Money Doesn’t Grow on Trees, You Know
Money doesn’t grow on trees, you know, was a statement often heard when I was a lad, when submitting my request for a new bike, or a modest increase in pocket money, and indeed, back then, living standards were much lower than they were today.
Thursday night was special in those days, because it meant the twin delights of ‘Top of the Pops’ (a popular weekly music show for those not in the know) and a full can of Coca Cola all to myself (on other days, I would have to share a can with my brother, and we would get out the tape measure to make absolutely SURE that we both got the same amount…).
Back in 2013, it seems that this is no longer the case…money is being printed from nowhere, as if growing on the world’s timber supply, as the central banks of the western world engage in mass ‘Quantitative Easing’ in a race to debase (devalue) their currencies. This, in theory, would make their exports cheaper and has the added advantage of inflating away the humungous debts they have accumulated.
Unfortunately, this can’t be done in isolation, it’s a ‘zero sum’ game (i.e. there are only winners and losers in this scenario)…if your currency drops in value, it automatically means that someone else’s has to rise. Being well aware of this, the Bank of England, the Federal Reserve, the ECB, Bank of Switzerland and recently even the Bank of Japan has started an increasingly acrimonious ‘race to the bottom’ in currency devaluation.
The problem being, of course, is that if everyone devalues at the same time, you end up more or less where you started. It simply won’t work, and the consequences are going to be severe. Shock & Awe The amounts we are talking about these days are truly awe inspiring. The Fed has engaged in QE3 (not a new super liner, unfortunately…that would cost MUCH less), which is the third attempt at monetary easing and involves the creation of $85 billion USD per month!!
When will it end? Well…er…we’ll get back to you on that; it’s kind of open ended. If you want to understand more about QE3 and the reasons behind it, then check out ‘Bringing Home the Bacon’ below. The US national debt currently stands at approximately $16.7 trillion dollars…in actual zeros:
$16, 700,000,000,000. If you have ever wondered what a trillion dollars actually looks like, then check out our short online presentation ‘How to Visualise Debt’ here…
Valuable Paper The important thing to remember here, of course is that these days, currencies are not backed by hard assets (such as gold or platinum), only by the ‘full faith’ of the governments that issue them (fiat currency). This hasn’t been a problem until recently, when investors (including creditor governments) are becoming increasingly nervous about the value of the paper money they hold. If you were to go into a Mercedes showroom in downtown Manhattan, they would quite happily give you a rather nice piece of luxury engineering in return for a suitcase full of paper (money laundering requirements aside for the moment).
The only reason that they (or indeed anyone accepting the cash for goods or services) do that is because they believe the green stuff has an actual value. Fiat currencies only work as long as the general public has faith and trust in that money. If you take that trust away, then you really are staring down the barrel of a gun… And if this green stuff really did grow on trees, and all you had to do was go down to the bottom of your garden to collect a handful more, then how much value are you going to place on it? How much of the stuff would you accept in return for your hard assets (your home, your car, your gold coins) if the world and his dog was in possession of armfuls of it? What Does This Mean For You and Your Assets?
This article has been written to try and get you to think about these issues in a different perspective. We are now inhabiting a world where the rules of the game have significantly changed to a degree not seen in our lifetimes (unless you are old enough to remember the Great Depression and the German hyperinflation of the 1930’s)…The main upshot is that we are now in an extremely volatile and uncertain world, so making sure that you are armed with the right tool kit is more important than ever. You should be asking yourself the following questions:
- Am I thinking in terms of ‘return on capital’ or ‘return of capital’? (i.e. what are the chances I could lose it all chasing higher returns in the next big ‘market event’
- Am I sufficiently diversified in a strategy that takes account of the current realities?
- Do my goals and aspirations need to be revisited to ensure they are still achievable.
There are many others, but this gives you some idea. You also need in your tool bag:
- An increased awareness of the ‘big picture’ behind current events…knowledge that will let you make important investing decisions with greater confidence in the process you went through to arrive at that decision.
- A medium that explains the above in plain English, without the jargon.
- A chance to discuss ideas and strategies with like-minded people in similar financial situations.
- A medium where you can try out your strategies in real time, in the real markets, ideally without risking any of your hard earned real assets.
- Access to the right funds and service providers, to house your portfolio in a secure, tax efficient environment.
Our Concept This is where we come in. Having identified the real need for the above tools, we looked around for suitable providers of information and services that filled this gap for expat investors…and came up sadly lacking. As a result, we came up with a four tiered approach:
- ‘Bringing Home the Bacon’ – A bi monthly financial/general interest magazine that seeks to explain the ‘big picture’ behind current events, without the jargon.
- Trade Winds Expat Investment Club – A chance to learn the ropes on investing, without the risk. Invest virtual money in real markets, in real time.
- Short Sharp Shock/Plain & Simple – For those with short attention spans (probably most of us), a series of 5 minute online presentations on interesting and unusual aspects of finance and investing.
- Stratosphere Risk & Wealth Management – A place where you can implement your strategies and covers for real.