extract it, it becomes a "hoard". There is a parable about this in the Bible--invest it, don't bury it. That said I understand the sentiment. I saw an interesting stat: .1% of the population has 23% of the wealth, the same as the bottom 90% of the population. That puts the top 9.9% of the population with the approximately "other" half of the wealth. In my view that divides into 3 distinct groups when considering money; the mega-rich who could lose 2 or 3 orders of magnitude of wealth and still be rich, those who are comfortable but if lost 1 order of magnitude of wealth would NOT be comfortable anymore, and the rest that are paycheck to paycheck and would still be without significant wealth. Thus top 1%, next 15%, and the bottom 85%. All this money shenanigans is savaging the 15% who like to think they have succeeded in playing the game astutely but find they are actually playing another game that they are in danger of losing.

  2. Our power went out in the entire city for 5 days in 2011. Ted Koppel's book "Lights Out" suggests a 50% likelihood of 2 months to 2 years with the power off (grid down)in the next 10 years. I have no clue if a 76 year old investigative reporter has gotten the story right but from experience, your money is inaccessible with no power. Most gas stations closed--cash only-. Grocery stores open--cash only with all fresh stuff sold out. Only cans and potato chips etc. available. We had a good time with perfect weather and not needing A/C or heating but make it a longer time in the cold or heat and a wider service area outage, say 100 miles rather than 30, and all bets would be off for sustainability past a week.

    1. I found Koppel's book compelling enough that I wrote a blog on the subject. It suggested that for a glimpse into real "gloom and doom" that people take a moment and ponder the possibility of a devastating cyber-attack on America's power grid. This is not only possible but more likely than most people realize.

      As both a country and as a culture are shockingly unprepared for such an occurrence. In fact our whole society has become based on what we consider an unending flow of current. Few among us has researched the topic of grid failure to any degree but to those interested in how this might occur and effect the county the article below delves into this subject.