Tuesday, November 16, 2010

Swinging Bachelor Economists Don't Buy Gold

I had a buddy ask me about "red neck gold" - ie - investment alternatives to gold because, well, frankly people can't afford $1,400 an ounce. I presumed he had gotten the term from the internet, but when I went on the internets I could not find the term nor any article about it. It actually surprised me because I would have thought "red neck gold" was a logical next step in the evolution of investing given our chaotic economic times and the prohibitively expensive prices of gold. But then again things that seem "logical" to me are horribly super-advanced complex things doctorates in econometrics need super computers to model and figure out, so permit me once again to lay down some serious old school, blue collar economic genius.

First you must ask yourself why does gold have value or become a refuge during dire economic times. The answer? Simple - it's money. Not in the "fiat" paper dollar bill, sort of money. It IS money. And what I mean by that is it has the qualities and traits that make it a good money;

1. It has an intrinsic value. Most men scoff at gold as merely a mineral that looks shiny and pretty. Well who likes shiny, pretty things? Women! Who likes women? Men! And so history is filled with instances where men slay other men for gold because of..ahem... let's just say "biology."

2. Gold is divisible. You can divide it, mint it, press it. Cars aren't. You can't just come into Whole Foods with a Prius and get a bag of groceries and use a car as payment. It would not be fair to you. You need something that can be a smallish or smaller unit of measurement (ergo a dollar, a shilling, a yen).

3. Gold sticks around for a while. It doesn't degrade or mold or deteriorate. Is it any surprise metals were the original money? Copper, gold, silver, nickle. You can put a bar of gold in the ground and because it's half life is something like 40 billion years, you're still going to have 99.9999999999% of it 10 years later.

4. It's universally accepted. You of the highest alpha-male bachelor order may have no practical use for gold (technically, nobody does), but you're no schmoe to turn down a free bar of gold. It's worth something to somebody. So you may not use it, but you could use it to buy yourself something that is valuable like an X-Box 360 or a trip to Vegas or the Captain's super awesome book on the housing crash that not only guarantees you will be smarter than whenst you started it, but chicks will dig you too.

These traits (and others that have escaped my mind) is what makes money MONEY. It is not necessarily the physical atoms that make an item an excellent candidate for money, but other traits that make it a good currency of exchange.

Ergo, the question for those of you wishing to invest in something to avoid a collapsing dollar, but can't afford gold, is what things can you buy that have those same traits, but doesn't cost $1,400 an ounce?

Well, here are a couple ideas from the ole Captain;

1. Bullets - I do not mean this in a "prepare for the collapse of society type way" (although they would definitely come in handy), but they are the perfect candidate for money. They are divisible. They have intrinsic value (you can shoot prey with them). They store well. And if times get super bad everybody would certainly accept them more than gold bracelets. Even if times AREN'T super bad, you can sell them for more when inflation goes up 50% next year because the bullets have value, Obama-dollars don't.

2. Booze - In the Wiemar Republic with hyperinflation running rampant, the Germans would use bottles of booze as a means of currency. A high end cognac would be the rough equivalent today of a $100 bill. Windsor Canadian would be the equivalent to a quarter. Regardless, again, the same traits. Divisibility. Store of value. Universally accepted. Intrinsic value. And if the world is in that bad of shape, how COULDN'T booze be in higher demand?

3. Salt - This would be more along the lines of "oh crap, the world really is collapsing." Good news is you can stock up for free essentially at restaurants by stealing salt packets.

4. Matches - Come on! Tell me how matches aren't the perfect money? AND FREE TOO! Of course if the economy doesn't DESTROY itself, then people will look at your fine match collection and say, "What, are you kidding me? I can get matches for free at the bar." But when the economy does collapse, and the lefties have shut down all the sulfur mines due to environmental concerns, boy, tell me that isn't going to be a great investment! Not to mention who are the ladies going to want to cuddle up with? Thor, the wise and mighty economist who saved up matches and has a nice warm hut, replete with roaring fire and a full arsenal of guns to protect his compound? Or Jayden, the sensitive 90's man who majored in philosophy and is now an icicle in breadline at some government feed station along with the rest of the losers who shut down the sulfur mine?

5. Tools - If you get a good set of tools think about how great that is. YOu only need one set of good tools to repair the Mad Max car you have to fight off the roving bands of marauders. But you could sell a wrench or a screwdriver for BILLIONS of Obama-dollars come 10 years from now. Regardless, tools do keep their value and are something that does have intrinsic value and would definitely be something that would hold its own against inflation.

I'm sure there are more, and if you think about it, you'll start to see them. But in the meantime if you can't afford yourself some gold, I'm sure you can afford yourself some of the items above.

This public service announcement brought to you by Cappy Cap.


Anonymous said...

Silver is known as the poor mans gold. Copper also has value.
Bear in mind an ounce of gold never really changes in value, over the long term. You can buy roughly the same amount of groceries with an ounce of gold ,throughout the ages.
What does change is the amount of paper dollars an ounce of gold is worth. The US dollar 100 years ago was set at 1/20 of an ounce of gold. So your grandfather`s dollar would be worth 70 dollars in today`s money.
I like Jim Rogers recent quote regarding the Federal Reserve, "they are going to print money until they run out of trees". That pretty well sums up the situation.

Anonymous said...

you can get 1/10 once gold coins

Anonymous said...

Gold is not universally accepted in today's societies. I can't go down to the grocery store and purchase groceries with a gold coin. (as much as I'd love to.)

While I respect Austrian economics and the gold standard, I disagree with the theory that gold IS money and money IS gold. Any commodity can be money as long as it is accepted, movable, and divisible. In our present day, gold is a commodity, just like anything else. It just so happens that gold is the BEST commodity to be used as money because of it's scarcity and all the other things you listed.

For that matter, all paper money (dollars, euros, rubles, yen, etc) is a commodity too. You can BUY gold with your paper dollars or you can BUY paper dollars by trading gold, similar to trading 10 chickens for 1 goat. What makes money money is that it is universally accepted as the medium of exchange and that it is movable and divisible wealth. Everyone wants the commodity of money because it allows for more efficient trade and protection of wealth. This also is what created civilization, as it allowed different people to solely focus on a single occupation.

I am a staunch gold standard guy but I am not going to hoard gold for some impending disaster. If things get so bad that we will be using gold as a black market money again, I doubt anyone will want gold because you can't eat it, wear it as clothing, or build a house out of it. (Unless you had a whole stinkin lot of it.)

If this does happen, we will all be armed to the teeth in travelling gangs looting and stealing instead of exchanging gold for products. Yay anarchy lol.

Good post. Sorry for the rant. I love talking about money. :)

Norm said...

Don;t forget guns. Not really divisable but of you are willing to use it, you can get pretty much whatever you want.

Anonymous said...

Great Post.
I will sell you groceries, ammo, booze for gold coins... I beleive gold is more accepted as money right now. Granted if a teller can barely make change when you are buying a Happy Meal, you will have a hard time paying with gold..

1. Gold
2. Commodities & Bonds
3. Real Estate
Traditional Inflation hedges.

When everyone starts moving into the first 3, there is trouble. When a couple of the first 3 are "Risky", we have major problems. (real estate and bonds come to mind!)
Then the next step is a collapsing system, then these become safe investments:

4. Food
- baby food, hygene products,
etc etc...
5. Booze (is always in demand!)
6. Cigarettes (better than money
in our finer Gated
Communities..)(include all
nicotine; tobacco, cigars etc.)
7. Ammo/Guns
8. Gasoline (hard to store long
9. Tools. (forget power tools,
hand tools)

It is scary to think that this is where we are at...

Anonymous said...

Hey Raliv,you can not use gold at the grocery store, because of Legal Tender laws in America.The Federal Government wants to maintain a monopoly on the money supply. This allows them to dilute the value of the currency. Gold ownership in the US was also illegal from the 1930s until the mid 1970s.
Governments can not control and dilute hard money such as gold. When people start to realize their governments are printing their paper dollars into a worthless state, you can bet your sweet ass the grocery store will accept silver or gold coins. This has happened throughout the ages. Every paper currency at some point has become worthless, and people return to the use of hard money. I actually have a 50 billion dollar note from the central bank of Zimbabwe. At the time of printing it was worth around 10 US dollars.
BTW, you can also open up a Swiss Franc bank account, as a hedge against US inflation. Just remember to report it on your tax return.

Baron Metzengerstein said...

I would add Germanium to your list, Cap. One of the reasons gold is as valuable as it is right now is its value in electronics, but germanium is even more valuable in that field. (Of course, we're assuming here that we don't have an apocalyptic collapse and Intel & AMD are still making microchips).

Also, have you ever read this: http://mises.org/books/denationalisation.pdf ? One of my favorites on the topic of money & monetary systems.

Mike said...

Engineers like me know that gold is actually a very useful material. It is one of the most dense, ductile, conductive and corrosion resistant metals out there. There are lots of practical applications for it, too bad we waste so much of it on our obsession with shiny trinkets.

Diamonds are also very useful, being one of the hardest and most optically refractive materials known. Fortunately, the world has a lot of carbon and we (meaning us engineers, again) figured out how to turn some of it into artificial diamonds. That's why you can go to the hardware store and buy diamond saw blades that will cut through solid rock and concrete like it's butter.

Geez, I though manly men knew this stuff too.

Captain Capitalism said...

I will have you know young man, that I am FULLY aware of industrial diamonds on account I use them to cut and polish my agates.

Anonymous said...

If you're collecting precious metals in case the end of the world as we know it (TEOTWAKI) occurs, you'll want that gold/silver/platinum in barterable things such as rings, earrings, bracelets etc. In short, trinkets not bars.

If that happens, you'll want guns (and be proficient in their use) for protection and for hunting.

Besides Anon 6:56's list, drugs, medicines, first aid supplies, bleach would be in high demand.

If you're interested take a look at:



Anonymous said...

"Swinging Bachelor Economists Don't Buy Gold"

Of course they do. I did ;-). If you have significant savings, you can afford silver, gold, or jewelry. Though there is one problem with buying jewelry for your lady. If you plan to stay bachelor long-term, you may never see that necklace again.

The main drawback of precious metals is indeed tradeability. So you should balance your portfolio between precious metals for long-term savings, and booze, tools, and guns for short-term, easily convertible savings.

Escapist said...

You guys might want to check out Ferfal's book/blog. He talks about the investment perspective, but also has practical tips (not cabin in the woods stuff, but things regular people can do) on the stuff to get/how to prepare in the event of an Argentina-type crisis (not a TEOTWAWKI scenario)

Anonymous said...

Incandescent light bulbs.