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Hard Times, Easy Money

Column by John Mattingly

Economy – February 2009 – Colorado Central Magazine

IN THE PAST THREE MONTHS I’ve received an astounding number of offers to show me how to make money in/from this current financial crisis. Some of the more interesting are:

1. How to turn $500 into $14.3 million in less than a week, guaranteed. I found the specific number, $14.3 million, quite intriguing. Cost of this advice: $1,500.

2. This little known “Paddle Strategy” was used by the Robber Barons in the 1930s to make money during the Great Depression. Cost: $89.95

3. Your 401(k) is now a 201(k). Get on track with the right stock picks to make it an 801(k). Cost: $49.95

4. Those making 5,980% are LOSERS. This man has never made LESS than 78,452%. Cost: $695 (a $4,533 value)

5. The government has tried to outlaw this strategy because it is so profitable. Cost: $19.99

I passed on all the offers, posing a simple question to myself, which I now pose to you: Assume you find a vessel full of gold coins on your property. Would your first inclination be to tell everybody in town where that vessel is located?

Probably not, and it only seems logical that the more folks there are doing a particular strategy, the greater the chance it will saturate to zero-sum profitability. And in all these cases, the appeal is to one’s private gain, not to the common or community good.

Bottom line: It’s clear that the market for advice in these troubled times is stronger than the market itself, so I feel compelled to join the crowd with this list of money-making principles that costs you no more than your subscription to Colorado Central, a publication that is indeed a good deal.

1. Never give your hard-earned money to a man whose name is pronounced Made-off, or, for that matter, Ponzi. In fact, think twice about giving your investment money to anyone. Following my theory that money is stored work, there is no reason why you shouldn’t stay closely involved with your work after you’ve been paid for it.

2. Often the greatest investment opportunities are where you work every day, a place where you may have accidental “inside information.” Many people believe the secrets to financial success are elsewhere, known only to experts, wheeler-dealers, and hacky nerds, when in fact they are most often right under your nose.

3. The stock market is a worldwide gambling network, with brokers (bagmen), odds-makers (financial planners), but a very weak enforcement branch (no arm-breakers). In fact, of late, the market has been so weak on enforcement of the rules on bad bets that it has been privatizing profits and nationalizing losses. So many players have gamed the system in so many ways for such a long time that, like our U.S. currency, the architecture of the market itself has come to resemble a carnival Fun House with warped mirrors, distorted perspectives, Escher-like corridors, and trap doors. Not to mention the occasional avuncular con artist.

Apart from this trick-wired schematic, the “equities” investor is at multiple disadvantages. The idea of equity investing is that the little guy can own a piece of a big company, and if the company thrives, so will the little guy. But the minority investor has no meaningful ownership position because the minority interest doesn’t include either possession or control, the pillars of “ownership” (property law 101).

As I pointed out in the January, 2008, issue of this publication, if you allow yourself to step back and look at equities investing with freshly cleaned glasses, it becomes abundantly clear that it’s basically irrational to expect someone else to make money for you. Most of our lives, we work and get paid, but the honest ones among us don’t expect to get paid for the work of others. Yet, investing in equities is exactly that: expecting to get paid for the work of others.

HAVING SAID ALL OF THE ABOVE, I have to confess, at this particular time, because of market distortions created by the same folks who built the Equities Fun House, there’s actually an opportunity to get paid for the work of others. There are stocks and funds out there right now that are at enormous discounts, paying solid dividends. They are companies that make actual stuff or perform actual services, not paper shufflers. But don’t be fooled. To navigate the Equities Fun House is tricky, and it’s work, and don’t expect someone else to do it for you. If you must invest, take the time to become your own “expert.”

4. It is very possible that the big surprise of the next decade will be that the U.S. will return as a manufacturing giant on the world scene. For about 20 years now, it’s been Asia makes, the U.S. takes. Easy credit, cheap labor abroad, and access to relatively inexpensive energy multiplied this equation. But in the upcoming de-leveraging and compression of the U.S. and world economies, it may dawn on us in the U.S. that we really do need to be productive, not just clever. Note that the DOW JONES INDUSTRIAL average recently removed most banks and financial types from its list, perhaps recognizing that these paper players, though of some importance, are not “industrial” in any sense of the word.

You might ask how I expect the U.S. to return to productive prominence, given that the U.S. labor force has such high wage expectations relative to Asia and South America. My prediction is that the U.S. national educational system will change and accelerate in response to the velocity of information access, such that, within 10 years, the current K-12 and 4 years of college (a total of about 16 years) will compress to 12 years, and then to a mere 8 years, total, liberating a large number of highly competent young people to the labor force who will gladly work for what will become known as the WMW (worldwide minimum wage).

I KNOW, I KNOW, I can hear the cries of child slavery and sweatshop conditions, but it doesn’t have to be that way. First, we spend way too much money on education now, keeping kids in school about twice the time they actually need to be there, holding them in line, in a pleasantly sociable Day Care Center, until enough people on the retiring end of the line leave the work force. Our current system simply hasn’t kept pace with the speed at which learning is now possible. Any kid with any smarts at all can get all the credits (and information) needed to graduate from high school in two years (one, actually). As far as college is concerned, I went back as an adult who’d spent a lot of time sitting on a tractor (and thus was no intellectual giant) and I graduated in three semesters, taking 36 hours a semester and one summer school session. Yes, I spent 6 hours a day reading, and no, I didn’t have a 4.0 average, but I got the information.

Second, we need to wake up and smell the world’s coffee. Not everybody is going to grow up to be a CEO or even manager. It would help if we stopped tossing out all this bull butter about “Be all you can be,” or “Follow your dreams to your private jet.” The best any socio-economic system can do is insure equality of opportunity, not equality of outcomes. Maybe it’s time to start “being all we can be” as world citizens, and following a dream that leads to food, fiber, shelter, and transportation for others.

5. Finally, and perhaps most importantly, KNOW YOUR BEANS. People think that in times of great economic crisis, gold and silver are the commodities to own. This is a ruse. The people who believe gold is a hedge against bad times have never brought so much as one potato into the world. They are the same people who thought big, securitized bundles of BBB- and C- rated mortgages deserved an AAA rating simply because there were so many of them they probably wouldn’t all go bad at the same time, which is basically the same group of folks who thought it a good idea to set up the credit-default-swap system on Wall Street instead of in Vegas.

Gold is only a hedge against disaster in a hypothetical way. It provides a false sense of security to those who function in a world that’s far from the trenches where most of us work. Gold isn’t edible, its practical uses are limited and require complicated processing. It’s chief virtue is rarity, but intelligence is also rare, and seldom given its due. In deeply hard times, the last thing you want is a bunch of gold bars to lug around.

OK, there are those who argue the world economy must go back onto a gold standard, and gold should go to $5,000 an ounce. My guess: the chances of either happening are less than 10%.

History has repeatedly shown that when the economies of tribes, city-states, and nation-states fell apart, gold had no value. Consider: (a) In the hyper-inflation of Germany in the 1920s, (b) during the U.S. panic of 1890, (c) in the midst of the Dark Ages, and (d) even going back to the Anasazi famines 10,000 years ago, in all these economic catastrophes, the leaders backed the local currency with: you guessed it, BEANS.

You might think it’s easy to know your beans, but it isn’t. In the West, we have 12 principal beans, each with unique properties. Bean stocks must be rotated for freshness and maximum nutritional yield, and one’s portfolio of beans needs to be balanced as a hedge against the inevitable volatility in the bean markets. Obviously, knowing one’s beans exceeds the confines of this article, so I must refer readers to these ten government pamphlets for the full accounting:

The Beansleeves of Summer

The Red Bean of Courage

A Midsummer Night’s Bean

Days of Wine and Beans

Gone With the Bean

War and Beans

No Bean is an Island

Death of a Bean

The Loneliness of a Long Distance Bean

I Wanna Hold Your Bean

If you order all ten and pay postage, you will receive, at no extra charge, the perennial classic, The Old Man and the Bean.

John Mattingly, a recovering farmer, currently cultivates prose from Creede.