The end times investment portfolio - part 1

The one who received the seed that fell among the thorns is the man who hears the word, but the worries of this life and the deceitfulness of wealth choke it, making it unfruitful. -- Matthew 13:22.

We tend to think of wealth as a panacea, a genie in a bottle that can give us our every desire upon command. But when you think about it, wealth is really only good at providing two things -- comfort and status. If you're wealthy enough, you can hire others to do all the things you don't want to do, you can get the best health care, and always be warm and comfortable. You can also buy the sorts of things that have no real value except to set you apart from the masses. For example, a Bentley automobile hardly does anything that a Honda can't, but it provides the status that comes with being a person that can afford a Bentley.

Here's my "deceitfulness of wealth" blog quiz:

Question: who is richer, Bill Gates or some random Amish person riding around in a horse drawn carriage, tilling a field by hand, and living in a house heated only with a fireplace and wood-burning stove?

Think about it....

It's Bill Gates of course. Come on. That was easy. Okay now, what if the power goes out? Now who's richer? Still Bill Gates you say? Still easy?

Not this time.

This is the deceitfulness of wealth. Your mind tricks you into thinking that money equals power, true control over one's environment, but it doesn't. What we commonly think of as wealth is really only useful under a narrow set of optimal conditions. Here in America, we have lived at the top of the world's food chain for the last century or so, and have therefore lived our entire lives in that narrow set of optimal summer. We think that's how it's always going to be because we've never known anything else. We are -- I'm sorry to say -- tragically wrong.

Here's the answer to our earlier question: if the power goes out (and it's when, not if, but I'm not in an especially dark mood today so I'll stick with if) Bill Gates will have nothing left but his name. Seriously. His only hope would be that people considered him special enough due to his success in the old world that they would protect him from the new one.

But he would still have money, wouldn't he? No, like everyone else, his "wealth" is largely bound up in cash/stock/etc. Things that have no intrinsic value. But what if he stockpiled food and water and such? Then he would have to have the skills and abilities necessary to keep others from coming and taking those. Couldn't he get other people to protect it for him? Probably not. In a world of order all it takes is cash to gather a following. In a world of disorder it takes something else entirely. Bill Gates doesn't strike me as the sort of person who could muster a following through sheer force of personality.

So what was the point of that maudlin exercise?

Just this: the things that you have been taught to believe are worthwhile goals -- a big house in the suburbs, a bank account flush with cash, "financial freedom", are just the sort of things that will have little or no value in our future. Let's take them one at a time. Starting with the worst....


Bonds -- NO!


Cash -- keep a few hundred in your house somewhere and a few thousand in a bank account. The money in the house is in case the government declares a "bank holiday" and shuts down financial institutions for a few days or even weeks. The money in the bank will give you a little buffer in case you lose your job. Beyond that, cash is probably the second worst place you can store your assets. I can't think of a single historical example where a debt-riddled nation defended the value of its own currency. The governments use inflation to pay off those debts. The inflation helps them, but hurts you. But then you didn't really think they had your best interest at heart, did you? The dollar will continue to lose value. One day, possibly soon, it will collapse.

Oh, and while we are on the subject, FDIC insured will become a meaningless term in the future. The account the FDIC used to pay bank clients for money they lost when their banks went belly up was virtually empty at the end of 2008. At the moment the US is using all sorts of shenanigans to keep repaying clients of the ever-increasing number of bank failures. It's working so far. It won't last forever. That's why if you are going to put your money in bonds you may as well throw it all into a blender and hit the 'puree' switch.

Stocks -- If you are more than ten years away from retirement the odds that you will ever see a single penny of your IRA or 401K approaches zero. As early as last spring congress was already considering a proposal to seize retirement accounts and replace them with government IOU's. The sticking point was how to do it without crashing the stock market. If it happens it will cause riots, but we're still in the early stages of this thing and there's no telling what will happen when our legislators get desperate enough.

Stocks may actually be a good investment in the short term. The problem is that they every bit as doomed as cash over the long haul. Short term, all the cash that the US and other debt-strapped countries are printing has to go somewhere. Even government backed bonds return a negative number against inflation, meaning that stocks may be viewed as a better investment vehicle... and could have a nice run over the next few years. The trick is like winning at black jack table in a casino; when do you cash in your chips? You know the house is going to win in the end and you're going to go home wearing a barrel with suspenders. So what do you do?

One thing to realize: stocks are very much like cash in that they have virtually no intrinsic value. In theory, a "shareholder" is supposed to have a say in the running of the company. In reality, companies are run by a board of trustees who could care less what happens to the poor saps holding the company's stock. You need look no further than to the high profile bankruptcies of the last two years for proof. When Lehman Brothers and Merrill Lynch died (oh, I'm sorry, I'm suppose to say, "were restructured") just to name two, even though the companies continued on in different forms the shareholders were always hung out to dry.

My personal choice here has been to play a group of alternative energy stocks, hoping for a vain attempt to get off of the fossil stuff before the things get really bad. At some point I will have to sell out and turn whatever cash is left into something that has real value. I'm not kidding about the black jack example; this is gambling, pure and simple. And just like every smart gambler knows, you don't play with anything you can't afford to lose.

Next post I'll go on to the better asset classes.