Investments in Uncertain Times

The elephant in the room is the effect of inflation on investments. Having decided not to buy Jr. Mining stocks, what then should I buy? 

One traditional piece of advice is to buy an index fund of various stocks so that one participates in a market upswing, while not having the risk of just one, or a few, stocks. Maybe, but the way the market works right now it is difficult for me to suggest that. Things are just too uncertain. Here is what Simon Black says about that strategy:

Most investors only think in terms of ‘nominal’ numbers, i.e. Dow 14,000+ is 40% higher than Dow 10,000 (back in November 2009). But few think in terms of ‘real’ numbers… inflation-adjusted averages.

...

Take beef, for example. Based on USDA retail price data, today the Dow will buy you 3,332 pounds of beef in the supermarket. This sounds like a lot. But it’s actually about 20% less than the 4,046 pounds of beef the Dow would buy back in December 1999.

...

Gasoline is an even more interesting example. Today, the Dow will buy roughly 3,812 gallons of unleaded, non-premium gasoline in the United States. This is almost exactly the same as last January, just fifteen months ago, when the Dow was only 12,633.

 

But to match its high of 10,718 gallons set in March 1999, the Dow would need to almost triple from where it’s at today.

Simon Black may be right, but he does ignore dividends. While dividends are considerably smaller than they were a few years ago, they take away much of the comparison Simon is trying to make. It is misleading. 

But in any event, I agree with Simon that now is not a good time to be buying stocks. It is just too chaotic a time for "normal" investments—remember the video I shared yesterday about market manipulation. 

Here is what I recommend before you do any investments at all. 

A. Do away with all credit card debt. 

B. Have one month’s worth of household expenditures in cash in your house. (Yes I know it is a risk, it could get stolen.)

C. Have three months’ worth of family monthly expenditures in a savings account at the bank. (Yes I know it is a risk, the banks could close.) 

D. Have three months’ worth of household expenditures in junk silver divided between a safe deposit box and your house.  (Yes I know there is a risk that the money in the safe deposit box will not be accessible. During the Great Depression when banks were closed, customers could still get into their safe deposit boxes.)

But please no Pop Tarts! E. Gradually build up an inventory of food, in other words have a large pantry. Buy food that you normally eat. You do not need expensive survival food. 

After you have done these things you might consider some investments. I have not done all these things myself, but I plan to do so this year, especially building up a food inventory. 

What should some of your early "investments" be? I use " " since the two next things I am going to suggest are not exactly investments. 

A. Pay off your house. Or sell your house and rent. It makes no sense to me to buy bonds that yield you 1 or 2% while paying 4% or more on your house. If Peter Schiff is right and Real Estate is Grossly Overpriced, downsizing your exposure to real estate is a smart move. Do not think of your house as an investment, it is consumption that some day might be sold for a partial return of your capital. 

B. Install an alternative energy system if your house is situated properly. Note that there is a substantial tax break for doing so, and the reduction in electricity costs are a tax-free reduction in household expenditures.  I hope to do this in 2014.

Once you have done all these things, then it might make sense to make some investments. Most people will never be in a position to do all these things, so I guess I am saying not to invest until you do. 

Note that you can do each of these things gradually in a multi-track plan. I have not done all these things myself, but hope to over the next year. If you try to do everything at once, you will become discouraged and do nothing. As clichéd as it sounds, I suggest baby steps. 

We live in interesting times. We can use the time we have until the crisis hits to get our respective financial houses in order, or we can have whatever financial house we have taken away from us.  

Update on Wednesday, March 13, 2013 at 1:51PM by [Positive Dennis]

Let me add a couple of points. 

If you do pay off your house, save at least what your house payment was to replenish your savings. 

Solar only works as an "investment" if you pay a substantial amount of income taxes each year. The tax credit makes it work. 

I do not feel confident giving financial advice except in real estate, so remember that this is preinvestment advice! 

Abbott & Costello's What's the Unemployment Rate?

From Uncle Sam's Misguided Children on Facebook.

COSTELLO: I want to talk about the unemployment rate in America .

ABBOTT: Good Subject. Terrible Times. It's 7.8%.

COSTELLO: That many people are out of work?

ABBOTT: No, that's 14.7%. 

COSTELLO: You just said 7.8%.

ABBOTT: 7.8% Unemployed.

COSTELLO: Right 7.8% out of work.

ABBOTT: No, that's 14.7%.

COSTELLO: Okay, so it's 14.7% unemployed.

ABBOTT: No, that's 7.8%.

COSTELLO: WAIT A MINUTE. Is it 7.8% or 14.7%.

ABBOTT: 7.8% are unemployed. 14.7% are out of work.

COSTELLO: IF you are out of work you are unemployed.

ABBOTT: No, Obama said you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.

COSTELLO: BUT THEY ARE OUT OF WORK!!!

ABBOTT: No, you miss his point.

COSTELLO: What point?

ABBOTT: Someone who doesn't look for work can't be counted with those who look for work. It wouldn't be fair.

COSTELLO: To whom?

ABBOTT: The unemployed.

COSTELLO: But they are ALL out of work.

ABBOTT: No, the unemployed are actively looking for work. Those who are out of work gave up looking and if you give up, you are no longer in the ranks of the unemployed.

COSTELLO: So if you're off the unemployment roles that would count as less unemployment?

ABBOTT: Unemployment would go down. Absolutely!

COSTELLO: The unemployment just goes down because you don't look for work?

ABBOTT: Absolutely it goes down. That's how the current administration gets it to 7.8%. Otherwise it would be 14.7%. Our govt. doesn't want you to read about 14.7% unemployment.

COSTELLO: That would be tough on those running for reelection.

ABBOTT: Absolutely.

COSTELLO: Wait, I got a question for you. That means there are two ways to bring down the unemployment number?

ABBOTT: Two ways is correct.

COSTELLO: Unemployment can go down if someone gets a job?

ABBOTT: Correct.

COSTELLO: And unemployment can also go down if you stop looking for a job?

ABBOTT: Bingo.

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to have administration supporters stop looking for work.

ABBOTT: Now you're thinking like the Economy Czar.

COSTELLO: I don't even know what the hell I just said!

ABBOTT: Now you're thinking like our current President!!!

Here is vitage Abbott & Costello, Who's on First?

Investments

At the Cambridge House Investment conference there was an emphasis on Jr. Mining stocks. This was only natural, as their presence at the conference was paying the bills. I found the individual stories fascinating. But if I wanted to invest I would have to really study mining, engineering, and the geopolitics of the country where the mine was. Another option would be to follow an expert in these matters and buy his advice.

But then I heard one presentation that eliminated any thought of such "investment." He said that if you invested in ten penny stocks you could expect to lose money on 9 out of 10 stocks, but hopefully make enough on that tenth stock to make it worthwhile. That does not fit my definition of investment.

Nothing wrong with a little speculation. It serves a useful societal purpose by keeping prices from dropping too low or too high. But when government becomes the speculator to the point of becoming a market manipulator, we begin to have problems, big problems.

How then should a person invest? I will discuss this tomorrow. But in the meantime here is a video that discusses the various types of governmental interference and manipulation. 

Blood Sugar Solution

Here is my Amazon review of The Blood Sugar Solution by Mark Hyman.

This is a difficult book to review as, in my opinion, it hovers between three and four stars.

If this is your first foray into the "eating bad carbs will kill you" school of dietary advice, then I do recommend it. There is a lot of truth in that school and this book is a reasonable presentation of that theory.

I have wondered for some time about the value of various artificial sweeteners. Am I setting myself up for failure? I want to thank Hyman for the best presentation I have yet seen about the problems associated with these products—even sugar alcohols promoted by many. He has convinced me to dramatically reduce these products in my diet.

Here is a quote from his book:

In another alarming study, rats offered the choice of cocaine or artificial sweeteners always picked the artificial sweetener, even if the rats were previously programmed to be cocaine addicts. The author of the study said that, “[t]he absolute preference for taste sweetness may lead to a re-ordering in the hierarchy of potentially addictive stimuli, with sweetened diets… taking precedence over cocaine and possibly other drugs of abuse.”

This is really thought provoking.

Why then so I only with reluctance give this book 4 stars? There are three reasons.

I do use some supplements. But most are a waste of money. If eating the diet he recommends is so good, why do we need to buy his expensive supplements? I suppose if one believes in the diet, yet for some reason does not follow it, then these supplements might be needed. I suppose that our food infrastructure is so messed up we need supplements. I suppose that his expensive products are better than everyone else's. I suppose. (I have used some of his products.)

I also felt that some of his statistics seemed a little suspect. He said that the average TV viewership was 9 hours a day. A quick google showed that a BLS government estimate is 2.8 a day. I have seen higher estimates of 4 hours. But when you see such an overestimate that fits the narrative the author is promoting you have to wonder what other "facts" he is massaging.

He begins one section by talking about the distortions in the food business caused by government subsidies and interference in the food marketplace. He is quite correct in this. It should be abolished. He then points out the marketing power of the food giants, as well he should. His solution is to increase government interference in the market. It made me wonder if he had actually read the earlier information he wrote in that same chapter.

So while I so modestly recommend this book, I suggest reading it with caution-but then again isn't that true of any book?

Food Matters

You must have all three or society collapses. This continues my recent posts on health matters. I disagree strongly with Bittman's implication that profits are bad. They are not. In fact, people are profits. I know this will annoy people, but so be it. If we as individuals do not produce more than we consume we die. This is not to say that there is not a place for insurance, personal charity, and societal charity. The problem is when special interests can seize control of the government and direct government expenditures to private pockets. During the 19th century it was Big Rail and Big Manufacturing. Today it is Big Ag, Big Pharma, and the Military Industrial Complex President Eisenhower warned us against.

This chart tells you what you need to know about Ag subsidies. But Bittman does point out an important point about our lack of a market system. With the distortions in the food pricing system, nothing is priced correctly. If things are under-priced, too much of them are used. Through agricultural subsidies the price of corn and soy is reduced to below market levels, yet at the same time the price of corn is raised artificially through ethanol subsidies. The energy used to produce the corn and the ethanol is actually less than the energy we get from burning it in our cars. What is the correct price? Just as in real estate I mentioned earlier this week, no one knows.

Bittman is spot on in his prediction that we need to do what our mother told us and eat our vegetables.

I do not agree with much of what is presented, but I still feel that watching it will be beneficial.