Investment Idea #14

A dollar is an IOU from the country's central bank. It's a promissory note that doesn't actually promise anything - political satarist

While this newsletter discussed a couple of stock ideas i.e. businesses generating solid free cashflow, there are a few non-stock investments that we should discuss. One of which was the very first idea - buying 6 months T-bills issued by the Singapore Government with our cash. It is as good as cash, and cash is important because it provides us optionality to buy more stocks when opportunity knocks i.e. when market corrects.

Today, we shall discuss another investment that acts as portfolio insurance or the ultimate fail-safe should our financial system collapse. This is not an impossible scenario. It happened in 1929 and it happened in Singapore during WWII with the now infamous banana money and in recent years it happened in Venezuela (see pic below).

Venezuela’s Bolivar became worthless and used to create art and craft to be sold for US dollars

Hyper-inflation in Venezuela reached 1,700,000% in 2018 and when its economy collapsed. Inflation hitting 1,700,000% cannot be comprehended by our human minds. It simply means Bolivar notes were worth less than toilet paper, which was why they were made into art and craft (above). Millions of citizens fled the country and USD became the transaction currency of choice. In late 2021, the government decided to cut 6 zeros off and rebased the currency. However turmoils in the global economy continue to plague the country and it seemed that the Bolivar is still not out of the woods and could continue to depreciate. They may have to trim more zeros in time to come.

This could happen to the global fiat currency system and by extension, all things in today’s global financial framework. At the height of the Global Financial Crisis (GFC), it was believed that we were days away from such an epic meltdown. Millions of banks could fail, all our savings in banks gone, currencies breaking down (like the Bolivar) and globally, billons of workers losing billions of jobs. Basically, it could be Financial Armageddon and the Great Depression all over again. Luckily we averted that, but who knows, it is not zero probability that this doomsday scenario cannot happen in our lifetimes.

Another scenario that could render all our financial assets worthless is WWIII. Again, who knows whether that could or couldn’t happen? We just saw two major conflicts escalating into wars in the last two years.

Israel-Hamas war (currently under truce)