Tuesday, January 28, 2014

You Can't Eat Your iPad

Food doesn't become unpopular. It’s a requirement. Clothing can be superficial, obviously, but the root basics are that you need food, shelter, water, et cetera. So, that means generally the commodities sector is a place where we need to have things.

Whereas the greater iPhone or greater iPad… I own them both. I don’t want to be a hypocrite here. But, the stuff that we don’t necessarily need to survive is things that are going to have a problem. I want to be a little more succinct on that. I think the idea was really that anything that’s based on leveraging borrowed money is something to be very leery of. Housing, I think, is a perfect example.

Basically my big push was, in the early 2000′s, to not only get into hard assets and the commodities sector generally speaking and out of things that were debt based. So, if you had mortgages that were debt based of course this was counterintuitive. Because almost everyone said David if you’re saying there’s going to be money printed inflation, inflation will bail me out.

Yes, that was, was in the past, true during the inflationary 1970′s and up to 1980′s, and I lived through it. But, at that time we didn’t have China as a competitor. We didn’t have people that were willing to work for $2 per day. As we’ve seen, the labor force has basically been decimated in North America and moved into the east.

That means that this what we used to call incorrectly cost push inflation that gave everybody a cost of living adjustment and allowed them to let inflation bail them out, borrow money, and invest it, and then inflation would make you smart, that was gone. People had a really tough time getting that message out. I probably didn’t do as good a job as I would’ve liked to.

This is not about being right and wrong. This is about thinking about the reality of the world that we’re living in. My take was to go ahead and just be like a cash only investor. Not that I don’t use leverage and derivatives, because I do. I want to be clear. But, I do it in a rather conservative way, and I always have stops on.

In other words, I protect myself. And, a lot of times at this point it’s, like, covered. In other words, I can sell or rent my silver, or gold, or whatever for a certain length of time, and if I’m wrong it’s already covered because I own the physical reality of that.

So, it’s not like I’m playing with something that doesn’t exist. I’m “playing” with a portion of something that does exist. A lot of times in this market of being down for the last few years, it’s been a prudent thing to do actually, because unfortunately this market still looks like it’s struggling to find an exact bottom.

- Source, Sprott Money: