The Mandibles: Investment Ideas for a Post-Dollar World

by philg

Continuing my posts about Lionel Shriver’s The Mandibles: A Family, 2029-2047…

The Mandibles posits a world in which the dollar is no longer a desirable reserve currency for non-U.S. governments and the domestic value has been seriously eroded by inflation. This scenario may sound far-fetched to an American, but it is familiar to a lot of folks in Latin America.

Traditional diversification didn’t protect the characters in the book because (1) anything denominated in dollars fell, (2) the U.S. government ran out of money to pay for entitlements and the salaries of workers and therefore adopted a dual strategy of printing money and taxing savings, and (3) the government simply confiscated hard assets, such as gold, that were held domestically. A character who had a box of gold in a safe place in Asia or Europe would have done okay. Here’s a speech from America’s first Latino president:

Using the powers vested in your president by the International Emergency Economic Powers Act of 1977, I am calling in all gold reserves held in private hands. Gold-mining operations within our borders will be required to sell ore exclusively to the United States Treasury. Gold stocks, exchange-traded funds, and bullion will likewise be transferred to the Treasury. In contrast to Franklin Delano Roosevelt’s gold nationalization of 1933, when FDR made his bold bid to rescue our suffering nation from the Great Depression, there will be no exceptions for jewelers or jewelry. All such patriotic forfeitures will be compensated by weight, albeit at a rate that does not reflect the hysterical inflation of gold stocks in the lead-up to this emergency. Hoarding will not be tolerated. Punitive fines of up to $250,000 will be levied on those who fail to comply. Retaining gold in any form beyond the deadline of November 30, 2029, will thenceforth be considered a criminal offense, punishable by no less than ten years in prison. All gold exports from our shores are henceforth prohibited. In retaliation for outside agitators’ attempts to fray the very fabric of our flag, all foreign gold reserves currently stored with the Federal Reserve are hereby confiscated, and become the property of the American government.

I have never liked gold as an investment because I don’t understand how (1) it can be sustainably worth more than the cost of mining (as with oil, at a high enough price there is a lot of additional gold to be found on Planet Earth), and (2) it can be worth as much as a productive asset such as a factory or a piece of real estate. Thus the purpose of today’s posting is to get ideas for what kind of investment strategy would protect an American citizen from a serious decline in our economy and the value of the dollar. Note that I personally don’t believe that we’re likely to have a crisis in the near-term. In my opinion Americans are biased towards thinking that our economy will either grow dramatically or shrink dramatically. Given our European-style welfare state and associated disincentives to work it seems to me that European-style stagnation is a plausible future. That said, a multi-decade stagnation would look like a serious decline when compared to dynamic economies elsewhere. And the whole point of diversification is to protect oneself against unlikely events, as long as the cost is not too high. (As noted above, I think storing bars of gold in a Swiss bank’s safe deposit box is too high a cost.)

Readers: What are your best ideas for keeping assets safe from (a) a decline in the dollar, and (b) sudden or gradual confiscation by the U.S. or a state government?

[One idea: Why not just own commercial real estate in three foreign countries? If these are leased out triple-net there is minimal management hassle involved. The return should be similar to the return on U.S. real estate, which in the long run might not be that different from other financial assets. Own the real estate either directly (name recorded officially as the owner) or as a shareholder in a small foreign company. If things fall apart in the U.S., just move out to where one of the properties is. Presumably there could be some paperwork hassles in declaring this foreign-sourced income every year to the IRS, but the actual taxes wouldn’t be different than they would on a U.S. commercial property, right? The paperwork hassles could be considered the price of insurance against being wiped out by a U.S. financial crisis.]

More: Read The Mandibles.

17 thoughts on “The Mandibles: Investment Ideas for a Post-Dollar World”

  1. Owning foreign stocks would be the most obvious idea.

    Note the companies registered in other countries may now trade with discount to stocks in the US or UK, because the legal environment in those countries in considered to be the best. It makes sense to buy them as a hedge against your scenario.

  2. Skills and ambition are the only hedges against absolute economic collapse, chaos and confiscation.

    International diversification is not feasible for most businesspeople/professionals because of the costs of setting up and maintaining your New Zealand(seems to be the sanctuary jurisdiction du jour) bug out estate.

    Otherwise, for portfolio purposes, if you’re not a master of the universe,it’s really hard to find great fault with Buffet’s guiding principles.

    I see nothing wrong with 5% in gold and some minority portions for emerging economies. Income producing real property is a nice keel, but hard to manage directly. Otherwise good old U.S. traded equities that make things people need and that earn profits doing so.

    You can plan for chaos if you like, but the costs, both out of pocket and opportunity, are very high.

  3. P.S. – Please don’t take my comments above as a recommendation to buy financial assets now. I think they are way overvalued as people reach wildly for yield and the central banks are still injecting money at crisis levels despite both the bond and stock markets being at very lofty heights.

    Stock prices are near historic highs while corporate earnings have been in steady decline for about 4-5 years. In undergraduate business school a course involved running a simulated business. My team did not do a great job of growing top line revenue, so we cut costs and bought back shares to show nice eps growth. The professor was impressed by our verbal BS during final presentation, but not with our management performance. We were 21 year olds getting paid nothing who spent very little time managing our simulated company. Yet I now see the Titans of Industry using the exact same stunt and faring quite well doing so. According to my professor of 35 yrs ago, the stunt can’t go on but for so long.

  4. If you’re looking for something not easily confiscated, predictably inflated, and as mobile as a string of numbers or words, there’s always Bitcoin.

    It’s long outperformed pretty much everything else out there.

  6. Non-graspability is probably going to be a problem if the U.S goes Venezuelan. At least gold doesn’t go poof and go away.

    Did the government confiscate emeralds and rubies back in the day?

  7. Peter Schiff has been scaring the bejezzuz out of me with his talk about financial armageddon. There are days when I believe him, then there are days where I think he is scaremongering. I have to give him credit – he did predict the 2008 crash on subprime mortgages. Ron Paul has also put out some warning videos. While I’m sure it’s just a way for them to sell more gold (or books on how to survive financial armageddon), I do agree with them that the Fed has been playing games with quantitative easing and it is simply not sustainable. For how long can we keep interests rates close to 0? Recently the Fed tried to increase it ever so slightIy (like .25 %) and then they backed down the next quarter. It is entirely possible that they will F things up and there will be another huge crash.

    Perhaps you are right, and the Fed can keep this going with a sluggish economy – we are most likely steering towards Europe-stagnation, maybe even into something like Japan with 230 debt to GDP ratio (Europe has an average of 87, USA has 90). IIRC US Debt has shot up to almost 20 trillion just in the last 10 years from 7 trillion (or something like that).

    I guess the advantage of gold is that humans can only get it out of the ground at a certain rate, which presumably, cannot be dramatically increased, unlike paper money. And if you have it physically, it cannot disappear from your possession. Even if the world changes currencies over time, gold will always be there.

    I am also looking for ways to secure my assets from dollar or euro or confiscation. In the case of confiscation, I think the USA will force people to convert something like 50% of 401k into government bonds. Much like Argentina did back in the Kirchner days with people’s private pensions (in that case, they converted all!).

  8. P.S. if anybody else has suggestions – would appreciate any ideas. I like philg’s real estate idea, but I think commercial real estate can also be volatile if demand for space falls due to a collapse in different industries. any long time real estate observers out there?

  9. @the other Donald : Bitcoin is basically gold without one very problematic bug : physicality.

    If you can understand gold and you can handle a fair degree of infosec, then there’s at least a chance that you’re up to the task of obtaining and securing a few coins while there are still whole coins for the taking. If not, hopefully your nerdy nephew is sufficiently competent in this regard and he can bail you out when your whole month’s pension payment fails to buy so much as a can of beans.

  10. This gentleman, a veteran small-time landlord, has been beating the drum about looming dollar hyperinflation for years.

    All hyperinflation/deflation articles. His advice is basically have foreign currency accounts (his are CAD and AUD), and physical cash in safe-deposit box in Canada for currencies that are difficult to have in a foreign account (CHF.)

  12. This week’s news confirms that it’s quite easy for a thief to confiscate your Bitcoin. At least the US government is not overtly confiscating the assets of the general population at this very moment.

  14. Pete, Render unto Caesar what is Caesar’s; render unto HAL 9000’s what is HAL’s. As long as I have your attention, what in your opinion, is the safest way to hold Bitcoin

  15. See my long comment about the author Lionel Shriver and “The Mandibles” in earlier thread.

    [this same pointer will appear in other Phil’s posts about the book.]

  16. @ GermanL,

    RE: “I guess the advantage of gold is that humans can only get it out of the ground at a certain rate”

    I don’t know about The Twilight Zone’s industrially made gold, but last year on a brief visit in Turkey, I was shepherded (right word!) into a local gold jewelry company, into a specially built sales wing with 2 very large showrooms (so that 2 separate buss loads of buyers could be handled at once). They claimed to be the largest gold producer in the world, and there certainly was plenty of this stuff lying around. There was like 2:1 mark:seller ratio. Some who bought pendants, diamond-encrusted earrings, etc. claimed it was cheaper than at home, but I had to wonder… there apparently already is so much of that stuff around locked into prettifying accoutrements, that it’s a wonder that it commands so high prices, unlikely to hold when less luxury survival values are at play.

    Or maybe not so high after all: while in Barcelona, La Ramblas area, looking for a hotel around 6pm, I peeked into a number of bars etc thinking of asking that of fellow tourists. In all the places I was ogled by women of young-to-indeterminable-age, whose sole common denominator were gold shoes and such jewelry overload. That’s how I found out how its “neighborhood working grrrls” dress up (pace Susanne Vega; I’d have thought that wearing gold would be a risk of ad-hoc robberies by occasional “bad Johns,” but apparently they had better intel on that).

    Still, post world collapse, when gold may become a valuable conductor in place of e.g. hard to obtain copper wire, I wonder how much more of a crisis-safe investment it could be. I think that developing portable, sought-after skills in something truly vertical/ narrow (like generating electricity out of scavenged car parts and sea water), plus general handiness for plumbing, electrical wiring, even hand sewing or food preservation, is the best hedge for survival. Because then at least you’ll be able to trade those services for sustenance and shelter, that is until you get kidnapped by the nearest “lord of the manor,” to serve exclusively its needs (think Jesse in the last season of Breaking Bad – a lesson to us all of becoming too skilled in something).

    Lastly, in no “prepper” TV programs that I’ve seen, was there ever a bicycle around. They were all about strategies for rotating hoarded cans of food (so you don’t throw them away, but consume in FIFO order); homemade weapons to defend oneself from marauders; even supplies of “hard to come by” stuff like the condoms… the woman doing it was seemingly unaware that all rubber, and then esp. thin-walled such, deteriorates with age, and that keeping the hoard in a air tight Tupperware container is no solution. IF SHE’S READING IT: remember the principle, and begin the rotation now!

    But it got me thinking that whoever designs a apocalypse-proof bicycle for triple function of (1) rider transport; (2) material load delivery; (3) static human-powered electricity generation duty (with space for oversized dynamos, swappable in-frame batteries, LED lights on a coiled conduit, FM/AM radio receiver, and a gun mount ;-)), could make quite a bundle selling them to these preppers. Or at least raise several million dollars on Kickstarter before being bought up by some robust-bike maker or other intending to make a business out of this.

    Me, I’d be getting a Gravity Light in an instant just in case, IF ONLY they could get it off the ground some time.

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