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Guy Oppenheim – Financial Survival in a Finite World

Guy Oppenheim – Financial Survival in a Finite World

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Published by: Guy Oppenheim on Nov 16, 2012
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05/13/2014

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Guy Oppenheim
Financial Survival in a Finite World
By Guy Oppenheim & Toby Birch Oppenheim & Co. LimitedGiven that this is the inaugural issue of HEIR magazine it would be appropriate to highlight thetheme of inheritance from one generation to the next and examine the legacy bequeathed bythe baby boomers. They are the bulge bracket born from 1946 -1964 who are fortunateenough to be retiring, having enjoyed unprecedented access to free education, healthcare andguaranteed pension schemes, be they public or private.
While an entire generation cannot be blamed for the world’s financial and environmental woes
they were ultimately the group that voted-in decade after decade of extravagant politicalpolicies. The party was funded by never-ending fountains of credit created out of thin air bybanks, lacking both regulatory restraint and stewardship. Why should endless credit be a bigdeal? The reason is threefold: first, the process is inflationary making food, energy and houseprices escalate, second, the next generation is forced to take out greater mortgages simply for aplace to live, thereby exacerbating the problem and third, it leads to a widespread debasementof currencies which inevitably end in trade wars and military conflict. Our banking system ismuch like a casino, not because of the outrageous speculation conducted by its dealers andhigh frequency trading systems, but because the house always wins. Credit creation quiteliterally comes at a price, which in this case is the interest bill. By creating more credit than
 
exists in the money supply the interest charged by banks will suck the lifeblood out theeconomy. Bankruptcy is inevitable and financial crises are the end-product of a highly leveragedand volatile market.There is paradoxically a plus side to the on-going crash and credit crunch. What we are seeingare the death throws of a failed financial system. Whether it is through familiarity or fear of theunknown we continue to cling to this lousy mechanism, not least because its lobby groups areso endemic and the propaganda oft-repeated. To achieve reformation we must first havedeformation which is why the current transition feels so painful. It is nevertheless a natural andnecessary metamorphosis which like any birthing process entails an inevitable agony.Sustainable behaviour be it financial, commercial or personal, is not simple, nor can it becoerced through yet another round of legislation. It is a process that is learned out of necessityand adaptation to reality. The combination of ethical and environmental investing is of course afamiliar theme of recent years. However, the unspoken association with green investing is thatof underperformance, high volatility or at best one that carries an opportunity cost. In extremecases, such as the Chinese company Sino Forest, it may even encompass deception leaving the
world’s greatest investors shame
-faced following its stock market suspension.Since abandoning the Gold Exchange Standard forty years ago we have pursued a futilephilosophy of chasing infinite growth on a planet with finite resources. Few in the investmentcommunity comprehend that exponential activity is not a panacea but pre-cursor to collapse, asevidenced in nature by yeast and cancer cells. The so-called credit crisis may prove a blessing indisguise as we are yanked from danger like a disorderly dog on a leash. We strain againstrestraint without recognising the ultimate benefit. Many green investment products carryovertones of guilt, with the emphasis on obligation rather than satisfaction. Human beings maywell be motivated by noble deeds and duty but the pursuit of gain is undeniable and it isdisingenuous to ignore one of our foremost emotions. While it is fashionable to flagellatebanks, they do at least know a thing or two about marketing. Through credit cards, loans andspeculative products they are tapping into our desires for the accomplishment of dreams andaspirations. While we are not endorsing principles that promote selfishness and consumptionthere is nothing to stop investment being lucrative, fulfilling and fascinating. New funds areemerging that are not just about sustainability can offset risks that are endemic in this post-bubble economy. They provide leadership by example through investment in areas that arebeneficial to humankind today and more importantly for generations to follow. This need notbe sentimental or socialist; it is using a key component of capitalism whereby price changesspawn solutions that can rarely be achieved politically. Rising energy prices will act as a catalystfor alternative energy, like a flash flood in a desert; technology that once seemed barren andhopeless will be given life.
While ‘Peak Oil’ is hotly debated it appears unlikely that we will run out of black gold any time
soon; it will just be far more expensive to extract, process and distribute fossil fuels in future.Commodity protectionism is already with us only it is taking the form of local taxes onmultinationals rather than outright trade tariffs. Nationalism has most clearly been shown with
last summer’s wheat shortages in Russia when exports were banned as the fires blazed. This is a
 
clear dress-rehearsal of things to come when national interests are put before an out-datedideology of globalisation and liberalisation, so aggressively promoted by the World Bank and
supposedly respectable institutions designed to promote America’s self 
-interest. This is one of the most overlooked aspects of climate change, population growth and resource scarcity whichwhen combined creates a highly inflationary cocktail.Most green funds invest heavily in equities related to specific topics such as solar energy or inilliquid (albeit vital) private equity projects. These can be very volatile areas of the marketleaving investors with positions that are too concentrated. They should also be holding naturalresources that offer long-term protection against inflation and currency debasement; namelyprecious metals and commodities. While mining may not be the cleanest activity on the planet,investors have little choice in protecting their wealth other than buying bullion. It is one of themany dilemmas of living and investing in modernity; no one is entirely innocent and no solutionis perfect. The past few decades have been all about high leverage and management fees that
have haemorrhaged investors’ assets. Modern money management will evolve into one of 
balance and equity that shares risk and reward. This is not a touchy-feely philosophy but onethat meets two natural human desires as the yin and yang of investment activity. The first is to
endow the fruits of one’s labour into new ventures to yield greater returns. The second is
to actcommunally which has been repeatedly witnessed in studies of behavioural finance. Investingin earth-related activities enhances the positive aspects of trade that rewards measured risk-taking while combining it with our innate sense of stewardship.This may sound noble in theory but one could still be accused of hypocrisy by died-in-the-woolcapitalists or ecologists alike. This is a small price to pay to benefit future generations who may judge us with disgust in decades to come, should we choose the default option of doingnothing. The topic of climate change is one that generates fierce debate and disunity on bothsides of the divide. There is an overtone of the Spanish Inquisition for scientists who dare tochallenge the accepted dogma of a direct correlation between atmospheric carbonconcentrations and temperature change. Many vested interests and research budgets rest onthis hypothesis. Likewise the pro-growth camp and capitalists believe that the whole movementis a left-wing scam and conspiracy. They would still not believe in climate change even if theThames was flooding their City offices twice daily. The trick here is to step back and look for
commonality. While we can disagree about the cause and effect of the climate’s activity we can
 all agree on one thing; weather patterns are changing. If one cannot accept that then it must bea case of sensory depravation or obstinacy or both. If in doubt just ask a farmer for theiropinion as they experience the elements first hand. The so-what of this argument is simple; if the weather is changing then food production will be affected. This has huge implications forinflation, potential unrest or even revolution. If we can all agree on this one point then thatwould be true progress. If we can channel capital to the right areas to help with foodproduction then that would be a significant result. It is a highly fragmented industry wherefarming is a labour of love and is desperately short of funding. For those in the agnostic orsceptical school of thought they can simply view the themes as a way to make money.

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