---Disclaimer: I am not a Professional Investment advisor. This blog post is offered for entertainment purposes. It is your own money. Do your own research.---
In 1967 a movie that supplied profound insights into economic booms was released by Disney Studios. The title of that academic study was The Adventures of Bullwhip Griffin. The book that was released was simply titled Bullwhip Griffin. The book is better than the movie.
The story is set in California in the early days of the 1849 Gold Rush. The underlying message is that the surest and most durable path to wealth is not the obvious path. For every miner who struck it rich in the gold fields there were 99 that could not pay all of their bills. Nope. The surest path was to supply the miners with tents, shovels, pans, apple-pies, pants, shirts, alcoholic beverages, fried oysters, quick-silver, lumber, barbering services, a hot bath and so on.
A conversation with a friend
My friend is a pretty sharp guy and he shared a few investment insights with me yesterday.
Like me, he sees inflation as a major threat to the wealth he saved up through his working years. Unlike me, he can afford some very high-end analysis people to sort through the details.
The obvious AI plays, NVIDA, Microsoft, Open-AI, Oracle are over-bought and have very high Price/Earnings ratios. The every-increasing revenue that is reported by those firms is reminiscent of the washer-women in Hooverville who survived 1932 by taking in each other's laundry. The speed-of-money between those firms is an ever accelerating merry-go-round.
Another complication is that it can be difficult to determine if a firm is a viable concern when capital is flooding into it. Large volumes of incoming capital will mask structural flaws and weaknesses in organic demand.
The less obvious investment plays are to buy stock in companies that mine or smelt copper. To buy stock in companies with proven reserves of rare-earth metals. To buy stock in utilities that serve states with a permissive, regulatory environment toward nuclear or fossil-fueled plants. Even if AI collapses, there will still be markets for copper wire, rare-earths and for electricity.
If you aren't comfortable buying individual stocks then another way to balance your investment risk is to move some of your savings into a mutual fund that focuses on "Value stocks". Value stocks are typically boring, mature (i.e. not rapidly growing) businesses that generate profits the old-fashioned way.
Why not sit on cash?
Well, that would be a great move if you could predict if/when the stock market will crash.
But history tells us that inflation and deflation can exist within the same economy and that the inflationary parts of it will vaporize the wealth that is stored as "cash".
Wait a minute. How can an economy be both inflationary and deflationary at the same time?
Consider the Wiemar Republic in the early 1920s. The nominal value of a producing apple tree or garden full of potatoes or a cord of firewood sky-rocketed while the nominal value of certain luxuries like musical instruments, fancy clothes and pensions dropped to zero. Some sectors went up (way up) and other sectors collapsed.
The ones that preserved wealth were assets that served the lower levels of Maslow's Hierarchy. The assets that collapsed were ones that invested in the higher levels of Maslow's hierarchy.
Even if you lose money investing in productive assets, you will lose even more buying power if you squirrel away all of your assets as cash.
This observation comes with a caution. You need to have enough cash-like assets on-hand to pay your taxes and currency-denominated debts like your mortgage.
A final word
The movie contains a "fight" scene where (seemingly) prissy "Bullwhip" Griffin beats the hell out of a street-brawler. Hence his new nickname "Bullwhip".
There are times when the only viable coin-of-the-day is to be able to vigorously defend what is yours, your honor and the honor of your woman.
To me, a stash of long term foods that will not require electricity to keep edible would be well worth having. Pick the Gotta Have Regardless items you use everyday.
ReplyDelete$$$ can be stolen or destroyed but it can also help lower the price on a here-and-now purchase. A lot of people are making hard choices on what is kept or sold.
That is a really great post Joe. I'm going to pass it on particularly to those young people that I have been trying, mostly without success, to convince of the probable future. At my age I have watched this happen before and the first time I really got hurt and after that I listened to the old coots and did OK. I spent 50 years in the court houses examining the land records back 100 years and it's a constant replay. But this one, I believe, will be the worse. --ken
ReplyDeleteThat was a good book! I had not thought about "Bullwhip Griffin" in some years.
ReplyDeleteThe rule of law is critical when trying to plan for your family's economic future. Joe addressed it thusly (HT well done)
ReplyDelete"There are times when the only viable coin-of-the-day is to be able to vigorously defend what is yours, your honor and the honor of your woman."
Plenty of homes and farms were sold on the courthouse steps guarded by sheriffs during the depression over debts or taxes not paid.
In my family's stories of the Great Depression, they decided whose homes was best to keep taxes paid on and multi-generational housing kept them from going homeless like so many drifters of that era.
That old picture of a well dressed man beside his beautiful car with the sign car for sale 100 dollars CASH Only was realistic, as was investors throwing themselves out of windows in distress.
Gold. Bullion coins, 1 ounce are fine. Kruggerands or Maples or Eagles. Silver, too. People look at its price in federal reserve notes and go w0nky. Think of it instead, of locking up the value of that many federal reserve notes, in todays value. As inflation goes up, so will the FRN price of the coin. If you stack 100-dollar bills at the bank or under your mattress, you will lose that fight every time.
ReplyDeleteMy family forebearers saw the Depression coming. They invested in gold and farmland. Roosevelt confiscated all the gold, and the farmland was stricken by drought.
ReplyDeleteDiversify if you can!
My dad's friend was explaining to me about living during the Great Depression. Money and jobs were hard to come by, food was short and many were on the edge of real hunger. But he said on Saturday morning, women were lined up to get in the "hair parlor". So I'm buying hair curlers, rollers, curling irons, straightening irons, flat irons, and crimping irons.
ReplyDeleteIf a commodity is something people always need...or want then the industry supplying those items are probably safer bets to invest in. But it's no gur. If you had asked pro investors in the 70's if Sears & Roebuck was a bad investment they would have laughed at you. So no investment is completely safe for long terms.
ReplyDeleteWhen it gets really spicy, the little bit of silver that I have, will only be spent on items I will have a year later. Ex tools, seeds, clothes, the only exception may be antibiotics. The real problems I see are wives that can't stop spending. But it may not be a cash crash, it might be a credit card crash. Woody
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