MDEF™ Investing, explained ... The Cold Equations Of Crisis Investing
An old Marine general who has seen many landings in the Pacific helped me understand how men behave who are in extreme situations in which miscalculation may lead to their demise.
“As best he could, each Marine made his own personal decisions what he had to carry that might help him survive and what he couldn’t justify.”
There have been instances in human history when people used sticks, shells, stones or ability to trade goods and services. However, precious metals, iron, copper and even tin have used as a means of exchange with great success for centuries.
Throughout history the capacity for self defense has been critical for any kind of economic success. From the iron spear through the atomic age and drones, our ability to defend ourselves has relied on our ability to manipulate metals in one fashion or another. Most wars target the resources of others. War has also been the best business around for centuries – especially if one controls vast sums of valuable metals.
Wars have begun for other reasons as well: to deflect a population’s attention from failed leadership or retaliation of unpaid excessive debt. Currently, it is these last two examples that should concern us most as investors.
Energy means different things to different people. Over the millennia, it has meant wood or coal fires, steam, solar or nuclear electric generation. Since the industrial revolution, access to cheap and abundant oil has been the key to all achievement. Wars have been fought for it and have been lost for lack of it. Nothing in our current world system is grown, manufactured, transported or “works” without energy from oil – period.
Well into the industrial revolution, most of humankind had spent most of its time growing, harvesting and storing food. We cannot live long or produce much else without a steady and healthy intake of food.
The world population has exploded over the last century primarily due to increased food production. However, food scarcity is not uncommon at times. Manufactured famines have killed millions of people in both Europe and the Far East in just the past century. We take for granted the over-abundance of cheap food at our local supermarkets, and know the better part of the world survives on a fraction of the quality and quantity of the average American diet.
Last year’s world-wide drought was considered the second costliest natural disaster in US history. Prices in the US jumped; portions shrank, and; profit margins were squeezed. Think of the ‘just-in-time’ delivery system now employed by every industry in America. Your local suppermarket carries only a two-day supply of most foodstuffs. If there were an interruption of the supply-chain due to fuel availability/costs or natural disaster, for example, how much and how fast would food costs rise?
The Financial Lesson
I point out these facts because each uniquely and directly relates to our societal safety and well-being. As investors, we look for return-on-principal. There are times when return-OF-principal becomes paramount. As the DOW corrected in 2008-2009, many investors watched half – or more – of their principal evaporate. That is an extremely difficult hole from which to re-establish a comfort level with the reliability of our monetary system or make projections for retirement.
I believe we are now facing a general devaluation of currencies across the world. This will, at first, be positive for the US dollar and hold in check some of the inflation that must come in the wake of the Federal Reserves printing of trillions and trillions of dollars out of thin air. But eventually, our own currency will falter – and when it does, we will not be discussing a “targeted inflation rate” of 2% or 4% but rather in the high double digits. The call for a new ‘world currency’ will re-emerge. Finance Ministers from across the globe will look for the least painful way to extract their country from mountains of debt. By mutual consent, the new currency will be based on a country’s precious metals, natural resources and advanced labor. If this sounds strange, or is a new concept to you, please refer to any of the data available from the United Nations on how the U.N. has prepared for just such a contingency.
What Stock Sectors Will Rise the Most Dramatically?
Libraries of books have been written detailing the demise of “fiat” currencies and the root causes of their demise. Fiat currencies rely upon the “full faith and credit” of their issuing governments. They are totally unsupported by the traditional backing of gold or silver bullion held by their issuers. It’s a fascinating and worrisome topic that can be summed up in a single sentence: No financial system in history that used fiat currency as an exchange of value (money) has survived.
It is now mid-2014 and I’m asked constantly what to expect next? Let me be frank: My view of this market is short-term bullish and long-term catastrophic. My goal is to have my client monies primarily in MDEF™stocks as the currency-of-survival has never changed. We all must have an alternative to fiat money (metals); be able to stand against some outside force for ourselves and loved ones (defense); have electricity and transportation (energy); and, be able to feed ourselves (food). It is just that simple. This is why MDEF™ sectors have historically retained their values while all other asset classes/financial instruments are discounted at varying rates.
Further, as company earnings for non-essential goods and service diminish as DEMAND for them contracts, investing capital races to where DEMAND is strong and rising. While the MDEF™ strategy offers no guarantees of performance, capital always seeks areas of DEMAND first. Remember that money (capital) does not "make the world go 'round." DEMAND is the force that commands the capital; and even in the best of times, markets are driven by the human psychology of fear and greed. The coming inflation and market cycles must be treated like combat – not unlike those Marines on the landing craft who discarded all unnecessary items in favor of tools to aid their survival. These will be the cold equations of crisis investing.
If you’re interested in knowing more, do not hesitate to contact me.