Growing Wealth That Lasts

The principles that govern lasting wealth creation are time tested and simple. Yet we have a difficult time putting them to practice because they require deferring present needs and wants into the future. At every level of political/economic decision-making global, national or family the power of now has an inexorable pull.

The power of now has been part of the human psyche since the earliest days of our hunter-gatherer ancestors. Yet it is only part of our story for we also have a passion for achievement that transcends present needs as expressed in great works of art, abstract thought, brilliant insight and technology breakthroughs.

Over the past six millennia, the balance between these two attributes of the human psyche has shifted in grand historic cycles: from bursts of achievement, which launch great civilizations to periods of dissolution, where rising expectations lead to empire building, over-indulgence and decline. Since the ascendency of ancient Mesopotamia in the 4th Century BC wherefrom language, writing, art, architecture, math, astronomy, medicine, philosophy and law evolved we have seen this cycle repeat many times.

The era of Western dominance, which began with the 16th Century Age of Discovery and ran through the now fading Industrial Age, is the latest example. Once again hubristic tendencies towards empire building and over-indulgence serially played out in various European countries and the United States have put our civilizations at risk.

So what have we learned through these cycles of great achievement and dissolution? The main thing that comes to mind is the benefit of thinking beyond one’s self to the greater good. Another is the advantage of learning from our mistakes. These two themes play out in multiple ways in the wealth growing attributes listed below.

Wealth Growing Attributes

  • Concern for the whole
  • Cooperative (living system) approach
  • Focus on long-term value creation
  • Grow core competencies
  • Quest for stability, renewability
  • Partnerships, networked flat organizations
  • Servant leadership culture
  • Employees as valuable assets
  • Learning from adverse systemic feedback
  • Open minded, integrative, adaptive
  • Resource conservation, recycling
  • Continuous balance sheet strength
  • Thinking about “being”
  • Beta-driven (What’s undervalued?)

Wealth Damaging Attributes

  • Concern for self
  • Competitive bottom line first approach
  • Focus on immediate results
  • Take what you can while you can
  • Quest for domination, continual growth
  • Vertical top-heavy organization
  • Command-and-control culture
  • Employees as costs, potential liabilities
  • “Managing” adverse systemic feedback
  • Belief in one-way
  • Aggressive resource consumption
  • Over-leveraged balance sheets
  • Thinking about “having”
  • Alpha-driven (What’s hot?)

The corresponding wealth damaging attributes are all features of hubristic thinking: the need to continually “have” more and to dominate as distinct from the wish to “be” in creative harmony with Nature and society into the distant future.

These damaging attributes are ubiquitous in the quest for quick returns by most corporations and investors; and they are compounded by a misplaced faith that the systemic risks they create can be “managed” through financial engineering and market timing. Within governments we see similar patterns of chasing economic growth amidst a declining resource base by debt-leveraging, bailing out too-big-to-fail corporations and managing risk by withholding potentially disruptive information from the public.

There is growing evidence that we’re entering a cycle wherein we spend more to keep the system operating than we receive in economic value. If we add up the costs of U.S. private sector bailouts and subsidies, ecological destruction and defense spending, we’re arguably near that point. And that’s not counting the annual increases in unfunded liabilities to government health and retirement programs. Legendary investor George Soros recently called this cycle “a self-reinforcing process of disintegration.“

Consider the forced disclosure on August 22, 2011 of $1.2 trillion in Federal Reserve advances to some elite Wall Street banks a fact Bloomberg uncovered in a Freedom of Information Act battle with the Fed. This sum was in addition to: the $16.1 trillion in emergency loans disclosed by the first-ever (one-time only) GAO audit of the Fed under the Dodd-Frank Act; the $2 trillion quantitative easing program; and the $700 billion Troubled Asset Relief Program (TARP). Add it all up and we get $20.1 trillion in rescue operations roughly 1.4 times the nation’s GDP.

The US government currently collects about $2.1 trillion in taxes. But it owes $15 trillion (not including promised Social Security and Medicare benefits). This puts the ratio of revenue to federal debt at about 1 to 7. If the carrying cost of that debt were a moderate 5 percent, it would cost $750 billion per year in interest ” or about a third of tax revenues. That would leave only $1.35 trillion to cover the costs of federal spending ” which is now $3.5 trillion per year.

The near insolvency of the global banking industry is another cause for concern. In too many cases the core capital of the world’s biggest banks is a fiction of accounting gimmickry. Against this, consider the $244 trillion derivatives exposure of the top 25 US banks a sum that equates to 17 times national GDP. If just a quarter of one percent of that sum were to be lost due to miscalculation, it would wipe out what’s left of the banks’ capital, necessitating further government bailouts of unimaginable magnitude.

To anaesthetize the public from these and future risks, the US government has engaged in a continuous cycle of money printing abetted by policies of official secrecy. Examples of such concealment include: President Bush’s executive order of May 2006, which excused companies from accounting and disclosure requirements under section 13(b)(3)(A) of the Securities Exchange Act; and the Federal Reserve’s secret lending to US banks. See more on this story from

Time to Get Real


Having spent more than four decades as an investment analyst and manager, I have had a ringside seat at the drama currently unfolding. Although most in my profession continue to believe in the durability of the current system, I long ago surmised it was headed for a wreck. What keeps me going in this otherwise depressing situation is an emerging renaissance in business and economic thought, which I have broadly summarized as “Wealth Growing Attributes.” In the meantime I must guide clients through the economic dangers ahead.

If we strip away the veneer of official economic pronouncements, the new reality is simple. Very few investments offer an acceptable return. Top quality bonds today pay less interest than the rate of inflation. Leading stock market indices, such as the S&P 500 and the MSCI World, have lost money for more than a decade. The industrial age model of aggressive resource extraction, debt leverage and market domination, which once accelerated GDP growth and profit, have now thrown us into a reversal of resource exhaustion, debt overload and misplaced economic priorities.

Governments have compounded the malaise by expanding credit in the mistaken belief it will buy us time to get back on the growth track. But rather than treating the structural causes of our economic distress summarized under “Wealth Destroying Attributes” they offer only temporary symptomatic relief. In the meantime the patient gets worse and worse.

Best Performing Investments


The best performing investments over the past decade have been monetary metals (gold, silver) and commodities we need for food, transport, shelter, health and economic development (oil, minerals, grains, etc.). The former address our needs for stable money and a trustworthy store of economic value; the latter, our hopes for a stable, prosperous life.

Among corporations the best performers have been companies whose cultures embrace the wealth growing attributes listed above.

Both approaches mitigate risk: first by avoiding the danger of collapsing currencies and decaying bond markets; and second by investing in stable, self-financing companies with value-added cultures and important core competencies. For the past decade they have worked well because they tend to offset one another’s periods of weakness while maintaining a generally upward bias. Because of their long-term risk mitigation we refer to such strategies as “beta-driven.”

We contrast this with the more pervasive alpha-driven approach, which involves more active trading in an effort to ride shifts in market momentum. While the latter is more attractive to Wall Street because it generates more transactions and revenue, it is less so to the investor who must bear extra trading costs and the uncertainty of transient variables (price momentum, quarterly profits), most of which have scant long-term significance.

This is not to say the beta-driven approach is riskless. All bull markets have periodic corrections. But historically investors are better off buying into the big trends and staying with them so long as their underlying premises remain valid.

We are today in an exceedingly dangerous period of transition. Many good companies will get swept away by the outgoing economic tide. Only the most resilient will survive. For those of us who want to emerge from this period with the skills, hope and capital to rebuild more sustainable economies we must hear what the markets are telling us about wealth creation and destruction.