Bearish News

Guest post from SovereignMan.com. Published with author permission.

By Simon Black

April 28, 2011
Asuncion, Paraguay

Jim Rogers saw the writing on the wall for America several years ago.  He uprooted his wife and family from New York and went where the opportunity was– Singapore. Rogers has famously said that the best career advice he can give a young person setting out to make a fortune today is to become a farmer.

Unlike some news anchors, who seem to take the comment in jest, I believe he is completely serious.  Forget investment banking, derivatives trading, or managing a hedge fund.  The big fortunes of the coming decade or two may well be made in agriculture.

Those quick to dismiss the notion assume this means toiling in the fields all day from dawn to dusk.  Wrong. There are MANY ways of making a buck in farming and agriculture.

Farming itself is just one part of the supply chain.  You could supply seeds, chemicals, fertilizer or stock feed.  You could breed some exotic variety of cattle or pigs.  You could provide logistics services to get products to market.  You could even set up a fund to invest in agribusinesses on behalf of others.

There are literally dozens of ways to play this.

I just finished reading an uplifting account of a young Filipino entrepreneur (only thirty-one years old) who’s well on the way to floating his diversified agribusiness company on the Philippine Stock Exchange for P2 BILLION ($46.5 million).

In just 7 years, he’s grown the company, which does everything from selling livestock feed, to running rural supplies stores, to raising chicken hatchlings.

Annual sales have increased 9-fold from P200 million to P1.8 billion. Profits this year should hit P137 million based on company projections. By 2013 they’re targeting P425 million.  That’s US$10 million, give or take, in net profit, all from doing something very basic.

Put simply, so little new blood and talent has entered the agriculture business in the past generation that many business practices remain stuck in a time warp.

How many people do you know who majored in agricultural science at university?  How may people can you think of who stayed on to run their parents’ farm, or returned to the land to run their own business?

Now, compare that to how many bankers, brokers, accountants, and lawyers you know…

Ten years ago, NOBODY studied geology and people looked at you as though you had two heads if you said you wanted to be a mining engineer. Today, agriculture is in the same boat, and the complete dearth of new talent in the agricultural industry is a sure sign to me of the wide-open field of opportunity.

In the Philippines, so low-hanging was the fruit — if you’ll pardon the pun — that this young entrepreneur I just mentioned was able to double profits at his parents’ farm supply business when he took it over, simply by installing some off-the-shelf accounting software.

You may think this is an extreme example, but I can tell you that there are dozens of countries in the same situation. Paraguay is one of them.

We talk a lot in our discussions about ‘adding value’ as a means to generate income, either as an employee, professional, investor, or entrepreneur.  This is an important principle to understand because being able to generate independent income is absolutely necessary to become more self-reliant.

I’m quick to point out that the value creation process is often derived from solving problems– the bigger the problem, or the more people it affects, the greater the value created… and hence, the greater the reward.

Quite simply, there are a lot of problems to be solved in developing markets– lack of modernization, lack of technological know-how, lack of best business practice know-how, lack of financing and appropriate capital management, etc.

These are often second nature to many westerners who typically have both the knowledge and experience to make a big difference, and hence create a lot of value, overseas. One just needs the courage to do it… and prove Jim Rogers right.

I had no idea Dr. Seuss did editorial cartoons. From 1942.

 

Quite the hawk, wasn’t he?

Also see Great Depression Cartoons part one and two.

Source

It truly is stunning to watch. From campaign to presidency, Mr. Obama has transformed from bank critic into a bankster’s BFF. From a supposed champion of liberty and civil rights into a Patriot Act extender.

From questioning the war on drugs (and talking about snorting cocaine in his book), to prosecuting medical-marijuana clinics in states that dare to question Federal policies.

Guest post by Jesse, re-published with author permission.

You walk into a Merchant and a sign says, “All Items on Sale Today for Cash Only No Credit.”

You are interested in purchasing an item. The Merchant, being a crafty sort asks “How much money do you have to spend(in US dollars)?”

How would you answer that if you are being truthful?

You might start by looking into your wallet and pockets, and counting all the cash and coins you have with you at that moment.

M0: Monetary Base

This is equivalent to the monetary base, or M0. It is money you have that is immediately available requiring no change or conversion. There is very little risk to the merchant, unless it happens to be counterfeit which is easily verified.

“Not enough” says the Merchant. “I am sorry, but do you have more?”

M1

Then you remember that in addition to cash, you have your checkbook with a current balance in it, and a debit card to an account you maintain in a local bank, but with no overdraft or lines of credit provisions.

That plus the currency in your pockets is M1. See the difference? You do not have ALL your money in your pockets for immediate presentation, but with a little transactional effort the money is readily available and it is inherently your money, it belongs to you. It is just being held elsewhere besides your pockets and wallet. The merchant assumes a little more risk, but he can quickly call your bank to verify that the funds are available for the check, and the debit card is even more mechanized. More risk, a little more delay, but almost as ‘good as cash.’

“I am sorry sir,” says the Merchant, “but this is still not enough to exchange for such a valuable object as I have for sale here.”

M2

You think about it, and remember that you have a savings account across the street at the bank, and a money market fund at your brokerage office next door, that have more of your money on deposit. You have no cards for those accounts, but it would be an easy thing to walk next door or across the street and obtain the cash.

This is M2. There is a more complex transaction involved, since the transfer is not electronic as in the case of a debit card, and you must leave the store to obtain the money in the form of currency unless they bring it over to you. But it is your money that is available to you on demand. There is a small amount of risk of your bank not being solvent when you need the money, but these are slight inconveniences compared to the safety of not carrying around large sums of money that earn no interest in the form of cash.

“I am so sorry,” says the Merchant. “But this item is far too valuable to part with for such a sum as you have offered.”

M3

You think about it, and remember that you have a large Certificate of Deposit at the bank across the street that matures in one year. There is a small penalty if you redeem it today to receive your money since you promised it to them for a time in exchange for a specific return, and you must fill out some paperwork, but it is still your money. It involves no sale of an asset or conversion.

That is M3. It involves money that is still yours without borrowing, but has additional conditions set up on it for its retrieval.

One could make the case, and perhaps appropriately so, that while certificates of deposit with a term contract that might effect their value are money, they are not readily available money since the terms of the CD’s may differ greatly. They are not ‘liquid’ and the value before maturity is not always certain due to a penalty.

MZM

If one takes all the things we describe as M2, but takes out the time deposits or certificates of deposit, and includes ALL money market funds, that is what the Fed considers to be the broadest measure of liquid money, or Money of Zero Maturity (MZM). “Zero maturity” means that the money is not tied up for a period of time to mature to its full value.

Are credit cards or loans Money? No,those are all forms of borrowing something that is not yours that you promise to return with conditions. You are receiving money that was not yours.

Credit Is Not Money.

Credit, or debt, is the ‘potential’ for money, a way of receiving it.

Whether water is held in a canteen, a well, a cistern, or a private lake, it is still water and it is yours if you own it. So too money is still money if it is yours, no matter under what conditions you hold it or save it for your use.

The cloud of credit, or debt depending on your perspective, is the potential for money as it is defined in our economy. It is a source of money. At a given point in time, you either have the money as your property or you do not.

But the source is not the money itself, and the source can be different and can change over time. In our society borrowing is so common and so technologically convenient that there is little difference in most people’s mind between credit and money.

But the difference is that if you spend real money, you incur no obligation for it in the future. You receive no payment request from another at the end of the month.

That is what money is, at least in our economy, and the various measure of money as it is held and shifts through the economy and a variety of transactions, where it flows and rest in pools, and moves again. A measure of the money supply is a snapshot in time.

How money increases or decreases, and how it is stored or held, is a significant indicator of economic activity for those who study such things. It is also significantly affected by custom, technology, and the prevailing mood and perception of the public.

The best and broadest measures of money supply are either MZM, or M2, now that M3 is no longer being reported by the Fed. This can easily be seen from the illustrations.

As springs feed into brooks, and brooks streams, and streams into rivers, and rivers into lakes, so the money supply components change in size and shape over time as money flows from its various sources. The speed of the flow is the ‘velocity of money’ and as one can easily understand that flow will have a different force and speed depending on when you measure it, and whether you are measuring one of the streams or a major river.

People often prefer to jump into discussions and turn them into debates (arguments) with hair-splitting definitions (what is ‘control’ of the money supply) and red herrings (why does a dollar cross the road?) before defining any terms or facts and setting some boundaries for the analysis, because their goal too often is not understanding, but to promote some theory or point of view. ‘Winning the argument’ is their objective, not a search for the truth.

Money is the instrument of the official economy. This gives money a certain arbitrariness over time because, after all, it is the product of a committee. Official money is the creation of government, managed by its agents, validated by the people who use it.

Official money rises and falls from favor to disfavor, as do governments. What if you were a citizen of Zimbabwe? Or the US in the 1860′s? Or Germany in 1922? How would you feel about your official money then? Why is it different for you now? What would change your opinion?

What is the ‘natural growth rate’ of the money supply? Zero?

The discussion of how money supply increases, and who or what determines the supply, and what an appropriate level of growth would be is a matter for discussion on another day. So too is the strange phenomenon of ‘natural forms of money’ that keep turning up in every era and nearly every society.

But for now at least you have the means to understand what money supply is and how it is measured, and how it is different from potential money, or credit, the representations of money, and asset stores of wealth.

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