From Human Opportunity Comes Good Fortune

Jeff Brown, MD

The feel-good story of the Chilean miners rescue has wider significance to the financial world. Not just in the relative fortune the 33 miners will rake in from book and film offers, but in the way the blossoming of human opportunity can lead to financial success.

In the aftermath of the Chilean miners' feel-good story, I was happy to read that last year America had the lowest rate of industrial fatalities in our history. I'd like to believe the declining rate was due to improved safety precautions by corporations, but increased unemployment must have played a role, too. If you are not working, you can't be injured on the job.

At 4,340 lives lost -- as grim as that toll is -- the total was down 10% from 2008. Highway-related injuries were the greatest cause of fatalities, at 1,215. As usual, however, the No. 1 most-dangerous profession was commercial fisherman, which had a death rate that was astonishingly triple that of the No. 2 profession, logging.

Aside from the humanitarian concern, the pertinent aspect for us is that work-related deaths and injuries also lead to interrupted production and litigation. And you know who pays the ultimate cost for both. It is unfortunate that so many business owners do the math and amorally go with the short-term cheaper alternative; increasing safety is more expensive upfront, while making safety improvements may cost lives later. Sadly, for some businesses, it’s just a "cost of doing business" either way.

But back to the Chilean miners. These lucky fellows had more than just good fortune -- their story may lead to a fortune and a chance at a better life for all 33 men. Even before the last miner was rescued, the men had received offers from book publishers and film producers for the rights to their stories. This is significant, not because it is another celebrity exploitation, but because in most of the world there are no second chances. In our world of education, money and privilege, the door remains open for second and third chances, routinely. Ultimately, developing a country's economy is not about what happens on the consumer side. Rather the flowering of human opportunity, or not, is what counts.

In that regard, did you know that there are now more English-speaking people in China than there are in the U.S.? In one generation, the Chinese have gone from a completely closed society to one that is allowing the human spirit to grow and create an unprecedented amount of opportunity for a large percentage of the world's population. Part of this unique development is that it has involved the largest migration in human history. Over the last 20 years, 200 million Chinese have moved from the countryside to the coastal cities to find jobs and make a better life for themselves.

The threat of social upheaval lies at the heart of why the Chinese government is loathe to let its currency, the yuan, float up to its real, stronger value. If the yuan is revalued, Chinese goods become more expensive to overseas buyers, demand from abroad drops and then so do Chinese jobs. Were that to happen, the Chinese would face a scope of joblessness and social unrest that beggars our situation. In effect, the American people, buy buying inexpensively priced Chinese goods, are unwittingly subsidizing the growth and success of the Chinese economy.

Elsewhere in our financial world, the value of gold continues to rise, against all prediction and previous understanding of its role. Monday, the price of spot gold traded at around $1,356 a troy ounce, up nearly 30% from a year ago. Gold, the vaunted “hedge against inflation” is soaring where there is no inflation. And a recent economic study shows that the value of gold also does not even correlate well with other commodities, let alone inflation. What gold's value does surprisingly correlate well with is the weakness of the dollar.

This appears to be not just because people are afraid of uncertainty (which, of course, they are). It’s also that the economies of the world need a reserve currency, a go-to safe-haven when their own currencies or economies tank in some way. Since World War II this has been the greenback. When the dollar weakens through deficit spending, import-export imbalances, and low interest rates meant to stimulate our domestic economy, foreign investors look elsewhere. The dollar becomes less attractive, and therefore "weak."

But where to turn? The Euro is under siege for its own members' debt excesses and other currencies, such as the Japanese yen and the British pound, have their own intrinsic limitations. Hence the gold rush! It's shiny, it's immutable, it's universal and we are psychologically attuned to it. We have discussed in the past how all aspects of economies and currencies essentially rely upon the mass psychology of trust to function. So in desperation, people turn to what is a non-interest paying, non-productive, and unwieldy alternative, gold.

The metal’s value will inevitably come down as our economy rebalances, the dollar strengthens, and U.S. investors begin to feel less uncertain. Foreigners will again flood our economy with dollars, making it "stronger" versus other currencies. We just don't know when or how fast that will occur. In the meantime gold represents a big timing gamble. It's certainly a historic moment to dig out those old broken pieces of gold jewelry or leftover chains from the ‘70s to cash in. Just be very careful how and with whom you do it. (You can find some tips for selling your unwanted gold here.) http://www.appraisersnewsroom.org/?p=50 For me, it's enough that when I look at my wedding finger or in my mouth, I see gold being productive.