INFLATION VS DEFLATION: HARD ASSETS

 

The raging debate between those claiming inflation will get out of hand and morph into hyper inflation - like billionaires Paul Tudor Jones and Michael Burry (who made a killing off the subprime collapse), and those who worry deflation will ultimately destroy the global economy - like all the world's central bankers, essentially contrast  two ideas that are both right.

The problem of the global economy is that there is so much debt in the global system  - 280 Trillion dollars - not counting debt derivatives which push the figure into the multi Quadrillions - yes Quadrillions - that unless the global bankers artificially create inflation by keeping real rates deeply negative and commit to massive quantitative easing - which means the central banks create ever more debt and then buy it themselves from themselves (yes it sounds crazy but that's what it means and that's where we are) then the whole system will collapse in a massive deflationary hole.

But the QE Infinity produces massive asset price inflation which ultimately seeps into the real economy of everyday purchases and inflation rises and rises crushing the middle class.  So the governments must commit to ever more deficit spending to bail out the crushed middle class which adds to the global debt which causes ever more inflation.

Add to that a global pandemic which has been hopelessly politically exploited so that common sense solutions have been discarded by enough of the population that it may never get under control - and Global Warming that is destroying the global food supply so food costs will rise forever - while fires, floods, hurricanes and tornados do their part to destroy the housing supply - which necessitates more debt to bail out the homeless and the hungry..

So that is now our choice,  Massive inflation or the Deflationary destruction that results from stopping the liquidity that fuels the inflation.  

So how do you invest?

As long as inflation wins out Hard Assets along with paper assets will all rise,  That's stocks, real estate, and all hard assets.  Even pure gambling instruments like crypto currencies and space fleet funds will rise as long as inflation carries the day.  

But as soon as there is a crack in global debt system as there was in 1997, 2007 and again in 2020 all of which necessitated central bank bailouts of the world's wealthiest corporations, hedge funds, banks, and individuals first with one trillion - then 3 trillion - then 8 trillion - a new multi trillion dollar bailout will be necessary.  How much can the global system give away to the wealthy?  20 trillion?  30 trillion?  Because that's what the next bailout will take.  And the one after will be more expensive.

Eventually the bailouts will not be tolerated by the poor and crushed middle classes and then we'll get civil unrest that will necessitate a stop to the bailouts and that will bring about the deflationary crash.  It is inevitable.   Then paper assets will become worthless.  Hard Assets will take a hit - but they will retain value.  And that's why the wealthy are moving into Hard Assets.

Hard Asset of Choice: Ancient Coins

 

When selecting your Hard Asset of Choice you might want to consider Ancient Coins.

Why Ancient Coins?

Ancient Coins require the most knowledge of any Hard Asset.  To fully understand Ancients you need to understand the History, Monetary systems and Art.   Some things to consider: 

1, The Historical Figures of the Period, the Kings, Tyrants, Consuls, Satraps, Generals, Usurpers, and their political and military achievements.  It's good to have a basic knowledge of Latin and Greek so you can read the coins.  Ancient coins were often meant to be Proclamation Issues as well as monetary units.  They tell stories about who is in charge, and what their accomplishments are.  It's good to know the context of those rulers and their acheivements.

2. The monetary systems of the areas that interest you: Staters and their division, Darics, Drachms, obols,  Mnaeion,  Aurei and Denari etc.  A working knowledge of the monetary system of an area is a big help.   Mint marks and control marks give clues as to the exact location of issue.  Some mints are prized by collectors.  Some control marks are dates that link issues to important events.  These are all things that are good to know.

3. And most important, Many Ancient coins are Artworks, executed by some of the world's greatest artists.  Some of whom we know the names, others are anonymous.  To appreciate art you really must have a working knowledge of the History of Art.  You can always say, "Well I don't know much but I know what I like," and that's fine.  But not knowing much will lead you to rely on the opinions of others, on consensus, on labels.  And over time that's not worth much as "consensus" changes.   The more you bring to it.  The more you get out of it.  A well developed eye is crucial.

4.  Like all assets you have to appreciate Condition.  Many ancients are slabbed.  So the condition of those will have numerical values to help you out.  Yet within that there are issues that collectors consider that are not included in the grade.  It's good to know what they are and how they affect value.  For example: A mint state coin with high surface nd strike grades should be great.  But if that one small mark on the coin happens to be right on the King's face - well, that could be a deal breaker for many collectors.  That sounds like common sense - once you know it.

Opportunity - Barriers of Knowledge present enormous opportunity.   Every Lamborghini Estoque is similar.  Every ancient Oktadrachm is different.  Many Hard Assets are simply momentum plays for the super wealthy.  Some ancients coins can be like that.  But many ancients take enough knowledge that the playing field can be tilted away from the wealthy to the knowledgeable.  That's a rare 0pportunity in the field of Hard Assets.

Track Record.  Of all hard Assets Ancient coins have longest track record.  Ptolemy collected coins at the court of Alexandria in 300 BC.  Many Roman Caesars collected coins.  Constantine the Great collected coins.  The Medicis and the Borgias and most of the Kings and queens of England were avid coin collectors.  The Carnegies and the JP Morgan collected coins.  If you want you can research coin values and collections going back through all periods of human history.

HARD ASSETS REQUIRE SOME KNOWLEDGE

 

The thing about buying hard assets is that there is a tremendous advantage to buying things you understand.  If you want to take a punt on Doge Coins, or BioPharmaCon, or WikiSmmSnap all you need to to do is know a guy who read something on facebook by someone who really knows his stuff and then throw some money at it, and hope.

Hard Assets are real things with a real Historical track record of holding and increasing in value over time.

The first thing you need to know is how your hard asset of choice has performed over the last hundred or five hundred or two thousand years.

Then you need to know why.  Why do people value that gold coin that was the first one ever minted in the history of humanity?  What's so important about Julius Caesar anyway?  Why do people think Da Vinci is such a great painter?  What's so great about an Aston Martin?  Why is the Gutenberg Bible such an important object in the history of human thought and achievement?  Is it any better than the Geneva Bible or the Lenneberg Codex?  If you're thinking of buying one you really ought to know.

If you don't understand why something is cherished you just might buy into a fad rather than an historical investment.  Or you might vastly overpay for something that no better than a lesser known but equally as important and sought after version of the same asset type.

Then you need to know How Many?  What if there were thousands of Gutenberg Bibles on the market today?  As amazing as it might be, would it hold the same value?  The number created, the number available, and the number that might become available are all important factors in understanding your market of interest.

All of this makes Hard Asset Investment vastly more fun - because you must be the expert, if you want to do it successfully.  You can't subscribe to someone else's Newsletter to hear about what's hot and what's not in the world of 15th century lithographs.  You really should understand that world yourself before you buy one.  Unless you're so rich it just doesn't matter. Like the 3000 billionaires in the world.

But unless they inherited their billions they probably are able to learn about their areas of interest.

Finally, to successfully invest in Hard Assets your knowledge should lead you towards currently underappreciated Hard Assets.  Things that are so historically important and beautiful and well crafted that you know will eventually be more appreciated than there are at this current time.  You can always momentum trade in any market, but even in a vast bull market momentum trading can eventually get you into trouble.

The more you learn, the more you appreciate.  The more you appreciate the more your Hard Asset collection appreciates.

The Hard Asset Boom

 

There has been a hard asset boom going on globally for a few years now.  But during the last several months this boom has gone into overdrive.

Coins, Medals, Comic Books, Sports cards, Old Master Paintings, Classic Cars, Historical Documents, Wines, Chinese Art Objects... I'm sure I'm missing many things.

The reasons are obvious.  All the central banks are involved in QE Forever.  There's always talk of tapering, normalization (Ha ha ha) and other such nonsense.  Small gestures might be made in these directions from time to time.  They are impossible in a global financial system drowning in debt because debt is tremendously DEFLATIONARY.  Any move towards normalization (a word with no real meaning) is impossible as nobody wants to see what happens when the deflation takes hold.

The other reason for the Hard Asset Boom is the massive inequality of wealth.  The global economic system is one where the world's Central Banks create money and then give it for free to the biggest corporations and Hedge Funds who then buy up everything with the Free Money.  This is socialism for the Rich on a massive and unprecedented scale.  

So what can these immensely rich people do with all this Cash?  Put it into risky paper assets?  Well, that game has been run up into the stratosphere over the last 50 years.  Leave that to the Reddit kids.

No, smart money is converting itself into Real Things so that when the game collapses they will be in possession of stuff that will hold its value.

And the best of that stuff if very finite.  There are only so many Gem State Kroisos staters in the world  Like 5.  There are only so many Da VInci paintings for sale.   There are only so many Honus Wagner baseball cards.  There are only so many Aston Martins driven in the first James Bond movie.  There are only so many Gutenberg Bibles.

You get the idea.  Or you should.  Because the very wealthy got the idea  a while ago.

But what do you do if you can't afford a Gutenberg bible.  Well, a first edition of For whom the Bell Tolls isn't a bad idea.  There are still many Hard Assets that are affordable.  Find one you like.  And buy it.

INFLATION VS DEFLATION: Hard assets

 

If you listen to most talking heads all you hear is inflation blah blah blah.

Here are the facts of the world we live in.  Japan has been in Deflation for the last 30 years.

Europe is in the grip of a vicious Deflation with negative interest rates and QE Forever.

China is either in Deflation or at least desperately battling Deflation as they go back into lockdown.

That is 40 percent of World GDP.  DEFLATION.

And those are all Creditor Central Banks. So Deflation is manageable for creditors.

The US has had trend below 2 percent growth ever since 2009.  Under Trump that number sank to about 1.6 percent trend despite 3 trillion dollars of new debt - Before Covid.  After Covid the New Debt figure has grown to about 8 to 10 trillion through Fed balance sheet growth and we will get some temporary quarterly growth figures from deep trough comparisons, but then return to sub 2 percent trend.

This is not my opinion.  These are the financial facts.

Within this is there some brutal Inflation?  Yes.  In home prices, education, health care costs, food, some materials.  

But for a deep debtor nation such as the United States, inflation is vastly superior to deflation  And Jerome Powell understands this.  Thank God.  He will keep rates low and keep QE forever.

But if some in the nattering Political class get their way and try to battle inflation.  Which does destroy unprotected wealth.  Look out below.  Because a deflationary spiral will wipe out everything.

So what to do?  Hard Assets will fare best under inflation or deflation.  Why?  Because their value is intrinsic and not based on "Multiples" and Economic Models.  Their value is based on the fact that people throughout history have loved them, admired them, collected them, cherished them as emblems of either natural beauty, artistic beauty or great human achievement or all three.

Protect yourself, with at least some of your portfolio in Hard Assets, because inflation or deflation: its a hard, its a hard, its a hard, its a hard. Its a hard rain, a gonna fall.