- On old long syne my Jo,On old long syne,That thou canst never once reflect,On old long syne.
Saturday, December 31, 2016
Happy New Year!
Wishing you a happy, healthy, and profitable New Year from the wonderful shores of Santa Barbara, CA! Below, the traditional year-end song to remember long-standing friendships sung the world-over written by the Scot Robert Burns.
Auld Lang Syne
Should Old Acquaintance be forgot,
and never thought upon;
The flames of Love extinguished,
and fully past and gone:
Is thy sweet Heart now grown so cold,
that loving Breast of thine;
That thou canst never once reflect
On old long syne.
Wednesday, December 28, 2016
So close you can almost taste it...Dow 20,000! Will we hit this milestone before the end of 2016 as I predicted 3 years ago? Maybe. Maybe Not. But what's the story behind the story? The impetus that drove a tepid market up 2,000 points over the past 80 days? Behavioral Economics fellow investors explains it all.
Never underestimate the power of the psyche in market movements, especially ones centered on signifiant social, political, and economic events. The reality over the coming 120 days is probably even brighter than sobbing, dour progressive pundits could possibly imagine...prosperity is at hand again. You can bet the farm that the proposed policy changes implemented beginning in January 2017 will have massive positive effects benefiting millions of Americans across the entire socioeconomic spectrum. Lower taxes across the board for the Middle Class, repatriation of TRILLIONS in overseas corporate cash, and...hold your breath here...a pro-growth administration hell-bent on restoring American industry in such hated sectors as manufacturing, energy, and finance. My fellow farmers, Dow 20,000 is already here.
Sunday, December 25, 2016
In Hoc Anno Domini
This editorial was written in 1949 by the late Vermont Royster.
When Saul of Tarsus set out on his journey to Damascus the whole of the known world lay in bondage. There was one state, and it was Rome. There was one master for it all, and he was Tiberius Caesar.
Everywhere there was civil order, for the arm of the Roman law was long. Everywhere there was stability, in government and in society, for the centurions saw that it was so.
But everywhere there was something else, too. There was oppression--for those who were not the friends of Tiberius Caesar. There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or to fill the hungry treasury from which divine Caesar gave largess to the people. There was the impressor to find recruits for the circuses. There were executioners to quiet those whom the Emperor proscribed. What was a man for but to serve Caesar?
There was the persecution of men who dared think differently, who heard strange voices or read strange manuscripts. There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage. And most of all there was everywhere a contempt for human life. What, to the strong, was one man more or less in a crowded world?
Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar's and unto God the things that are God's.
And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.
So the light came into the world and the men who lived in darkness were afraid, and they tried to lower a curtain so that man would still believe salvation lay with the leaders.
But it came to pass for a while in diverse places that the truth did set man free, although the men of darkness were offended and they tried to put out the light. The voice said, Haste ye. Walk while you have the light, lest darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.
Along the road to Damascus the light shone brightly. But afterward Paul of Tarsus, too, was sore afraid. He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.
Then might it come to pass that darkness would settle again over the lands and there would be a burning of books and men would think only of what they should eat and what they should wear, and would give heed only to new Caesars and to false prophets. Then might it come to pass that men would not look upward to see even a winter's star in the East, and once more, there would be no light at all in the darkness.
And so Paul, the apostle of the Son of Man, spoke to his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:
Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.
Monday, December 12, 2016
Yield On Cost
One of the most fascinating concepts of compounding interest is the concept of Yield On Cost. For those who aspire to Invest Like A Farmer it could be said that this is THE fundamental concept. Yield On Cost is calculated by dividing a company's current annual dividend payment by the original purchase price. It is expressed as a percentage; so for example if you bought Altria at $30 a share 5 years ago and the stock now pays a $0.61 per quarter dividend the Yield On Cost is 8.13%.
Yield On Cost differs from a dividend yield in that a dividend yield is the current annual dividend divided by the current share price; so in the above example of MO, the dividend yield is ($0.61 X $ =$2.44/yr divided by $66/share) is 3.69%. The significant difference here is that Yield On Cost factors in the benefits of reinvested dividends over time.
For financial farmers this is particularly important because ad believes in Dollar Cost Averaging and selecting stocks that Pay You To Own Them, the Yield On Cost is a favorite barometer over time of the true success of an investment in your portfolio.
A carefully constructed portfolio ultimately takes on a life of its own; dividends are typically paid quarterly and reinvest. Over multiple years, and even decades, these dividends provide a healthy backstop to inevitable stock market cycles and economic booms and busts; ultimately the "farm" generates recurring income that seeds additional investments which generate additional cashflow themselves and so forth. This virtuously cycle compounds and should reveal a very, very positive Yield On Cost over time.
Saturday, November 26, 2016
A Cash Register In Every Home
Is there any greater Christmas wish for a retailer than to have a voice-controlled cash register in every home, lovingly sitting by the family hearth? Amazon has accomplished just that by leveraging the cloud-computing power of Alexa with the Echo Dot, a hockey-puck sized peripheral computer.
The possibilities now for Amazon are virtually limitless with Alexa acting as a personal assistant for almost any consumer desire available to be shipped to your door within an hour in many metro locations, and instantaneously for digital music or movies.
Content has now become as simple as a voice command; a user's Amazon Prime account includes nearly limitless digital movie and music choices with thousands being added daily. For commoditiy products from paper towels to water to laundry detergent the integration of Alexa with the Echo Dot and the Amazon Dash button can fulfill even the most basic need.
Jeff Bezos has succeeded beyond the wildest sugar-plum dreams of any child by successfully marketing Alexa as a personal assistant available for the ridiculously low price of $40! The evolving power of cloud-computing coupled with Amazon's distribution logistics arguably just ushered in the age of Artificial Intelligence with millions of Echo Dots installed in homes around the world.
Thursday, November 24, 2016
Mayflower in Plymouth Harbor by William Halsall (1882)
Here beginneth the chronicle of those memorable circumstances of the year 1620, as recorded by Nathaniel Morton, keeper of the records of Plymouth Colony, based on the account of William Bradford, sometime governor thereof:
The Desolate Wilderness
So they left that goodly and pleasant city of Leyden, which had been their resting-place for above eleven years, but they knew that they were pilgrims and strangers here below, and looked not much on these things, but lifted up their eyes to Heaven, their dearest country, where God hath prepared for them a city, and therein quieted their spirits.
When they came to Delfs-Haven they found the ship and all things ready, and such of their friends as cold not come with them followed after them and sundry came from Amsterdam to see them ships, and to take their leads of them. One night was spent with little sleep with the most, but with friendly entertainment and Christian discourse, and other real expressions of true Christian love.
The next day they went on board, and their friends with them, where truly doleful was the sight of that sad and mournful parting, to hear what sighs and sobs and prayers did sound amongst them; what tears did gush from every eye, and pithy speeches pierced each other's heart, that sundry of the Dutch strangers that stood on the Key as spectators could not refrain from tears. But the tide (which stays for no man) calling them away, that were thus loath to depart, their Reverend Pastor, falling down on his knees, and they all with him, with watery cheeks commended them with the most fervent prayers unto the Lord and His blessing; and then with mutual embraces and many tears they took their leaves one of another, which proved to be the last leave to many of them.
Being now passed the vast ocean, and a sea of troubles before them in expectations, they had now no friends to welcome them, no inns to entertain or refresh them, no house, or much less town, to repair unto to seek for succor; and for the season it was winter, and they that know the winters of the country know them to be sharp and violent, subject to cruel and fierce storms, dangerous to travel to known places, much more to search unknown coasts.
Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? And what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew.
If they looked behind them, there was a mighty ocean which they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world.
And the Fair Land
Any one whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful.
This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.
And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.
So the visitor returns thankful for much of what he has seen, and, in spite of everything, an optimist about what his country might be. Yet the visitor, if he is to make an honest report, must also note the air of unease that hangs everywhere.
For the traveler, as travelers have been always, is as much questioned as questioning. And for all the abundance he sees, he finds the questions put to him ask where men may repair for succor from the troubles that beset them.
His countrymen cannot forget the savage face of war. Too often they have been asked to fight in strange and distant places, for no clear purpose they could see and for no accomplishment they can measure. Their spirits are not quieted by the thought that the good and pleasant bounty that surrounds them can be destroyed in an instant by a single bomb. Yet they find no escape, for their survival and comfort now depend on unpredictable strangers in far-off corners of the globe.
How can they turn from melancholy when at home they see young arrayed against old, black against white, neighbor against neighbor, so that they stand in peril of social discord. Or not despair when they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life. Of when, in the face of these challenges, they turn for leadership to men in high places--only to find those men as frail as any others.
So sometimes the traveler is asked whence will come their succor. What is to preserve their abundance, or even their civility? How can they pass on to their children a nation as strong and free as the one they inherited from their forefathers? How is their country to endure these cruel storms that beset it from without and from within?
Of course the stranger cannot quiet their spirits. For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.
But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measures. For that reminder is everywhere--in the cities, towns, farms, roads, factories, homes, hospitals, schools that spread everywhere over that wilderness.
We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.
And we might remind ourselves also, that if those men setting out from Delfs-Haven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land.
Wednesday, November 23, 2016
Occasionally you run into an idea, a concept, an ethos that is so fundamentally right you just can't look away...I bring you fellow investors BurgaBox! BurgaBox is a Woburn, MA tech startup that delivers amazing cheeseburgers of varying size and construction to your front door. Many in this great country of ours have hoped for such an amazing development for years, because as the world well knows, America excels in convenience food sales. The real question is why it took so long after our second favorite food, pizza, could be had in virtually any zip code within 30 minutes?
Tuesday, November 22, 2016
A fine example for all you aspiring readers who want to Invest Like A Farmer of "scarcity value" (and most likely a bubble) is the launch and ravenous demand for Snapchat Spectacles. Some choice commentary by an arbitrage master who literally rented a helicopter to get 4 pairs: "I have no clue what these things do. I don't even have a Snapchat," commented John Reuter to the Wall Street Journal. Yet these $130 glasses were quickly flipped for over $1200 each.
The mania in buying, especially prior to holidays for hot items with limited supply is a great niche economic field. Master of product launch exploit it to the fullest, creating scarcity by advertising products that were manufactured to run out with timed releases across multiple high-visibility channels. Two great books on this phenomenon are Extraordinary Popular Delusions and The Madness of Crowds and Tulipmania: The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused.
Sunday, November 20, 2016
The Rise of the Creative Class
Arguably one of the most meaningful socioeconomic books over the past decade is Richard Florida's "The Rise of the Creative Class" For those who haven't had a chance yet to read it, read it. This book details the rise of intellectual creativity a la the Rennasance in the digital world across a spectrum of tech niches; from coding to 3D printing to design and even real estate.
The vast majority of the world's population aren't landed aristocrats controlling huge swaths of land, but as Florida identifies, the creative class is leveraging their skills via technology, and especially the virtually limitless power of the cloud. A huge trend going forward of course is going to be voice/verbal commands, and Amazon.com's Echo Dot is perfectly positioned to take advantage of that creative wave.
Frequent readers of this blog know that this author believes all wealth ultimately springs from the land, in one form or another (beauty of physical location, underlying minerals like Gold, or even clustering of talent.) Along those lines, the demographic shift into "hipster" cities has concentrated that very creative ability now amongst multi-hubs which have become in their own rights extremely valuable physical locations for manufacturing cloud-based services and products. I see no end in sight for this trend, especially as it fosters efficiency and meritocracy.
An interesting area of ongoing and future development will be the utility combining the power of both verbal and AI commands into increasingly "smart" machines that will derive significant advantages from just-in-time manufacturing, idle time swaps, and latent repairs. In essence, manufacturing facilities that have largely become redundant or obsolete could once again rise to compliment the creative class production model. Labeled the "internet-of-things," this mechanical evolution hopefully has a long and promising future.
Friday, November 18, 2016
A Strong Dollar Makes For Great Arbitrage
A strong US Dollar makes for great arbitrage opportunities, especially for those investors looking to pick up land ex-USA at a significant discount to just weeks ago. Consider, the Mexican Peso is now trading at 20 to 1 US Dollar. The South African Rand trades at nearly 15 to 1 and the Euro almost reached parity! For dollar holders, Latin America is particularly appealing to potential land purchases. Costa Rica, Panama, and Belize immediately come to mind. The American Dream for many may now be possible OUTSIDE the United States with a strong dollar in place it offers expats and residents alike the opportunity to leverage monetary advantage for the time being into cheaper physical holdings. Sign me up.
Tuesday, November 15, 2016
In Gold We Trust
With the election of Donald Trump as President, the United States has voted to put in power a pro-growth, pro-infrastructure leader who has vowed to make significant structural improvements in America's roads, bridges, highways, byways, airports, tunnels, schools, hospitals, and walls...all of that takes money. Almost by definition, big spending booms in infrastructure correlate with inflation. From a gold buying perspective we are almost in a perfect storm; the U.S. Dollar has rocketed in value versus a global currency basket while gold has fallen in value nearly 10% since the election due to the "fear" trade dollars flowing into the stock market. Buyers of Gold in U.S. Dollars betting on big government spending on defense, healthcare, and most poignantly infrastructure now looks like an ideal time to add to your hard physical Gold holdings.
Wednesday, November 9, 2016
Complete & Utter Repudiation
The American voters have spoken, and they have completely and utterly repudiated the Obama and Clinton big government ideology of a nanny state infringing on personal rights, choices, and decisions. This is a victory for the Republic as a whole as history will soon begin to illustrate. In the coming weeks and months changes to the tax code, Supreme Court, and health care industry will have far-reaching and liberating effects for Americans of all walks and stages of life.
From an investment standpoint, a Trump presidency offers the opportunity for large corporations to repatriate several trillion dollars back into the United States at a proposed flat tax rate, lowering of the corporate tax rate to 15%, lower of personal income tax rates for Middle Class Americans, restructuring trade deals, rebuilding the infrastructure of roads, bridges, and transportation hubs. In addition, both biotech and the defense industries stand to benefit as the free flow of capital returns to innovation. These are several of the many proposed economic improvements that the Trump ticket has focused on during his campagin.
The net effect to average Middle Class American should be an increase in real wages, job security, national security, opening of educational opportunities, and rebuilding of the core physical infrastructure and health care systems. Long live the Republic.
Cannabis is a growth industry. The big winner in yesterday's election was pot. Today Gov. Jerry Brown awoke destined to become a drug lord bigger even than Pablo Escobar. If the trailing 5-year chart of Altria aka Phillip Morris USA is any indicator, marijuana will to become one of, if not the, largest recurring cash crops of all time in the United States.
California has a strong track record of absconding with successful tech (Apple taking the Xerox mouse, Intel "borrowing" Digital Equipment Corp designers, Oracle perfecting IBM database software.) Nowhere else in the world has made tech theft a cottage industry better than the giant corporations in Cali...and the trend will continue with pot.
After becoming legalized for recreational use most prominently in Colorado and Washington, look for the proverbial bloom in closely related "partners," like fertilizer companies, payment processors, accounting software, and legal services. And how about just pure product revenue alone? Think big, no even bigger.
The Prop 64 ballot measure described to voters projected $1B in annual revenue, but the authors of this bill must have been getting high on their own supply. Lucid math figures indicate if Colorado is now tracking yearly at $3.2B, California will do somewhere north of $1B per month.
For the record, this blogger vehemently opposed Prop 64 and (proudly) is considered the local neighborhood "Narc." From an economic standpoint, however, passage of Prop 64 should have several immediate effects; massive tax revenues that politicians will never want to relinquish and the reduction (elimination?) of drug cartel shipments of pot into the United States.
As with the fall of Prohibition, a/the major source of revenue for organized crime ceases to be profitable and the state becames the uber-drug lord. The Kennedy's simply transitioned quite adroitly into politics after Old Joe's Canadian Whiskey running operation ceased to be profitable. Funny how dynasties are born.
The combination of tech development and pot legalization will probably now vault California, in terms of GDP, into the Top 5 economies of the world by itself. This makes Gov. Jerry Brown second to the President in power (he who holds the gold...)
The societal impacts of Prop 64 will be wide-reaching; driving under the influence, working under the influence, working under the influence, selling the minors, pay-to-play for growers, etc.
These are a whole host of problems that will need to be addressed, funded, studied, legislated, and enforced. Maybe the DEA in California will become the Drug Enactment Agency?
Luckily for big government, that $1B in monthly revenue will help fund some of the cost, because remember the the first line of this post. Cannabis is a growth industry.
Tuesday, November 8, 2016
Sunday, November 6, 2016
Almost any investor who has been in the game long enough will instinctively tell you to a man that the most valuable asset they have (or had) is time. For those who wish to Invest Like A Farmer, time is the essential element which helps structure and ultimately facilitate your financial farm. Time allows investors to plan, prepare, and save. That is the great benefit of time; it allows you to build diverse holdings over a number of weeks, month, years, decades, lifetimes. A good friend of mine remarked that it takes 100 years for a family to build their personal brand. I agree. From a generational perspective it is essential to not only consider your role in that dynasty, but that of your parents, their parents, your children, and their children. A great harvest is often the result of a great farm built over time.
Amazon's Echo Dot
It's hard to imagine a future now with the release of Amazon's new Echo Dot that isn't in some way voice-controlled. The Echo Dot can turn on your house lights, close the garage, start the oven, cue the music, and yes faithful readers of this blog...trade stocks! Click on the picture above or the hyperlinked text to read the reviews on this device. Simply amazing. Undoubtedly on the Christmas list for many!
Great intro and am already absorbed with the first story "The Fluctuation." Quick excerpt for a flavor of the humor and writing style: "Evidence that people are selling stocks at a time when they ought to be eating lunch is always regarded as a serious matter." Hahaha superb reading!
Pictured above is the Tiffany Iris, constructed primarily of Yogo Sapphires which are mined only in the Yogo Gulch, MT (USA) and boast the purest untreated sapphires in the world. I'd encourage readers of this blog to follow the Wiki link embedded and learn about these awesome stones. It is an interesting lesson for investors to consider: the value of these "worthless tailings" ultimately became worth far, far more than the actual gold that was being sought at the mine.
Thursday, October 13, 2016
The Wall Street Journal published one of the most meaningful and visually interpretive surveys of the employment picture in the United States today. Coinciding roughly with the passage of NAFTA and the widespread adoption of the Internet in the early 1990s, it portrays the massive disruption of technology, management, and political policy in shifting this country from a manufacturing base to a software-centric service hub.
As anyone who has worked in Silicon Valley for the past several decades will tell you, the Valley has shifted from hardware to software. This megatrend has resulted in massive job losses to cheap overseas manufacturing; spun with rose-hued glasses one could say the United States has spurred global growth and prosperity on an unequaled basis for the past 20 years.
For those wishing to Invest Like A Farmer, the trend of service-based employment and out-sourced manufacturing may have reached its pinnacle, especially as 3D printing and the very machinery has negated the cheap labor rates which caused massive job flows to countries like China, India, Vietnam, and other Southeast Asian labor markets.
With lean-inventory and production-on-demand now commonplace, I predict former manufacturing hubs like Detroit, St. Louis, Cleveland, and other "left-for-dead" traditional manufacturing cities making a strong comeback on the heels of (literally) dirt-cheap land prices, a workforce educated on demand, and the massive shipping moat known as the Pacific Ocean.
As Amazon.com has successfully proven, consumers embrace the concept of sacrificing a little time to get a great product cheaper. An educated, mobile, fluid USA workforce with 3D printing, manufacturing-on-demand, and a diverse skill-set can successfully leverage the Pacific Ocean, dirt-cheap land, and hopefully a political climate that supports them via an "America-first" mentality.
Sunday, October 9, 2016
A World Awash in Money
Even as real wages as measured in constant dollars haven't risen in DECADES, the world seems awash in money. How could this be? This is how: the purchasing power of those dollars has fallen like a rock in terms of real value. The giant vacuum sound you hear my fellow financial farmers is the real dollar value of your fiat currency being sucked away into a global vortex. When a buyer can get a million dollars to purchase a home for little down at 2.75% 30-year interest rate, there is a serious problem that is going to fuel a massive societal shift. A great report detailing this seismic financial shift was recently published by Bain & Company. You can read it here: A World Awash in Money But as a side note, consider buying the only money created by toil: Gold
Sunday, September 11, 2016
Tuesday, August 16, 2016
The four pillars of wealth have remained constant over time; Stocks, Bonds, Real Estate, and Gold. Barring the use of fiat currency, i.e. cash, for intermediate transactions, the world's wealthy have consistently built, stored, and extracted their wealth from those four pillars. Go and do likewise financial farmers; the means and methods vary, the intricacies differ, and the medium may change, but make no doubt about it, those pillars have remained constant bastions of wealth over time.
Saturday, July 16, 2016
Automation and the Gig Economy
What has been termed the Gig Economy may be the proverbial canary in the coal mine for the estimated 40% of the world's population that works in agriculture. As Marc Andreessen famously wrote in the Wall Street Journal article "Software Is Eating the World," there are tremendous implications for software disruption hitting many traditional industries. Not all of this is good, however, especially if you aren't skilled in software. I believe a massive net negative is going to feed the growing global dystopia of income and wealth inequality.
Historically, technological advances have actually produced more jobs, i.e. the industrial revolution, but recent advances in distributed software have made many jobs borderline sustainable; who really needs (wants) a taxi driver when a car installed with autopilot can get the job done? Others like farming, which are extremely labor dependent, are ripe for full automation. The unemployment implications are particularly disastrous in countries reliant upon agriculture for sustaining the bulk of their GDP.
The automation trend is on the cusp of cannibalizing many traditional jobs. The prosaic answer to this disruption, espoused by the billionaire networked elites, is "education." But how many programmers do we really need? Or better yet, how many programmers can this world support? Even programing has become commoditized as the H-1B visa saga illustrates; why hire a USA programmer when one from overseas can be had at a fraction of the price?
As readers of this blog know, we try to identify mass trends and tack our investment course accordingly. It is hard to believe the powers that be, i.e. Silicon Valley Venture Capitalists, will not pursue increased automation. It is a cheap solution to generating massive wealth without having to really create anything. By shirking existing laws, like occupancy taxes or taxi safety standards, software can leverage huge swarths of existing infrastructure, drive out the middle (wo)man, and siphon the profits upwards.
The transition to a Gig Economy is very telling. Many existing jobs are eliminated and traditional employees are dropped into the Gig Economy like Neo in the Matrix as essentially economic mercenaries looking to fulfill increasingly more challenging positions that are not consumed by automation. Expect this trend to continue and invest accordingly; boring, monopolistic, dividend-paying companies that this blog traditionally espouses once again fit the bill. Software may be eating the world, but the installed base of commodity-dependent consumer staples (of which technology now can be considered a staple too) is winning the alpha race.
Wednesday, July 13, 2016
"Yeah, But Gold Doesn't Pay Any Interest!"
Courtesy of our friends at the Federal Reserve Economic Data (FRED) division, pictured above is the Purchasing Power of the Consumer Dollar. Essentially from 1975, the US Dollar has lost more than 95% of its purchasing power.
As those who like to Invest Like A Farmer, we don't like losing purchasing power. It is a really bad thing; you receive less and less in terms of goods and services over time for each US Dollar you save. Traditionally this was offset by having FDIC-insured risk-free savings accounts that yielded interest.
With interest now completely laughable, in some countries it is even NEGATIVE now (meaning you pay the bank for the pleasure of them then lending your money,) savers either have to chase risk in the hopes of getting a higher return on their dollars or seek an alternative asset class to hold their fiat currency.
Although having seed capital available has always been a good idea, the mechanism of value in which that capital is stored is very important. Holding cash money long-term has proven to be a big-time loser for protecting the purchasing power of consumers.
Wednesday, June 29, 2016
How Does Your Retirement Cashflow Stack Up?
Projected GDP Per Person over the next 5 years through 2020 gives an idea of what the average citizen in each of the following countries makes (either passively or actively) in income. Great snapshot of where investors should be targeting their returns in terms of local fiat currency. Interesting to see the effects of inflation even over a short amount of time in regards to estimated cost of living. Inflation is the enemy that never sleeps.
Tuesday, June 28, 2016
So You Say You Want a Revolution?
Payments over the course of history have increasingly moved towards a digital ledger system, the latest entry into this evolution of Fintech (financial technology) is the newly coined...sorry minted...sorry invented...term "fintat," meaning a "financial tattoo," that is a truly wearable temporary tattoo. Yes that was all one sentence, and yes I tried one out at Dunkin Donuts (odd, but successful nonetheless.) The temporary tattoo is a Quick Read (QR) code and can be washed away with soap and water at any time or will naturally dissipate over the course of a week or so. If you ever forget your wallet or go for a run you can feel at ease knowing you have cash "on" you at all times!
Sunday, June 26, 2016
The Case for Gold
One of my favorite asset classes is Gold. Old Element 79 is pretty interesting for many reasons; it is highly ductile, an extremely good conductor, and it has proven exceedingly difficult to create or destroy over time. But probably my favorite characteristic of gold is that it has been intrinsically linked to stored human toil (value) for over 5,000 years. In fact, Warren Buffet's father in 1948 wrote an excellent piece on this very subject. If you read one thing today (besides the ILAF blog of course), I highly recommend Howard Buffet's speech to Congress entitled: "Human Freedom Rests on Gold Redeemable Money."
A company I recommend and personally use to buy and store Gold for a flat 1% of spot pricing is aptly named Goldmoney. You can chose where you'd like to vault your gold and it can be redeemed for physical gold on demand. They've essentially reinstated the Gold Standard after an over 80-year absence.
As the world watches the Olympics in Rio this summer and the economic fallout from the United Kindgom's Brexit vote, it is interesting that once again all eyes are on timeless Gold as the metric of excellence and value.
Friday, June 24, 2016
The United Kingdom becomes the first member of the European Union to voluntarily leave the group as a historic referendum pitted pro-EU loyalists against a rising wave of voter angst upset with being marginalized socially, politically, and economically from globalization. Last-minute attempts failed to unite the country and voters choosing to leave came in strong numbers.
The initial effects have been a massive sell-off in the global stock markets, with Asia, Europe, and the United State all down significantly. Almost every currency also fell against gold which enjoyed its best day in years, hitting a 2-year high in the wake of the Brexit vote.
Going forward the implications are ominous in that the EU itself may now face additional countries determined to leave. Time will tell, but the referendum results don't bode well for traditional establishment candidates and polices throughout the world.
Thursday, June 23, 2016
Gigonomics: Economics In The Gig Economy
By 2020 a recent survey estimated 40% of Americans will work in the "Gig Economy." In that same survey 89% of Americans did't know what the gig economy meant. What is the Gig Economy? It's more than just self-employment. Check out the seminal 2015 McKinsey Gig Economy Report!
Tuesday, June 7, 2016
Esteemed readers of this blog aren't just savvy investors, but financial farmers willing to consider hip new innovations. Surprisingly, one of the biggest trends emerging is actually in finance! Financial Technology (Fintech) has increasingly become part of the lexicon as startups around the world attempt to disrupt normally staid banking, insurance, and financial institutions long-renowned for their complete inability to innovate. The Fintech runway ahead is long, especially in the development of new currencies which facilitate rapid, secure cross-border transactions. The banking monopolies are starting to look out of their frosted glass windows.
One of the most promising developments in Fintech is that of a "cryptocurrency," so termed because of the anonymity it provides in terms of transacting secure payments on a massive, instantaneous basis. Through the use of fragmented computer processing power, the most famous cryptocurrency has emerged named BitCoin. It promises less friction (transaction cost), full global availability (on virtually any smartphone), and the signifiant potential to alter how "money" is stored.
The apt-termed label of "disrupter," for which Fintech has been associated, is uniquely interesting because it bucks convention in that Fintech upends the traditional banking model of "top-down" innovation. Banking centers like like London, Hong Kong, and New York have traditionally been at the helm of leading financial innovation, whether from a product packaging standpoint or the use of computers on exchanges. The rise of the new financial paradigm, however, is completely different; emerging markets are driving the adoption and growth of Fintech.
Fintech offers a parallel example of what occurred in consumer electronics; leap-frogging. Case in point, recently I booked a scuba diving trip to Papua New Guinea which is about as remote as it gets. Upon arrival after several planes, many hours, a bus, and a canoe, I was warmly greeted in the middle of the jungle by the indigenous population. Their first question? What model iPhone did I have? They had completely leap-frogged fixed transmission lines, cabe providers, and even satellite dishes! Papua New Guinea had literally gone from dense mountain jungles, living in extremely rustic and rural conditions, to using the latest version of the iPhone. This had multiple excellent outcomes in my view; they became connected to the outside world instantly, yet also retained and preserved their traditional environment. Fintech offers a similar promise.
The driving force behind Fintech is an underbanked and unbanked population that doesn't have access to a traditional physical branch network. Fintech will thrive for the very same reason ad-blocking software established a foothold and bloomed; consumers are price sensitive no matter where they live. Emerging market data plans typically charge for usage, thus in short order ad-blocking software won by common sense, so too will Fintech. Hence, a powerful force has coalesced; mass user need and mass user price sensitivity.
Given that the majority of the world's population does not have access to traditional finance such as banking, a mortgage, or life insurance, a stable cryptocurrency like BitCoin offers a compelling solution. Couple this with a developed world where hyper-regulation and declining growth has led to massive layoffs, billion-dollar fines, and exposure of incompetent politicians, the rise of Fintech, and especially a cryptocurrency like BitCoin, was bound to occur.
Two additional enablers of the Fintech revolution, in my eyes, are the rise of the Gig Economy, which is the ability for anyone anywhere to work remotely rather than in a corporate designated facility, and excess computing capacity. Andy Warhol would probably say today that: "Everyone in the future will work from home." While 90% of Americans still don't know what the Gig Economy is, it is becoming more and more of a generational shift from a corporate career to a flexible work profession. A dichotomy, with some third hybrid in-between, is arising from the Gig Economy members who are responsible for their own health insurance, retirement savings, and professional education and another cohort of unionized members of traditional employers. I suspect over time the employment picture will fully split into thirds; with one third being in the Gig Economy, another in the remnants of the traditional Corporate Culture, and the final third heavily Unionized. Fintech will play a role in all three.
If the Gig Economy and slack infrastructure are enablers, then ignorance of currency's history has to rank among the greatest challenges to innovation. Since the proverbial dawn of time, commodities in some form or another (sea shells, gold, gems, paper, or plastic) have facilitated the transfer of value in the form of portable money. There is no physical good, unless measured in computing power or keystrokes, that serves as the backdrop for a cryptocurrency like BitCoin.
The major innovations, value proposition, and success of Fintech, especially the use of blockchain technology, can propel the world into a more secure future as prosperity can be generated and harnessed by a greater numbers of people. The challenge, I believe, is backing these advances with true value, which I define as "portable toil." Toil is labor, work, energy, forgone capacity...all these things. (Personally I'm partial to using Element 79, aka gold, as the bedrock.)
The other great challenge for BitCoin, besides having no physical commodity linkage, is that BitCoin is finite. There will be a fixed number of eventual BitCoins. Successful currencies are "leaky." By leaky I mean that they are backed by a commodity, which preferably is difficult to obtain, and does not have a finite supply. Gold is a great example, and nugget size is particularly poignant. A nugget the size of a man's fist was seen frequently during the days of the Gold Rush in the Klondike, now a nugget the size of a peanut is increasingly rare. Extraction now focuses on smaller and smaller granules approaching the size of microscopic gold dust. There is even talk of mining asteroid gold! That's a good thing for a currency; difficult to add supply, but not impossible. It is leaky.
Ultimately, I believe the Fintech winners will unite successful elements of past currencies into a hybrid currency using blockchain technology with commodity-based backing to offer banking, insurance, and mortgages to the underbanked and unbanked while also driving a massive growth surge in the Gig Economy.
Monday, June 6, 2016
Monday, February 29, 2016
Assuming the Fed triggered a recession with their rate hike on December 16th, 2015 the above chart helps provide some idea of what we're in for over the coming months. The real question going forward is whether the Fed will continue to deny the state of the global economy, trading of the 10-year Treasury, lack of inflation, and milquetoast quality of job creation. At this point, it is a a 50/50 chance that they will raise another 0.25% for the March 15/16 (beware the Ides of March!) meeting.
Given that tomorrow is "Super Tuesday"in the United States, it is conceivable that to protect their jobs going into an election cycle the Fed in fact DOESN'T raise rates as this would further exacerbate the current situation.
The reality is the global economy is like an airplane pulling up the nose and just about to stall. Growth is so anemic that is actually feels like a recession already in many parts of the world. The United State included.
Probably the most prudent course of action, oddly enough, would be for the Fed to acknowledge their mistake AND hike again in March while also stating that they are DONE raising rates in 2016.
This would have multiple beneficial effects. First, it would put a nail in the coffin to the US economy in the short term and thereby let the steam out of any bubble in the stock market. In the short term this would be bad; but from a long-term view this would add certainty to the rest of the year which would be vital.
Second, playing financial poker with the Federal Reserve is a dangerous game; on a global scale it is borderline insanity given the massive power the Fed wields. Better for them to raise rates here 0.25% so they don't lose face in the eyes of the world, put their jobs at risk for a new Fed board in 2017, and then let the USA economy stall then begin a healthy recovery.
The greatest challenge at this point would be a strong US dollar, which would have tremendous impacts short-term on US corporations.
The probability of the Fed raising rates at the March meeting is decreasing by the day though. There is just too much political capital at risk and the entire Fed board risks losing their jobs if they mangle another hike; the safe bet here is an acknowledgment that "the global situation has changed" (due to the Fed's 16 Dec 15 move no less) and that "we will consider further tightening when data suggests our inflationary targets are met." In their own self-interest, the Fed will play it safe.
I expect gold to further its rally and stocks to climb back over 17,000 in the coming weeks. If we see some sort of definitive wording from the Fed, there well may be a massive tick to the upside here as stocks are typically leading indicators (the recession was already priced in starting with the sell-off into 2016.)
Sunday, February 28, 2016
Prepare for 1% 10-Year Treasury Bonds
Investors should prepare for 1% 10-year Treasury Bonds as the global slowdown continues and many nations now are looking toward negative interest rates.
Friday, January 15, 2016
Mama Said There'd Be Days Like This
There'd be days like this my mama said. OK the damage has been done, unless you were smart enough (or lucky enough) to go all cash on Dec. 31st, we're essentially either in a Bear Market now or at the minimum on the cusp of one.
As a fellow financial farmer I wanted to share a couple thoughts, paramount being the most useless thing to dwell on after a market rout is cash you should have stashed away or what you could have bought with what you have now lost. The takeaways?
1) Even now, you probably have too much stock exposure and not enough cash; remedy that.
2) A covered call strategy probably would have cut your losses in half; dividends and selling covered calls both act to partially hedge your long positions.
3) Progressively buying into a dip doesn't always work; we've now had 8 closing "dips."
4) Leverage, especially buying on margin, can have disastrous consequences; a problem compounds itself with leverage.
5) In summation, the old adage "the market can remain irrational far longer than you can remain liquid" is and was a viable aphorism. As is "your first loss is your best loss."
My final thoughts for today as we head into a long weekend are as follows: Successful investors are OWNERS of their respective businesses, not just shareholders. By this I mean if you own shares of Facebook for example, you own a piece of a social network. Disney, you own an entertainment company. Exxon Mobil, you own an oil company with oil platforms, exploration, and refining. The mentality of those who wish to Invest Like a Farmer is clear: stocks are more than just ticker tape symbols with a price alongside of them, they are small pieces of viable enterprises.
These enterprises typically employ people, own physical goods, and produce some type of goods or services for a profit. They most likely did yesterday what they'll do today and also tomorrow. Keep that concept in mind amongst the flurry of media hype. Revenues rise and fall, some companies go out of business, and many new ones are started. The history of the US stock market, by-and-large, has been one of tremendous long-term success.