028-2020 The new case for Gold

Title: The New Case for Gold

Author: James Rickards

With all the investment strategies that are out there, it can be quite dauting to pick one, especially since we won’t know whether it was the right strategy until we have reached the point that we will use those funds.

Some strategies focus on investments in companies (equity investments) and thus rely on their future earnings potential, whereas others consist of a combination of different forms of investments (equity, bonds, property, minerals, etc.) which provide more assurance for cash flow than growth. Even when one goes to a broker, they will present you with all their products, and try and find out which one would be best suited to your needs. However, whether that will result in the best option (based on how the future develops) is only something that we can see in the future.

I have read a few different articles and different books where the authors give out that their investment strategy is best because:

  • the optimist – the economy will be good in the future, therefore investing in companies is the best alternative
  • the pessimist – the economy will not be as good in the future, therefore you need to invest in assets that will preserve your wealth the best way
  • the diversifyer – to get the best of both possible outcomes, you should invest in companies and wealth-preserving assets

…which brings in more uncertainty for us on how to invest our funds since even the experts have different opinions of the same economy.

The advice I can give is the following:

  • don’t blindly rely on the expert, because whichever investment package you take, they will earn a commission
  • determine what your current financial situation is (ie. what are your assets, your debts, your earnings)
  • determine what your financial goals are (ie. new car in xx years, save money for child’s education in xx years, save additional money for retirement in xx years, buy a property to earn additional income for retirement in xx years, etc.)
  • based on your financial situation and your financial goals, establish how much money you have available to invest (that you could lose to investments and wouldn’t hit you strongly)
  • establish how you believe the economy is doing (even asking a friend) and where you feel the economy will be in the future
  • determine what you risk tolerance is to investments….how willing are you to invest in riskier investments than in less risky investments
  • then, read up on the different forms of investment out there (or let the financial advisor inform you) so that when you choose an investment you know what assets go into the package (and their corresponding risk level)
  • consider other things to think about as well

If we come back to the book, the author is an advocate for including Gold in your portfolio (not as the majority invested unit, but a small portion of your investments). The argument is broken down into the following chapters:

  1. Gold and the Federal Reserve (US central bank)
    • The central bank of a country is responsible to issue the locally accepted paper-based fiat money
    • When money was taken off the Gold Standard (ie. paper money is no longer backed by Gold) it became a fiat currency
    • Fiat currency has the value associated with it so long people have faith that there is value in the currency. Once people lose faith in a currency (and the economy) the value of the currency drops
    • Gold won’t be affected by this since the central banks don’t have influence over the physical commodity
  2. Gold is Money
    • Money is defined to meet the following three requirements:
      • Medium of exchange
      • Store of value
      • Unit of account
  3. Gold is Insurance
    • Gold is a scarce commodity that is accepted by multiple countries world-wide to have value, and therefore is insurance against the failure of your own countries economic failure
  4. Gold is Constant
    • Gold is tangible and not non-tangible (ie. paper-based fiat currency or digital currency that could be erased) and therefore cannot be lost as digital currency that can be stolen or erased
  5. Gold is Resilient

The role that Gold should play in your portfolio amounts to 10% of your investable assets.

  • 10% since it is better to have your wealth spread in different segments so that one is covered for different aspects in the economy, and not 100% in one
  • investable assets refers to the money that you can afford to invest, which loss won’t result in significant financial difficulty should it be lost

Personally, I’d like to believe that our future economies will be even greater where we can utilize technology to an even greater extent and much more efficiently, and therefore not of economic failure.

Summary:

The book makes good arguments why gold provides more financial security, because it holds value world-wide and its value is not restricted p/country. It provides clear guidance that should someone wish to include this into their portfolio, they should only include a small portion, and only with funds that they can afford to invest. The book delivers on its promise to argument for Gold, but won’t necessarily help an investor to build their investment portfolio with other assets, because those aren’t discussed, which could have been an interesting chapter on its own. The book is thus rated as 3.4/5

Keep well!!! 🙂

017-2020 The Road to Ruin

Title: The Road to Ruin (The Global Elites’ secret plan for the next financial crisis)

Author: James Rickards

As much as I value it to read investment books that paint a bright future, I obtain as much value from reading investment books that paint a rather bleaker picture of our future.

Why?

To get perspective on different investment approaches, and adjust my portfolio if I ever so desire. It’s the exact same what companies do when they run their business. In many cases they don’t only hire a new leader for their business, but also have an exit strategy should it reach a point that they need to part ways.

Also, it gives you a little sense of reality, away from the clouds that the opportunistic investments paint. Because not everything works out all the time, so we take a little more time to reflect on whether the investment should be worth our time and money. We need to dream, but also be realistic.

Different authors give a different outlook (and different investment strategy) and the one written in the book is one for wealth preservation, and caution.

Only a few months back I lived in a third-world country which, however, had a financial sector that was functioning superbly. Most banking has already switched to mainly online, however not completely since it was still in third-world levels to some degrees. Then I came to a first world country, where (mainly in this country) cash was largely still king. My initial thought was, it would be so much more efficient if we were just digital.

Now, reading the background to this book, I see that holding back from becoming completely absorbed in a digital world is maybe not so great, specifically when then contents of this book become reality.

One Money. One World. One Order.

  • Floating Exchange Rates definitely make global trading subject to volatility. Daily events can change the exchange rate of a country better or worse. However, with one world currency, trading could bring some stability to the system, especially when currencies are not covered by gold as they were before.
  • Bringing everyone to the digital platform enhances efficiency, however, when the state has the power to stop trading and shut accounts in the event of a crises, you effectively have nothing to fall back on to. Therefore, as states gain more control to reduce the impact of financial crises, we really learn who has control over the money in our online accounts.
  • Another way control can be held over more people is by bringing them closer to the cities in concentrated masses. Compared with being widespread around the country, the state simply needs to exercise.

This already gives me the creeps that something like this could happen. Some might say this is not really in our close future, and others might say that it may be closer than most think. It’s something we’re definitely not hoping to have come experience. Imagine the state of “V for Vendetta” happening in Europe.

Giving us this background, the author introduces us to invest in asset classes that preserve wealth as well as they have done in the past for some other families. One of the methods he elaborates this in the best is the Rule of Three’s, as was applied by a family for the last 900 years in Italy, Palazzo Colonna. 1/3 invested in land, 1/3 invested in art and 1/3 invested in gold.

If we switch over to the portfolio structure that is suggested in the book, the structure is as follows:

  • 10% physical gold & silver – tangible
  • 30% cash – tangible
  • 20% real estate – tangible
  • 5% fine art – tangible
  • 10% angel and venture capital – intangible
  • 5% hedge funds – intangible
  • 10% bonds – intangible
  • 10% stocks – intangible

From the above structure we see that 65% consists of tangible assets (inside your control that cannot be blocked by bank closures) and are therefore mainly aimed at wealth preservation. The remaining 35% is included in markets to try and set off some of the market inflation created every year.

Summary:

There are many different investment strategies, some focused on growth, some on wealth preservation, some of a combination of the two. It is up to us to determine which one works for us, and then work towards building our own financial plan. The insight is something that is worth keeping in the back of our minds since the future is always uncertain, and being prepared is something we could work prepare for. The book is somewhat tricky to follow, but still holds a good rating of 3.6/5.

014-2020 Currency Wars

Title: Currency Wars (The making of the next Global Crises)

Author: James Rickards

This is my second book with this author (the first being “Aftermath”), and just as with the first book, he has given me more to think about regarding our finance system.

Our currency system, exchange of paper money in return for goods or services, is based on the mutual trust we have that the paper money is representative of value. As long as we maintain that trust in the currency, the society can continue to function the way it currently does. But, once we lose that trust, people make a run for the banks to get out as much as possible.

In the kingdoms of the past our currency system was made up of coins, which were minted from real commodities. Additionally, the coin that was issued by the kingdom had the assurance from the king that the coin would be accepted as legal tender to take part in trade in that kingdom. Then, the invention from Asia was brought to the West, paper money, which proved much easier to carry around, and therefore a lighter coinpurse. However, that paper only had value because it must have been backed by something that held value in such a kingdom, this was gold. For a fixed amount of paper you could buy a specified amount of gold, or other commidity.

Therefore, as long as we had trust that for the paper money we used there was gold for which it could be exchanged, a simpler currency system could be used in daily circulation.

Entry, the chapters to the book.

Prior to the First World War, different countries had set a fixed exchange rate. One was allowed to exchange currency for a certain amount of gold. Every nation had fixed a different rate to gold, and thereby indirectly created an exchange rate between different currencies. Then, the war broke out and countries took out loans to finance the war from their side.

After the wars ended via an armistice, the winners wanted the losing countries to paid for all their debts which they had incurred to run the war. England and France were eyeing the erves of the losing country, whilst America wanted them to be afforded the chance to repay reparation costs through future economic output returns. Thereby, the losers would be able to build up their economy again, and also be able to repay reparation costs, rather than losing their ability to generate any economic output at all, and be in ruin.

Germany then underwent a currency devaluation (ie. making the purchasing power of other countries in Germany stroonger) to become an attractive country to manufacture goods. France followed soon after, since they wanted to regain the competitive advantage that Germany had gained, and afterwards countries like England and America experienced their Great Depression. The purchasing power of the currencies dropped significantly, and many people lost savings and were financially ruined.

Throughout all this Germany became stronger again, and a strong economic player in the world trade. Sadly, the country engaged in war again in 1939, and led to World War 2.

After the end of the second war, the different countries came together and decided that all the different currencies of the different countries should be pegged to one currency, the strongest currency, which had value for the other currencies since that currency was backed by gold reserves. This was settled in the Bretton Woods conference, where the US Dollar was then set as the pegged currency.

Since that day, the US Dollar was backed by gold, and other countries that traded with the US Dollar in their transactions had the assurance that for every Dollar in circulation there is a certain amount of gold stored somewhere. Some countries, however, became stronger than after the war had ended, and decided to build up their gold reserves. It became so bad that in 1971 the then President of America decided to take the US Dollar off the gold standard, and no one was allowed to exchange their dollars for physical gold. This was done in order to preseve the gold levels in the country. Further, America wanted to devalue their currency against other countries, because it felt the Dollar was overvalued, which would make other suppliers in other countries cheaper to buy from, and result in loss of jobs to America. By devaluing the US Dollar, the purchasing power was dropped in relation to other countries, in order to improve its competitiveness against other trading countries.

Another way the purchasing power of the US Dollar was dropped was when during the Financial Crash (2007-2009) the Federal Reserve printed money from thin air, which should be injected into the economy to get trade going again (called Quantitative Easing – QE). Since more paper money was in supply the demand for it wasn’t as strong as when there were fewer, so the price to acquire a Dollar dropped.

Now, you may want to ask me, when am i will come around to write the review on the book. Well, what I have recounted above is what the book is about. It elaborates the hsitory of the US Dollar in the 20th century, and how volatile paper currency is as money. Our paper money can have one value associated with it one day, and the next lose it, which means saving all our money in the bank is not necessarily equivalent to becoming rich, or ensuring ones financial future. Our modern day currency is so susceptible to lose its value that we actually need to consider more than one way to maintain wealth, and not through saving money in the bank only.

Summary:

The book gave me really more perspective on the matter of currency, and how important it is not to rely on something like paper to sustain our future retirement. We need to become financially educated and never rely on another person to take care of us, but work and build our asset columns. Book takes my rating of 4.3/5

I hope that when you decide to read this book one day you will also get a shock, and wake up to realize just how volatile our modern-day currencies are, and that more than savings in the bank will do the job of securing a financially securer future.

Happy future reading!

006-2020 Aftermath

Title: Aftermath (Seven Secrets of Wealth Preservation the coming Chaos)

Author: James Rickards

Hi there, I know I’ve been absent for a while and I’m a little behind with regards to the volume as I did last year. Last year was my best year i.t.o. the number of books I managed to read, since ever. This year I’m lagging a bit behind, but I’ll definitely try and make it up by jotting down some great reviews.

I have been browsing in the bookstore and on my liked pages for good reading material, and interestingly found some great recommendations in the books I have recently read. These I will keep you posted on once the last sentence was read over.

But, without further ado, let’s get into this book for a starter.

Just before I left my home country to work abroad I picked up a few finance books to accompany me there. Two of them I have already posted about, namely ‘Rich Dad, Poor Dad’, and ‘The Richest Man in Babylon’.

One thing I’d like to make clear from the start is that the book is written for a time-specific moment. Meaning, the wealth preservation tips that are given in this reader relate specifically to the time we find ourselves in right now (before the virus broke out, the print was before then). Some people are arguing that the world economy could be standing in front of another financial bubble. Stocks markets could see a downturn and we could enter a recession.

From the start I’d like to tell you that I’m not an expert in this field to make such a prediction. It may happen soon, not very soon, in the distant future. But right now, the book focuses on that it could be coming soon (and by soon I’m not stipulating a time frame), and that there are some ways which investors can utilize to hedge themselves in order to possibly reduce the impact of a possible bubble burst. Maybe I shouldn’t be using the word bubble burst, given how we react to certain words.

There are so many investment brokers out there, and as many investment products that you may choose from to make an investment for your future. Many of us may not be as financially educated to understand as much of it as we’d like to (specifically because we’re dealing with our hard-earned money), and therefore we don’t know what to invest in.

This book was written by an author, whose work suggests that you should invest in such a way that will best protect your wealth. Other authors will again suggest that the market may experience a bubble burst (here I go again), but that it will recover and that share investing is the way to go.

The one tells you you should preserve your wealth. The other tells you the market will recover, and that when it does, your investment will grow better than the strategy followed by the aforementioned investor, whose strategy will only preserve your wealth, but not grow it.

At the end of the day we’re stuck in-between wanting both.

But to get back to the book, I’ll give you some insight to this wealth-preservation book. As mentioned in the title, he presents you with seven investment tips on how to best preserve your wealth in present-day times when some expect that a bubble burst could be imminent.

The way the chapters are structured is by giving an extract of present-day events, and also past events (past meaning the 20th century). Then after the events are explained, and how the author believes we might be coming back to some of those phases, he ends the chapter with the investment tip he believes is an appropriate response we should follow should a situation as described in the chapter come to pass.

Some of the tips given are 1) reducing exposure to high-volatile stocks, and rather back companies that can weather hard times better, 2) allocating a little more of one’s portfolio to cash, than when the economy is in a growth spurt, 3) allocating your portfolio to include some resources where possible, since they have tangible value. There are a few more, but to get them it would be better to get yourself a copy and read the whole chapter dedicated to the investment tip.

Summary:

Overall, I enjoyed the way the author presented the investment tips with some valuable historic background. I also learnt a few more things, for example how the Gold Standard came around quite unintentionally, and what finally led to its removal. The book is well written, but does require the reader to understand some of the economic terminology (which can be solved with a google definition search or the old Oxford English Dictionary booklet). I therefore give the book a rating of 4.6/5