investments and the Japan earthquake

I'm not sure that relative harm is a valid defense. There is going to have to be a debate over the costs and benefits of nuclear energy to decide whether or not the power generation is worth 2-4 catastrophic accidents per century that kill some, injure the health of many more, and render hundreds of square miles uninhabitable with a total economic loss for everyone who owns property within the zone. What if there is another world war that leaves several hundred reactors in the condition of the ones in Japan with no remediation? What if this happened in the suburbs of a major US city? Three Mile Island was a near miss. What if Tokyo has to be evacuated? What if there is an 8.4 aftershock? Another tsunami? Another reactor?

I don't have the answers, but this is something that might not go away soon and could change the rules of the game.

 

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In another world war, with the fervor of possible opponents, I think nuclear power plants would be susceptible of course, but almost certainly, nuclear weapons will be used and that the war and possibly the world will be short lived. A nuclear device over NYC, Moscow, Peking, LA, etc. would be more disastrous than all of the nuclear power plants. At least the plants are hardened and have relative few people living there. I suspect that the large oil and gas concerns are pumping up the "volunteer experts" from political sponsored think tanks who give worse case of nuclear, even beyond what is possible to know at this point. Saw a couple today on various TV reports. Perhaps I am different , but I would rather live next to a nuclear plant than next to an oil refinery. IMO. Yes, no one has the answer. If they could just get that quantum time machine up and running to view the future. But of course that would necessarily change the future so we are stuck.

Jim

 

While the reactors are in hardened containments the spent fuel rods most likely are not. When they pull a rod assembly from a plant, it's still hot enough to melt, it's extremely radioactive, and will be dangerous for 1000s of years. Before these rods can be transported to long term storage, they have to be placed into pools of water where it can take more than a decade for them to cool down. Typically these pools are near the reactor because transporting them is very dangerous. These pools are often not in a hardened containment dome and have all the issues of needing constant cooling water circulated over them. If this water is not maintained, it evaporates and the rods will begin to melt. It can be much worse than in an active reactor because often these pools will hold more rod assemblies than what would be found in a reactor.

(modern reactors use rod assemblies that are a couple of stories tall and contain a couple of hundred rods, each reactor will have between 100-200 of these assemblies and they last several years, reactor refueling replaces a portion of the assemblies at a time every 1.5 - 2 years)

This is one of the major issues with Fukushima. When they pull a fuel rod assembly they don't want to move it far. So these storage pools at Fukushima are located on top of the containment building in the square, lightly built roof area at the top of the reactor building. When the power failed, these pools started losing cooling water. Furthermore on 3 of the buildings, hydrogen explosions have blown the top off the building directly exposing these storage pools to the atmosphere and the end result is radiation into the environment. This is also why there is concern about the 3 reactors which were shut down.

Nuclear power serves a purpose, but it isn't the "green" "clean" nice alternative that it has been spun into over the last decade or so. There are some very serious issues and risks to using it as TMI, Chernobyl and now Fukushima demonstrate.

 

That is a prevailing view which is the problem. Most people think they are investing when they are really speculating. Nothing wrong with that, but it helps to know what you are doing.

 

Seems that your assertion of a bright-line difference between speculation and investment is actually a subtle way for you to assert that, while you invest with wisdom and education, others (sneer, patronize) merely speculate.

 

I have read that theCrash of the Tokyo exchange caused all the investing banks to scramble to cover their margins, hence the large sell off of PM's. But it looks like the floor hit earlier today as Silver stayed above $34 ? But margin calls are very short term, only hours or minutes even. So although the dive was a goodly amount, it seems it was short lived. IMHO

gary

 

I couldn't quite come up with the words, but now that I see them, well, that's well put! Semantics...

Lucy

 

I wouldn't say that John. Conventionally investment is buying revenue producing things, (stocks, bonds, land, real estate, REIT, etc), with some predictions as to future performance. Education, if done to facilitate a better job, could also be viewed as such. Speculation is typically viewed as buying non-revenue producing assets at current market rates on the assumption that their value will rise in the future because of some cause. I do not think he is trying to be personal.

I would view all commodity buying as speculation, in that it is not revenue generating. I speculate, I speculated heavily when I bought my silver 20 years ago. There is nothing wrong with it, and it has its place in a balanced portfolio. I would even label my library as speculative to the extent I value its sale price over the knowledge I gain.

If that is not what Cloud meant I apologize, and will let him speak. That is simply how I view the differences between investment and speculation, with no perjorative meaning implied to the word speculation.

 

There are only 3 things that actually "create" wealth in an modern society. They are:

1. It's dug out of the ground.
2. It's grown
3. It's manufactured

Everything else either consumes this wealth or transfers it. Thus, an investment is money put towards the increase of these items. Everything else, including all paper investments, land not involved in these activities, are speculations.

 

Not at all. You're completely wrong. Sometimes I buy something as an investment, and sometimes as a speculation. There is no right or wrong way to make money, but it helps if you know the difference.

 

It isn't semantics. If it looks like semantics, then I didn't do a good job of explaining it.

 

Well put!

 

I would venture to say that trade [a transfer] increases the wealth of both parties engaged in it since they are transferring their surplus, which has less value, to obtain things they do not have, which have more value than the items given in exchange. So the standard of living of both parties increases.

 

Trade does not create wealth. It allows one form of wealth (of the 3 I listed) to be exchanged for another.

 

I'll trade you one of my American Silver Eagles for $36 that I paid $19.03...and if that doesn't count as gaining wealth...then how about it locks in the profit made?

 

Trade does more than that. Items do not hold the same value for all people in all places. The person with water in the desert is wealthier than a person with the same quantity of water elsewhere. Since value and wealth are relative, trade makes both parties wealthier by permitting them to trade that which has less utility to them for items with more utility [i.e., marginal utility]. It's the fundamental principle behind all trade, and why trade increases the standard of living for all participants. That's just the way it is. In the old Soviet Union, they would produce some goods in quantities far beyond what could ever be used and counted it as an increase in GDP because they never grasped that the last pair of shoes might not create as much wealth as the first pair if it was not needed. That's why they collapsed. They didn't know how to measure wealth.

 

I have to disagree Fatima. Your original post, while good, did not include time and place utility. Time and place utility usually adds more value to the consumer than creating the items to begin with. Your original list was the commonly held view for many centuries, but it missed time and place utility.

Simple example, consumers are at a ballgame. They are hungry and thirsty, but to go somewhere else to eat and drink would ential them missing the game. They will willingly, (well maybe begrudgingly), pay $4 for a soda and $6 for a hotdog, even though they will pass 20 places on the way to and from the ballpark that would sell them these things for $1 each. The hotdog "value" is maybe 80 cents, that is the value you would assign it based upon its creation. The vendor at the ballpark created over $5 time and place value by being able to sell them to the consumer where the consumer wanted, when he wanted it.

Other examples are similar, like gas being 20 cents higher in the country than a large city. This is due to extra costs involved in getting it there but people are willing to buy locally and not have to drive 2 hours to get cheaper gas.

 

1. Dug out of the ground...well, the ground is there...who owns the ground?? Planet was here long before man and probably long after man. How does this pulling something from its natural place create wealth differently than the time/place utility described by others.

2. It's grown...again, using nutrients that are in the ground and seeds from previous crop...so who owns the ground and were the seeds nothing more than pre-created wealth transfered to the planter? We do not create life, we only nurture.

3. Manufactured...well, traditional thought is only physical goods would qualify...however the world is realizing intellectual capital (Manufactured Thought) has value...may be used to create a physical good, or a service, or a derivative asset...they all have value.

I do not agree the three things are the only way to create wealth. Else, if I want wealth, I can only get it by taking your land from you so I can dig up stuff, plant stuff, and use the space to build stuff. Buying it is transfering and not creating. Natural resources are more than the ground and what is in it. The thought process of all wealth comes from the natural resources and man's use of them to create things leads to one answer...conquer the world and be authority of all the land.

Metaphysical thought...financial wealth is a worldly thing...it does not go with you in the end. Not to get too spiritual here, but remember that investments in people, relationships, passion, love, memories, are much more valuable in the long run. As for worldly financial wealth, there are many ways to obtain....

Speculate with what you have and win
Trade with what you have and increase
Invest with what you have and build

Speculation is a pure guess...not wrong, just a guess.
Trade is a time/place guess....not wrong, better guess than speculation
Investment is an educated guess....not more correct, just a more thought through guess

They are all guesses...that is the risk in any method. The key is to understand the level of risk you are taking. Speculation is the most risk, and the most reward. Trading is less risk, but can still have significant reward. Investment is the lowest risk, but smaller returns that have a higher probability of being realized. All portfolio's should have a mix of the three...if you do not see a difference in the three, I would say you need help from a financial professional as your portfolio is most likely out of balance in one way shape or form and there is either too much risk or not enough.

Speculative/trader based guessing is why the markets continue to be more volatile than necessary because investment based guesses do not require urgent reaction to short term changes, such as the activities in Japan.

 

Your example shows how "expression of wealth" can be shifted amongst parties but it is not an example of a creation of wealth. On your specific point of the $6 hotdog, I would contend the total cost to sell that hotdog at that place at that point in time was very high. After all it's being sold in a multimillion dollar facility which consumed a great deal of a society's resources in it's construction. it's certainly not as effective as selling a hotdog in a trailer on the side of the street.

The manufacturing of a hotdog, where the wealth is created, includes the delivery to the party that will consume it. Otherwise the hotdog has no value. From this perspective, it doesn't matter if it is sold in a $500 stand or a $500M sports facility. The difference is the party in the $500M facility is paying a portion of his hotdog money for the cost of the venue. The wealth created by the production of the hotdog, however is exactly the same.

The mistake that economists make all the time is in forgetting this distinction. This is how the USA ended up getting rid of item 3 on my list because due to the belief that wealth can be created simply by moving the expressions of wealth between parties.

 

Ok Fatima, make it simple. I have water, normally a valueless entity but lets say I bought a bottle of Aquafina for $1. I drive to a desert on my way somewhere. The cost of transporting it is minimal, if not zero. I find someone stranded without water, and being a good capitalist I charge him $100 for my bottle of water. Did the value of creating that water go up? Did Pepsico make more valuable water? No, it is the time and place utility that I provided that added $99 of value to that consumer. This is simplistic but gets the point across.

This is so overlooked. People think a country with natural resources would be rich. They aren't, the real money is made, and always has been, by those who provide the time and place utility to that natural resource. A salt mine in the middle of Iran does not have much value. Traders come, though, and buy salt. They transport it to where there is no salt and sell for a high price. Yes they have some costs, but not nearly as much as the markup. They get MUCH richer, and always have, from that salt mine than the Iranians do. I am using this example since it is real history. The Sogdians who bought the salt made 100 times more profit, and added more value, than those who mined the salt. The "expression" of wealth, as you call it, was real wealth, gold coin.

Don't know how else to explain it, real wealth is created more in time and place utility to the end consumer than mining, growing, or producing a product. Always has been, why have farmers historically not been as rich as merchants?