Saturday, February 21, 2009

The Mommy Indicator

I've been planning my mom's finances, and despite a mother's undying love for her children, I figured it would take some persuasion, as my ideas on the economy are somewhat unconventional. As it turns out, it didn't take any arm-twisting at all. I was always curious about it, but it really didn't hit me until we had a long conversation yesterday as we have been tweaking her portfolio.

First, I will preface this with a quote from George Soros, billionaire hedge fund manager and a legendary investor. He is 78 years of age, which is significant, as he was born during the depths of the Great Depression, and his father survived anti-Semitic persecution after World War I and of course, World War II.

He got his start in finance by trading Hungarian currency during the hyperinflationary period in 1946 as a teenager.

His latest quote: “We’re in a crisis I think that’s really the most serious since the 1930s and is different from all the other crises we have experienced in our lifetime,” Soros said.

Fast forward to my Mom, age 81, and her willingness to invest in "unconventional" investments, and lack of resistance for my ideas on wealth preservation. After all, family and friends can be your biggest skeptics, because they all remember you as a pipsqueak with a runny nose. Without knowing the details, my mother has experienced countries losing their sovereign power, national security compromised, imperialist invasions, and not surprisingly, a run on local currencies. She recalled one day using currency, and then the very next day, that currency being declared worthless, losing all purchasing power. This is exactly what happened in Iceland last November, and is occuring around the world as I post this blog. This is what happens when a currency collapses. It's happened in Ecuador, Argentina, Hungary, Russia, Thailand, pre-Hitler Germany, pre-Napoleonic France, and is a threat to many eastern and central European countries today. Even the UK, Ireland, Greece, Italy, Poland,and Spain are at risk, as their country's credit ratings have been downgraded, or are about to be.

My mom remembers stocking up on foodstuffs, grains and rice. In other words, all bets were off, and survival meant horse trading. The irony is that my mother has aristocratic roots, as her mother's portrait is hung up in Vietnam's National Museum, with the title heading "Laotian Princess".

Many members of my immediately family went on a family pilgrimage to Vietnam, Laos, and Cambodia 3 summers ago, and we actually got to see the portrait. For security reasons, I won't post them. I learned a lot about my heritage on that trip and I am so glad I applied for a last minute passport after the Cambodian Consulate "lost" mine--I will never forget that trip with my family. As an aside, I have recently retraced my roots to other parts of America, where I have grown up, including trips to the midwest and east coast. I recommend it to anybody, especially if it includes reconnecting with old schoolmates. Your past is a function of who you are, and so are old friends and family. Anecdotally, I have also created social networking sites for family and alumni, which has been a real hit. Readers of this blog are members, in fact.

I'm digressing--back to my mother. She totally understood the concept of gold and its value as a hedge against fiat currencies. This was no academic exercise in the theory of how a hard asset retains its value. She actually lived through it. Gold serves as a storage of wealth outside a financial system composed of debt and IOU's. Gold has no counterparty risk. Translation: it is not dependent on someone else's ability to keep their promise of paying you back, which is what a paper currency is, including the dollar. "In God We Trust". Trust whatever God you worship, but faith in the US Government's ability to responsibly manage our currency is being severely tested. This trust is always violated in times of financial crisis. Printing dollars begets printing more dollars.

I'd rather depend on the other mantra: "it's as good as gold." Only "it" is not necessarily a paper currency. "It" is gold itself.

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