Investment Biker Read online

  My problem with the gold standard is twofold: (1) It might work. A return to the gold standard would lead to strict discipline for our politicians and ultimately to hardship for our excess-ridden economy. When the pain became too great, the politicians would blame the problem on gold and abandon it, as they have always done. Back in 1973, Nixon took us off a modified gold standard when the pain of complying with its demands became more than the politicians would face up to. (2) It might not work. That is, the politicians would find ways to fudge, avoid, or reduce its discipline to save themselves. As a typical example, the gold coins from the latter days of the Roman Empire contained less gold than the coins of the early, dynamic period. Any gold-standard system our politicians put in place might well not be sound, yet all of us would be duped into thinking it was secure. By the time the fraud became clear, it would be too late for many.

  There is a simple, low-cost way to solve the whole problem of the gold standard and its discipline on money—eliminate the capital-gains tax on gold. Today it’s impossible to transact business in gold or to index transactions to it (or to anything else except paper money) because a huge capital-gains tax is imposed every time gold is used. Eliminate the tax and people will vote with their wallets, which is what the gold standard is all about anyway. That is, whenever the politicians debase a currency or an economy, more and more people will turn to gold. As the use of gold rises, the bankruptcy of a government’s policies will be clear, even to the people in the street. They will insist that their transactions be carried out in gold rather than paper (fiat) money.

  Needless to say, an even better solution would be to eliminate the capital-gains tax on all hard assets. Then, whenever politicians debased the currency the market would revert to gold, silver, diamonds, corn, lumber, or whatever else people saw fit to make their medium of commerce. We are now precluded from these choices because everything, except the governmental monopoly on paper money, is subject to a capital-gains tax.

  The one thing the Japanese journalist didn’t ask me was what local financial assets were undervalued.

  The answer was—and still is—seats on the Japanese futures exchanges.

  As everybody knows, for years the Japanese commodity markets have been closed to the outside world. As a result, their commodity exchanges are small and undeveloped. On a par with those in the States fifty years ago, they trade mostly local silk and rice.

  I classify this government interference in markets as statism. That is, the politicians have protected the country’s agricultural sector, causing its citizens to pay six times the world price for rice. The farmers’ use of land for rice has driven up the per-acre price of all land to absurd heights. Since land values are overblown, no one can afford anything but cramped housing far from city centers.

  Now, however, the Japanese are being forced to open their markets to foreign industrial products and commodities. They have copied some foreign trading operations, setting up an index futures contract for their stock market and one for the yen bond market. Part of opening up their financial markets is to let foreigners buy seats on their exchanges.

  How can an investor profit? A clever person should buy a membership on the Japanese commodities exchanges. First, it’s dirt cheap, and second, there will be an explosive price increase as more and more commodities trading takes place in Japan. Seats on the Japanese stock market hit $6 million, while those on the commodities exchanges are a fraction of this. Look at the comparables in the United States: Membership on the New York Stock Exchange sells for well over half-a-million dollars, and the price of a seat on a hot futures market is an equivalent amount.

  Buying such a seat is a cheap way to enter these markets. Regional commodities markets will continue to develop and integrate further into worldwide markets. In a few years, every commodity will be traded at every hour around the globe, and at that point these seats will soar in price.

  Buying one of these seats satisfies two basic principles of my investment approach.

  First, we’ve found something that’s cheap.

  Second, a dynamic change in its favor is about to occur.

  These principles may sound simple, but they are keys to successful investing and will repay the closest study.

  Most investors don’t have a problem knowing when an investment is cheap. The hard part is knowing that a change is about to occur in the near future. This is where studying markets and their history is so important. In my finance classes I insist that my students practice by studying everything that could have been known at a particular time in history and by making their own predictions. What would have told you in 1929 that the New York market was going to crash? How could you have known after the War Between the States that the Manhattan real estate market would soar? After World War II, Montgomery Ward predicted a recession and drew in its horns. Sears Roebuck correctly predicted a boom, expanded, and made a killing. What told an investor which company to bet on?

  True, I may get the timing wrong. I’m usually early. As I’ve never been a particularly good trader, someone who runs in and out of positions and gets the timing right, I invest for the long haul.

  A futures seat in Japan is an opportunity that an investor can hold for five, ten, fifteen years, making ten, twenty, or forty times his original stake.

  This was such an attractive investment—and Tokyo was such an exciting, vibrant city with so many investment opportunities—that Tabitha and I strongly considered moving there after our trip was done.

  Not that the Japanese don’t have their problems.

  Despite the hype in United States’ newspapers, the kids don’t work as hard as their parents. The children of the current generation of Japanese ant- or bee-like workers aren’t going to make their parents’ sacrifices. The second generation of wealth never does, and when wealth reaches the third and fourth generations, often little vitality is left.

  Until recent years Japan’s surging population growth was good for the country. By the mid-eighties it had fallen to an all-time low of .6 percent annually; today it’s half that. In comparison, the population in the United States is increasing at a rate double this; in South Korea, triple. Japan’s huge and aging workforce represents a bulge that will reach retirement age by the turn of the century. When it does, the proportion of workers to retirees will become unfavorable, producing economic and societal strains.

  In addition, the Japanese don’t have natural resources, a huge problem for a nation relying on industrial production. Somewhere along the line the Japanese must get a big natural-resource base. Unless they can find one to buy, they’re either going to have to conquer one, as they tried to do in the thirties, which is unlikely, or eventually decline, somewhat more likely.

  On the other hand, there is a strategic mix for the twenty-first century that might work for them. The Chinese, who also need resources for their massive population, have more labor than they have the capital to put to use. Siberia has more land and resources and no labor or money, while Japan has capital but nothing in resources and not enough labor. I can see Japanese capital combining with Chinese labor to develop Siberia’s vast resources into fantastic wealth.

  As we were riding about in Tokyo, we felt a tremor: an earthquake, we found out, 4.5 on the Richter scale. I was surprised. I thought any earthquake would be the end of Japan, but it turned out that it has them all the time. It’s every fifty to a hundred years that a big one comes along and knocks down everything.

  …

  The time to move on was approaching. Reluctantly, I had to face Tabitha’s plans.

  “Do you want to come?” I asked her.

  “I’ve had enough,” she said. “Siberia—it’s going to be rougher than China.”

  I had to agree. No one had ever said a good word about driving across Siberia.

  “But it won’t be the same without you,” I said. “I want you with me.”

  She smiled. “You don’t need anybody, Jim.”

  “I need you,” I said, a
nd then softened the moment with some humor. “Who’s going to fix my bike? Who’s gonna keep me company? Who’s going to get me by those huge border guards with her Nordic good looks? They’re liable to put me in jail.”

  “I hate my bike,” she said. “I spend all my time listening to its rattles and knocks, expecting it to conk out.” I remembered those cold mornings when she had had to give it one or two dozen kicks to get it started.

  “Your bike?” I said, a burst of hope rising in me. “Is that all? Come on, let’s go to the BMW place. Let’s get you a bike you like.”

  “A new bike?”

  “Anything you want.” Anything. It was true I would bull on without her, but I would miss her steadiness and mechanical ability. We made a good traveling team. Where I would throw myself around with border officials in an effort to break through their bureaucratic stupidity, she would sweet-talk our way past them.

  But I might have hired all that. What I couldn’t hire and would sorely miss was her wit, her excitement, our laughter together, and our teamwork, our partnership. More than any woman I’d ever known, she was game for adventure and held up under adversity. To top all this off, I was by no means easy to live with, and she understood me and put up with me. I realized that she was my ideal partner in every way.

  She paused. She had come to love motorcycling, and the prospect of a new bike thrilled anybody who did. “I’ll look,” she said in a guarded voice, “but I’m not making any promises.”

  At the dealer where my bike was being overhauled she fell in love with a BMW R-80.

  Astride its new seat, gripping the handlebars, breathing the heady aroma of new bike, and reveling in the bike’s electric starter, she beamed at me and said, “God, you’re persuasive.”

  I smiled back. I was halfway there; shortly after, she agreed to stay on. We shipped her old bike back to the States.

  This new bike cheered her up immediately. With excitement we shopped for the dozens of travel items we had been unable to find in China and wouldn’t be likely to find in Siberia: brake fluid, toothpaste, knit shirts, razor blades, cables, brake pads, and a collection of nuts, bolts, and screws. To travel so lightly through such primitive parts of the world you must think ahead. We bought new helmets and special tiny tents and sleeping bags for motorcyclists.

  So, after this brief interlude in the First World, we set out again, this time toward one of the wildest parts of the world, Siberia.

  Till now the Siberian cities across the Sea of Japan had been only names on the map—Nakhodka, Vladivostok, Khabarovsk. Both of us were excited, but of course we felt some apprehension. Where were we going to stay? Would we have to camp out a lot? Would the black market continue to see to it that we got gas? How would the Russians out there feel about Americans? And what about the danger the Russians back in New York had called tayga, “tigers”—would they attack us?

  We landed in the new city of Nakhodka, a few miles east of the larger port of Vladivostok, which was the home of the Soviet navy and thus closed to foreign visitors. A village before World War II, Nakhodka was now a major fishing port, a city of dull gray apartment houses spread high above and surrounding a sheltered bay. It was easy to believe that we were on the moon or on the edge of the world, a place where we could fall into some bottomless ravine we scarcely knew existed.

  At customs in Siberia the officers didn’t know what a carnet was and merely handed us a stamped piece of paper instead of marking our passports. I was amazed that they were so lax. This meant we could have sold our motorcycles and made a large duty-free profit, something we had no intention of doing but which most other borders were careful to prohibit. Of course, what this told me was how little vehicular traffic came through here.

  At the hotel we asked where we could store our bikes, hoping for a parking garage or a sheltered courtyard. At the police station, we were told, right next door.

  There we locked them behind a wooden fence and as usual chained the wheels and covered them with tarp. Covered bikes excite much less curiosity from bystanders than those standing brazenly ready to be tinkered with.

  In addition to the two spare tires on our chained-up bikes, we had two extra spares and a rim. The hotel management suggested we protect them by storing them in a large foot locker in the lobby, which was padlocked.

  Excited, we set out on foot to explore this new world.

  Part of what gave Nakhodka its otherworldly impression was the lack of street life and stores. I’d seen backwater ports before, even back in Alabama. The port of Mobile was long past its prime, but compared with the rust and broken equipment here, it was a model of repair. There was no security around the docks; goods were piled up in such a fashion that anybody could walk off with anything.

  Few people were in its drab streets, even downtown. To our surprise, in a port city of 170,000 there weren’t more than twenty stores, each specialized, whereas most cities of this size would have boasted hundreds of small shops of one kind or another. There was a single children’s clothing store, a single grocery store, a single auto-parts store, and a single hardware store. After all, this was Communism, and why would you need two, Comrade? Surely that was wasteful. Except for the bakeries—full of inexpensive, extraordinary bread, baked every day—the other stores shocked us. They were virtually empty of both goods and people.

  The hardware store’s shelves were bare except for a few nuts, bolts, and hinges. The grocery store sported a hundred four-liter jars of birch juice, a drink that tasted like a cross between apple juice and grape juice; a few cans of domestic condensed milk; some bags of flour; and little else. To call another an auto-parts store glorified it. It displayed a tire or two, a single motorcycle horn, and a couple of mirrors.

  Where did people get what they needed? we asked ourselves.

  We came across one small bank, but it seemed to be withering from a lack of business. Sticking to my usual methodology, I changed a few dollars to obtain sample rubles and a receipt to show officials that we had done the right thing, but we kept our eyes open for the currency black market—the real market.

  As I kept in touch with my family and maintained my log by frequently sending postcards to my parents, I asked for the cards at the hotel and in the cavelike stores. Not only did they not exist, not only wasn’t there a stationery store, but there wasn’t even a place to buy a pencil or a pad of paper. After pushing, I was told maybe I could find something at the post office. Perplexed but glad I’d had the forethought to bring along extra ballpoint pens, I hunted it up.

  The post office wasn’t as inviting as Mrs. Campion’s back in Ireland or the country post offices I had grown up with in Alabama. It looked like a government building anywhere—cement floor, horrible lighting, and three or four clerks sitting around doing nothing—its gray inner walls decorated with a couple of severe portraits of Lenin and Gorbachev. Fortunately, it displayed the few items it had for sale, and one of them was indeed a postcard. There was no picture on it, and the paper itself appeared to be flimsy oaktag, but at least it was a postcard.

  Where were the customers? I wondered. Then it hit me. Not many people here would have a reason to go to the post office. You didn’t get your bills through the mail, you didn’t pay them through the mail, and you certainly didn’t get any junk mail. The only reason to use the post office was to write to somebody or to receive a letter, but I came to learn there wasn’t much paper and that the Russians often used telegrams, which were faster and more reliable. The telegraph system and the Trans-Siberian Railroad, both built under the czars by capitalists, were the only systems touching the ordinary Russian’s life that worked.

  About all that was on display besides the postcards were stamps and envelopes. I believe the only place in the Soviet Union you could buy an envelope was at the post office.

  At the counter I smiled, pointed at the postcard display, and held up three fingers. The woman clerk looked at me blankly. I smiled again and laid a ten-ruble note on the counter. I held my three
fingers up higher and with my other hand tapped the postcard in the display. “Three,” I said slowly, hoping to force onto her the Platonic ideal of the number. She frowned and shook her head slightly. I went through my pantomime again, and this time she took a step back as if I were suggesting a shameful sexual act.

  Even after I had gone through this charade ten times, the clerk didn’t understand what I wanted. Perplexed by her incomprehension, I finally got the manager, Mrs. Fedorov, who smiled and nodded and told me I wanted to send mail to Australia.

  “No, A-me-ri-ca,” I said, enunciating the word syllable by syllable.

  She understood me at last, but it had taken fifteen minutes to buy three postcards. I better get more, I thought. As the port through which all the foreigners passed, Nakhodka wasn’t exactly the sticks. If it was this hard to get postcards here, what would it be like deeper in Siberia?

  So I bought a dozen. On my way out I realized I was experiencing what we’d begun to understand all smart Soviet consumers do. When they have a chance to buy something, they buy all they can of it, because they never know when they’re going to find it again. The Communists! They’d won the Second World War and put together a great space program, but making and distributing postcards and toothbrushes and hinges had beaten them.

  Then I began to understand why all this had occurred.

  These dozen postcards had cost me a total of about six cents, which included postage anywhere inside the Soviet Union, possibly a seven-thousand-mile journey. At the bakery there was plenty of bread and at such a low price, three kopecks—less than a tenth of a cent in our money—farmers fed it to their pigs and boys used loaves for soccer balls.

  The Soviet Union hadn’t raised its prices in fifty years!

  It sounded good, even great for the consumer—low rent, postcards for kopecks, inexpensive bread, cheap birch juice, and low-cost hinges. But the flip side was that they had almost no consumer goods except bread, which of course was the one item not even the Communists dared allow to run out.