Purchasing Power

Purchasing Power

Arguably the biggest casualty of the Vietnam War was on August 15th, 1971 when Nixon ended the direct convertibility of the dollar to gold. Since the United States abandoned the Gold Standard in 1971, the United States Dollar has lost 98% of its purchasing power. So after 55 years, for every dollar indexed to 1971, the American citizen is left with 2 cents. Hopefully, the United States never removes the penny from circulation...what would be the purchasing power of the dollar then?

Here at Invest Like A Farmer we have long been champions of owning gold, indeed we were among the first to suggest investors consider buying their own gold mines (in the form of gold mining claims.) Why is that? Investing ultimately boils down to cash flow. Cash flow implicitly implies a certain standard of living or purchasing power. Purchasing power over time is paramount, and gold is one of the best stores of wealth (toil) of any asset class. You do not want to have to earn your money twice!

Alan Greenspan once quipped that: "I can guarantee the amount of future Social Security benefits and for how long, but not their purchasing power." That is a very salient comment. At some point, cash flow needs to be tethered to reality, and that reality is purchasing power. Gold is elemental in its ability to store value.

For many Americans outside of the Baby Boomer generation the American Dream remains elusive, if not completely out of reach. It is out of reach because assets of high quality (read real estate) are in high demand with frequent hoarding by both generational wealth and corporation now. The world is awash in cheap goods and services labeled as "free" which collectively siphon off trillions of zinc pennies at a time.

Assets of true value are almost unobtainable for younger generations because: 1) there is an artificial shortage of housing (lack of supply for several reasons), 2) there has been virtually zero real wage growth in 50 years, 3) there has been an utter collapse in the purchasing power of the USD.

Since time immemorial governments have debased currency in the attempt to spend more than the currency can afford; some of the earliest known tricks were to make coins of lower grade gold or silver, make coins smaller, cut edges off, change from gold and silver to silver and copper, change from metals to paper that was redeemable for gold or silver, paper that was redeemable for nothing, and most recently electronic money which can have an infinite supply.

Much of the reason why America grew so quickly was an abundance of land and the California Gold Rush of 1849. The Gold Rush triggered one of the greatest migrations in human history. That also added in today's dollars TRILLIONS in "God's money" aka gold to the financial system. Gold is so powerful FDR actually criminalized the ownership of gold in 1933 via Executive Order 6102!

There has rarely been a better time to purchase or stake a gold mining claim in the United States. With gold trading at $5,000 oz-t. mineral rights on these claims can be worth millions of dollars in gold. Of course one must have sufficient knowledge, capital, and the willingness to work; but the average high school student properly trained, duly equipped and unleashed in gold country stands to make more in a week than an entire summer flipping burgers or mowing lawns.

As the Age of AI dawns upon us, many layers of work will disappear. Vast segments of labor will no longer exist. Promises of utopian society have begun to emerge with Universal Basic Income solving humanity's woes. The reality, however, almost always reverts to basic human nature of self-preservation and survival. Our bet at ILAF is that gold will have a central role in that future of protecting purchasing power.

$1T Land Deal

$1T Land Deal

As President Trump departs for Davos, it is becoming increasingly likely that the United States may purchase Greenland from Denmark with a price tag rumored at $1T. This land deal would mark the largest of the land deals ever completed for the United States.

The two largest previous deals being The Louisiana Purchase in 1803 from France for $15,000,000 (yes the same price in nominal dollars as a flashy Beverly Hills home today) and The Alaska Purchase from the Russian Empire in 1867 for $7.2M which was termed "Seward's Folly" under the belief the United States overpaid for a vast frozen tundra.

Greenland offers the United States, and indeed both Europe and Canada, the opportunity for increased defense against potential adversaries capable of launching intercontinental missiles that would fly over the Article Circle on the shortest flight path into the United States. Contrary to popular belief, this is not the first time the United States has attempted to negotiate for the purchase of Greenland. It is just the latest salvo, this time very public, of the United States trying to shore up its northern defense.

Indeed, the United States has tried to purchase Greenland on three successive occasions before; in 1867 by Seward, in 1910, and most recently in 1946 after World War II. All previous attempts had been rebuffed, with the latest after World War II cementing Denmark's control of a landmass FIFTY (50X) times its size, but 1/120th its population. 1946 was a missed opportunity, especially as the United States aptly entered the Cold War.

Interestingly over the past weekend, 8 NATO countries deployed troops to Greenland on the concern of President Trump's desire to buy Greenland. Yet these same countries for some odd reason have not deployed a single trop to Ukraine for an intense land battle with Russia which is entering its 4th year. Millions injured, hundreds of thousands killed, and complete societal change in Ukraine yet seemingly only Poland has stepped up to the plate.

The dynamics of the European mind are mysterious. Denmark acts like a domain squatter who has allowed use of a war prize from the 1300s to the United States to benefit it and Europe, while refusing to let the protector of Europe (USA) to develop this asset for global security.

Time will tell how the chips fall, but Denmark has the opportunity to cash in on an asset they have long done nothing with and provide the United States, Canada, and Europe with additional defensive resources.

Making Mistakes

Making Mistakes

One of the most unheralded advantages of hiring a professional is that you are paying for mistakes they have ALREADY made, and more importantly, hopefully have learned from...which is kinda disconcerting when professions like medicine and law are termed "practices."

Obviously the financial world is also a practice, one in which when you hire a professional, whether you realize it or not, you are also paying for their past mistakes...mistakes that SHOULD be very lucrative for you to profit from in the future.

Much of the "hustle" of modern retail investing has been a colossal marketing effort, well int the billions, to convince the investing public that: 1) Anyone can invest on their own, and 2) As long as you Index with Low Cost you can "beat the market."

Just like "free" may be the most expensive word in the English language, "Low Cost" has its problems too. Big Problems. But the former point deserves just as much, if not more attention. The combination of "anyone" and "low cost" has created a windfall for behemoth financial institutions like BlackRock (iShares), Vanguard (S&P 500 Index), and Fidelity (Mutual Funds) 

The unkown unknowns. Those are what new investors should be concerned with, along with the known unknowns of course. But what "big money" does not provide for the average retail investor, and what a seasoned professional in finance DOES, are answers and strategies for both of those scenarios.

There is a reason why 100% of large-scale dynastic wealth is professionally managed, and not typically by the heirs themselves with "low cost" solutions. Although paying a higher fee may not garner a higher return, it should most assuredly include "lessons learned" from said advisor(s).

One of the most important questions an investor should ask a portfolio manager he is thinking of hiring is: "What mistakes have you made investing?" Pay attention to that answer, and especially how that PM has learned from those lessons in running the practice.

Execution

 Execution

Execution is everything. For the vast majority of us, even a very successful life and career will be largely lived in obscurity, invisible to the larger world. It will involve grinding out small wins, the proverbial base hits for decades. In time, home runs and even the grand slams will happen, but mastering the craft and even getting on the field, will be paramount for stepping up to those at-bats and swinging at the ball.

The search for excellence, whether in investing, a relationship, or a career also is closely tied to execution. Excellence is found in repeated successful execution of tasks, muscle movements, and ultimately choices. Excellence is a process, a repeatable system with frequent feedback. In the business world, much of that process can be bought via something called marketing.

Marketing helps companies, and increasingly individuals, build their products and brands in the public eye thus helping achieve brand awareness that in the past was accomplished by repeated successful execution and word-of-mouth. The marketing cycle has increasingly been compressed into seconds with short video reels on platforms like TikTok, YouTube, or....Reels.

Andy Warhol once quipped that "...in the future, everyone will be famous for 15 minutes." Not only was he 100% correct, but the time element of viral fame is now as compact as 15 seconds. This leads to the question of whether attention to detail and successful execution even matter in a low-attention society. The answer of course is yes, and the following is why.

One of the best quotes on the subject of execution is: "Watch your thoughts for they become your words, watch your words for they become your actions, watch your actions for they become your character, watch your character for it becomes your destiny." 

Billions of humans are thinking trillions of thoughts and speaking a corresponding number of words, taking a subsequent number of actions, and becoming certain types of people. Not all seek excellence, but as Adam Smith famously theorized, we are all motivated by our own self-interest. This is what drives economic activity and humanity itself.

As we kick off the New Year and resolutions abound, it is important to remind ourselves of the value of owning our actions, mastering our craft, and focusing on successful execution...whether those wins are on the athletic fields, board rooms, or in the living room execution is everything.