Looks like we’re going to start the week like any other over the past, however many, years, all eyes on central banks.
The rhetoric will be the same, “whilst we don’t believe there is a bubble in any asset market, we’ll do every accommodation we can think of to make sure that we replace all air currently leaving any bubble with more air into any bubble, that doesn’t exist”.
Accommodation like, money printing on scale never seen, like below:
And, like last week from the US Fed, the promise of low interests rates until almost forever. Even in Australia, rates are arguably already negative.
Even though “there is no bubble”, the bubble has created a new type of speculator, the types that are using the fresh $ their benevolent .gov has gifted them and instead of pursuing a weekend on sports bet, have migrated to the stock market.
The reason is represented in the background of the “poster child” of this new type of “investor” below, Dave Portnoy. Cripes, this guy has been so “hot” in recent months, he’s even met the POTUS.
The problem is, through unhinged self-belief and a solid dose of leverage he’s feeling quite a bit of pain right now. But he knows it’ll be ok because, “stocks only go up”, or ‘buy the dip”, has been a solid strategy over the last 12 years or so.
Now here is where things get interesting. Dave may or may not realise that his entire investment strategy is completely dependent on the Europeans, Japanese and US Fed catching up to the Japanese and Swiss Central banks in the money printing caper, to keep the asset bubbles afloat, that don’t exist.
See chart below and don’t say we never send you anything positive. There “appears” to be so much MORE to do!!
We also understand that these international Central Banks machinations may seem a long way from the business news that may come through domestic news feeds but please remember the financial system as it exists today, has the USD as a global reserve currency, of sorts. This is why it matters most!!
As such, US Treasuries have been the bedrock of this current system since inception post WW2, give or take a few weeks, like the US removing any “relevance “ of gold to the USD in 1971.
The largest looming problem to this system is the perilous state of US finances, even compared to “normal” and its relationship to its currency.
Those that argue the point of “the clean dirtiest shirt” in defence of the US dollar are also the ones that argue there can never be change to this system as there is no viable alternative. We certainly agree with the second point but as to the first, not so much.
Here’s some context as to the trajectory of the US budget!
Now, if you add the quadrillion pieces of derivative paper attached to every asset class……don’t worry, it all nets out.
With the USD looking increasingly weak as a “petrodollar” reserve currency, particularly in view of battery tech emergence, how amazing that it’s taken this long for some asset managers and private family offices to start allocating some serious money to gold, either through shares or actual bullion. It is interesting that most private investors still use ETF’s for precious metal exposure.
Even so, according to many analysts, gold as a percentage of overall investable assets sits somewhere between 0.4% and 0.5% currently versus a multi decade average of over 5%, including multi-year allocations of 10% not being uncommon.
It was with interest that when we came across this chart in Marc Faber’s latest monthly analysis.
Global Family Offices’ Strategic Asset Allocation 2019ealth
So, even professional family offices have less than a 1% exposure to gold right now? Even with the current money printing madness and inflationary threats breathing down our necks?
It’s hard to see this staying under 1% for much longer. Precious metals have the smallest market share of savings and investment products they’ve ever had globally. The question will be, what price will those late to the party have to pay for entrance?
We look forward to collating some commentary on allocating to Precious Metals in the near future!! In the meantime, this 1930’s analogue for equities remains in play!! Dead cat bounce anyone?
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