There's an old saw: "The Cynic knows the price of everything and the value of nothing."
I'd say the Cynic doubts the price of everything in the search for value.
It's actually pretty easy to determine the price of any hard asset: Look at the last auction result.
A hard asset is worth exactly what someone is willing to pay for it. Today.
That's pretty easy to know.
The problem is this may or may not be reflective of value.
Take a brownstone in Fort Greene Brooklyn.
Today that's worth about 3-4 million dollars.
The same place in 1970 was worth about $80,000
Same "bones." The same beautiful hardwood interiors and wainscotting. Unrenovated. Different neighbors.
Or Take an Alexander stater,
In 1970 this nice stater would have cost you about $800
Today if graded in MS (as it looks) it should run you between $12,000 to $20,000 depending on how NGC marks up the holder
Same coin
What's changed?
The prevailing economic conditions. After the inflation of the 1970's was crushed by Volker and 19 percent interest rates, the united states - and the rest of the developed world went on a wild economic experiment wherein every slowdown and every crisis was met with rounds of central bank easing.
This has gone on for close to 50 years. So all Hard Assets, from Real Estate to Coins have soared.
And so have all paper assets.
Not in a straight line, But over time.
Today we have reached the boundaries that define this experiment. Every Easing has created reams of new debt. Every lowering of interest rates have fostered now rounds of malinvestment.
Malinvestment means that many of the paper assets that have soared have little or no intrinsic value. Like Space Tourism. Or Carvana. Or crypto currencies.
During this experiment the governments have found ways to keep changing the way they compute inflation. But in real life it's gone up at least 10 percent for each of those 50 years.
So as assets have soared so has the price of every damn thing you need to buy to live.
Now even considering goverment calculation inflation is out of control. However as the Fed tightens inflation will go up by less. Still it will go up from a base of 50 years of turbo charged inflation to something even higher - if only a little higher.
The probelm is the Fed will have enomous trouble turbo charging another round of easing during the next crisis with inflation an acknowledged problem - even if it's moderating a bit.
So how to Value Hard Assets in this environment?
Current prices reflect current conditions: Massive Uncertainty in the Economic Environment foster uncertainty amongst the mass of buyers. The wealthy who are relatively unaffected by prevailing conditions are still avid buyers.
The well to do are nervous.
So where is fair value?
It's a very tough question that depends entirely on where you see the economy going in a year or two years.
If you think the Central Bankers have a pretty good grip on where we are and where we're headed - in other words if you think they can tighten enough to bring inflation down without creating another crisis that would require drastic easing that would reignite a terrible inflation problem - you best bet would probably be to double down on paper asseets like common stocks.
If you think the Central Bankers may be pretty smart but they have a horrible track record on seeing into the economic future and they may be in over their heads here I'd say look for the value of hard assets to be much higher in the near future.
Personally I think it pays to by a Cynic and doubt the price of everything in the search for future value.
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