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Author Topic: Hard Assets in an Age of Negative Interest Rates
airforce
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A new article from the Mises Institute. Metals, farmland, and even classic works of art have been used to build vast fortunes for centuries.

quote:
Time is the soul of money, the long-view — its immortality. Hard assets are forever, even when destroyed by the cataclysms of history. It is the outlook that perpetuated the most competent and powerful aristocracies in continental Europe, well up through World War I and, in certain prominent cases, beyond; it is the mindset that has sustained the most fiscally serious democratic republic in the Western world, that of Switzerland (as demonstrated in this article). In this view, the stewardship of money, formerly known as “banking,” is a serious matter of serious wealth management and not a weird-science lab experiment of investment products ultimately designed for hedge fund managers’ tax arbitrage schemes.

More than ever the focus on hard assets is a dire call to arms given the deformed market culture of central banking monetary magic. Despite the early promise of the Trump presidency to reinvigorate the economy, the United States remains mired in economic stagnation built up over so many years of debt-driven policies, easy-money policies, and the ZIRP fiasco fostering a bizarre-world situation in which the actual economy is doing poorly while the market is soaring. In such an environment, the allure of the centuries’-old tried and true has never had more appeal.

In a word, the hard asset vision is about building wealth outside the stock market. It refers to three main strategies overall: 1) land ownership and/or farmland, forestry and agriculture 2) gold, other precious metals, and certain base-metal commodities 3) The (Old Masters/Classic Modern) art market. Where this last is concerned, we mean art as investment and not art-as-commerce, such as that which contaminates today’s insipid and overpriced world of ‘Balloon-Dog’ bad art. The auction world of Rembrandt and Picasso; of El Greco and Gerhardt Richter has been on a tear, is smashing records, and cannot be ignored as an excellent safe-haven vehicle, as outstanding works of art traditionally always have been.

To begin with, physical gold and precious metals remain an investment enigma despite being market-leading performers for the past seventeen years. Gold is a must-have portfolio asset amid the aggressive debt levels and monetary debasement that have so unhinged the market. Silver, for its part, in addition to its prestige status, also has innumerable industrial applications and throughout the precious-metal bull market since 2000.

Russia, in this context, is leading the charge in the long-view outlook. For the past three years, the Bank of Russia has been the world’s number one stacker of gold, and, thus far in 2017, has taken the lead position among international central banks in buying the commodity. At its current pace, Moscow will unseat China for the number five spot of gold-holding nations by the first quarter of 2018. Currently, the gold-to-GDP ratios of the world’s leading powers are: Russia 5.6%; the Euro Zone 3.6%; the U.S. 1.8% and China 1.5%.

Yet countries buying up gold versus investors who do so are two different worlds. Ninety-five percent of the world’s gold is held as a wealth store.

In other commodities, zinc and copper have been the big movers. Zinc, the key galvanizing agent, claimed the status of the best performing metal last year. Copper began its resurgence in 2017, and in late August of this year, a host of commodities broke out of multi-month consolidation patterns. Nickel and cobalt are also coming into the spotlight as metals essential to the rapidly growing lithium ion (Li-ion) battery sector.

The art world lags not too far behind that of precious metals in terms of history’s preferred storehouses of value as protection against uncertain times. Art as investment has long been a favored strategy of the European elite since, effectively, the High Middle Ages and has never gone out of style. In modern times, the phenomenon of an ever-growing collectors’ base and less supply of museum quality works has been accepted as a meaningful way to protect investors’ cash during economic difficulty. Though continually eclipsed in the media by the brasher contemporary art market, Old Masters (and Classic Modern—the great 20th century works) have shown stable, often spectacular, results over the past ten years with both categories reaching record-breaking highs.

Art, to be a safe haven, must be an investment and not a whim — just as it was for the Liechtenstein family who acquired Leonardo da Vinci’s Ginevra de Benci so many centuries ago. In the wake of the World War II near-bankruptcy of that eponymous principality (whose monarchs were not and are not supported by taxes), that painting was the first of the major, big-ticket art sales of the 20th century, when it was sold to Paul Mellon and The National Gallery of Art in Washington DC. Ginevra continues to hang there today (and to date, is the only Leonardo painting in possession of the United States). While the average investor may not be in a position to store wealth in a Renaissance master or a Picasso, there are always the underrated gems or the new discoveries that can and will bring in the most unexpected of windfalls decades down the line.

Finally, farmland is seen by many as an excellent addition to a precious-metal portfolio. As Jim Rogers predicted in early September, fortunes will be made in agriculture “and when an industry breaks full faith, even mediocre people make a lot of money” in that sector. Hard asset investors continue to include farmland in their portfolios “for a combination of income generation, diversification and inflation-hedging”. Historically, farmland, like forestland in continental Europe or Latin America, has been a unique asset class demonstrating low-correlation to traditional asset classes, and which performs well as inflation rises.

Cash reserves, land as cash, the endless applications of Nature’s resources to industry; the prestige, privacy, and long-term value of beautiful art: such has been the outlook of the hard-asset philosophy. Today, that cult of independently-minded investors will laugh all the way to the bank — precisely by avoiding the paths laid out, and so horribly deformed, by those very banks.

Onward and upward,
airforce

Posts: 17234 | From: Tulsa | Registered: Jan 2002  | Report this post to a Moderator
ConSigCor
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In a Cashless World, You'd Better Pray the Power Never Goes Out (mises.org)

from the broken-ATMs dept.
schwit1 quotes the Mises Institue:

When Hurricane Maria knocked out power in Puerto Rico, residents there realized they were going to need physical cash — and a lot of it. Bloomberg reported that the Fed was forced to fly a planeload of cash to the Island to help avert disaster. "William Dudley, the New York Fed president, put the word out within minutes, and ultimately a jet loaded with an undisclosed amount of cash landed on the stricken island. [Business executives in Puerto Rico] described corporate clients' urgent requests for hundreds of thousands in cash to meet payrolls, and the challenge of finding enough armored cars to satisfy endless demand at ATMs... As early as the day after the storm, the Fed began working to get money onto the island."

For a time, unless one had a hoard of cash stored up in ones home, it was impossible to get cash at all. 85 percent of Puerto Rico is still without power... Bloomberg continues: "When some generator-powered ATMs finally opened, lines stretched hours long, with people camping out in beach chairs and holding umbrellas against the sun." In an earlier article from September 25, Bloomberg noted how, without cash, necessities were simply unavailable:

"Cash only," said Abraham Lebron, the store manager standing guard at Supermax, a supermarket in San Juan's Plaza de las Armas. He was in a well-policed area, but admitted feeling like a sitting duck with so many bills on hand. "The system is down, so we can't process the cards. It's tough, but one finds a way to make it work."

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"The time for war has not yet come, but it will come and that soon, and when it does come, my advice is to draw the sword and throw away the scabbard." Gen. T.J. Jackson, March 1861

Posts: 15331 | From: A 059 Btn 16 FF MSC | Registered: Oct 2001  | Report this post to a Moderator
Mexneck
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The sheeple see it happening in other countries but still don't believe that it will ever happen here. They're content to have their head in the sand or laugh at preppers as paranoid freaks. Well after Harvey and Maria it's the preppers who are having the last laugh.

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Well, this is it.

Posts: 327 | From: San Antonio, TX | Registered: Oct 2012  | Report this post to a Moderator
airforce
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quote:
Originally posted by Mexneck:
The sheeple see it happening in other countries but still don't believe that it will ever happen here....

The average longevity of a fiat currency is bout 27 years. It's been about 45 years since the last vestige of the gold standard went away, so the dollar has had a good run. But anyone who thinks the party is going to last forever, just doesn't understand the problem.

Onward and upward,
airforce

Posts: 17234 | From: Tulsa | Registered: Jan 2002  | Report this post to a Moderator
Ducttape
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Hence the REAL reason behind all of the new anti-mining and prospecting laws that only affect the individual little guy.
The BIG BOYS want to keep what is not theirs and as such keep the unwashed in their place by not being able to easily have some of the soft shiny yellow metal, otherwise known as GOLD.
I have a 12' dredge and have not been able to use it in several years because of such legal nonsense.

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My Daddy is like duct tape, he can fix almost anything.

A quote from my youngest daughter at 4yrs old, many years ago.

Posts: 213 | From: South-central Colorado | Registered: Dec 2009  | Report this post to a Moderator
   

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