WHY DOES GOLD HEDGE AGAINST INSTABILITY?

Many many people see and feel the profound instability in the global economy.

Even if you're part of the one percent - in which case you're personally stable, you probably understand the instability even if you can't feel it.

The structural problem is that the value of money is deteriorating at a terrifying clip as the cost of housing, food, clean water, health care, and education continue to spiral out of control all the while the Central Banks of the World keep real rates deeply negative thus providing a huge return on risk assets for the rich all the while destroying the value of the savings of the middle class and the poor.

This can never end.  The central banks can not raise rates because the bi-product of their rate policy is spiraling out of control debt.

Besides, they now see their mission as supporting the risk markets for the wealthy.

Thas is the definition of SOCIALISM FOR THE RICH.

It makes me laugh//cry when commentators decry the call for Socialsim.  What the hell system do they think a Central Bank represents?

But the question here is why is Gold a hedge against this instability.

The answer is that gold serves as an alternate currency the can not be printed/created at the will of a third party.  The supply is steady and limited.  And once in the possession of the private citizen it is totally under the control of that citizen.  It cannot be debased or devalued by decree.  It does not tarnish.  It can't be hacked.  It is traded in every market in the world and readily convertible into any and every currency.  It t leaves no electronic footprint.

And most important of all to stability - it has a 5000 year record of holding its value over time.  Try to think of something else with that track record.

What do Billionaire Traders Jeff Gundlach, Ray Dalio, Paul Tudor Jones, Stanley Druckenmiller and David Einhorn have in common?

What do Billionaire Traders Jeff Gundlach, Ray Dalio, Paul Tudor Jones, Stanley Druckenmiller and David Einhorn have in common?

If you guessed they are all long gold - as their favorite investment right now, you'd be correct.

Greenlight Capital CEO David Einhorn, In a letter to shareholders,  said he is using gold to hedge against “imprudent” global monetary and fiscal policies. Like Gundlach, he is concerned about US debt hitting new limits.

While speaking to Bloomberg on June 12, billionaire investor Paul Tudor Jones revealed that his favorite pick in the next 12–24 months is gold. He thinks that if gold hits $1,400 per ounce, it will quickly move to $1,700. After Donald Trump’s tarrif tweet on May 5, Stanley Druckenmiller dumped his other investments and piled into Treasuries, which he suggests along with gold in this environment.

These guys made their billions by being right in an environment where a very few wrong decisions will bankrupt you.  

But if you only understand one thing about gold understand this: GOLD IS A HEDGE AGAINST INSTABILITY.  It doesn't really rise or fall much in value,  It just falls out of favor when the global economy appears stable, and falls back into favor when the global economy is unstable.

The Global economy had never been more unstable.  Debt is exploding.  Real Rates are deeply negative.  Nominal rates are negative in much of the world and will be so here too soon.  Wealth Gaps are enormous and ever increasing..  And all these problems are accelerating.

BUT - HASN"T THIS BEEN THE CASE FOR THE LAST 40 years?

Yes it has.  Good point.  The difference now is that nobody is even giving lip service to trying to solve these problems.  Those in power are milking the system to get every last penny out of it before it collapses.  Those out of power who seek power are looking to tear it all down and start over. 

Most in the middle are just bewildered.

If your attitude is SO FAR SO GOOD - WHY WORRY - you're like the guy who jumped off the Empire State Building and said that as they passed the window on the 40th floor.

If you, like so many others, see instability, maybe hedge against it a bit with gold.

GOLD VERSUS BITCOIN

There is a current debate as to the relative merits of Gold versus Bitcoin as an alternate currency.  In fact, many serious analysts track the relative trading movement of these two vehicles and have noticed they tend to move inversely as one ore the other gains more popularity.

Yet, to me, this is a terribly confused debate.  Though both Gold and Bitcoin can be described as "alternate curencies,"  the similarities end there.

The whole point of Gold is that it is a currency that resides in the possession of the private citizen.  Not in a third party regulated exchange or facility.  You keep your gold where you will.  In this way you have total and direct control of this source of wealth.  This protects from any and all outside interference.  And because gold is perfectly inert and never degrades or tarnishes your source of wealth is perfectly stable and always within your control

Bitcoin is stored in virtual reality.  During a blackout Bitcoin ceases to exist.  Your wealth is gone.

Bitcoin can be and has been hacked.  Your wealth is gone.  And you have no recourse against hackers.  You can not defend yourself against them with force of arms, force of will, ingenuity.   It is completely out of your control. 

Bitcoin  is at the mercy of the integrity of a particular bitcoin exchange.  Unless you're a terrorist or a tax cheat then what's the point of putting your faith in some unknown exchange entity as opposed to putting your faith in the government currency?

They say Bitcoin has a finite supply - Unless the protocol is changed.  That's like buying a limited edition print numbered out of no more than 100 - unless the artist decides to do a new edition.  How naive can you be?

Finally Gold is eternal.  When you die you can leave your gold to your family.  When people who own Bitcoin die, unless the code has been passed on to others - which defeats the point of owning Bitcoin - the Bitcoin ceases to exist. 

Gold never ceases to exist.

COINS AND MEDALS: VALUE INVESTING VERSUS MOMENTUM TRADING

COINS AND MEDALS: VALUE INVESTING VERSUS MOMENTUM TRADING



As in any type of investing there are those who seek value and are happy to hold to such a time where the market realizes and rewards value.

Then there are those who seek to acquire items that are "hot" and turn them over as they are rising.

Most traders trade momentum.  Most traders eventually go broke. Some super financial traders like George Soros and Stanley Druckenmiller make billions.  This is the very rare exception.

In the world of Hard Assets there are also many traders with short term horizons who seek to flip assets.  Television infomercials are filled with them.

In the coin world, momentum trading most often has to do with Grades assigned by grading companies.  Trading on grades like all types of momentum trading is a good way to eventually go broke.

The discipline of investing, on the other hand has to do with identifying value and having the conviction of your vision and then holding until the market rewards you conviction.

In the financial world identifying value has to do with finding good honest management, competitive advantage for products that serve consumers need, and the ability of companies to produce products efficiently so that margins can support profits.

In Hard Assets identifying value has to do with finding assets that because of some Intrinsic Value will appeal to many consumers over long periods of time.

This leads to the question of What is Intriinsic Value?

In all Art two qualities are always appreciated above all others.  1) Beauty.  2)Historical Importance.

And then the third quality to take into account is State of Preservation.

Obviously State of Preservation is easiest to assess so for many unimaginative and uninformed art investors it becomes paramount.

Beauty is the toughest quality to assess for most because there are always sharp debates as to what constitutes beauty.  One thing is sure though: Beauty can only be fully appreciated in person as it will evoke emotion.  Photographs that accurately portray art created in other mediums rarely if ever convey the emotion evoked by the beauty of the object.

However, one thing to keep in mind is appreciation of Beauty can be learned.  Even if you don't react the way you'd hope to something others find beautiful you can learn to understand why something is beautiful in another culture or simply another intellectual milieu.  That doesn't mean you have to agree, but in developing your understanding and expanding your horizons you do yourself an enormous favor as an investor in Art.

Historical Importance usually has to do with A) the Events coincident to the artistic creation  and B) the Innovation associated to the Artistic Creation itself.  These are ideas that can be learned and appreciated by anyone.

For example Da Vinci created beautiful works of art.  But even if you happen not to be moved by them, nobody can dispute the importance of the fantastic Innovation of his artistic output in terms of the materials and how he manufactured and applied them, as well as the manner he applied them in terms of perspective, proportion and his advanced understanding of how things are constructed.  And no one can dispute the historical importance of his scientific discoveries and inventions that were conveyed in his art but transcended art.  Add to all this the fact that Da Vinci epitomised Humanism at the height of the Enlightenment and you have a figure of towering Historical Importance.

This is the art investing trifecta.

Bringing this all back to Coins and Medals.  My point is this: Educate yourself to understand the Histocial Importance of the the objects, and to appreciate their Beauty and you will be developing the tools for value investing.

Then buy what you like.