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A Crackup Boom is a term you may hear more often in the next 18 months. The concept refers to what happens when the “velocity of money” suddenly accelerates as money goes to work to escape the impact of currency debasement through massive purchases of alternate stores of value.  Smart money has already figured this out and is moving fast to deploy capital into assets. Although precious metals and commodities have gotten a lot of media attention lately, farmland is a long-time high-roller favorite. Although outdoing Ted Turner’s 2 million acres may well prove to be a challenge, Online real estate is still a wide-open market ripe for large-scale rollups into significant defendable niches.

Boiling Frogs
It is said that if you gradually turn up the temperature, you can boil a frog alive.   That is actually a myth, which has been debunked scientifically — the frog figures out the “hot tub” thing is not working out so great for them and then attempts to escape.  In the world of consumer finance, the frog is getting pretty hot — underemployed, indebted, living paycheck to paycheck, and now enduring rising costs. On February 22, I declared that the **** is hitting the fan. I stand by that call. The boiling frogs around the world woke up from their “relaxing hot tub”.

What about the Dollar and Fiat Currencies in general?
I have talked previously at length about currency risks, here, here, and here. As the following graphic depicts, the tectonic forces are far from done realigning the economic landscape.  The process “ends” in a currency crisis, followed by chaos, followed (theoretically) by a successor currency regime. Along the way, a lot more businesses close, and a lot more folks lose their economic sovereignty — that is to the extent they have not already lost it.

The Mainstream media would have you believe we are in the midst of a nascent economic recovery and that QE1 and QE2 were good things that accomplished their intended mission of averting a double-dip recession. Not only do I believe we are already in the double-dip, I would submit that we actually never stopped dipping since 2001.  The wealth effect of rising housing prices in the early 2000′s and a stock market recovery were/are an illusion based on currency debasement through loose monetary policy. These distortions in the economic reality have also allowed a portion of the population to become (fabulously) wealthier at the expense of the masses. Mortgage-backed Securities are only one prime example.

GDP adjusted for true inflation — Introducing the Epik GDP-Gold Deflator
The below chart took way too long to create. It is worth a look.  I was searching on the web for any prior analysis that adjusted US National GDP with a deflator based on the price of gold.  I was surprised that such a chart was not easy to find. After all, a Gold-deflated GDP would be a logical way to get a truer gauge of economic health adjusted for the impact of currency debasement.

As you can see from this chart, the economy enjoyed a relatively steady upwards trajectory from the 1930′s through 1971. This was then followed by a precipitous fall from 1971-1974 when Nixon took the US off the gold standard in the wake of a global run on US currency redemption into gold.  After a decade of economic pain, it was “Morning in America”, and we experienced the Reagan boom from 1981 through 2001.

Most people on Main Street would agree that it has been dog eat dog since 2001. Consumers have been working longer, harder and smarter (perhaps not!?!) in order to maintain their standard of living. Those folks who did not — or could not — up their game have seen their standard of living drop since 2001.  Of course there is no shortage of economic success stories (e.g. Apple, Facebook, GroupOn, etc.)  but — in the aggregate — it has been a tougher fight for what has actually been a shrinking pie.  Large companies like Wal-Mart, Microsoft and Oracle got bigger which is why it is still possible to have a rising stock market in a shrinking economy but even that is an illusion as demonstrated by the Dow-Gold ratio which shows that we have been in free-fall since 2001.

Put down the Kool-Aid and Reclaim your Economic Sovereignty
I would submit that is high time to put down the Kool-Aid, switch off the television, and Reclaim your Economic Sovereignty.  I am 100% convinced that individuals can reclaim their economic sovereignty by building globally competitive businesses.  I know of no better way to do this than developing web-based businesses that focus on highly specific “defendable niches” about which the business owner is knowledgeable and passionate. I am also 100% convinced that large corporations have zero competitive advantage in highly specific markets. As we saw from the recent trashing of JC Penney and Overstock search engine ranking on Google, large companies have no advantages in building sustainable ranking in the search engines.  Pick one “defendable niche” and go dominate it.


Comments (6)

  • David Reischer

    February 26, 2011, 9:08 pm

    You got this 100% correct

    Reply
  • Jeff

    February 26, 2011, 9:23 pm

    Great article.

    Non-deb back markets are where you want to be…wholly agree!

    Reply
  • Leonard Britt
    Twitter:

    February 27, 2011, 4:01 am

    Retail is really hurting especially stores selling videos, music & books which can easily be bought online. A couple weeks ago we visited Dolphin Mall in Miami and an FYE store which had been there ~ten years was closing. I was told by someone working there the new tenant would be paying $60K/monthly to lease that space (& developers complain about domainers “squatting” on generic domain names). We picked up several movies at 50-80% off. Last week Borders announced the closing of many of its stores including the store near Fort Lauderdale Beach. I’ve been there several times but it is still a little out of the way to go just to buy a few books on sale. Then today coming back from lunch I noticed a Blockbuster which I hadn’t visited in years despite its nearby location was closing in the next several weeks. Initial discounts were only about 30% but I suspect that will increase as the close date approaches. We picked up a mini-DVD player for about half of what a comparable-size DVD player sold at the Best Buy across the street.

    Regarding domains as a store of value – the primary challenge is liquidity at a desirable sales price. For most of the domains which I or any other domainer have sold in the past year, any effort to quickly liquidate a holding on a domain forum or via a SEDO auction with a $60 initial bid would likely result in a sales price 5-10% of an end user price. Who wants to sell their home for 5-10% of its appraised value?

    ** RWM – Good input. I don’t see how retail turns the corner anytime soon, which means more pressure for commercial real estate. In the short-term this is deflationary as excess inventory gets liquidated. In the longer term it means higher unemployment and more opportunity for the guys left standing to raise prices. As for selling domains, Epik is mainly focused on end-clients and outbound selling efforts to bring the right domain to the right person. Passive selling via Sedo will not get the job done.

    Reply
  • Louise

    February 27, 2011, 5:30 pm

    You gotta feed the Google monster!

    Reply
  • Jason Thompson
    Twitter:

    March 1, 2011, 10:55 pm

    I pasted the last paragraph in this blog entry because it is probably one of the most relevant items that I have read in a long time. People need to spark a fire under themselves and really stop navigating the world blindly. You can complain about how running a business is hard or the domaining industry is saturated but if you really focus your efforts you will find that you can create automated streams of income. If you start a niche based business you can easily reap the rewards by “dominating” your brand! Before you order that pizza and find yourself in for the night pop open your computer and create something!

    ——————————————————————————
    Put down the Kool-Aid and Reclaim your Economic Sovereignty
    I would submit that is high time to put down the Kool-Aid, switch off the television, and Reclaim your Economic Sovereignty. I am 100% convinced that individuals can reclaim their economic sovereignty by building globally competitive businesses. I know of no better way to do this than developing web-based businesses that focus on highly specific “defendable niches” about which the business owner is knowledgeable and passionate. I am also 100% convinced that large corporations have zero competitive advantage in highly specific markets. As we saw from the recent trashing of JC Penney and Overstock search engine ranking on Google, large companies have no advantages in building sustainable ranking in the search engines. Pick one “defendable niche” and go dominate it.

    ** RWM ** Right on Jason. Spread the word. As they say, dig your well before you are thirsty.

    Reply
  • T. Rice

    March 4, 2011, 9:43 pm

    Cotton prices in our niche rose a staggering amount a few months ago, and are set to increase again shortly. We are already getting notices from thread manufacturers that their pricing is going up 10% later this month. For the first time in as long as I can remember, we may end up sending out two price increases within a six month period. I’m not sure about other industries, but I would like to know what the real overall inflation rate is going to end up being over this first quarter of 2011. It’s going to be a long, bumpy ride.

    Reply

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