December 17, 2008
Soot and Ashes Serious Question of the Day
If you agree with me (and Ben Bernanke) that the United States is intentionally devaluing the US dollar, but you don't want to put your money into equities of potentially failing or corrupt companies or funds, what are some of the best things into which to move your devaluing dollars?
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68 comments:
Pay off debt?
Jersey Girl
buy to let ;-)
Mexican Pesos.
GDX - this is an etf of gold mining companies. My thought is that the devaluing dollar should be good for precious metals. This, in turn, would be good for miners. It has done very well over the last few weeks.
PBW - this is an etf of clean energy companies. As energy independence and the environment are a big part of Obama's platform, I expect a series of programs that greatly favour the use of new, clean energy technologies. It has done fairly well over the last few weeks.
Solar should be particularly favoured with Steven Chu as energy secretary so a little money in FSLR (First Solar) should have good returns as well.
Disclosure - I own both GDX and PBW but not FSLR (wish I did yesterday).
I want to buy a business. But I want to wait until the marginal players are exterminated.
And currently there's overcapacity in every sector.
farmland
I'm planning on a shotgun approach: some in gold, some in other commodities that will remain in demand (agriculture, coal,etc.) some in yen & swiss franc, some in ultrashort realestate etfs. What a shitty position to be in, having to bail out of one's own currency.
Rusticus
Take on debt?
Jersey Girl
Gold $860 today up $100 past few days, look for pullback to buy
GDX
GG
DBA
DBB
WRT PBW (green etf)...
Gallium and indium are in short supply globally - theses ingredients are required for PV technologies.
I would look at SES for a solar tech not dependent on these.
WRT GDX
When peak energy hits ('round May 09) you will find miners shutting down ops.
Best hold physical.
bury all my money so the looters cannot find it.
I own GLD but feel that it could be a problem down the line (if gold hits $2000+) because of counter-party risk. And do I trust streettracks/state street? What happens if the own an option to buy but the seller can't deliver the gold?
Anyone with any brilliant insight/info on this?
Could you imagine if GLD or state street blew up? These days it's hard to trust anyone.
http://www.spdrgoldshares.com/sites/us/prospectus/
I'm liking physical silver, at least for my TSHTF stash.
I turned my physical gold in for paper gold (in the hands of the Swiss, who I trust) because it's a bitch to keep safe and hard to redeem when the time comes. But 1 oz. silver coins should hold value -- can the price get any lower than it is now? -- you can get your hands on them -- no backwardation like with gold ounces -- and if you want to impress someone who's done something nice for you, a shiny silver ducat makes a memorable "Thank you."
The only drawback is, you can't feasibly hold more than US $10,000 of the physical stuff. That shit starts to weigh too much when you add up to serious-money quantities.
As for other profitable investments, there are none. My bank maggot, who's got good instincts, didn't even want to dump a managed mutual fund position we were in, despite the fact that it would make him a 4.5% commission. He said there's nothing that's going to make money at the moment. The only thing to do is find things that lose value more slowly than other things. At least until worldwide hyperinflation hits.
I don't trust ETFs built with derivatives.
I have been buying natural gas and oil MLPs. Do you research to determine which ones are well hedged with low-risk counterparties.
The downside is that the inverse relationship of the dollar and oil seems to be sputtering a bit.
We'll see.
Keyser Soze
I don't think there's any maintenance-free safe place. The best one can do is to stay ahead of the bubbles until enough capital destruction has run its course.
Some equities exposure may not be entirely bad. Now that inflation has awoken, I like the looks of some equities that hedge funds had been forced-selling. Infrastructure corporations which have massive sunk investments/debts in present-day dollars, and future cash flows at floating market rates are getting interesting. Those got bid up starting around 2003, and show large liquidations in the hedge fund 13F filings when the panic first hit.
Bringing that statement in line with the conditions of your question; the best way to hold income-producing property would be a business or trust you have significant (20+ percent) control over and which produces hard goods that everyone needs.
If you are convinced that the time-value of your money is going to go down and that foreign currencies are not much safer, then the main options I see are productive assets (even though demand contraction is in play), or futures contracts. Paying someone Tuesday for a hamburger today is great as long as the price gets locked-in.
Assuming the conditions of your question, it would also mean that almost any property you cannot inspect or get physical delivery of is suspect. Where does the risk stop or become acceptable? Counterparties? The fund (like say Vanguard) that you're trading as an ETF? The government itself (property deeds, gold seizure, etc?)
Once you answer that question it's just a question of proportional responses and hedges. Fictional example - 20% speculative equities, 30% metals, 10% foreign currencies, 30% un-bubbled land, and 10% bunker?
I agree with roccman that farmland is a good choice. So would be forestry land. Also energy-efficiency capital investments, or anything which trades current costs for future savings.
I would also look at which foreign currencies are least likely to follow suit. Countries which sell a lot to us are probably going to be forced to peg or devalue.
Jersey Girl -
Theoretically, in an environment of currency debasement you want to take on as much debt as possible denominated in the devaluing currency and acquire hard assets with it. Especially ones which yield income.
Then you pay the debt off with the future money which is only worth a fraction of what it is now.
That's exactly what the fed is doing. Making it work in practice is more challenging than the theory though.
Here's the GLD/SLV problem explained Keith:
http://tinyurl.com/62jykv
Keith, here are junior miners everybody should be buying NOW:
EGO, TRE, NGD, NG, AZK, HMY
GET IN NOW - they're screaming up.
Nothing is safe . Maybe Bernie
Maddog will go to jail ,but they were all greedy mad dogs ,all of Wall Street ,the Politicians ,the
Ponzi-scheme criminal lenders and
their cohorts the Real Estate industry .
Its a sad day . My granddaughter is not going to have has good a life .
All the greedy pigs wanted to fleece the sheep as they always have ,but they went to far ,as evil always does .
Go ahead and bet in that stupid Casino they call Wall Street ,or buy some stupid box house and play their new game ,but it's built on sand .
Its a brand new World ,oh BS ,its a brand new cover up for the greatest financial crimes in history .I had high hopes that the powers would do the right thing, but they won't . They all should be arrested for Treason . Who cares about Bernie Maddog ,this real estate Wall Street scheme was trillion and trillion of dollars of Ponzi scheme . Go ahead and look at the Maddog little guy with 50 billion and miss the taking of America and life as we know it .
Again I repeat ,nothing is safe .
not telling
GMAC FDIC insured CD's.
http://tinyurl.com/5rmuoj
I realize this is not a sophisticated move but finance is not my field.
Looking into commodity based etfs and etns? I created a google docs spreadsheet that you can edit and download that shows every non-leveraged etf and etn indexed to commodities, along with their fee structures, volume and other indicators. Commodity types include precious metals, base metals, agriculture, energy and livestock. This is really all you need: http://soyouthinkyoucaninvest.blogspot.com/2008/11/commodity-etf-and-etns.html
Actual gold & silver. Other commodities will follow suit eventually but right now they still have demand destruction happening.
No FREE lunches.
"danm said...
I want to buy a business. But I want to wait until the marginal players are exterminated.
And currently there's overcapacity in every sector.
December 17, 2008 12:26 PM"
You should get a consultation appointment with Joe-the-Plumber. Joe is a business genius. Just ask John Herberet Hoover McCain what he did for his doomed and ridiculous losing campaign.
Whatever you do, No Matter What, DO NOT locate your firm in California or you will go BK within a year thanks to the utterly corrupt and grossly incompetent liberal local state and government interventions occuring daily.
Remember the names Pelosi, Feinstein and Boxer. That just about sums California up. Oh yes, and the Governater Ahnuld, another time-honored classical GOP failed clueless "thinker"...
America IS Dead.
Keith,
Invest in CEF. It's a closed ended fund in Canada holding real audited gold and silver. They have been in business for over 40 years. Do your own research, but there is a reason it sells for almost 20% over NAV and that is because it's trusted. Also the parties that run or store gold in GLD also have massive short positions in the futures market on the very asset you invest in.
Swiss francs - FXF
SHIT - literally!
I'm investing all my investment money into shit-related industries which includes waste processing facilities, bio-remediation, manure composting and human waste transportation and separation systems.
I don't think this industry has ever had a "shitty" year if you'll pardon the pun. And with over 6 billion assholes on the planet feeding the supply, you can never have enough shit processing equipment on hand.
I work for this industry so my opinion is truly shit.
Physical gold now, commodities next year.
I may have to go car shopping.
Jersey Girl
If I where an american, with my current savings ?
I would buy canned food, now that its still cheap.
Here's what I did last night
Raised my gold position from 10% to 20% of my portfolio
Bought 5% in each FXF, FXY and FXS (currencies)
10% in USO (I figure it's a good price to jump in on even though it could go lower from here)
10% in IXC (global energy ETF)
5% in PST (ultrashort Treasury 7 - 10 years).
I also have a 10% position in BEARX that I am maintaining.
The rest is in dollars for now.
Jymkata
Man, I would NOT recommend shorting treasuries, not now. Bernanke hasn't even started buying them - but he will. And you'll be going against potentially trillions of Fed dollars
Not a smart move.
That said, after this is all over, after the Fed is done buying t-bills, THEN short 'em. Because the US is going to have to pay some shockingly high interest rates to get foreigners to buy our bonds again.
Bukko_in_Australia said...
'I turned my physical gold in for paper gold (in the hands of the Swiss, who I trust)'
Oh my, you are soo 'last century'
Swiss banks hold thee most toxic assets to date.
UBS and Credit Suisse may not even survive this downturn.
Who do you think holds all them 2006 luxury flats in Spain, Greece and Eastern Europe.
and BTW 'Swiss army knifes' are made in China.
Anonymous said...
‘Swiss francs – FXF’
WTF have the Swiss done better then any other corrupt economy?
It is impossible for Swiss fiat currency to do any better then another countrys fiat currency.
I've moved all of my cash into Tulips.
Anyone care to join me in getting into the ground floor of the next bubble?
I would think about buying a foreclosure business.
agricultural commodities. farm equipment.
Utilities plus a couple of domestic manufacturers (did I say my exposure to stocks is a paltry 8%?)
Moreover, I haven't yet put a single US dollar into stocks, gold or the toilet bowl - why part with dollars when you have some roubles as a toy currency?
Digital Dollars are disappearing ... not real ones. Paper dollars are and will be king.
DMP
Doesn't the prono industry and beer stocks do well in a recession?People sit around the house drinking and screwing.Anyone have have and great picks?
Check out ezpw, they are in the pawn shop business.also dltr has had a good run but room to run some more I think.Azo seems to be a good bet too.
"Anonymous Anonymous said...
I'm planning on a shotgun approach: some in gold, some in other commodities that will remain in demand (agriculture, coal,etc.) some in yen & swiss franc, some in ultrashort realestate etfs. What a shitty position to be in, having to bail out of one's own currency.
Rusticus"
Yup, "shotgun approach" for me too! - on my way to Wal-Mart now to pick up a remington 870 and buwwits.
The deflation is going to continue. Though, prices in dollar might just be meaningless.
Keith,
Let me understand something here. Do you think this is some sort of panacea? Who the fuck is going to sit idly by while the US cheapens its debt, bestows upon itself an unfair trade advantage and turns its currency into the US Peso? Think the American people will stand for it? Possibly because they're generally apathetic dunces. How about our foreign creditors? Not likely.
You seem to be under the impression that there will be an orderly devaluation (maybe you don't think they'll match us at all?) among the world's panoply of currencies. That would be incorrect. Beggar thy neighbor tit for tat policies will rule the day. Watch as the Chinese drop the RMB to 10 to 1 and the Europeans and Brits to parity.
That video (yesterday) wherein you and that sickening troll CRAMMER gleefully (and most naively) believe that showering the US in C-notes will somehow bring an end to the housing domino free fall by -sigh- June 2009 is pathetic. Buying assets in this country is like catching the falling machete. Problem is, buying assets in most other countries will be just as perilous once the US sets in motion its race to the bottom. The Europeans and Asians must be gearing up in the war rooms for an economic showdown.
Sell off is over, eh? You've been a relatively level headed chap up until now, but that was a demonstration of sheer ignorance, or maybe it was just youthful naivete. The sell off is a damn far site from over. Inflate all you want, no one is fooled. Just who the fuck is going to invest in homes after a 25% down payment requirement is the norm and prices are artificially inflated and out of reach once again? Remember, wages are still stagnating and devaluing the currency won't make that any more palatable.
Who will invest in MMs and Hedge funds post Madeoff? Once we've inflated, assuming we pull ourselves out of this deflationary death spiral, just where do we see the uptick in employment that supports stable, long term growth? Obama's infrastructure play? You're out of your goddamn mind if you think that will be effective. The fraudulent, tertiary/quaternary economy has been proved a lie and will not stand the test of time.
No, America is toast. We will be isolated due to aggressive military policies and selfish, short sighted economic policies. Whether deflation or inflation, the chickens will come home to roost. Deficits DO matter and debt that cannot be repaid is a problem of the highest order. You've turned bullish far too soon. Time to come reassess fundamentals.
As some posters have previously stated, the US MUST return to its agrarian roots and produce the most vital consumer item of all - food. Problem is, that requires vast inputs of oil (distillates) that are soon to be priced in another currency. Timber!
Bringing that statement in line with the conditions of your question; the best way to hold income-producing property would be a business or trust you have significant (20+ percent) control over and which produces hard goods that everyone needs
----
I agree but if you look at the Weimar republic, you had to be joined at the hip with government... they can take over when they want.
"Whatever you do, No Matter What, DO NOT locate your firm in California or you will go BK within a year thanks to the utterly corrupt and grossly incompetent liberal local state and government interventions occuring daily."
I don't particularly like California and have turned down job offers there because I don't want to live there. But anecdotes are not substitute for analysis.
California is certainly dysfunctional and f***ked. The partisan deadlock there is crippling. And that IS the state that allowed Enron to rip them off to the tune of billions during their utility deregulation fiasco. And their staggering sense of entitlement results in debt because they will neither raise taxes nor cut spending. But I think you're overstating the matter.
First off - on the corruption count - http://tinyurl.com/67c8mo . I think this dataset is slightly skewed in that the lower population states have some "minimum overhead" bureaucracy requirements that aren't as diluted by large populations. But comparing California to other large states such as Florida and Texas holds up.
According to the small business administration 2006 figures http://www.sba.gov/advo/research/profiles/
Texas - 3,900 bankruptcies out of 1.9 million small businesses 23.9 million population 55 thousand terminations
Wyoming - 84 bankruptcies out of 60 thousand small businesses 0.5 million pop 2,700 terminations
California - 4,236 bankruptcies out of 3.5 million small businesses 36.5 million pop 152 thousand terminations
Arizona - 525 bankruptcies 450 thousand small businesses 6.3 million pop 18 thousand terminations
Massachusetts - 406 bankruptcies out of 638 thousand small businesses 6.45 million pop 19 thousand terminations
Per 1000 population and twice per 1000 small businesses respectively, that works out to:
California:
95 small businesses
1.20 bankruptcies
43 terminations
Arizona:
71 small businesses
1.16 bankruptcies
40 terminations
Texas:
79 small businesses
2.05 bankruptcies
28 terminations
Wyoming:
120 small businesses
1.40 bankruptcies
45 terminations
Massachusetts:
98 small businesses
0.63 bankruptcies
29 terminations
Not all failures are terminations and not all terminations are failures. So I don't think these numbers reflect business failures with 100% correlation. If someone thinks they have better figures, go ahead.
Actual business statistics don't back up your opinion. Entrepreneurship appears positively correlated with liberal states based on the limited data here. Wyoming being the exception. But it's a tiny state full of farmers, and subject to the same population skew as the corruption index noted above.
Funny thing is, I don't really think of California being very liberal. More like entitled, shallow, and venal on both sides of the spectrum. But I would be no less afraid to do business there than in, say, Alabama.
"Whatever you do, No Matter What, DO NOT locate your firm in California or you will go BK within a year thanks to the utterly corrupt and grossly incompetent liberal local state and government interventions occuring daily.
Remember the names Pelosi, Feinstein and Boxer. That just about sums California up. Oh yes, and the Governater Ahnuld, another time-honored classical GOP failed clueless "thinker"..."
The above is very true.
I have one other thing to add. As things get nasty and violence and burglaries go up, he who has pyhsical gold and no gun, does not really own the gold.
GOLD
Where is the demand for these commodities? Oil plunging as I type. You have no buyers. You have no jobs.
Keith, the buying opportunity is not now! Just wait!
The bottom line is the fed thinks they can continue to inflate U.S. asset values (homes, cars, boats etc.) but we all know they can't print enough money to do that. Deflation is happening, as it should, because all the world assets are over inflated with debt and unemployment is rising.
The U.S. debt is on the edge of being downgraded and the result is the Fed will have to reverse course and raise interest rates to defend the dollar.
Commodities will crash! Cash will be king not trash!
From Wikipedia,
"Some have contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak. For example, some believe the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency.[16] Gold Standard advocates argue that the rise in interest rates during a recession is the appropriate market response, in order to encourage an increase in savings and return the economy to growth."
This is the correct policy and within 6 months I predict this will happen.
http://tinyurl.com/4x5lje
Theoretically, in an environment of currency debasement you want to take on as much debt as possible denominated in the devaluing currency and acquire hard assets with it.
Real estate!
Keith, GOLD is absolute winner.
Check this website they keep your gold in 3 different vaults (Zuric,London, NY) I hold my part of my gold there for more than 3 years. http://www.bullionvault.com/
you can buy Perth Mint Bullion Certificates guranteed by West Australiya Gov
https://online.kitco.com/pmcp/ Kitco autorized dealer and there are others
http://www.pmcg.com.au/pages/aboutThePerthMintCertificateProgram.aspx
or like somebody already mention in earlier post Central Trust of Canada (CEF)
Read this article http://www.kitco.com/ind/Hamlin/dec172008.html
A little bit SLV and GLD on my 401K for now it will be fine and after gold $1500
I'll think of something and gold and silver egles (2-3%) in my personal safe for the really nasty scenario.
Thanks Alex.
I have one other thing to add. As things get nasty and violence and burglaries go up, he who has pyhsical gold and no gun, does not really own the gold.
Even if you are armed, if others know you have gold and silver, you stand a good chance of having it removed from your possession. Keep it quiet and hidden and you stand a good chance of getting through this hell. It will not be the time to be showing displays of wealth.
MERKX, ICPHX
Where is the demand for these commodities? Oil plunging as I type. You have no buyers. You have no jobs.
----------
You're too impatient.
Governements around the world are currently proposing infrastructure projects. Give them a few minutes to draft the texts and pick their contractors.
My god, they do need to grease the printing press sometimes... after all, it surely needs a tune up!
An update on Keith's 7 questions (updates in bold):
1) Do you know how to garden and raise your own food?
2) Do you own a gun and know how to use it?
3) Can you live with no income or fiat money for two years?
4) Do you own physical gold?
5) Does your family support the fact that you're a (prepared) nut?
6) Do you consider yourself sane?
7) What are the odds we go off the charts? Or have we already hit bottom?
1) No
2)a. Yes, purchase complete
2)b. In Work (learning to use)
3) Maybe If Yes on 4 supports this, then answer is 'Oh, Yeah!'
4) YES, silver too! More Silver
5) We only talk about inflation
6) Yes, but fading MORE
7) 25%
I'm running with the Bulls till the S&P hits 980 or Friday at 2pm whichever comes sooner.
I'll sleep with dollars under my mattress till after New Years then join in on the Bear Raids in January.
Farmland? Sorry, but IMO it's the next bubble to burst. Google 'farmland bubble' and you'll see what I mean.
My money's going to the S&P 500 and Russell 2000. Everybody knows to stay away from those, just like 3 years ago everyone knew you got rich by buying a house. I have sold all my gold - see the above.
I saw a recent interview with Bill Gross of Pimco where he explained what Bernanke means when he says he may buy 'longer term' treasuries.
Gross suggests that this doesn't mean the fed will buy 20 year or 30 year treasuries. 'Longer term', in this case, means 3 year and 5 year, 7-10 at the most.
So an etf like TBT that is ultra short the 20+ year treasuries is a virtual sure bet. If Gross is right. Do we trust Gross on this one?
Remember the names Pelosi, Feinstein and Boxer. That just about sums California up. Oh yes, and the Governater Ahnuld, another time-honored classical GOP failed clueless "thinker"..."
Pelosi, Feinstein, Boxer and Davis or as a friend calls them, the
"four whores of the apocalypse."
:)
bought hartford financial at $4.70 share two weeks ago (a wonderful company)that i knew was down way too much from $95.00 a share at its peak. sold today at $18.00. its a trusted company with high integrity, just got caught up with the rest of the insurers. will be the first co. to go back to normal, sound, business practices.
ibc -
You may be even more right than you know. One pet theory as to what's been going on is that we've actually had rampant inflation beginning around 1994 but that it's all been funneled into successive bubbles (seen a chart of M3 lately? It's not pretty and hasn't been for a long time). And if you look at what many hedge funds were forced-selling in September, many of those assets looked like inflation bets (mining companies, railroads, steel, etc).
I have multiple theories on exactly who started it and why. But once politicians (subconsciously or not) learned how to sweep things under the rug in this way both parties took to it with slight variations.
Ordinarily, in a broad-based inflationary environment where rents increase, buying property is a good idea. However what we have now is not quite inflation or deflation in a classical sense. I've heard some use the term hyperdeflation - meaning that assets decrease in value, but so does money itself. In such a situation everything requiring credit goes down in nominal prices and everything paid in cash goes up.
From what I've read, rents are going down in the UK. If things follow suit here, then even properly priced real estate unfortunately wouldn't be a safe haven.
We're in uncharted waters here. Good luck to everyone.
JR -
"Who the fuck is going to sit idly by while the US cheapens its debt, bestows upon itself an unfair trade advantage and turns its currency into the US Peso?"
That's the critical question, isn't it. I think everything hinges on it in the medium term. I'll play devils' advocate and propose "Whoever has more to lose than to gain by seeing us collapse". Also a collapse in the dollar = high effective oil prices for many countries. Oil may be down, but it just got more expensive in the past two days if you're paying in Euros.
The million dollar question is: who needs us and who doesn't?
JR - You make a very compelling argument. And my last statement about oil prices was meant to support the overall idea of other countries not wanting instability or for us to collapse entirely - not to argue that they will sit on their hands while we monetize away what we owe them (as the argument will probably appear).
Wouldn't it be perversely ironic if it comes down to the North Korea strategy with us? "Send food! Don't let the US implode! They've got nukes so we can't afford chaos there!"
Danm - I agree. But you can only stock up so many bunker supplies and so much gold before you become conspicuous. After all, reciepts are generated for most physical bullion deliveries. After the whole things with al-qaieda using diamonds to untraceably transfer cash, I'd be disappointed in our intelligence folks if they didn't keep records of all that. I leave alone the question of whether they ought to be permitted to do so.
If you've got enough money to have such a problem, then putting a lot into the 30-70% range of worst case seems to make the most sense.
Buy Hookers :) At least you'll get some great memories.
------------------
O.K. Here's what I really think...
Buy some good tools and how to books. Chances are you are going to have to become a lot more self-reliant in the future.
NYC up for sale now.
http://www.nytimes.com/2008/12/18/business/18brokers.html?pagewanted=1&_r=1&hp
Start my own Ponzi scheme.
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