Editor’s Note: Our main office in Delray Beach, Florida, is shut down due to Hurricane Matthew, and Bill is driving up the coast to Baltimore… But before getting on the road he took some time to update the following classic Diary essay.
ON THE ROAD TO BALTIMORE – A truck backed up to the shop next to us. Two men in shorts got out and began to offload sheets of metal.
The restaurant we had planned on for lunch was closed. We moved on to another one… still open. Shops were being boarded up. The street was almost deserted.
Hurricane Matthew is moving in. That’s what everyone says.
The TV monitor over our table is locked onto the weather channel. Maps… eyewitness reports… meteorologists – all are on display… preparing for an onslaught, judging from the precautions being taken against it, that must rival the barbarians’ attack on Rome.
Men are locking up their wives and daughters. Lines are forming at gas stations… The convenience store down the road is being cleaned out.
Even the banks are running out of cash.
“There seems to be a run on cash,” said a clerk at our bank. “People preparing for the hurricane.”
The storm is still far from the sands of Delray Beach, but the town is building its ramparts, strengthening its defenses, and preparing its people for the crisis ahead.
“You may be forced to evacuate,” said the caretaker at our apartment complex. “We’re on the barrier island here. When the storm gets up, it will be too late, because they’ll close the bridges.”
We were tempted to stay to see what happens. Instead, we hit the road… driving back up to Maryland.
As we explained to the crowd in Portlaw, Ireland, at last week’s Grand Opening of our overseas headquarters, there are rarely any really new ideas… Good new ideas are even rarer. Good ideas about money – except for those we’ve come up with ourselves (okay… George Gilder had a good idea about it, too) almost never come along. Today, mostly to save ourselves time, we turn to Aristotle, as channeled by our friends at Classical Wisdom Weekly, for a look at what money is supposed to be. Classical Wisdom Weekly editor Van Bryan:
Ancient Greece was a time of firsts for the Western World.
First democratic government? Yep.
First masterpieces in literature? Check.
First academic university? Double check. Plato AND Aristotle founded schools in the classical age.
It’s unsurprising then that the ancient Greeks were also responsible for minting some of the first coins in the Western world.
Perhaps even more unsurprising is that this was almost immediately followed by the first embezzlement scandal and an ancient version of the military-industrial complex.
See… we really are influenced by the Greeks.
The ancient Greek drachma enjoyed popular usage starting in the Archaic Age of Greece (around 600 BC) right up until the Roman Empire. Ancient coins were originally minted from electrum, a naturally occurring alloy, but over time gold and silver became the preferred metals.
The rising economic influence of the Greeks during the 5th century meant that the ancient drachma was widely accepted across the known world. Ancient coins have been found in Egypt, Rome, and Syria. They even reached as far as the western dwelling Celts.
But all of this so far is just nickel and dime stuff. Practice your best chin stroking, now we get philosophical.
Aristotle, a man who is often regarded as one of the most prolific and influential philosophers of the Western world, had a few ideas on money.
Unlike his predecessor and teacher, Plato, Aristotle felt no need to justify the existence of money. Being the practical guy that he was, Aristotle considered the necessity of money to be self-evident.
“When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use.”
And not to mention, Aristotle says somewhat patronizingly…
“The various necessaries of life are not easily carried about”!
Importantly, Aristotle did not claim that money was wealth. Rather, money represented wealth.
“How can that be wealth of which a man may have a great abundance and yet perish with hunger, like Midas in the fable, whose insatiable prayer turned everything that was set before him into gold”?
Money, to Aristotle, represents olives in the orchard, vases from the potter, wine from the vineyard. Money wasn’t wealth, but it could measure wealth.
Fair enough, we’ve talked about what money is not. What, then, is money?
Well, Aristotle says that money should ideally be five things…
Durable – it must survive the trials and tribulations of daily life, i.e, of being carried around in people’s pockets, purses, or even in the mouths of the newly deceased.
Portable – a small item should be of a high value.
Divisible – breaking a coin, either figuratively or literally, should not affect its relative value.
Fungible – mutually exchangeable, i.e., it doesn’t matter which particular coin you have as long as you have one.
Intrinsically valuable – the coin’s material should be a worthwhile commodity (mint coins from gold, not concrete).
Ignoring this fifth principle, history tells us, is what can be particularly disastrous.
The Crisis of the 3rd Century
At the outset of the Roman Empire, starting in 27 BC, the preferred Roman currency was the silver denarius. Rome’s first Emperor, Augustus, minted coins that were 95% silver.
Ah, but what good idea couldn’t be improved with a little monetary manipulation?
The coinage was debased over the centuries; so much so that by 268 AD, there was just under 0.5% silver in the denarius. When questioned about the devaluation of the currency, Emperor Caracalla (who ruled from 198 to 217 AD) held up his sword and declared…
“Not to worry. So long as we have these [gesturing to the sword], we shall not run short of money.”
How do you like that for a monetary policy?!
Even non-economists can probably guess what happened next. Hyperinflation ran rampant in the Empire. Prices during this period rose as much as 1000%. This is often referred to as “the crisis of the 3rd century.” Over the next fifty years, 26 different men would claim the seat of power, often through military force. As for Emperor Caracalla – in 217 AD, his own soldiers stabbed him to death when he stopped to take a leak.
History really is fascinating…
Perhaps the madness is best summed up by 18th-century historian Edward Gibbon, when he commented that the great wonder of the Roman Empire was not that it fell, but rather that it lasted as long as it did!
Over the centuries the great thinkers have been proven wrong (Aristotle contended that flies had four legs and that women had fewer teeth than men). So, at times, society was only able to progress once it had rejected Aristotle’s assertions. Do his ideas on sound money fall into this category of outdated philosophical fodder? Or are they the time-tested wisdom of the ages…?
By Doug Casey, Founder, Casey Research
Once the EU falls apart, there are going to be huge investment opportunities. People forget how cheap markets can become. I remember in the mid-1980s, there were three markets in the world in particular I was very interested in: Hong Kong, Belgium, and Spain. All three of those markets had similar characteristics. You could buy stocks in those markets for about half of book value, about three or four times earnings, and average dividend yields of their indices were 12% to 15% – individual stocks were sometimes much more – and of course since then, those dividends have gone way up. The stock prices have soared.
So I expect that that’s going to happen in the future. In one, several, many, or most of the world’s approximately 40 investable markets. Right now, however, we’re involved in a worldwide bubble in equities. It can go the opposite direction. People forget how cheap stocks can get.
I think we’re headed into very bad times. Chances are excellent you’re going to see tremendous bargains. People are chasing after stocks right now with 1% dividend yields and 30 times earnings, and they want to buy them. At some point in the future these stocks are going to be selling for three times earnings and they’re going to be yielding five, maybe ten percent in dividends. But at that point most people will be afraid to buy them. In fact, they won’t even want to know they exist at that point.
I’m not a believer in market timing. But, that said, I think it makes sense to hold fire when the market is anomalously high.
The chaos that’s building up right now in Europe can be a good thing – if you’re well positioned. You don’t want to go down with the sinking Titanic. You want to survive so you can get on the next boat taking you to a tropical paradise. But right now you’re entering the stormy North Atlantic.
Editor’s Note: Doug just released an urgent video with all the details about what’s going on in Europe right now. In it, he reveals how these events could ultimately touch off a financial shock in America far greater than 2008. And it could begin as early as December 4th, 2016.
But as Doug has shown throughout his storied career, the worst crises offer the biggest opportunities for gain. That’s why our video describes specific ways to profit… as well as which stocks to avoid before the crucial December date.
You can get a first look at this video here.
Don’t Focus on the Market!
One of the best stock pickers in the business pays little attention to Mr. Market. In fact, he says, “when people start talking about the overall market, it just doesn’t have much meaning to me.”
This Could Be the World’s Most Contrarian Trade…
By now, you’ve probably heard that European banks are in deep trouble… with share prices tumbling and rumors that government bailouts are in the works. Could they also be the world’s most contrarian trade right?
Does Value Investing Work?
Value investing is all about stock picking. It is a style of investing that helps one find and buy stocks that trade significantly below intrinsic value. But does it really work?
Today… a special Mailbag, as Bill Bonner responds personally to a reader’s recent criticism.
I read our mail every day. Sometimes I get ideas. Sometimes praise. And sometimes the criticism stings.
“Hucksterism” was the charge that greeted us last week.
Why? Readers objected to Chris Mayer’s new offer for his new Focus service.
After reading the criticism, we marched into our office in Florida and took readers’ side. Chris wasn’t there. But we voiced our opinion to those who were:
“First, we don’t want to run a ‘huckstering’ business,” we told the ground crew.
“We’re in the business of providing ideas, opinions, and recommendations to readers. Sometimes right. Sometimes wrong. But we’re not in the business of trying to squeeze every possible dollar out of our customers.
“Second, we’re heavily invested in Chris’s other service. We put $5 million of our family money on the line. We had the same reaction that some readers had: Shouldn’t Chris be working for us… rather than some other group?”
“Wait a minute,” came the reply. “This is something Chris wanted to do. He believes it is separate… different… and important. At least give him a chance to explain."
Herewith, Chris’s comment:
The success of my readers is extremely important to me, and I hope my track record over the last decade or so illustrates this. I’ve been thinking about the Focus project in one form or another since 2011. I knew it wasn’t the right investing style for Bill – it’s riskier than what we do with Bonner Private Portfolio. But it can be very profitable for those who are willing to take on that risk.
I’m extremely passionate about both my Private Portfolio and Focus projects. Each is a distinct and powerful system of investing, and I personally use both methods for portions of my portfolio.
In Private Portfolio, my primary goal is not to lose money. We’re investing in large companies to create a low-risk portfolio that we can hold on to for years… something that can help everyone create a legacy of wealth.
Private Portfolio follows the same system I used to generate 17% annual returns for a decade (as verified by an independent auditor) – better than Warren Buffett. I think we can continue to beat Buffett and 99% of hedge funds and financial “gurus.” And I believe we can have this kind of performance over the long haul even if we have another crash like we saw in 2008. (In fact, those audited results included the 2008 crisis.) Bill’s betting we can, too. As you all know, he’s invested $5 million of his family trust’s money into the recommendations of this service – and no other.
I created Focus to invest in smaller-cap companies. The market is full of interesting growth opportunities in companies with a market cap of less than $3 billion. But we’re not investing in just any small-cap company.
I base Focus on research I’ve done on stocks that returned 100 to 1 – the so-called 100 baggers – from 1962 to 2014. I published my research in a book last year, titled 100–Baggers. And ever since 2011, when I came across Thomas Phelps’ original research on 100 baggers (published in 1972), I’ve wanted to create a service focused only on finding these types of stocks.
The problem is that these types of stocks are going to be small-caps – too small for me to recommend in Private Portfolio. In that service, we’re staying with more mature businesses with a lot of financial firepower. We’re more conservative. As I mentioned, our goal is to create a low-risk portfolio of stocks that we can own for years.
In Focus, we necessarily take more risks. We’re investing in smaller companies ($3 billion market caps or less). But we try to mitigate the risk involved with deep research. These are mostly obscure businesses that Wall Street isn’t covering – yet. I also have a pair of talented analysts helping me with the research.
The first recommendation in Focus has a market cap of under $400 million. It was a stock we’ve followed for at least two years. We’ve met with the CEO. Since that meeting, we’ve had further email exchanges with him. We’ve used the company’s product for over a year. We even tested a competitor’s product. The stock is up tenfold over the last five years, but is still cheap and still has less than 1% market share. It has plenty of room to grow.
So, in short, there is no overlap between the two services. They have different missions and will cover different opportunities. If you want to a build a safe, conservative stock portfolio, stick with Private Portfolio. If you want to take a piece of your portfolio and take on greater risks in the hunt for 100 baggers, then you should consider adding Focus
In Case You Missed It…
The worst crises offer the biggest opportunities. And, right now, there are events unfolding in Italy that could ultimately set off a financial shock in America far greater than what we saw in 2008.
That’s exactly why Casey Research founder Doug Casey and his team just released this urgent video. In it, you will learn how to protect yourself in this coming financial storm, and specific ways to profit from it.