Put gold, hard assets in your investment portfolio

A nation with increasing productivity is one with an increasing standard of living for its citizens. So goes the unchallenged economic rule of enhanced productivity.
Economics is, for the most part, correct when it posits that productivity growth increases the overall standard of living – to the extent that one defines standard of living as an increase in material wealth. I just don’t believe that people define their standard of living quite so narrowly. I think a better measure would be “quality of life.”
Whereas standard of living measures gains in material wealth, quality of life measures an additional component: purposefulness. Material wealth without the time to enjoy it is not wealth at all. Additional time to choose activities means nothing without a sense of being useful. Few people thrive without a purpose to their lives. Take away a man’s purpose and he’ll starve as surely as if you’d denied him bread.
By this measure, our system is failing. While we certainly have greater material wealth and comfort, millions now lack purpose in their lives. If we are to advance as a society, we must correct this failing in our economic models.
The answer is as simple as asking a different question: Will the action being considered improve the quality of life for the nation’s citizens? I said it was simple, not easy.
The nation’s financial infrastructure was salvaged by the extraordinary actions of the Federal Reserve and, to a lesser extent, the federal government. But to what end? Millions are unemployed with no prospects of finding a job anytime soon. Millions more have lost their homes. And each and every one of us has become jointly and severely libel for $15 trillion in government debt. Meanwhile, productivity has continued to advance as companies do more with less. Has our quality of life improved? The answer is no.
We spent trillions of dollars to save a broken system with the promise that all of that money would ensure our beloved systems wouldn’t crumble. Yet the promised outcomes have not materialized. Why?
It’s simple, really. We are paying the accumulated bills from the last 40 years of excess permitted by an overly indulgent Federal Reserve and politicians anxious to buy votes with the people’s purse. We are not buying a better future, but paying for a raucous past. One problem with this plan: We are paying the bill with a credit card that should have been cancelled years ago. The future we face is one where we careen from one financial crisis to another, each worse than the last. Ultimately, the developed economies of the world will bottom. When we finally do, expect that we will be there for sometime, until politicians face the unavoidable fact that the game is over.
In the real world, you still have to watch out for your family and yourself. How? Here are some rules to help you govern your financial life in 2012.
&#8226 Any investment recommendation that is accompanied by “over time, the S&P has …” is worthless. The only time period that has any relevance to our present circumstances is post-World War I Germany. And you’re not likely to find anyone making that kind of comparison.
&#8226 The less tangible an investment is, the more risk it has. Let’s face it: How can a company like Amazon.com be worth 40 times earnings? Forty times earnings means that, in order to get a dollar of Amazon earnings, you need to give them $40. And by the way, that dollar of earnings from Amazon is only what they might pay; it could be less, it could be more, and you get it 25 cents at a time over the year.
&#8226 Paper assets paid for by fiat currency increase in risk as the Central Bank prints more and more money. Easy money begets inflated asset prices. Beware the ephemeral, embrace the tangible. Converting fiat currency into tangible assets is one of the single best investment decisions you can make in this environment. If you own a dollar and another dollar is printed, your dollar is worthless. The same is not true of hard assets. While tangible assets can increase and decrease in availability, dramatically affecting their price, they can’t be created out of thin air.
&#8226 Buy some gold! Nevermind the price. Gold is the immutable constant against which other currencies are measured. It is not an investment, but an alternative to fiat currency and unrestrained money printing. As long as governments keep printing money, keep buying the yellow metal. They most certainly are. &#8226


David F. Brochu is president of Kleossum Inc., in Conway, N.H.

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