Diversification and Investing in Rare Coins as a New Concept

One of the tenants of wise-investing – and indeed in one’s approach to life – is to “not put all your eggs in one basket.” The last few years give us a clear example of the dangers that exist when one’s portfolio is too heavily in concentrated in any one asset; look at the dramatic shift in prices seen in stocks, precious metals, and real estate! With the volatility and uncertainty currently displayed in many conventional investments, astute investors are actively looking for ways to protect themselves by diversifying their holdings and bringing in assets that offer non-correlation to their existing positions. “Non-correlating assets” has become the buzz term after the most recent recession. This is not a new concept, but after the financial crisis in 2007 investors have become cognizant of this. To many people the idea of investing in rare coins is a new concept, but it is, in fact, a time-tested method for preserving wealth generationally. Owning assets that are limited in supply and carry a high demand due to their intrinsic value is a strategy historically shown to protect and grow wealth. Many investors understand this strategy as they have seen it throughout their lives without realizing it. Imagine purchasing a Picasso, Monet, 1955 Ferrari, or downtown property in most urban areas 30 or 40 years ago! The new thing about investing in rare coins is that individuals now have a trusted ally in this space. RCW works directly with private investors by making portfolio recommendations, acting as a broker, and professionally managing an actively traded individual coin fund thereby allowing investors to be successful without needing an extensive knowledge of the coin world. The following article from the New York Times in 1981 explores rare coin investments that Yale University and Johns Hopkins University made at the time including ownership – and record setting sale – of a 1787 Brasher Doubloon. RCW later purchased the “Unique” Brasher Doubloon in January of 2005 for $2.99 million. It was sold to a Wall Street investment firm in December 2011 for $7.395 million – a 247% return over 7 years. As you will, even universities with sizable endowments and an unlimited number of investment options have recognized the importance of spreading money around as well as the benefits of owning rare coins. When an investor has the ability to “hold” something extremely rare – and highly desirable – off the market for a period of time they put themselves in a powerful position when they decide to sell. It does not matter how much money a buyer has if he cannot find a willing seller with the item. Don’t forget to put your “eggs” into multiple baskets. There is a great opportunity with rare coins; please contact one of our professionals to find out how bringing in this non-correlated asset can benefit your portfolio.

The Great Inflation

For God’s sake will people stop talking about inflation! Especially you inflation “truthers” who insist the BLS is lying and the actual inflation rate is between 7% and 10%. Those are the sorts of rates we averaged during the Great Inflation of 1965-81. For those too young to remember, a little history lesson: I was so excited when my dad came home with a red 1964 Oldsmobile 88. That was a car for upper middle class Americans. We were only middle class, but lived in an upper middle class house, because my dad was smart. The car was actually used, but almost new. He used to say a car lost 15% of it’s value the minute it was driven out the door of the dealer. Now when I go look for late model used cars the dealers ask more money than for a new model. The car was a 1964 Oldsmobile Jetstar I hardtop coupe (which sold for $3600). Now let’s flash forward to 1986. The Japanese cars are in style, and the first upper middle class Japanese car on the market is the Acura Legend, which sells for $22,500, more than a six-fold increase in 22 years. It was voted Car of the Year. That’s what high inflation feels like. Now let’s go up to the present. I’m not quite sure what model would be comparable to the Legend, but the Accord is made by the same company, and is slightly larger. ’m pretty sure the Accord LX is better than the Legend LS in almost every way you could imagine. It’s price? Brace yourself, because 28 years is even more than 22 years. Surely the price of cars has risen more than 6-fold in the last 28 years. I’d say around $200,000. Nope. OK, $100,000. No. $50,000? Actually it’s $22,105. (The link has all the specs.) Cars have gotten cheaper over the past 28 years. In nominal terms. (The CPI says car prices have risen about 35% in the past 28 years–I don’t believe that.) BTW, wages of factory workers rose from just over $2.50 an hour in 1964, to about $8.90 in 1986, to $20.68 today. Put away the tissue paper, the middle class is doing fine. Millennials have no idea how lucky they are that they can just go out and buy a Honda Accord, brand new. On a middle class income. That BMW you always dreamed of? Back in 1970 they looked like something made in a Soviet factory. PPS. Labor intensive service prices have risen much more than car prices, and high tech goods have fallen dramatically in price. There is no such thing as a “true rate of inflation,” but there’s also no reason to assume that inflation has not averaged 2% in recent decades. It’s just as reasonable as any other number the BLS might pull out of the air.

Monetary Theory: Base Money is just as Special as it Ever Was

Base money is just as special as it ever was Here’s Frances Coppola: Technology changes and post-crisis monetary policy are making financial assets and money indistinguishable. Central banks now need to work in partnership with fiscal authorities. Several economists at the Lindau meeting were severely critical of central banks’ conduct of monetary policy in the light of continuing depression in the US, Japan and much of Europe, and called for greater use of fiscal policy to bring about recovery. Among the most critical was Christopher Sims, who gave a trenchant presentation on “Inflation, Fear of Inflation and Public Debt”. He started by announcing the death of the quantity theory of money, MV=PY. Due to interest on reserves and near-zero interest rates, “money” can no longer be clearly distinguished from other financial assets. This is a fundamental point which requires some explanation. These days, nearly all forms of money bear interest, which makes them indistinguishable from interest-bearing assets. For Sims, the paying of interest on bank reserves, coupled with the decline of physical currency, all but eliminates the distinction between interest-bearing safe assets such as Treasury bills and what we traditionally call “money”. All assets can be regarded as “money” to a greater or lesser extent: the extent to which assets have “moneyness” is really a matter of liquidity. Sometimes words can get in the way of meaning. There is no point in arguing about what the term “money” really means, it obviously means different things to different people. But the term “base money” still has a pretty clear meaning; currency in circulation and bank deposits at the Fed. The Fed happens to have a complete monopoly on the (US$) monetary base. Prior to 2008 it could determine the supply of base money through OMOs and discount loans, and it could influence the demand for base money through changes in reserve requirements. After 2008, a 4th tool was added—interest on reserves, which also impacts the demand for base money. With these four tools the Fed can push the value of the dollar (in terms of euros) to anywhere between zero and infinity. That’s a lot of power. Nothing fundamental has changed, at least nothing relating to the validity of the quantity theory of money. A few other points: 1. The quantity theory of money has NOTHING to do with the equation of exchange. That equation is best viewed as a definition of velocity, nothing more. Definitions are not theories. 2. Currency is not “declining.” The currency stock is growing faster than GDP. It is also becoming a steadily larger share of the monetary aggregates

To QE or Not to QE, that is NOT the Question

We really ought to consider adopting a whole new monetary regime, NGDPLT. But what if the Fed refuses. What then? Then we are in the world of second best—QE and negative IOR. These are not good policies, but they are less bad than deep depressions or wasteful government spending. Here’s Simon Wren-Lewis: Perhaps these distortions are quite small. However this discussion illustrates a more serious problem with QE, which is that we still have no clear idea of its effectiveness, or indeed whether effects are linear, and what the best markets to operate in are. Announcements about QE clearly influence the market, but that could be because it is acting as a signalling device, as Michael Woodford has argued. Jim Hamilton is also sceptical. This strongly suggests that the uncertainty associated with the impact of QE is far greater than any uncertainty associated with either conventional monetary policy or fiscal policy. Thinking about it this way, I cannot see why some people insist that unconventional monetary policy is always preferable to fiscal policy. In a comment on a recent Nick Rowe post, Scott Sumner writes “My views is that once the central bank owns the entire stock of global assets, come back to me and we can talk about fiscal stimulus.” What this effectively means is that it is better for one arm of the state (the central bank) to create huge amounts of money to buy up large quantities of assets than to let another arm of the state (the Treasury) advance consumers rather less money to spend or save as they like. This preference just seems rather strange, but maybe Lenin would have approved! Of course I was joking, but I do seriously believe that Britain would be better off if it were able to acquire the entire stock of global wealth, at zero cost. That would be even more impressive than the “pink bits” on the map acquired under Queen Victoria. However if I had my way the Fed would have adopted a policy closer to that of the Reserve Bank of Australia (a monetary base of 4% of GDP), rather than the BOJ (a monetary base of more than 20% of GDP.) QE is both a sign of a failed policy, and at the same time (paradoxically) is better than not QE, combined with the same failed policy. Debates over monetary policy should not be debates over QE. The discussion should focus on what policy regime is optimal. An optimal policy regime would probably not involve any QE at all. And even if it did, it would still be less inefficient than fiscal stimulus. That was my point. (Remember that the “advance to consumers” must eventually be clawed back via distortionary taxes.) One way of stimulating demand when interest rates are stuck at zero is to promise a combination of higher than ideal inflation and higher than ideal output in the future. (This can be done either explicitly or implicitly by using some form of target in the nominal level of something like nominal GDP. For those not familiar with how this works, see here.) The cost of this policy is clear: higher than ideal future inflation and output. Once again, these costs can be worth it because of the severity of the current recession, which is why nominal rates are stuck at zero. Whether these costs are greater or less than the cost of changing government spending is debatable: a paper by Werning that I discussed here suggests optimal policy may involve both. Given that inflation doesn't matter at all, it is hardly possible for it to be above or below “ideal” levels. People who talk about the welfare costs of inflation are confusing inflation with NGDP growth. There are welfare costs of excessive long run NGDP growth, primarily excess taxation of nominal returns on capital. But inflation by itself does not have important welfare costs. The only possible inflation cost is the “menu costs” of price changes, but even that is unclear, given that nominal wage changes also involve menu costs. Thus a NGDPLT policy minimizes both the “welfare cost of inflation” and the problem of sub optimal output fluctuations. There is no trade-off. NGDPLT also reduces financial sector instability, relative to inflation targeting. It’s a win-win-win policy.

Why the U.S. dollar is still king.

Why the U.S. dollar is still king.

A stronger dollar will cause a lot of volatility as investment capital will have other options then the standard and emerging markets. Non-correlated assets will be a great hedge during these volatile times.

Another day of spin.

Paul’s Economic Outlook:

Another day of spin. Check articles before trusting.


America’s Day of Reckoning Is Sooner Than You Think

Spin article. Producing too much oil will drive prices down which will kill the oil boom? Is this guy nuts. Drill baby drill.


America’s airlines are the world’s most profitable and least comfortable

Spin article. It is a business. It is affordable for the masses and the rich can pay more for comfort. This looks like a win/win scenario for the passengers.


Russian Billionaires in ‘Horror’ as Putin Risks Isolation

Spin article. If, if, it seems to be the new logic for writers. Let’s stay with what the facts. Russian markets are down a little but will recover.

The U.S. economy is becoming a more business friendly economy as U.S. oil supplies increase.

Paul’s Economic Outlook:

The U.S. economy is becoming a more business friendly economy as U.S. oil supplies increase.


Europe Risks Losing 30 Million Jobs to U.S. Shale Boom

Backwards article. U.S. economy is recovering led by the energy industry. Energy intensive manufacturing has an advantage in the U.S.



Backwards article. Old U.S. economic allies are leaving Russia, China, India and Japan to return and do business with the U.S.


Refiners in U.S. Run Record Crude as Plants Cash in on Cheap Oil

Straight article. U.S. private sector (70% of U.S. GDP) is recovering led by the energy industry.

America’s #1 In Oil — But It Doesn’t Really Matter.

Paul’s Economic Outlook:

I normally avoid politics. But most of today’s economic articles are based more on politics then economics. A lot of political spin today. Treat all articles as false until you can prove it is true.


America’s #1 In Oil — But It Doesn’t Really Matter

Haft truth propaganda. He can’t deny the increase in oil supplies so he just disregards the facts for his own environmentalist opinion.


Russian stocks drop as Putin hints at sanctions revenge

Propaganda. This is an economic battle the Russians can’t win economically but can win politically depending on what the present administration does.


Obama takes aim at firms that shift profits overseas to avoid taxes

Propaganda. Liberal’s high taxes are forcing U.S. companies to leave certain states and the country. Instead of lowering taxes this administration wants to force these companies to stay?

The U.S. private sector is recovering

Paul’s Economic Outlook:

The U.S. private sector (70% of the U.S. GDP) is recovering in spite of the present executive branch and the government offices that it controls.


Fed Chair Yellen Stays On Message In Second Day Of Testimony

No surprises until the end of the summer. Summer oil spike ends in September. Operation Twist and QE3 end in October. Dollar up, gold and oil down.


Coming soon to a country near you: The US frac phenomenon

Half Truth. Countries that import oil will use Fracturing to be less dependent or completely independent on foreign imports. Good for importers of oil. Bad for exporters of oil.


U.S. accountants' group sues to block IRS tax preparer program

More overreach by the IRS. The mandatory version of this was found unconstitutional by the courts. Now the IRS is trying to back door this program.

The U.S. oil supplies and economy continue to grow slowly.

Paul’s Economic Outlook:

Well, it might not be flashy but the U.S. oil supplies and economy continue to grow slowly.


US Economy Continues To Make Progress Says Fed Chair Yellen

No surprises. Operation Twist and QE 3 on path to end October 29th 2014. Looking at raise short term rates April 2015. Dollar up, gold down.


OPEC’s Clout Falls as US Increases Oil Supply

No surprises. U.S. oil supplies increasing. Dollar up, oil and gold down.


China GDP – what’s in store?

Spin article. China is a house of cards. As U.S. oil supplies and economy grow the world will leave China and come back and do business with the U.S. economy. Who knows where China’s equity market will be in 2030.