[3 min read] Dear Reader, I left off yesterday saying you simply must be in stocks if you want to protect your wealth over the longer term. That might sound crazy given how volatile and risky stocks are. But it’s true. In stocks, you may go broke if you buy the wrong shares and react emotionally to every major move in the market. But if you sit in cash waiting for Godot (the crash) you will go broke, slowly but surely. By the way, we had one of the biggest crashes in history in March. Did the ‘waiting for stocks to get cheap’ crowd buy then? Of course not. When stocks ARE cheap enough to buy, it certainly won’t feel like the right thing to do. It’s hard to make money from stocks. Worthwhile is never easy. Should you just invest in an index like Warren Buffett recommends, or take an active approach? Index investing isn’t really index investing these days. The US indices are heavily concentrated in overvalued tech. And active investing is full of landmines. It’s enough to make you want to sit in the relative safety of cash. That’s until you realise central banks are waging a war on your wealth by giving you no return for holding cash. Next week is a big week on that front. We have the Reserve Bank meeting on Tuesday (as well as the Melbourne Cup, and the US election). The RBA is expected to cut rates again, as they lead us down the dark and futile path of quantitative easing. That lower rates hurt savers is a given. But now, there are signs it’s also hurting the banks. From The Australian: ‘ANZ chief executive Shayne Elliott has poured cold water on the prospect of any economic benefit from an expected rate cut next month, but expects the Victorian economy to snap back to life after the end of a punishing COVID-19 lockdown. ‘Ahead of a widely forecast easing in official rates and further monetary stimulus measures on Melbourne Cup day, Mr Elliott said the markets were already awash with liquidity. ‘“I’m not sold on the intended benefits — the cost of funding is not a binding constraint (on the economy),” Mr Elliott told The Australian. ‘Mr Elliott said the Reserve Bank and the big commercial banks had fundamentally different objectives, but it was clear that liquidity was “overwhelming”, and the price of accessing funds was “free or close to it”. ‘It was unclear what a further easing in the already rock-bottom cash rate of 0.25 per cent would achieve, other than a further compression in bank net interest margins — a key driver of profits. ‘Mr Elliott acknowledged that some people would say: “Who cares?” However, he said investors demanded a fair return and offsetting measures would have to be taken, with retail deposits likely to come under greater pressure as they became less valuable to the banks.’ Because banks are able to access more of their funding via the RBA, there’s less need for deposits. So savers will take another hit as banks look to preserve margins. Despite dripping in self-interest, Elliott is right. Liquidity isn’t really an issue. The cost of borrowing, on the surface at least, isn’t an issue either. But in an economy wrecked by a politically-driven response to COVID, who can, or wants to borrow right now? I mean, small business doesn’t. And employment prospects and job security are pretty grim. If you’ve got a secure job, sure, you can borrow a motza. But that’s not the norm, is it? All this won’t stop the RBA trying to do more to ‘stimulate’ the economy on Tuesday. But no one will stop to ask what their past attempts amounted to. Which is nothing. Central banks around the world have run their economies into the ground. The RBA is simply following the same path. Because when you’re in a club, the pressure to conform is immense. It’s a clown show. So, you can either think these people know what they’re doing and think your savings will preserve their (asset) purchasing power, or you can take steps to help yourself. As I said earlier, buying shares is risky. You need a plan. I like to keep my plan simple. That is, I like buying stocks that are good value (I use a discount rate, or a required rate of return of 8% to value consistent cash flow businesses). This means that if the business hits its profit forecasts, you’ll receive an 8% return from the business, in the form of dividends or an increase in equity value. How the stock market chooses to respond to the underlying business performance is another question. But in general, over time, it should do well. I recently recommended Coca Cola Amatil Ltd [ASX:CCL] to my subscribers, based on exactly this methodology. The shares had been hit hard. But based on expectations of a rebound in FY21, the valuation was attractive. I had no idea a takeover offer was in the works. (This week, Coca Cola European Partners made a $12.75 bid for CCL.) The trade paid off much quicker than I expected. But good things often happen when you buy at the right price. And bad things often happen when you pay a crazy amount for a company. So don’t be afraid to buy shares. Just make sure you have a plan and prepare mentally for the inevitable volatility. *** Don’t forget, our offices are closed next Monday and Tuesday. So you won’t hear from us. But later in the week, I’ll be back with a three-part report to help you understand how our (broken) financial system really works. Have a great weekend! Regards, Greg Canavan, Editor, The Rum Rebellion ..............................Sponsored..............................This could have a bigger impact than COVID in 2021… The ‘Great Reset’ forum WAS supposed to take place on 26 January next year in Davos, Switzerland. But news has just broken that they’re delaying it to sometime in the Northern Hemisphere summer. 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A Challenge to Which We Are Ill-Suited… By Bill Bonner [8 min read] ‘A man’s gotta know his limitations.’ Clint Eastwood in Magnum Force The knock on the door came at 5:00am. It was still dark, but it was time to grab a cup of coffee and mount up. Marta rose before we did. She’s used to getting up early. She lives high in the mountains at a puesto, an outpost six hours away…on foot. She prefers to walk in the night. The sun gets too hot during the day. Mutual comprehension When we bought the ranch, Marta came with it. She is the housekeeper. A young woman, now about 35 years old, she is not pretty, but sturdy and well built, with very ‘Indian’ features and long, dark, black hair. The language here is Spanish. But it is spoken with a local accent and many words used only in the Calchaquí Valley. Outsiders — from Buenos Aires, or even other parts of the province — can barely understand it. When we arrived, we had a hard time understanding Marta. And she, us. But over time, we’ve come together in mutual comprehension. Often, when someone comes down from the hills, almost barking his words as if there were some long-lost indigenous tongue, we rely on Marta to interpret. Most years, we’re not here very often, so there is not much house to keep. And Marta doesn’t really keep it very well, anyway. But it is a lonely life up in the hills. Marta is grateful for a reason to leave her goats and cattle…and come down to civilisation. She kisses us on the cheek in the morning…and again in the evening. We tell her what is going on in the outside world; she gives us the lowdown from the ranch. She is also eager to come down to the valley because she likes the company of one of our farmhands…about which, we will say no more. Ill-suited Such is the life of a ranch owner. He must be an investor. Farmer. Cattleman. Chauffeur. Peacekeeper. Social worker. Lender of last resort. Diplomat. Chump. Lunatic. And field marshal. Because he must also be ready to go to war, too. We are especially ill-suited to the job. For 50 years, we have worked mostly with ideas…often foolish and fantastic ideas…fashioned with words. And our companions have always been other people much like us…people we could talk to…people who have been educated much like we were, and who ‘spoke our language’, even if the words were in French, German, Chinese…or Spanish. We could understand each other. We could make deals. We could work together. But here, we are out of our element. Probably beyond our limitations. All of our high-powered ammunition — writing, economics, investments, ideas, books — seem like blanks. We are amongst different people…with a different way of looking at the world. They are smart, but less literate. More instinctive. Harder. More easily misled. And more in need of leadership. Originario war We are ill-suited to war, too. But our ‘war’ with the originarios goes on. In theory, we could make a deal with them. They live on our land, but the rent they pay is mostly symbolic. They don’t need to cause trouble. And we don’t trouble them. Traditionally, the arrenderos (rentors) or pastajeros (shepherds), as they are called, and the landowner got along by helping each other. The local people provided labour when it was needed (such as digging out the irrigation canals or rounding up cattle). The landowner interceded with the outside world, as necessary. We’ve been the owners for 15 years, but still have not even met many of the arrenderos. Like Marta, they live high in the hills in very primitive conditions. They raise animals — sheep, cattle, goats, and llamas. But they have no way to get them to market. Nor is there much of a market for them; they are very bad quality. We offered to give them better breeding stock…to improve their herds…and to haul their animals in our trucks. But they want nothing to do with us… Instead, they burned down two of our cabins. They ripped out two miles of water line…and burned that, too. They also destroyed our nearby corral. This was strange, for many reasons — but mainly because they used these things as much as we did. The water line, for example, brought a tiny, cool stream down from a spring high up in the rocks. Everybody enjoyed it. Long ride A couple of weeks ago came word that the originarios had cut off the water supply we use to irrigate our grapevines. Gustavo, our foreman, went up to check. He came back and reported that the water was running normally. But then, the stream suddenly stopped. We had to see what was going on…for ourselves. That was the proximate cause of Sunday’s long ride. Alas, it would involve some discomfort — 10 hours in the saddle, up and back, over three passes…up over 14,000 feet and over to a wide valley, about 10,000 acres with no tree in sight. In theory, all we had to do was sit in the saddle. The horse would do all the work. But the horse doesn’t stand still…and the rider has to adjust…to use his legs like shock absorbers…anticipating the horse’s moves and tightening his core muscles…or relaxing them…as necessary. Uphill…and then down…walking…then trotting…and then walking again. We imagine it is a bit like sitting all day in the back of a pickup truck going over a rocky road…while doing pilates. The first couple of hours are easy, comfortable and interesting. Except for the fierce wind coming down from the pass, cutting through our clothes and leaving us shivering. Then, the sun comes out. It soon gets hot. And the saddle gets harder and harder. Delightful adventure To bring new readers more fully into the picture, we currently live on a large, high, dry ranch in Northwest Argentina. Every day is a struggle with nature. The winds dry out the ground…and carry clouds of dust. The sun is so intense, it feels as though it were only a few feet above our heads, rather than 92 million miles away. A decent year brings us only six inches of rain. A drought year brings us only misery. And then, there is the distance. We are an hour and a half — over a dirt road…separated by two rivers (without bridges) — from the nearest wind-blown town, Molinos. But the town has no gas station…nor much of anything else. Besides, nearly everything has been closed, by order of the government, since we got here in March. The nearest city with any real services is the regional capital, Salta City, a five-hour drive away…most of it over a dirt road. But were we allowed to go there…we would need to quarantine ourselves for two weeks upon our return…if we were allowed to return. All of which is to say…life here is a delightful adventure…and a challenge. Illusions And in addition to other challenges is the one we took up on Sunday. The originarios are people who claim to be descended from a tribe that has been defunct for at least 300 years. They say they have a right to retake the land that once, allegedly, belonged to the alleged tribe. From a legal point of view, the claim is preposterous. But this is Argentina. Nothing is so preposterous that it can’t become the law of the land. These originarios are entrenched in two of our high valleys — Compuel and the Quebrada Grande. It is in the latter where Maria — or ‘Fat Mary’ as she is called locally — lives. A few weeks ago, she had come to see us…and to explain her position as one of the local activist originarios. So last week, we returned the favour…bearing a letter, wherein we outlined for her why she is full of…well, illusions. Precious water The Quebrada Grande is a beautiful place. There is no road to it…just a trail that leads up and over a low pass…where there are still some Indian ruins, low stone walls at the pass, that once must have provided protection from enemies, and terraced fields on the hillsides below. Arriving at the pass, you see pastures laid out…
…separated by lines of bushes and trees that have grown up along the irrigation ditches. Water is precious here, as it is everywhere in the area. It is the source of life…and occasionally, death, as people have been known to kill each other in fights over whose turn it is to use it. This time of year, water still runs down from the mountains. But there is little of it. An ancient system of rationing is used, giving each family along the way a ‘turn’. Typically, the ‘turn’ lasts from 6:00am until 8:00pm. Otherwise, the water is supposed to flow freely…down to us in the valley. The system was honoured, more or less well, when we first arrived 15 years ago. But like many other things, it is giving way. Natalio’s allegation ‘They don’t respect their turns,’ old Natalio told us. Natalio is not as old as he looks. He is almost 10 years younger than we are. But he’s been working hard since he was 10 years old. His face is narrow, coming to a point in a wispy, whitish goatee on his chin. He smiles readily, but there are only a couple teeth showing. The most important thing about Natalio is that he is reliable. He’s been here all his life. He knows everything about the place. And when you need something done, he is the man who will make sure it happens. It was Natalio’s allegation that set us on the trail to Compuel. Visiting Maria But first, we had to visit Maria in the Quebrada Grande. When we arrived at Maria’s house, her father, Gerardo, greeted us warmly. He is a handsome man, with a clean, well-sculpted face, without wrinkles. He is about the same age as Natalio, but looks much younger. He is now patriarch of a large clan. When asked how many grandchildren he has, he replies with a smile: ‘Oh…I lost count…’ Grandchildren have become more numerous, partly because the government gives out welfare money per child. In the city, the amounts are considered pitifully small. But here, these people are very poor. They are not really part of the money economy. So a little bit goes a long way. Maria has five children. She is unmarried. Who is the father? ‘The wind,’ say the locals. One of Gerardo’s grandsons, an infant, died two years ago. The local health authorities thought it was either murder or negligence. The police arrested the child’s father, Ivan. We had no way of knowing what really went on. But the role of a landowner is to help the people living on his land in any way he can. We asked our lawyer to intervene. He got Ivan out of jail. In gratitude, earlier this year, Ivan was one of the originarios who burned down our cabins and wrecked our corral. Whispered confidence Ivan’s father, Gerardo, is of a different generation. He’s sceptical of the originario claims. Logically, if his son and daughter claim to be ‘indigenous’ persons, he must be, too…but he neither looks, acts, nor wants the role. ‘They just try to boss me around,’ he says, referring to a particularly aggressive family of originarios in the Quebrada Grande. There are only four families living there. But each has a story. And the rivalries between them are as deep as the fantasies and crimes that unite them. ‘Besides, they don’t respect their turns with the water. I’m at the end of the valley. I have to fight with them to get any water. ‘And they’re the ones who burned down your houses. I don’t agree with that…’ This was all told to us in confidence. When Maria came out of the house, her father went silent…and soon slipped away. Maria’s illusions Along with Maria was a daughter of the wind, Celeste — a tall, thin girl with a beautiful face. Maria wore a brown t-shirt…with no sign of under garments. She, too, may have been attractive once. But now, the fat has taken over. Except on her face, which is hard…masculine. Her features are heavier than her father’s. Her chin, her nose, her lips — none were as fine and graceful as his. She looked more originario than he did. ‘We’re going to take back our land and our culture… stolen from us by the Spanish… ‘We’re even going to revive our real language. They forced us to speak their language and worship their god. We’re going back to Pachamama, the traditional god of our people.’ Maria seemed in a rush to get the whole creed out in one go, perhaps afraid that we wouldn’t stay around to listen to the whole spiel. But we had dismounted. And we were eager to know what she would say next. ‘What language is it that you’re going to revive?’ we asked curiously. ‘Karkan.’ Her linguistic illusions, we discovered, matched the rest of them. Borderline nutty. ‘But Karkan is an extinct language,’ we pointed out. ‘It’s been extinct for at least 200 years. Nobody knows how to speak it. Nobody can teach it. And it was never a written language.’ ‘It doesn’t matter…we’ll figure it out.’ We gave her an envelope with our letter. ‘It’s not in Karkan…it’s in Spanish.’ It would not persuade her. But it might, at least, cause her to think. Futile gesture As isolated from the rest of the world as she is, it is doubtful whether anyone has ever seriously confronted Maria’s fantasies. She was told that an act of the Argentine government made her and her fellow originarios the rightful owners of the ranch. She took the news as a matter of fact. Now, at least, we spelled it out for her: We still own the land. Yes, the government could declare it a reservation for indigenous people. But it hasn’t done so, and is unlikely ever to do so, since there are no real indigenous people living on it. Meanwhile, by refusing to sign a contract or pay a token rent, Maria is just a squatter. When, and if, the government ever comes to its senses, we will get her evicted. But in the meantime, we pleaded, let’s try to get along. It was a futile gesture. But at least we enjoyed a nice picnic under a cottonwood tree before heading back to the sala, which is what they call the owner’s house. New foreman That was a week ago. This past Sunday, we were on our way up to the other originario stronghold — Compuel — where they had committed their acts of vandalism and pyromania. ‘I’d better go with you,’ said our foreman, Gustavo. ‘I don’t think they’d attack you, but you never know. ‘Besides, I know the valley better…I know what we’re looking for.’ By 5:00am, Gustavo was out in the field rounding up the horses. He is a young man, probably about the same age as Marta, short, with a ready smile and an intelligent face. The foreman has the hardest job on the ranch. He has to watch everything, know everything and everybody. The horses…has one thrown a shoe? The cattle…is one stuck in the river mud? The tractors…did someone change the oil? The questions go on and on. The cattle need to be moved from field to field. The trickle of water must be directed to where it is most needed. The farmhands and cowboys need a leader they can respect, or they become surly or lazy. Our old foreman, Jorge, was the best in the valley. Smart. Solid. Cheerful. For 12 years, we wanted nothing more than to earn his respect. Then, before we had made much progress, suddenly and wisely, he retired. We chose Gustavo to replace him. He seemed like the smartest one of those left. But it takes more than brains to run a mountain ranch. Next week…what we found in Compuel. But first… | Source: Don Bill takes a well-deserved rest |
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