I have a small amount of excess cash that I want to invest. Assuming an Austrian worldview with a counter-economic desire, how should I invest?
I have been thinking about commodities, but I am afraid they will fall off in a new recession. And any earnings are taxed.
I also found an ETF that shorts currencies with high interest rates and goes long on currencies with low interest rates. So my investment would help keep the dollar "honest" by reducing demand for it when interest rates drop (if my guess is right). PowerShares DB G10 Currency Harvest Fund (DBV)
I have also been thinking about starting an underground boot business (no taxes). I don't yet know how to make boots, but I sell them everyday. I feel pretty confident I could learn on the internet. They are really very simple. Just materials and stitching for the most basic designs.
If deflation comes as a result of a double dip, cash might perform best.
Any thoughts or suggestions?
dude6935:Put simply, a given amount of money is being injected into the economy now. If a recession hits, that money injection must increase or price inflation will slow or turn negative.
What is inflation, how do you measure it?
You seem to think that only an idiot would contemplate this turn of events.
Well. You basically agree with everyone who was wrong leading up to the meldown of 2008. I agree with people who were right. My outlook is based on the Austrian perspective applied to the real world evidence we have available. I have no idea what yours is based on. You continuously neglect to offer such information. The closest I've heard so far is essentially "there is no political will to do precisely what they've been doing for years, and what they show no signs of letting up on." It's all they've been doing for quite some time, it's all they say they will do into the forseeable future...but dude6935 thinks there's no political will for that. The politicians and bankers will just all of a sudden do the right thing. For no explainable reason...other than "they just don't have the will" not to.
Forgive me if I don't find that assessment very convincing.
Thanks for the perspective.
No problem!
Given your disagreement, what investment strategy do you suggest to answer the original question?
I gave you plenty of reasources. I'll even list them again for you.
See here, here, here, here. (And all the links contained therein).
@dude: You seem to think that the trigger of hyper-inflation is rapid expansion of the money-supply. It is not. The trigger for hyper-inflaction is a collapse in the demand for the government's funny money. When that happens, the central bank prints money like crazy because it is forced to. The Weimar hyper-inflation, the Zimbabwean hyper-inflation, etc. are all examples of this sequence of events.
As long as the demand for USD remains constant, the Fed can keep printing money until the heat death of the Universe. So, what you really want to be asking yourself is: what sorts of events can cause a collapse in demand for USD? QE3 is not a correct answer.
Clayton -
The Internet can only offer you guidance: the best thing is to sit down, document yourself and think hard about what you want to do with your money.
If you want an "insurance policy" against inflation nothing beats gold, physical gold that is. My advice is always to put a side a part of your savings (3-10% according to your needs and tastes) to buy ingots, bullions or coins, whatever you fancy. I am not a believer in silver, especially because supply still amply meets demand (silver is mostly an industrial commodity) and savers in Asia still prefer the yellow metal.
Commodities at the moment are between a rock and a hard place. Record high prices in the past decade have driven up supply (for example Petrobras starting to exploit large offshore oil and natural gas deposits) and demand is starting to become less robust. Unless there's inflation on a large scale or a sudden and unexpected disaster (including heavy handed speculation) they will fluctuate around present values but won't experience a sudden drop or rise. There's the big question mark of the Chinese building bubble of course: it's ending but exactly how will it end remains to be seen. Buying mining or oil shale company shares may be a good short to medium term investment however, since most of these companies are quite profitable.
As per your underground business idea... I'll just tell you what my lawyer always tell me: never, never, never speak about some things on the Internet or on the phone. You never know who might be listening.
Clayton, you say a collapse in dollar demand leads to printing money. You also say "Constant" demand means printing money. So either way, the fED prints money. I don't buy that. There comes a point where the Fed runs out of mechanisms that they are willing to use.
Snipits of two articles I read today:
"With US Treasury yields already near record lows, the likelihood that more QE can generate a substantial increase in lending seems implausible. Meanwhile, Ben Bernanke has explicitly said it would be “very reckless” to seek a pickup in economic activity at the expense of higher inflation, meaning a QE3 program that amounts to little more than a confidence-building exercise is unlikely."
"“Whatever the Fed does, it will be very lame,” Ed Yardeni of Yardeni Research writes. “That’s because the raison d’être of the previous unconventional easing programs was to bring bond yields closer to zero. They are already there. So what exactly would be the point of OT2 or QE3?”"
This is the point I have been making. The whole reason for "twist" was because QE was pretty much maxed.
IIRC, in the Weimar situation, the politicians had control over the central bankers. Here in the US, the opposite is true. The Fed wont destroy the system that it profits on by creating hyper-inflation. Only the politicians are short sighted enough for that. (I am paraphrasing an article I read months ago on the subject).
Historical evidence from 2008 supports my position. There was short term price deflation in commodities that was later buoyed by monetary inflation. If we have a recession, there is little question gold will drop.
I think I will do what the banks are doing. Hold insured cash deposits. After a recession hits, I can find somewhere to invest it.
Thanks for the advice Kakugo.
dude,
Clayton did not say that "constant demand means printing money." What he said was that the FED can print money without seeing hyperinflation as long as demand remains. Once that demand collapses then the only lender of money to the governement will be the FED, which is why it will be forced to print even more.
Is it your position, dude, that the 1.5 trillion dollar deficit is funded solely by private/foreign investors? If not, then you must admit the FED is always printing money, whether they call it QE or not.
I personnally think it is reasonable to hold cash for the very short term, maybe 6 or 8 months, until the European situation plays out. Greece will fall harder, Spain will fall, Italy will fall, and even France will too. All of this has the potential to lead to a strengthening dollar, as the Eurpeans will choose to paper this over with printed Euros. But trying to adequately time the market often proves fruitless.
Well well well...
Fed ramps up economic stimulus, ready to do more
‘Operation Twist’ Is Just a Primer for QE3: Axel Merk
I'm sorry, what was that you were saying, dude?
@JJ: Perhaps the zero-key on the Fed's input terminal might break from overuse... ya never know!
bah. They'll just print some physical money and buy a new one.
What if we have a money burning party?
“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence.""The sweetest of minds can harbor the harshest of men.”
http://voluntaryistreader.wordpress.org
Nothing will lose you money faster than constantly fiddling with your investments with no real goal other than "make money", so how you should invest depends in your level of discipline. If you have none, just put your money in an S&P 500 index ETF and walk away until you retire. You'll make an OK return depending on your entry an exit points, but at least you probably won't lose money. If you have some discipline and can check your investor's ego at the door, follow a simple, rule-based momentum strategy: http://www.cxoadvisory.com/momentum-strategy/ and you'll make a lot more without much more risk.
The short version is this: Every month you look back at the top performers from the last n months (n depending on the strategy) and invest in that sector's ETFs. If certain criteria aren't met, you instead invest in cash so you aren't in the market when big dips come. Get a CXO Advisory account and follow one of their rule-based momentum trading strategies. If you have a pay account they'll give you the picks every month. Open your brokerage account once a month and never look at it other than that. Your investment research can be limited to keeping up with the latest analysis on CXO's sites in case they come up with a rolling strategy that is better (like the EW top 2 mix instead of single sector). Then repurpose all of the time you would have spent looking at stock picks into doing something entrepreneurial and you'll reap double rewards.
More reading: http://www.cxoadvisory.com/what-investing-approaches-work-best/
ya dude if you can at all start a business with the money you have you should ALWAYS go for it. It doesnt sound like you have that much money so i would definately go with starting your own business. The amount of return on it would be higher then anything else you could possibly do. If its only a 2-3 grand what do you have to lose?
You could go high end like $1000 a pair of boots with a 500% mark up. If you sell 2 a month thats like having a minimum wage job.
Here is what i would do:
Start a web page. Just keep it minimalist, but professional. Have a picture of a completed boot, a little info on you and your business, and basically an email address. Get a facebook page/tweeter/anything that is free that helps advertise and add legitimacy. All this would cost you almost nothing. Buy some business cards.
Next and most importantly find a rare skin that you can get for next to nothing. I live in Texas so I would find a way to get alligator skins from louisiana for dirt cheap by killing them myself or making a friend who kills them. Or i would find some rattlesnakes and kill them for their skins. Once you find your skin source you are set. At a minimum you can go hunt deer!
i dont know much about tanning hides, but i think this is the most expensive thing about making boots (outside your time and labor). Judging by the fact that every redneck town in the US having a tanner it CANT be that expensive or difficult to learn. So im just going to throw out a random number for the cost of chemicals for a pair of boots is like $40.
soling the boot, but you can pay for a professional to do that for like $40.
$40 for tanning, $40 for soling, $10 for a web page, $5 a month to host a web page, and $20 for an asston of business cards.
obviously there are going to be other costs like sewing machines, random tools, your first boot is probably going to be garbage so you will have to remake it a dozen times till you figure it out, ect.
make yourself a pair that you wear everyday and BOOM you have yourself a business. Maybe even find yourself a girlfriend and have her do all the labor. Chicks love sewing stuff together.
The worst thing that could happen is you lose $1000-$2000 bucks, but what you lose you make up in experience.
grant.w.underwood:ya dude if you can at all start a business with the money you have you should ALWAYS go for it.
That may be the dumbest and most dangerous piece of "advice" I've heard in a long time.
haha why? I'm also going under the pretense of 'excess cash'. Someone's life savings isnt 'excess cash'. what is dangerous about risking 'excess cash'?
how can investing in yourself be considered dumb? if he actually does make the decision of investing in himself how can you say its a dumb idea?
the shoe industry is a huge multibillion dollar industry why not go after it?
grant.w.underwood:I'm also going under the pretense of 'excess cash'. Someone's life savings isnt 'excess cash'. what is dangerous about risking 'excess cash'?
Fine. Let's go ahead and assume you just have hundreds of thousands or millions of dollars just lying around, not doing anything, that you could totally afford to throw away.
1) How did you come into this money? Either you already have a business, or you hit a windfall and know nothing about building a business.
2) If you didn't just come into this money, and it didn't come from a business that you have a part in, then what exactly did you do to build such a fortune of "excess cash"...and why is whatever you did to build this wealth all of a sudden inferior to starting a business?
3) If you did just came into this money, how exactly is it "excess cash"? Where is this line between savings and "excess"? What the hell even is "excess cash"?
4) Even assuming you find some way to answer those questions in a satisfactory manner, why/how exactly does losing all of that money not affect your potential future and lifestyle?
5) Even assuming you find some way to argue that losing that amount of money doesn't affect a person's potential future, how exactly do you propose that blindly spending it into some business doesn't put the person at some legal risk...with exposure to personal liability which could wipe out not just this so-called "excess cash", but everything the person owns...as well as the possibility of potential harm to the person in a physical sense, through incarceration or injury or death?
This idea that "you should ALWAYS" try to create a business just because you have some money is just asinine.
how can investing in yourself be considered dumb?
*shrug* Maybe you're not a good investment. Maybe you're a total loser and you'd be much better off investing in something else...something that would actually generate a return.
if he actually does make the decision of investing in himself how can you say its a dumb idea?
That's the second time you said that in as many sentences. Define "investing in yourself".