Wednesday, January 12, 2011

The Changing Tides - Continued

Once again, at the risk of being boring, let me repeat. A century ago the population of the world was about a billion souls. Today we have about 7 billion human inhabitants. This fact is a key to identifying future trends and risks. As available land, water, food, raw materials diminish, so do the financial possibilities increase, and of course also the risks. Two types of risk. The first type is the is the one we associate with human nature. Greed, power, hunger,evil, desperation and so on. Humans are hard-wired to do anything to survive. Even bad things.The second type is the financial risk which is easier (for some of us) to gauge.


Some flashpoints might be a possible war in the Koreas, an attack on Irans nuclear reactors, Pakistan falling to terrorists and maybe a resurgence of a killer Swine Flu. Then we have the traditional rivalries of Pakistan and India, China Japan and Vietnam, the Middle East and Shiite and Sunni Muslims to name but a few. Still in the infancy stage is a possible Muslim-Christian confrontation. At the other end of the stick, financial risks abound. The possible disintegration of the Euro currency, US dollar instability as the debt situation unravels, and right now, more than anything else, a rise in US treasury bond yields. The US bond market is about ten times (no kidding) the size of the stock market. A rise in interest rates would create major losses for bondholders. This is probably your number one financial indicator that something is badly amiss.

The way to look at investments is the same way one would approach an investment in real estate. Identify the trend and then buy and hold on the long term. Only one Warren Buffett and even he makes mistakes. So don't be discouraged. And definitely stay away from speculation. Its easier and more fun to lose money at a casino.

Shortages create demand and demand causes prices to rise. One immediately thinks of raw materials. At the moment, probably the biggest potential shortage is that of rare earth elements. No need to elaborate on this blog.
Next shortage, and you can take it to the bank, is energy. Not Oil! Energy. Right now only one main solution to the expected energy shortfall. Nuclear power. France gets 80% of its electricity from nuclear power and has never had an accident. It also owns the cleanest air in Europe. For fifty years the US Navy has been powered by nuclear fuel and has never had an accident. Some of the world are still traumatised by Chernobyl. Mix too many bottles of vodka together with a group of chumps, inferior technology and safeguards, and we all know the result. Meantime South Korea has taken the technological lead in this area. China is planning over 200 nuclear power stations. A little known fact is that China has overtaken America as the worlds largest energy consumer. On top of that, there is a frenzied charge to jump on the bandwagon by many countries. So where is the uranium coming from? Who knows? I don't. Todays supply meets about 10% of future demand. Its just a matter of time before we see governments purchasing mines (the uranium at source). The Chinese way.

So much has been written about gold, we won't waste too much time discussing, except to point out that gold is the only honest currency on the planet. China and India appear to be preparing their economies for a gold standard. And gold has been in a long term rising trend for ten years. From $260 an ounce to $1400 an ounce. You know what they say, "A trend in motion will continue untill it actually ends". The end does not seem to be in sight if we consider the above indications.

So if raw materials will be in short supply, then maybe we should diversify to currencies that are backed by raw materials and gold. China and India are doing it. At the last check, China was purchasing Canadian and Australian currency. Follow the leader, but remember The Pied Piper of Hamelin.....

Been to the supermarket lately. Prices of food are rising all over the world. Definitely in the US.  Salaries are not. In some countries, we are not too far off from food riots. This will be an interesting trend to follow, especially in countries whose only income is from oil. Where half the population wear the burqa, and are forbidden to work, except for menial tasks.

Some cheap advice. Protection of capital is supreme. In the next decade, he who loses the least will make the most. Best defense? Diversification. And remember, there are no geniuses (only geniuses for a time) and forewarned is forearmed.

Even if you are on the right track, You will get run over if you just sit there - Will Rogers

H

No comments: