Loose Pounds Gain Ounces

Lose pounds and gain ounces!

A 'resolution' for the new year►Sunday 3rd February 2008

"We are frequently led into error by mistaking money for riches; we think that a people cannot be impoverished by a waste of money that is spent among themselves". [Adam Ferguson - Of the Decline of Nations, 1767]

$90,691,790.92 The front-page headline from Friday December 28th 2007 proudly declared the number! Yes, ninety million, six hundred & ninety one thousand, seven hundred and ninety dollars, ninety two cents. Apart from the obvious question - who was the 'tight-arse' who spent the ninety two cents? - we were amused at NZ Gold to read how "shoppers snapped up bargains galore in the Boxing Day sales". We allowed ourselves a moment's circumspection. At NZ Gold we think pre-Christmas shopping is horrific enough - but for people to sentence themselves to a further 'dose' before the turkey is fully digested seems astonishing. Yet the real issue for readers is not NZ Gold prejudice against shopping [who cares] but whether the 'spending orgy' that took place on Boxing day really delivered the much vaunted bargains? To us the term ☺'bargain'☻is now so constantly over-used, and the 'smiles on dials' accompanying same so ubiquitous, that the word has lost its true meaning. Indeed, any situation in which something has been reduced [even though it may have been un-saleable at the original price] now seems worthy of the hallowed 'B' word. Much of this is, of course, driven by ego. After all, when you have just spent your hard-earned cash, or signed up for one of those seductive credit arrangements, ego demands congratulations for your purchasing genius - not a lamentation for the spending of money, or future cash flow, that could have been used more constructively elsewhere.

Note our emphasis on the term 'future cash flow' in the preceding paragraph! In our view this is a critical issue, because the purchasing of goods on credit [irrespective of whether they are 'interest free' etc] requires the effective spending of money that has yet to be earned. Such activities also - simultaneously and dangerously in the view of NZ Gold - stimulate an artificial and ultimately unsustainable level of demand within the economy. The corollary is that when the inevitable 'credit-crunch' follows demand will collapse much more quickly than would have been the case in a strict 'cash economy'. We would suggest this is the point at which real bargains will begin to emerge - but only for those who have money, as opposed to those armed only with a ballpoint pen with which they hope to complete yet another credit application form!

At NZ Gold we emphasis in our site disclaimer that "investing in precious metals confers a significant element of risk". Yet, throughout centuries of history, it has always been possible to sell precious metals for something and the integrity of gold and silver as a 'store of value' over time is difficult to dispute. Conversely we never see consumer goods - plasma screen televisions, designer clothes, cars, furnishings, alcohol and unnecessary foodstuffs being sold with a similar warning. Yet with a few exceptions such as classic motor cars (which still have a magnificent capacity to empty your wallet for maintenance costs etc) consumer goods have seldom shown themselves to be a reliable store of value. In this regard a visit to the municipal rubbish tip, or a little time spent doing the rounds of garage sales, can be a highly informative commentary on consumer goods as an 'investment'. Strangely, we have never seen gold for sale at such events!

However, the main purpose of this article is to expose other areas in which a more insidious 'incremental' loss of money is occurring. At NZ Gold our casual observations have made us increasingly suspicious that Kiwis are spending more and more time queuing for things like cappuccinos, slices, burgers & takeaways. Now the last thing we want to do is to suggest that our readers completely eliminate these indulgences - we'll leave such 'killjoy' suggestions to politicians who seem so committed to making life boring and miserable! Yet it seems difficult to deny that a growing proportion of many Kiwis incomes is simply 'disappearing' during the course of the month on increasingly expensive items that have gone from being an occasional luxury to an often daily ritual. Within this the cappuccino [or latte/flat white etc] seems to have taken centre stage in the lexicon of daily 'must-haves' - and we confess to significant guilt in this regard at NZ Gold! Of course, one of the things that has made this phenomenon possible is the ubiquitous 'electronic transaction' whose supreme triumph - in our view - has been the lowering of 'buying resistance' for items both large and small.

Recently, we undertook an NZ Gold experiment. Admittedly, it was hardly a scientific study but exactly ten minutes spent standing in the queue for a 'cappuccino to go' and a ginger slice proved very interesting. The first thing we noticed was the readiness of people to wait for their treasured 'cake and coffee' fix. Now there is something rather civillised about waiting for afternoon tea in the right surroundings - but a New Zealand shopping mall? What also impressed was that almost everyone paid with an eftpos card. Apart from the fact that this means a higher price due to the transaction charge [disproportionately so for very small items] it is surely incumbent upon us to ask of our readers - and ourselves - whether this tendency to carry so little cash is wise? What would happen if some 'event' were to occur that prevented access to your funds via electronic means? We have the suspicion that many people would be a little 'inconvenienced'.

Complete with receipt in hand a disturbing analysis followed - at NZ Gold we were actually stunned! NZ$7.80 had been spent on a cappuccino and a ginger slice. At a conservative estimate many Kiwis would be engaging in such an episode of 'minor' expenditure at least three times a week. For our items this would involve a total cost of NZ$23.40 and when this is annualised we come to a figure of $1,216.80 - more than enough to buy an ounce of gold at the current price! To add weight to our argument the author then calculated the number of ounces that could have been purchased using this formula since his arrival in New Zealand in 1990. Amazingly, over 18 ounces could have been obtained and this conclusion is probably overly conservative due to the dramatic advance of the gold price in recent times [although, as many readers will be aware, items like milk and other foodstuffs are also rising exponentially in cost]. For a couple, with similar cappuccino and cake habits, simply sacrificing a few 'snacks' per week over the same period could have yielded some 36 ounces - with a current 'conversion value' exceeding $NZ40,000. Moreover, if owned in properly allocated physical form, gold does not carry 'counterparty risk' in the way that so many other investments do.

What is so flabbergasting about the preceding analysis is that it scarcely even scratches the surface as regards areas in which Kiwis could divert a proportion of their money - that is currently being wasted - towards the purchase of some 'financial insurance'. We have merely looked at a few cups of coffee and slices of cake per week. What about the contents of the weekly shop and, of course, the offender 'par-excellence' - alcohol?

As indicated earlier, at NZ Gold we are not suggesting that readers should give up all their indulgencies. However, it is our view that New Zealanders are now spending excessive sums on what might be termed 'consumptive trivia' and - in consequence - major 'opportunity losses' are being incurred. For younger Kiwis in particular we hear of extraordinary sums being consumed on alcoholic beverages. Were even a small proportion of the money being spent redirected to the purchase of gold or silver ounces many young people would be a great deal healthier, safer, and ultimately wealthier!

At NZ Gold we seek to scan the horizon and to warn our readers of the dangers that we see. In this we suspect that many Kiwis and Poms have not yet realised how at risk their current incomes are from two factors. The first of these - the current credit insanity and its inevitable unwinding some time hence - has been discussed extensively at this website. The second is, in many ways, related but probably features even less on peoples 'radar screen'. It is the threat to Western living standards posed by the emerging economies - particularly China and India. Recently, at the respected contrarian website Prudent Bear (www.prudentbear.com) British writer Martin Hutchinson wrote an article entitled "Eroding Western Living Standards" (http://www.prudentbear.com/index.php/archive_menu?art_id=4902). NZ Gold commends Mr Hutchinson's analysis to you and, in particular, his compelling arguments for why mass immigration into the European Union and the United States is "immiserating the working classes". His assessment of the potential for median 'Western incomes' looking forward is deeply sobering and he offers this thought provoking warning ► "Thus the economic histories of a high proportion of the Western population under 30, except the very highly skilled, will involve repeated bouts of unemployment, with job changes involving not a move to higher living standards but an angry acceptance of lower ones". At NZ Gold we find ourselves reluctantly persuaded by such forecasts. As such net income should, in our view, be carefully managed now because obtaining same in the future could well become much more difficult - not just in Europe and America but in New Zealand as well.

It will be a huge pity, if harder times do emerge, to reflect that many Kiwis could have been so much better placed to 'ride out the storm' if only they were 'holding gold and silver ounces' and not just the excess pounds begat of coffee, cake, booze and the other 'detritus' of New Zealand's ever more profligate lifestyle!

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