TiMe: "Tick Tock, Tick Tock"
CoNTeNDeR: "Precisely FuTuRe I have no idea what you are really up to. Heck I had a guess at the outlook for the year and how did that come out.....so I need a bit of diversification because of all of your conniving, plotting and outright corruption!"
We are living in very interesting times especially with regards building and maintaining wealth.
In this post we cover the TRiBe's options for investments in currency, commodities real estate and bonds with examples and opinions on some of the pro's and con's?
"You have much more opportunity to earn money than you do to 'not spend' money, and yet most people spend hours upon hours clipping coupons and perusing daily deal sites instead of brainstorming how to earn more money and solve people's problems." - Susan FujiiIn the second post we will be looking at other investment classes such as stocks and yourself followed by the TRiBe is current thinking.
Paper Money Supply - Blind Faith?
Since 1970 when Nixon took the world off the gold standard there has been no anchor to excessive money / currency creation. Governments have control over the supply of their currencies and they can determine the ultimate value of the currency in circulation depending on the amount in circulation.
Previously if people wanted to save their labour and future buying power through the means of a currency, they could chose a checking account. It earned interest that was enough to offset any excessive increase in the currency supply. This is certainly not the case at the moment, interest rates are artificially low and people are being 'guided' to riskier investments for a return.
One may ask but why is the currency supply increasing above the increase in productive capacity of the economy. Unfortunately this is easy to attribute to governments' fiscal irresponsibility. Excessive overspending is used to buy votes from the electorate.
Alternatively if a country has strong institutions, low spending and fiscal responsibility - holding that countries currency is less of a concern.
Fiat Money is covered by Currency Wars: The Making of the Next Global Crisis by James Rickards, and Paper Promises: Money, Debt and the New World Order by Phillip Coggan. There is also a good video to watch by Warren Buffet highlights how countries get into trouble in the first place.
See the video series Hidden Secrets of Money by Mike Maloney
Tribes opinion - it is so easy to transact in paper money and in the governments interest to keep them in place we will always keep some in our portfolio.
Electronic Currencies - How Many?
We now have alternative currencies such as Bitcoin and Litecoin hitting the news wires for their massive gain in relative value to reference currencies such as the US dollar.
Firstly there are many people in favour to the inbuilt scarcity of the digital coins. Secondly they are not issued by any government and they are scattered globally that make them uniquely difficult to manipulate.
One thing that is a red flag to THE.ConTENdER is what stops an unlimited amount of new versions of electronic currencies being created?
Will the herd just jump from e-currency to e-currency chasing gains - see a list of them here (10 listed)? THE.CoNTeNDeR thinks this is highly likely until the number of e-currency options goes to infinity or faith in them is destroyed. Their value will go the same way as fiat currencies trending towards their intrinsic production value of close to zero.
What may save them is if the herd all commit to ONE e-currency.
One thing preventing this e-currency utopia is ... human nature. We are opportunistic and after an easy meal / fast buck. Our prehistoric past moulded us that way. When we were being chased by sabre toothed tigers whilst eeking out an existence coming across a free lunch in the form of a dead Mammoth.
Will everyone commit to one e-currency? I would like to think it could happen but who can tame human nature. Will we have to live in a dystopian future where we all take the happy pill to keep us controlled?
Zero hedge recently reported that 100 people hold 20% of the bitcoin currency - a new type of Ponzi scheme in the making? Create a new e-currency holding a large percentage of the issue then cash in and move on as the perceived value burns. Who is left holding the proverbial handbag - the new entrants - good luck or what a good SUCKER!- THE.FuTuRe would be impressed!
See this utube documentary on bitcoin
Tribes opinion - Speculative and almost impossible to value - mine some coins by all means* but only purchase if you have some spare gambling money :)
* THE.CoNTeNDeR has had a go at mining. The setup is a pain, it is geeky, based on lots of technical know how. To mine alot of coins and to really exceed requires specialise mining rigs - a currency for the people - you must be joking!
Next up commodities
Commodities - How Much?
Scarcity, interchangeability barter have been some of the limiting factors since the year dot. Change your bag of coal for a bag of potatoes - how much is it worth? Does the other person want coal in exchange for potatoes - real problems exist.
Perhaps a unit of account such as cigarettes, bullets or gold coins are better.
They all would have some utility in THE.FuTuRe right? Would they not keep their value better that that of the US dollar, UK pound or Japanese yen. Maybe worth a look as a common recommendation is to hold a smallish part of commodities in any investment portfolio.
See the silver bullet / silver shield article from Chris Duane on the merits of investing in a commodity such as silver.
Tribes opinion - we need commodities daily, so keeping some essentials stocked in the cupboard is probably a wise decision.
Real Estate - Right Place, Right Time?
People need a place to work, do business and ultimately live that is why real estate is one of the hottest topics us humans talk about.
From an investment perspective we are certainty not making any more land. The best spots on the globe are already populated and spoken for and as a result are desirable. This is especially the case for the major cities such as New York, London, Sidney and Shanghai. They are all economic powerhouses where people can get good jobs.
As a result these cities command high property prices and rents. New properties are being added but not at such a rate that can subdue the property prices of the prime locations in the city.
Governments also like to blow property bubbles. Property generally comes with the leverage of a mortgage, you put 10% down and have the full value of any gains in your name. Government like the rich effect of house prices especially before elections.
Real estate has been a fantastic investment for several decades. sure it has its ups and downs but long term it has been a winner. For those that accumulate rental properties it is one of the routes to financial independence.
What about risks? If Jack Bauer were not around a nuclear attack could render a city inhabitable. Just look at the devastation caused by the Fukushima or Chernobyl disasters. What about a different type of black swan event such as a natural disaster or localised economic collapse.
Fortunately these are very low probability events (as far as we are lead to believe) so real estate will still be seen as a key investment in the future.
See Rich Dad Poor Dad series for information on real estate investing
Tribes opinion - Location, Location, Location is a very popular TV program and for good reason - they are not building any more prime land. Just don't overpay or get into serious long term mortgage debt with it - own it outright.
Government Bonds - Ability to Repay?
Bonds have historically been considered a very safe investment especially when they are backed by a government......admittedly who really said this and based on what time in history let alone trying to guess what THE.FuTuRe is up to all have to be asked at this juncture.
Just look at US treasury bonds. A complete artificial market. What is the free market price and yield of the bonds? is the Federal Reserve / government were not in control of it? What happens when they step aside, do you want to be holding bonds then or are you missing out on a good thing?
Corporate bonds are a different alternative and may be the better bet along with property REITS for income seekers at the moment.
Follow Bill Gross who runs one of the largest bond funds in the US on twitter
Tribes opinion - In the current environment they are not of interest - they pay next to nothing in it! Perhaps look at other fixed income streams such as REITS or corporate bonds / preference shares.
Next up a look at some other popular investment classes and what the TRiBe is currently up to.
Peace, prosperity and happiness
THE.CONTENDER
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Bitcoins are the new dollar. I just love them and I would like to share with you how to spend them, where to spend them and the current exchange rate of bitcoin. Bitcoin does have a page where you can find all this information: who-accepts-bitcoins.com.
ReplyDeleteHi James,
DeleteI am all for mining the coins unfortunately I will not speculate on them by, for example, selling stocks in productive company and investing in ecoins.
Perhaps mine a few sell them for income generating assets and enjoy the ride if they go up. If someone were to purchase them with dollars they should always remember diversity / asset allocation e.g. small speculation in money that they can afford to loose.
I say this because Ecoins are all the rage but for how long?
Manias in asset classes have left a lot of people poorer in the past once the scarcity factor disappeared (including company stocks). Bitcoin on its own has scarcity value but e-currency does not. The source code can be freely copied and re-produced as a new variant. The early adopters are then generally the winners where as people late to the game can get caught short.
Will people just jump ship onto the next e-currency bandwagon? Has that already started with Litecoin? 'Free' money is very enticing so people will move from coin to coin in my opinion - scarcity will evaporate - we will have to wait and see.....
It is great to see the diversification and innovation in currency that is happening. It is even helping people to ask the right questions about currencies in general and the store of value they provide.
All the best