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Don't Panic!... yet.
I am far from alone in thinking that American finances, as currently
structured, are completely unsustainable. That doesn't mean we
are all doomed, or that your dollars are worthless. What it does
mean, hopefully for rest of our lifetimes, is that our personal
finances (the real economy) have decoupled from monetary and
economic policy. The practical consequence for most of us is that
headline figures like unemployment, GDP, and most importantly
inflation only matter to big corporations that now hold most of
societies' capital; they have little relevance to the working and
consumer class. For most of these people, it is no longer enough to
work and save. They MUST also lend in order to earn return on any
excess capital they can manage to get, or else their savings are
Tragically, Wall St. and the banking system have turned the most efficient and flexible means of lending to the best entities (enterprises that are actually creating value) into a game that is largely rigged. The prime opportunities are often only available to venture capitalists in private offerings. Safer options with less growth are packaged into bonds offering paltry returns to accredited investors. In the middle sits a bloated investment industry with more capital than the underlying companies that are supposedly being served can actually put to practical use. The only way for the large financial institutions to make an acceptable return on their capital under such circumstances is to focus more on sales than research while creating and trading volatility. This creates opportunity for smaller, fundamentally value-focused investors like me.
Things could eventually get Very Bad if governments continue to manage matters as they have, especially in America if a viable alternate global reserve currency emerges. However, that is probably still decades away and then all bets are off. Hope springs eternal on the macro side, but I have little expectation for improvement in the near term, mainly because I think we've reached a point where one can't fix the real economy without breaking the market or vice versa. As a result, I think the lifestyles of many Americans have only just begun to change. When their government preserved the status quo by bailing out large financial institutions which had made bad bets, it prevented not only short-term economic pain, but the sort of creative destruction necessary for any meaningful recovery.
In the meantime, it is madness to simply earn and hold depreciating capital in exchange for little to no return. Hard assets like real estate can be very good options, but they are often too chunky for many beginning investors and thus involve debt that can have extreme consequences during the associated boom and bust cycles.
So What to Do?What to do now is to continue to enjoy life while living within your means and seeking return on whatever excess you have.
Three ground rules first:
- This is fundamental long research targeted at helping investors to keep and grow their excess capital. If you have net unsecured debt, my opinion is that you need to get rid of that first.
- Good management of any type of investment takes time and
understanding. This is why those with experience will often
advise beginners to leverage the experience they already have by
investing in what they know. The critical piece that is often
missing for many stock investors is an understanding of the
markets themselves. Some basic lessons there can make
all difference between financial success or failure on an
otherwise correct insight.
- My background gives me a good understanding of technology and the workings of the market. I now make my living solely from investing since the rewards multiply with success rather than scaling linearly with effort. I'm sharing my thoughts for the purpose of education and discussion, not telling you what to do, or what I'm doing. If I speak well of an investment, it's a fair guess that I'm putting my money where my mouth is. Furthermore, I have the ability to do things, like write options and keep money in arbitrary currencies, which are not available to the average retail investor. As such, I generally will not waste time talking about things that most people can't do. If you want to be able to do them, talk with me personally.