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Sunday, August 31, 2014

Why Smart Money is flowing into Hard Assets.

When you gamble at a Casino, the house always wins.

But wait!  What about poker?  There, the best player wins, right?

Not exactly.  The best player only wins in a controlled environment where everyone starts with the same amount of chips.  If you are playing with 50 chips against a player with 50 million chips, your opponent will win every time.

When you gamble in any asset class on any major exchange you are the player with only 50 chips.  There are Banks and Central Banks in those markets all armed with 50 Billion chips.  Eventually they get all your chips.  They may let you win for a while to get you to bet more chips.  But in the end they get all of them.

This is true even for players who happen to have 30 million dollars.  Or 300 million dollars.  Especially at the high end.  They know full well the markets are all rigged.  Those of them playing for Team Goldman Sachs don't care, because they can follow Goldman bets from the inside and ride the rigging.

But many others do care.  And they are buying up hard assets with a vengeance.

But won't this lead to a bubble in hard assets?

It depends on the rarity of the asset.

A Hard Asset Class that represents true rarity will continue to appreciate vis a vis currencies that can be printed ad infinitum.  And all major currencies are being printed ad infinitum - as per the policies of the major central banks.

Debt levels are so high in all major countries - from US to EEC to China to Russia, (and their central banks, and their member banks) that it is impossible for central banks to stop printing without causing an Interest Rate Event that will send the global economy into endless depression.

Everyone who has amassed enough paper currency to be forced to ponder this issue knows this.  That's why they're all piling into hard assets.

Of course, each hard asset market poses its own series of challenges.  Especially regarding Rarity and Authenticity.  And like all markets, every type of hard asset is also subject to price rigging.

But the issues of rarity and authenticity can be vetted by smart investors.  And localized price rigging in these tiny markets is much easier to overcome than the institutionalized price rigging in the major exchanges.

So choose your hard asset.  Do some homework.  And hop aboard.  It's a one way bet until the paper printing implodes.

Then it's anybody's guess.

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