Would You Know Opportunity If You Saw It?
by Bill Sardi
Recently by Bill Sardi: Colonoscopy Not
There is a somewhat dated story, said to be originally told by mid-day radio newsman Paul Harvey (deceased), recirculating in this era of financial uncertainty, about a man named Wally and his close friend Arthur.
Wally was a developer of many things and took Arthur for a car ride one day to a then remote area outside of Los Angeles. Wally said he was going to develop the land that he had just purchased and suggested his friend Arthur buy the property next to it, as its value would certainly rise. Wally said Arthur could join him in building hotels that would be needed once this location became a major destination for tourists and locals as well.
Arthur couldn't see Wally's vision. The land was vacant and Arthur was wondering if his friend needed a dose of reality. Actually, his friend was in the business of real fantasy. Arthur passed on this "opportunity."
Wally was Walt Disney. Arthur was Art Linkletter, a popular radio and television personality. The property that Wally wanted to develop became Disneyland. The rest is history. Or as Paul Harvey would say it, "now you know the rest of the story."
Would you know an opportunity if you saw it?
Would you know opportunity if it came knocking on your door? My mother didn't. My father was a prop maker for the movie studies and had helped build Disneyland. One day dad came home with stock certificates. He had purchased some shares in Disneyland. My mother ridiculed him, I can remember very well. The next day, my brother and I were in tow behind our mother as she walked up the street to a brokerage and sold those shares.
Over two decades later some men dressed in suits, one holding a camera, came knocking on our front door. They wanted to know about those shares of stock in Disneyland that were now worth millions of dollars. My mother, who had a Depression Era mentality, and had hoped to get rich someday, had passed up on the biggest opportunity of her lifetime. I'm sure all of you reading this have similar stories of missed opportunity to tell.
The winds of opportunity are blowing in which direction?
So many people today are trying to read the direction where the winds of opportunity are blowing. But did you invest in Starbuck's coffee when its shares were first offered to the public? Starbuck's had worked out a model for success and was expanding. They only had a couple dozen locations. If you had bought in early, Starbucks would continue to grow to 15,000 locations in 50 countries. It was a sure thing then. I guess you missed it.
Can you trust the stock market today?
Many people no longer search for opportunity. When it comes to their money, they search for safety.
Today we've got a stock market that is so manipulated that it offers over-hyped ventures like Facebook that do not offer any value-added proposition. Investors have now grown wary of putting their money in individual stocks.
Investment advisors tell their clients to put their money in mutual funds or other group investments where market savvy investors can play the markets. But mutual funds have come under criticism for extracting exorbitant management fees, sometimes making more for the fund manager than the client. And many people who have elected to place their money in tax-deferred 401k accounts need to recognize the average two-income family will have $155,000 in fees (a third of their investment) extracted from their account over its life.
The Facebook IPO as an opportunity
I keep asking people who push "opportunities" in front of me, "where is the value-added" to my investment dollars?
I get plenty of people contacting me to invest in a gold mine somewhere. I'm told the mine has been assayed to yield two ounces of gold per ton of rock. But unless my money invested in a gold mine stock is going to be used to actually start a mining operation by purchasing mining equipment, there will be no value added and my investment will be a gamble where existing stock holders simply dump their stock off on another party.
The Facebook initial public offering (IPO) was a classic "pump and dump" operation where existing stock holders were profit taking and dumping shares on nave investors. Just how Facebook was going to use investors' money to add value to the company went unexplained. In fact, Facebook had a couple billion in the bank and more in asset value, so what did it need the money for?
But so many people called me to ask if I was going to buy shares in Facebook. I don't believe in gambling. Fast money is not my game. As far back as the Bible, quick profits were to be avoided. Today the stock market has become a casino and via fast electronic trading (70% of market trades), only insiders profit.
In the end, Facebook's Wall Street promoters had to buy shares to buoy-up the first-day on the Nasdaq and were left holding the bag on a stock that fizzled. Usually IPOs are intentionally undervalued to produce a "pop" for the initial investors who stick their neck out. But that was not the Facebook IPO. So maybe we have learned a bit from Facebook about what not to invest in.
But let's get back to my main question: how does one go about recognizing opportunity when you see it?
Is gold an opportunity?
How about gold, what Richard Russell of The Dow Theory Letters says will be "the last man standingu201D?
The answer to that question is to wager when the great financial apocalypse that experts like Peter Schiff, Jim Rogers, Marc Faber, Jim Willie, Doug Casey, Gerald Celente, and so many other authorities say is imminent.
The spot price for gold rises when all other forms of money appear to offer vanishing returns. Gold may have to sit on the shelf till doomsday occurs. As then end nears, the price of gold rises. Then financial elites cover up their sins one more time, and the price of gold waffles.
The problem with gold is that so many have accurately predicted the demise of paper money and the collapse of real estate values. But the big money boys have averted financial Armageddon by reducing interest rates on borrowed money, which has kept America, and so many other economies that rely upon debt, afloat.
Right now the financial world is on another precipice, returning to a scenario that is worse than the economic collapse of 2008. Each time the Federal Reserve Bank chairman has risen to the podium to say the US central bank will pump more bailout money into the world's economies, the value of gold soared. Mass inflation would soon follow, predicted soothsayers. Paper money would be exposed as monopoly game money.
Predictions of doom were accurate at the time where were issued, and advice to buy gold was appropriate. But banksters cooked their books, broke rules over reserve requirements and overvalued their real estate assets, and hid many home mortgage foreclosures (4 million and counting), that one wonders just how much longer the financial industry can paper-over its sins.
So investors in gold have been stymied in their effort to get ahead of the greatest financial collapse on record. Financial elites, particularly big investment bankers, are able to gain direct access to the Federal Reserve Chairman's office to inquire about future changes in policy and money supply, etc. The average investor has no such insider access.
Criticized for giving access to a favored few, Mr. Bernanke at the Federal Reserve said the Fed would not change interest rates on borrowed money for a couple of years. But the Fed has launched other covert maneuvers that simply skirt around its commitment to stabilize the economic environment.
Central bankers are cunning. When there were no foreign parties willing to purchase US Treasury Bills that fund America's over-spending habits (the national debt), the Fed simply arranges for gasoline prices to soar, for a country like Saudi Arabia to sell over-priced gasoline to the US market, and then the Saudi's agree to use its profits to buy US Treasury bills at zero percent interest in return for the US military defending their country.
So Americans unwittingly pay for the nation's over-spending habits at the gasoline pump rather than face an unwelcome tax increase or face an official devaluation of the dollar. This maneuver side-steps democracy — the requirement of a vote on taxes we pay (taxation with representation). Taxes are not voted upon now, they are transformed into an increase in gasoline prices which is then funneled back in the form of US Treasury Notes (loans from foreign countries) to pay the government's bills.
Safety rather than opportunity
So what do the savviest investors see as opportunity? They don't, they are just trying to minimize their losses. For example, experienced bond fund managers like Bill Gross of PIMCO, whose $250 billion bond fund has been forced to invest in low-yield (less than 2%) government bonds that yield less than the target rate of inflation (~2%), is betting on losses, but the "safest" losses because government-issued bonds are backed by the bank of last resort — The Federal Reserve. As Richard Russell, editor of The Dow Theory Letters says: "he who loses the least wins."
And here again, the Federal Reserve quotes the target rate of inflation, not the actual rate of inflation, which according to economist John Williams at ShadowStats.com is 7% to 10%. As long as the Federal Reserve keeps fudging the numbers, the price of gold will be less attractive. Gold bugs, as they are called, have been left to chase a greased pig.
An expert in precious metals says there is no overt manipulation in the price of gold, per se. But there certainly are delay tactics to push the day of financial Armageddon to some indefinite date into the future. And that is when gold makes its ultimate play as money. That is when gold soars to $3000, $6000, even $12,000 an ounce say some gold prognosticators.
At that point, whole economies become focused on gold and panning for gold, India finds new wealth in its family-held gold jewelry, and paper money becomes second-class money.
Three stages of economic collapse: gloom, boom and doom
Dr. Marc Faber, Swiss money manager and author of the "Gloom, Boom and Doom Reportu201D says there are three stages of a fiat-paper money/ central-bank economic system. Government overspends and then central bankers print money to cover for debts. As central bankers increase the money supply, temporary bubbles in the economy are created which are followed by an even greater financial collapse — the gloom, boom and doom cycle that Dr. Faber has coined.
However, in reality we are in a gloom, boom-boom-boom-boom, perpetual boom cycle as central bankers and governments figure out ways to delay a doomsday. Instead of a day of reckoning we have successive bubbles, one after another, the most recent greater than the former.
As "gold bugs" wring their hands for the day when this shiny metal will soar in value, the central bankers figure out new ways to thwart such an event that would create an alternative to their increasingly worthless paper money.
We are living in an endless string of bubbles that have artificially propped the stock market, the bellwether of the economy. The result is that the wealthy have their investments protected, the rest see their wealth in real estate and savings accounts lose value.
That was a long explanation to find an answer to the question, is investing in gold today an opportunity? Yes, but only in the long run (unless you bought gold ten years ago when it was $350/ounce). Many investors want to speculate short-term on precious metals, unwary of the many manipulations that tamp down the price of gold.
Instead of the price of gold rising even at the modest rate of inflation (it would have been worth ~$2275 per ounce in 2010 if it kept up with inflation since 1980), those who hold gold may now have to wait for a total collapse of the paper money system to cash in. They may not have long to wait though.
Eventually, there will be little gold to buy, the poor will convert their gold jewelry to pay bills and the rich will buy it to protect their wealth. Those who buy gold now probably will have their last chance to turn it into an "opportunity."
Heed the winds of change
Heed the change in the direction of the winds of opportunity.
Seed for food crops, guns and ammunition and home security, are other opportunities in a changing economic landscape. Just how college degrees (and the cost of paying back student loans) translate into jobs and greater income in this rapidly changing world should be re-thought.
The world is slowly retrenching from an era of working to accumulate wealth toward working just to survive. Buying a single family tract home that is a depreciating asset may no longer be the American dream. However, the value of farmland is booming. Does the woman of the house see herself living on a farm with three kids and some chickens?
In the near future, fresh food is likely to be bought directly from growers rather than from retail stores. Buying a small ranch house with a few acres of fruit or nut trees might be the new American dream.
For example, an orchard of chestnuts trees can yield between 2200 and 6000 pounds per acre and sell for $6.00/ pound. A 5-to-10 acre farm could yield $66,000 to $132,000 a year. Walnut prices are at an all-time high and a California walnut orchard might yield 3900 pounds per acre and fetch over $3.50 per pound for light halves and pieces. A 10-acre walnut orchard might yield up to $136,500/year. That is far better profit than a rental property.
Opportunity is a knocking!