What Iceland Can Teach Us About Investing

I can’t move to Iceland because, frankly, I’m not much of fish fan. And the whole idea of pickling almost everything makes my skin crawl. Also, my wife loves the warm weather, so unless we lived at the edge of a volcano, moving to Iceland is a no-go.

But on the economic and financial front, you’ve got to love these people. They hold those responsible for mistakes accountable. Period.

We should be so lucky.

In the late 1990s we had WorldCom, then Tyco, and finally Enron to push U.S. legislators to make CEOs accountable for their corporate finances through the Sarbanes-Oxley legislation.

Now, I’m no fan of this act. It seems like a well-timed gift to accounting and compliance companies that have benefited from all the (un)necessary due diligence. However, the act does make CEOs and other officers “sign off” on financials. This would be great, if the signatures meant anything.

It has been almost four years since the 2008 crash and we still do not have a single bankster in jail or even under indictment for the financial crimes perpetrated.

Well, I take that back. There are a couple of these guys under investigation… they ran Fannie Mae and Freddie Mac, which are now in U.S. receivership. But in the bizarre world of corporate shenanigans, U.S. taxpayers will foot the bill for the legal defense of these “gentlemen.” The bill so far? $50 million. Yep. $50 million.

Other than that, the U.S. Congress called a lot of guys onto the carpet, but it was just a show. These banksters are still getting calls from Capitol Hill, but this time it is in search of campaign contributions.

How it Should Be Done

Iceland, on the other hand, has indicted executives of failed banks. It pointed out the risks these corporate hoodlums took to enrich themselves and a few others.

This country of 320,000 people is telling banksters: “No.”

It has allowed banks to fail, wiping out shareholders. It has allowed foreign depositors who were not insured to lose money.

Interesting concept… Just imagine investing in a risky venture and when it fails you lose. Or imagine you were the leader of a risky venture, you mislead investors, regulators and clients, and so you go to jail.

Perish the thought.

Unfortunately most of the Western World is not run like Iceland. Instead, we operate in the “if-it-goes-well-the-bankers-win, if-it-goes-poorly-the-taxpayer-loses” universe. That is privatized profits and socialized losses.

This makes investing very difficult. For example, if you bought General Motors (GM) bonds in the mid-2000s, you recovered up to $0.10 on the dollar. The unsecured creditors behind you (union pensions) got all their money.

Or, if you saved your pennies, lived within your means, and set aside for a rainy day, then you most likely have money in an interest-bearing account. Right now the Federal Reserve has taken specific steps to ensure you do not earn enough to cover the rate of inflation, much less earn a real rate of return.

In fact, the U.S. government, the European Union (EU) and the Bank of England are working hard to change the laws of investing and returns. They’re punishing the responsible and rewarding the profligate.

So What’s an Investor To Do?

This is where things get interesting… You can “check out” of the system, find investments that pay higher rates of interest than Treasuries and then simply stand aside.

Or you can take an active approach: identify the most twisted or artificial part of the markets and invest for a return to normal.

The idea is to be well positioned when sanity returns to the markets. As Wayne Gretzky, said: “I skate to where the puck is going to be, not to where it has been.” To invest successfully, do the same. Invest for what is coming in the months ahead, not for what happened last year or yesterday.

To do so, look for investments that benefit from volatility. We want to keep our heads, even as those around us are losing theirs.

Best of success,

Rodney Johnson
Editor, Survive and Prosper

P.S. We recently added added some portfolio insurance to our Boom & Bust portfolio to capitalize on the extreme market volatility ahead. This play has the potential to double your investment with only a relatively small drop in the S&P 500. If you are not already a Boom & Bust subscriber, you can learn more here.

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.