Thursday, 7 January 2016

The Alpha Strategy in modern conditions.

Oxford Castle
The Alpha Strategy was published in 1980 but had its roots in the stagflation of the 1970's. 

The book remains popular with preppers and gold bugs but is interesting for almost everyone.
  • How can we profit from the Alpha Strategy? The strategy can be tweaked to constitute an each way bet.
  • When I mention Alpha Strategy the usual thought in most peoples heads is 'gold'.
  • Gold is only a small part of the strategy but let us start there. Gold is often held as an inflation hedge but is is actually an all round insurance policy that covers the owner against deflation too. Any loss of confidence in paper assets will cause gold to rise in real terms so we are covered in the event of war or economic collapse even if inflation does not make an appearance.
  • More excitingly it is also possible to make a financial return using the strategy.
  • In deflationary conditions or conditions of weak growth we commonly see negative real interest rates. In the UK the base rate is currently .5%- the lowest it has ever been. Inflation is also weak but it is higher than the base rate resulting in a real world decline in money on deposit. This situation is quite similar to hyper inflation where interest rates are high but unable to keep up with prices.
  • This situation is a deliberate policy designed to get people spending and investing. It incentives the consumer to turn cash into assets exactly as the Alpha Strategist advises.
  • This is not mere indulgence. Suppose we have some cash on deposit. It would pay us to get home insulation in order to enjoy fuel savings. These are likely to exceed the derisory interest on offer making all such projects more profitable than they would be in normal times.
  • We must reverse the normal money wisdom. In normal times we try to get to the end of the month with money in our account. In special times we do the opposite. We aim to dispose of all of our cash in the most productive ways possible. Anything that improves future cash flow is good. We must avoid any kind of cash build up because this money diminishes every month we hold it.
The castle is in Oxford by the way.

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