A dollar may have a dull life…or an exciting one. An old-fashioned cobbler makes his dollar the dull, old- fashioned way…by working for it. That’s the way wealth used to be made – by toting, by schlepping, by busting your behind…or your brains.
In our opinion…this brand of ‘old-fashioned wealth’ – wealth that’s based on tangible assets, with no bells, whistles or sexy back-stories, is the best way to make your money. We like to invest in easy to understand companies with a strong, steady and predictable cash flow and a competitive advantage.
So what if they aren’t touting the cure for cancer; we actually prefer it if the company we’re investing in is overlooked by mainstream money…that way the price isn’t artificially pumped up by brokers.
But this new wealth is different…it seems to materialise out of thin air, as if by magic.
Our old cobbler would put his old-fashioned dollar into a box…and let it sit there until an emergency, at which point it would rush out to his rescue like a volunteer fireman. But our new-model dollar – in the Age of Mammon – has ants in its pants. The thing won’t sit still for a minute. Anon, it jumps into a hedge fund, for example, allowing the manager to borrow 20 more of its brethren, with only that lone buck as collateral.
And then, the manager might take his new found money and buy up the cobbler’s business, against which he could now borrow another $20 and pay a special dividend to the hedge fund, which he would immediately put into A Shares on the Shanghai exchange…from where, using the shares as security, he would borrow yen and exchange them for New Zealand dollars…that he would then place in NZ bonds paying 7.5%.
Meanwhile, the cobbler’s old business would go public at a P/E of 20…so now every single little dollar the cobbler makes has a capital value of $20…and the people who own ‘shares’ in the cobbler’s business now have a financial asset. And the cobbler now feels rich and feels he should earn more money for running his business. And his wife wants to upgrade the kitchen and bathrooms. And his children tell him that he should get a condo at the beach. “It can only go up in value,” they say.
You see? Money gets around a lot more than it used to. And everywhere it goes it is as welcome as a fat Christian in a lion’s den.
But all this wheeling and dealing still rests on, well, heeling. The toting and lifting is just the same. The cobbler is still gluing new heels on old boots and earning a dollar doing it. What has changed is the financial world, not the real, economic world; (that changes too, but that’s another story…)
Always and everywhere, money talks. And when a real mania gets going, it yells and screams…and bids up prices as the players get more money to play with.
This is what some economists call the ‘financialisation’ of the economy. Things that previously had modest value are put ‘in play.’ Pretty soon, people think they are getting rich…as their assets rise in ‘value.’
But that ol’ man river just keeps rollin’ along.
Markets and Money