Preserving Purchasing Power


When it comes to investing, I believe that it’s extremely important to be proactive as opposed to reactive. With the global markets continuing their selloff this week, I think that it will only be a matter of time before the real fear sinks in.

As I mentioned in posts last week, I still believe that it is far too early to proclaim that we are officially in a bear market. Yes, it’s starting to feel that way (things are getting ugly), but as we all know, sentiment changes on a dime, and all it will take is a 1-2 day mini-rally before all is forgotten and Happy Days return…

We’ve all been conditioned to embrace short-term thinking, to our own detriment… Everyone is so quick to blame China for all the world’s problems, but this era of cheap Zero Interest Rate Policy (ZIRP) extends way beyond that…

When you make borrowing “free money” entirely effortless, people will ALWAYS abuse it, and take on far more risks than they would have otherwise… Commodities are crashing across the board, and it’ll only be a matter of time before all this “bad debt” comes home to roost… With oil at $28 barrel, it will be breathtaking to see what happens to many of the small juniors in this space, as well as the majors who financed large-scale projects that are no longer economical at today’s prices…

Don’t get me wrong, the carnage isn’t isolated to the oil patch exclusively. As someone who has been buying gold stocks since last summer, I am all too familiar with the devastation that malinvestments made during a boom phase can do to a company…

Again, it extends even beyond that… Before I got interested in gold, I was a permabull who was buying up rental properties left and right… But during the last phase of the mania in 2015, I could vividly see just how insane things were getting… I network with lots of real estate investors, and I am not exaggerating when I say that many of them had addictions worse than a drug addict… These guys were taking on millions upon millions of new debt, seemingly every month…

When we get caught up in the moment, it is far too easy to get blinded by “success”. Or as they are calling it these days, the “Wealth Effect”. If all you see are prices going up across the board, everyone starts feeling like they are some kind of genius, the next Warren Buffett…

I knew things were getting bad when some of my closest friends (and myself) were starting to get entirely too smug…

“Hey guys, our rental properties have each appreciated by over $100,000 in less than a year!”

“That’s it? I was expecting more…”

“Yeah, maybe we’ll get $200,000 by next year!”

“Guys, are you interested in flipping a property in Palo Alto or San Francisco? All in is “only” $1.1MM… I’m sure we can sell it for $1.5MM… to an all cash buyer.”

As someone who went from a net worth of $0 to $1,000,000 in a SINGLE market cycle, I can assure you that there were times that I thought I was a better investor than I really am… In fact, at the beginning of 2015, I thought that I was smart enough to take $100,000 and invest it back into dividend growth stocks, with the expectation of making similar returns to what I had first accomplished in 2012…

Talk about being full of myself…

By summer of 2015, I finally woke up and realized that all the “success” was indeed getting to my head… When I stepped back and looked at things objectively, I could see that I really wasn’t as good as I thought I was… It was then that I realized that my “success” these past 7-8 years was entirely attributed to luck and not skill.

It was a humbling reality check, but one that I really needed…

So, what did I do?

I became proactive as opposed to reactive

I really stopped following the broader markets and real estate entirely. One of the first actions that I took was to secure some physical gold and silver coins. And with that single action, I gained more peace of mind than any “new investment” could ever give me.

Fast forward to today, and the good news is that it’s not too late! Right now, most everyone is out trying to “catch a falling knife”, buying up the dips with the belief that the markets will come roaring back like they did last October.

Sure, that could very well happen again, but what if it’s different this time?

Then what?

I always like to look at things from a risk vs. reward curve, and no matter how you spin it, I still feel that the markets are grossly overpriced, even with today’s drastic decline. In my mind, the broader markets still have a looooooong ways to fall down.

Like I said before, until the real fear sets in, you ain’t seen nothing yet!!!

This current spectacle is the conclusion of pregame warmups, at best!

Luckily, for anyone who wants to be proactive, and not reactive, the arbitrage opportunity of a lifetime is still present at this moment in time…

Physical silver is currently selling for $14.18/oz, a tremendous value for anyone who wants to take the other side of the bet…

Screen Shot 2016-01-20 at 9.41.16 AM

I know that I like to emphasize gold stocks on this blog, but I will be brutally honest and admit that what I’m doing with that bet is purely a “greed trade”.

But let’s be real, if I didn’t have a ton of physical gold and silver (“fear trade”), there is no way in hell that I would have the courage to pursue gold stocks so aggressively.

If you want to be greedy, you first need to get defensive!

Silver is the bargain of this decade, and right now, almost nobody cares… If you’re going to be complacent like most everyone else, chances are by the time you get the signal to move in (someone yells FIRE in a movie theater), it’ll be far too late…

Good luck trying to take possession of physical bullion when everyone else is scrambling to do the same…

Really, it doesn’t take a rocket scientist to see where these markets are headed… Currencies across the board have been smashed into the worthless paper that they really are, except the USD. Just look at what the CAD, AUD, ZAR, RUB, etc. relative to gold are doing objectively…

Do you really think the USD is an exception to the rule and will be able to outshine all other fiat currencies and REAL money (gold and silver) for perpetuity?!?

Gold and silver have been money for centuries, and will ALWAYS be money! Yes, they are boring “investments”, but they do the ONE thing that no fiat currency can — preserve wealth!

Now is not the time to be a hero… Why go chasing after 3% at the risk of losing 30%?!?

Right now, you can buy money at a substantial discount!!!

Of course, if you have the means to participate in both the “greed trade”, in addition to the “fear trade”, more power to you… For most everyone else, you had better first make sure that you can preserve your purchasing power and principal!

Because when this sh!tstorm really takes flight, we will see a selloff event that will make even the most ardent “buy the dip” investors tuck their tails between their legs and seek shelter…

And when that happens, you can bet your last (worthless) dollar on what will happen next — Central banks (and IMF) across the globe will do the ONLY thing that they know how to do — Quantitative Easing.


Print. More. “Money”.


I will never forget the crash of 2008… We ain’t seen nothing yet!


Be safe everyone!


Fight On!

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4 years ago

I know how I am playing stocks, but what about real estate? Would you venture to say that it still has some legs (albeit slower). Or what are your thoughts as to where we are in the cycle. What does your research tell you on a national level (since local markets will vary). Do you plan to liquidate or be “pro-active” as you mentioned? Just curious. Perhaps you say, “no because I like the yield”. I feel (and not you) that when people say it they are transfixed on the wrong metric. If earnings deteriorate then guess what goes with… Read more »

george puck
4 years ago
Reply to  FI Fighter

I have read your blog for a while now. I really admire the work you did to get into real estate. But ahve heard you say a few times that you have done cash out refi’s and now have no skin in the game. I just dont see how you come to that conclusion. IF anything you have MORE skin in the game, because you have increased your liability. The mortgage needs to be paid, the cash flow is worse, and if for some reason the rental market dropped in the Bay area, Say something along the lines of the… Read more »

Financial Samurai
4 years ago
Reply to  george puck

Rental properties have recourse, so you are right. There is more skin in the game if you increase your debt through a cash out.

It becomes a vicious cycle if you Use the debt to invest and lose. Then it is PANIC mode, and then the realization you have to work for a much longer time than hoped for.

This is really where debt is the riskiest.

4 years ago

Also I want to commend you on your ability to have inner reflection. That is a rare and important thing so you can learn about yourself and avoid mistakes in the future. keep up the good work!

4 years ago

You hit a lot of issues on the head. I had to catch myself from getting too cocky earlier in the market cycle when everything was going up. I realized that its not just my investments were going up and I was being a good picker, but you could almost throw money at anythign and come out a winner. I think you are right – this painful transition is only starting and we aint seen nothing until real fear sets in. There are going to be some terrible outcomes. Our financial system hasnt learned a thing from the 2008 crisis.… Read more »

4 years ago

Hi FIF, I agree with you that we are far from panic sell-off or something like that. I don’t think the volatility is caused entirely by oil price collapse and China fears. Another reason should be FED and the uncertainty of the investors how many more rate hikes to expect in 2016. Ray Dailo today says that he expects next FED move to be toward easing and not increasing the rates. But how long we can continue with ZIRP, QEs, budget deficit, etc.? Overall, FED lose more and more credibility. And what else do you expect from an institution that… Read more »

4 years ago

Everybody is talking about interest rates and China, but that doesn’t add up to me. I think the severe drop in oil price is causing sovereign wealth funds ($7.2 trillion in assets) to do what they were designed for: sell equity assets to cover budget deficits in oil nations like Saudi Arabia, Norway, etc.

Settle in because the global oil oversupply will take some time to unwind.

Jeff Barber
Jeff Barber
4 years ago

with regards to silver bullion, the least premium is the 100oz bar. it obviously is not divisible as 1 oz rounds but the difference in cost makes the bars my choice of physical.

Financial Samurai
4 years ago

It’s easy to confuse brains with a bull market.

The key is to develop a business where you can proactively work on to generate income and value.

I’ve baked in a $300,000 decline in my 2016 net worth after a $1M+ increase in 2015 from just property alone. I might have to bake in a bigger decline!

But I’m working on my business, which is satisfying.

Financial Samurai
4 years ago

Btw, is it possible for you to extract even more cash from your equity in real estate as a buffer/investment war chest? If so, how much more will the banks let you pull out and how much is the interest rate are they charging nowadays?

The only risk is banks do have recourse on NON primary owned property FYI in California.


Jerry Harrison
Jerry Harrison
4 years ago

I buy mainly Silver Eagles and 10oz bars. I also try to get an occasional Mexican Libertad, Canadian Maple, and Chinese Panda.

Dividend Hustler
4 years ago

Thanks for the lessons FIF. Moving forward, I’m gonna chill out and not buy stocks consistently and just bank up a lot of cash. It’s always a learning experience but I’d love to just unload like 100 k at rock bottom prices. Wouldn’t that be so awesome.
You live and you learn and you get wiser. Keep hustling it up bud. Cheers.

No Nonsense Landlord
4 years ago

The world is in deflation. Most companies are reporting top line revenue growth as being flat or down. Very few are up.

Make plays to counter deflation. Keep some cash on hand. Get investments that produce cash. Pay down debt that is artificially higher than the nominal interest rate. A 5% loan is really 7% in a 2% deflationary environment.

Oil is down due to the strength of the USD and the lack of demand. Over supply is also a factor. Labor is cheaper and cheaper in 3rd world countries.

Look for more price declines.

The Dude
The Dude
4 years ago

You should test your hypothesis that gold is real money by committing to only using real money and not fiat money for a week, then report back on the experiment.

The Dude
The Dude
4 years ago
Reply to  FI Fighter

I’m sorry you think it doesn’t serve a constructive purpose. My point was that gold is not real money. At one point it was, that was a very long time ago. It is not money now. If it were, then you could easily use it as currency for a week, but just thinking about going a week using only gold should easily prove that it’s not money. And since a portion of your current investment thesis may rest on this notion, do you think it’s constructive for someone to point out this simple fact? I am certainly not a permabull,… Read more »