WHY GOLD? WHY NOW?

 

To casual observers Gold had done very little for a long time while the stock market has gone straight up.

However, everything depends on your investing horizon.  

Over the last 20 years stocks have returned about 4 percent and gold has returned 9 percent.

Why start in the year 2001?  That seems arbitrary but that's the yeart of the Terror Attack 911.

The National Debt that year was about 5 trillion.  Not great.  But not terrible in relation to GDP which was about 4.5 percent.

Suddenly the world began to seem less stable.  Physical secutiry became more important than monetary security.  We launched a 3 trillion dollar war in Iraq and a war in Afghanistan followed. The debt soared GDP started to plunge and the Fed dropped rates from 6 percent to 2 percent over the next seven years.

Then in 2007 the Fed raised rates back to 5 percent and the entire economy collapsed in 2008..  The fed dropped rates back to functional Zero and began QE.  Since then the ecomony ran another 12 years on a massive debt fueled binge.  Covid hit and the entire ecomy collapsed again in  2020.  The Fed bailed it out by buying 10 trillion dollars worth of bad debt and zombie company stock..

In the period between the 2 collapses gold really did very little.  As the Fed bailed out the first collapse with Zero rates,  QE and a 3 trillion dollar bank bailout, investors began to think there is no risk in stock.  Whatever happens the Fed will bail us out, so who needs gold.

During that period gold dropped from 1900 to 1200 and has reallied back again to 1800.  Nothing, right?

Then covid hit, the government mismanaged it and the economy collapsed again.  And the Fed baile it out again,  This time with a 10 trillion dollar bailout and QE on steroids - add in at 3 trillion dollar giveaway by Trump to the biggest corporations and 3 trillion from congress to citizens.  And well, who needs gold?  Everything's okay again, right?  

Well except for a bit of temporary seven percent inflation, things are still great, right?

But a funny thing happened when the Fed announced all is well and QE will stop and rates will normalize: The dollar has fallen and gold has steadily risen back up to where it sits now at 1830.

WHat's up?  Don't people believe the ecomomy can grow without the support of the Fed?  

Well, stocks are still sky high so they must.  

But what's up with the dollar and Gold?  They're acting suddenly like they don' t believe it.  They're acting as if they think if the Fed actually dares follow through and raises rates the economy - which has had trend growth at about 2 percent for the last 10 years  and debt growing about 10 percent per year, - the economy will crash again.

it seems nobody really buys the Fed's tough talk.

Yet there is still great faith in the Fed.  People feel they won't really raise and the debt fueled binge will resume and the economy will grow indefinitely.

But what about inflation then?  If the Fed lowers and go back into QE - what happens to inflation even in a trend 1 percent growth economy?  

And what happens when there finally is a recession,  That in itself in a debt soaked zero rate ecomomy will be a crisis,  And what happens during the next crisis? Will the Fed bail out the economy with 30 trillion dollars?  What happens then to the dollar and to commodities.  And to Gold?

The market is starting to act like they expect to see the answer to these questions sooner rather than later.

The market is starting to act as if there Fed is not really omnipotent and the economy is not really independent of Fed support.  The marekt is starting to act as if its beginning  to question its perennial Blind Faith in the Fed.

And really it is Blind Faith that is stabalizing to the economy and the market.  Withotut Blind Faith we get the inital cracks of instability.

And Gold is nothing but a measure of Financial Stability.  That is the secret of Gold.  

Gold measures stability.

As stability is questioned gold rises.

When stability cracks, gold soars.

Got gold?

FINDING VALUE IN A BUBBLE PART 2

 

What makes a coin or medal valuable?

The most valuable attribute in numismatics is Historical Importance  Coins and medals were manufactured in the past.  They are associated with people and events from the past.  The more important the person or event and the more closely the object is associated to the person or event, the greater the value.

Then you have to take into account population and condition,

These criterion are generally widely agreed upon.  Rare historically important objects have value.

However, some historically important figures and events are currently more popular that other - as opposed to more important.  

This creates opportunity for those who recognize fascinating events or chararcters who are currently underappreciated

It gets more complicated from there.  Because you must take into account aesthetic excellence.  

Of course there are historical rarities like the Alexandedr Porus Medallions that are so rare and so closely linked to Alexander the Great that they command great prices in conditions so poor it is impossible to tell what Aesthetic excellence they might have achieved.

But in general a wonderfully executed die by an artist of great talent will have great value.  The trick is being able to recognize aesthetic value.  And here, it may be surprising how much disagreement there is.  Of course, with aesthetic excellence it always just somebody's opinion.  

  

Here are three Lysimachus staers each purporting to depict Alexander the Great.  They are all in mint state.

Which do you prefer?

To my eye the Third is far superior to the first two.  In fact, I would consider the first two staters quite ugly. and the third quite beautiful.  So I would buy the third  no matter what another expert told me I should believe.  There are some numismatists who would choose the first two over the third.  

The fact that there is disagreement might be discouraging to some.  I believe it is precisely what creates value.  Over time time,  I am certain the third will become much more valuable.  

When everyone agrees - the value is probably already  fully reflected in the price of the coin.

Finally this takes us to Pure Popularity.  There is no understanding popularity.  The Eagles have two of the top ten selling albums of all time.  The Beatles have zero in that category.  Same for Prince.  Same for Beathoven for that matter.  It doesn't make the Eagles better, just richer - or possessing a higher dollar value

This coin is probably the most popular coin in the ancient coin world right now.  It is one of the most common in gold.  THere is nothing special about the specimen above.  Common mint, typical style, standard condition.  But Since it gained popularity over the last two years its value has gone from about $2500 to $11,000.  In mint state it might be worth twice that.  

There is nothing wrong with liking this coin.  It's just that paying a premium price for it over time might not be the smartest investment.  If everyone wants it you will pay a premium to get one.

There are plenty of much rarer coins of far greater beauty and of more historical importance selling for less.  Those may have more value.

 

THe SUPER BUBBLE - How do you find value?

Ever since Paul Volker droves nominal interest rates up to the point that they reflected the real cost of money back in 1980 at 20 percent, every subsequent Federal Reserve Bank head has dropped rates systematically to compensate for economic woes.

Now we have zero percent interest rates with the Fed Heads here and in Europe perpetually buying stocks, bonds and funds to prop up zombie companies, busted municipalities, and a cronic lack of growth in the broad economy.

The so called Fed Put has driven up the asset prices across all asset classes to the point where the richest 10 people in the world now own more than the bottom 40 percent or 3 Billion people.  And what are those 10 people doing with all that?  Taking joy rides into outer space, as the media cheers them on.

The top 10 percent own about 75 percent of the world's wealth,

Every asset class has been driven into a super bubble.  Stocks, bonds, commodities. 

WHich brings us to Hard Assets.  Art, Classic cars, watches, Coins, baseball cards, rare books and documents, antiquities etc,

These have all benefited mightily from the same trend,  The difference with hard assets though is that at the high end, many of these things are unique.  There are several paintings by Da VInci you could try to buy.  They are all different.  Though certain cars or watches or baseball cards may appear the same,  they will be differntiated by condition and at the high end they may not be unique but may be one of five or ten in existence.  

The same is true with coins.  Especially hand struck ancient and medieval coins from engraved dies.  There may be a few that seem nearly identical but the strike and condition and often even the die will be materially different.

So how do you judge a bubble for unique or nealy unique itmes?

Well, it's difficult.  You can judge by past prices.  But when the central banks of the world have no choice but to perpetually and competitively debase their currencies, past prices are only of value in comparison to the real past value of the currency.

And it is not easy to determine the real rate of currency devaluation.  Especially not when the entire Financial Apparatus has a vital stake in hiding it, or at least downplaying it as far as possible.

Apart from that you can try to analyze comopents of value.  Popularity.  Historical Importance.  Aesthetic Excellence.  Rarity.

Popularity is most fickle.  Historical Importance takes the most education  Aesthetic Excellence requires a different type of education and can be hotly debated by experts and novices alike.   Rarity is probably the easiest for an expert to determine.

The best way to judge a bubble is to look at the level of Popuilarity,  If it is very high chances are the item will be in a bubble.  Everyone usually wants the same thing at the same time.

So if you are looking for Value in a bubble, it is probably best to go for Aesthetic Excellence, Historical Importance and Rarity,  And let Popularity discover the item in its own good time.

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