Monday, October 27, 2008

Investment strategy given the current enivronment

The ultimate goal of investors should be to increase the total purchasing power of their principal with respect to tolerance for volatility of returns. Given that economic growth and currency strength is hampered by by government spending, investors should allocate capital in places where that allocation is rewarded instead of punished.

In a floating rate foreign exchange system, the currencies are valued relatively. That is, they are valued according to which currencies are more stable. The recent upturn in the dollar has been extremely perplexing given the amount of money that the government has printed and added to the national deficit. It seems like this is a "flight to safety" more than a rational valuation of the dollar. US treasuries are seen as safe, probably due to the fact that we have a printing press that will eliminate all credit risk. This does not include purchasing power risk however, and ultimately these investors will see negative returns on their money when adjusted for inflation. Investors are currently seeking to lose as little money as possible.

Investors now should be looking at economies with relatively free markets, sound currency/monetary policy, low government spending/GDP, and low debt/GDP. These countries will maintain the highest overall purchasing power and standard of living. Countries that embrace free market ideology, such as, Ireland, Hong Kong, Singapore, Australia, Canada, Chile, and New Zealand should theoretically recover faster than the US. Australia avoided most of the fallout from the tech bubble, Singapore has developed one of the most sophisticated areas for financial services, Ireland has adopted a business friendly regulatory and tax environment, and so on. Each of these countries have their downfalls (ex. Hong Kong pegs its currency to the Renminmbi and the US dollar), but the trend of these countries toward freer economies have been opposite of the US.

To fix our countries economic situation there are some simple solutions. Unfortunately, President Obama will cause the greatest expatriation of US dollars by increasing taxes on capital deployers (business owners) and increasing government spending (most likely through some New Deal-like initiatives). Businesses, (the lifeline of the US economy) seek the lowest cost of production at the margin. Conformance with the regulatory and tax environment is a huge burden on business. So, businesses have tended to move jobs and capital elsewhere because the marginal cost of doing business here has exceeded the marginal benefit. It is that simple. To improve our wealth, we need to decrease the marginal cost of production in the US. That can be done by decreasing the regulatory and tax burden of businesses.

People have been taught to think that businesses have run amok because of the free market; but in the next few years, those countries with the freest markets will see the highest growth and strongest currencies in the future.


Anonymous said...

There is a principle called Ockham's razor which is attributed to the 14th-century English logician and Franciscan friar, William of Ockham. It basically states that – "All other things being equal, the simplest solution is the best."

The following are two simple ideas that effectively create the ideal social construct.

Simple Idea #1

1. Socialize ALL Land

2. Charge leases on ALL Land based on demand.

3. Return 100% of the resulting revenue to every man, woman and child in the form of a yearly dividend check.

4. Make the Universal Birthright of Land an Everlasting Standard in the education of every Child.

This effectively makes the average piece of Land Free for every Living Soul and restores our Natural Birthright as well as coupling our social construct to the Principles of Life.

Simple Idea #2

1. Remove EVERY FORM of tax

2. Implement a Tax on ALL new goods based on the resources they contain and the resources they use in production and delivery (this can easily be implemented with the current barcode system used at the checkout)

3. Use this system to encourage/discourage various resource usages (High tax on non-renewable/ecosystem damaging products and low/no tax on renewable/ecosystem enhancing products) and to encourage purchasing of local products.

4. Use the resulting revenue to fund infrastructure expenses and the restoration of ecosystems.

This effectively encourages the creation/use of longer lasting, high quality products as well as encouraging recycling and reuse of existing products.

Idea #2 effectively constrains the ravaging appetite of the capitalistic consumer society within the Boundaries of Sustainability while Idea #1 effectively encloses both Sustainability and capitalism within the Principles of Life.

That's it!!! Simple and Effective

A Friend

Jim said...

Simple idea #1 is already in place in the form of property taxes. As for universal birthrights? I don't know who determines those. As long as there is free will people should be able to exchange property at a price agreeable between interested parties.

Simple idea #2 is silly. A truly capitalistic society with protection of private property rights will seek the lowest cost of production with the least damage to private property. In the long run probably in the next 10-15 years, a point will be reached where renewable resources will be cheaper to use than non-renewable resources.

It is also not necessarily important to encourage purchase local products. If I can get a cheaper product of the same quality, I will buy the cheaper product regardless of where it is from because it leaves me with more wealth, plus it encourages businesses to seek low cost.

Sustainability is an ideal that is very arbitrary. There will have to be a bureaucracy to determine what is sustainable or not. This bureaucracy, like any other, can be easily corrupted. If people have free will to determine whether they want to pursue the sustainability ideal, that is their prerogative. But to impose this ideal on people that do not seek this is corruption and coercion of the highest order.

My simple idea is to end the federal reserve credit based system, eliminate all restrictions on business regulations, eliminate all business taxes, and enforce private property rights. This eliminates corruption by getting rid of the complicated tax code, reduces the costs and barriers of entering businesses therefore increasing competition and lowering consumer prices, and protecting people from damage caused by others to their property.