The Best Insurance Policy Ever Written………Bar None (pardon the pun)

By Bruno de Landevoisin

Stop getting your rocks off making fun of the gold bugs.  Get the hard asset now while it’s undervalued my friends.  Hold your nose, dive in and simply consider it heavily discounted long term insurance, as you would any required insurance policy.   After all, wouldn’t you buy the best long standing health insurance policy ever written, if it were offered at the same low price it was over 5 years ago?

If that doesn’t convince you “sophisticated” cock-sure modern investors to hold a nominal percentage of your financial assets in precious metals, strictly for wealth preservation purposes, perhaps the simple facts below will resoundly resonate with you sharp shooters.

What is it that you don’t understand about the New Monetized Millennium? 

  • The best performing asset class of this millennium is gold, by a country mile………
  • 2000-2016 Gold up 500%        vs.      2000-2016 S&P up 5%
  • Near zero% interest rates / ZIRP / QE / NIRP, as far as the eye can see…..

You can be the first to call me when any of that fundamentally changes.  In the mean time, bug off!

The vast majority of investors today generally invests in the standard asset classes, namely stocks & bonds, which the established financial industry presents to them as the most desirable and constructive financial instrument to hold, so as to increase savings.   Stock brokers, registered investment advisers, asset managers and the like, actively offer these issued contractual obligations to the typical, garden variety, middle class investor who inherently trust their advisers to manage their financial wealth in a responsible manner.   Counting on them to fashion balanced portfolios with assets which will both protect and increase their investment holdings over time.   On this basis, it’s fair to say that the entrenched financial industry distribution channels rely almost exclusively on stocks and bonds, derivatives there of, such as ETFs, as well as mutual funds representing a selective combination of these standard asset classes.

Furthermore, these very same financial advisers repeatedly and ardently recommend a balanced approach to investing, incessantly touting the crucial importance of diversified holdings in one’s portfolio.   There in lies the rub.  How can anything be considered truly diversified if it is made up of the very same general investment classes.  Wouldn’t the term diversification suggest a collection of uncorrelated asset classes?

A legitimately balanced portfolio, in the true sense of the word, should not only hold a variety of staple equity and credit financial instruments, but also, to actually be diversified, should certainly include other entirely uncorrelated asset classes.  The bottom line, how can these qualified asset management advisers relentlessly advocate for balanced diversification, and yet not remotely offer it?

Stocks and bonds are contractual financial obligations drafted and executed on paper by either a private entity or a public entity, both of which carry with them inherent counterparty risk. That is to say, they are entirely backed by the good faith and credit of the institutions which issue them.  There is nothing wrong at all with holding these types of investment classes, they have certainly proven their merit over time.  Clearly, they evidently hold appreciable value as investments vehicles.

However, that does not change the fact that these paper contracts are entirely based on the performance of an entity outside of your control.  In other words, you personally hold nothing that is directly tangible, you don’t own the asset outright, you own a written obligation based on the performance of others.  Again, let me repeat, paper obligations such as stocks and bonds are clearly of substantive value.  In fact, they are especially advantageous to hold over periods of economic growth and financial stability, which our nation has roundly enjoyed for the majority of its existence.  However, it would be fallacious of us not to point out that this was not always the case for this prosperous country.

Having stated all the above, I ask you to read the poignant summary of our Nation’s current economic and financial well being, from the point of view of Michael Lewitt, a very well respected authority in macroeconomics, particularly as they relate to finance.

Commodity prices are plunging, the dollar is powering higher, the yield curve is flattening, ObamaCare is collapsing, global trade is plummeting and terrorism is spreading across the globe. The high yield credit markets are sending distress signals and 10-year swap spreads are negative. Energy companies are going out of business faster than you can say “frack” and trillions of dollars of European bonds are again trading at negative interest rates. The world is drowning in more than $200 trillion of debt that can never be repaid while European and Japanese central bankers promise to print more money and the Federal Reserve is being dragged kicking-and-screaming into raising interest rates by a paltry 25 basis points. Accurate pricing signals in the markets are distorted by overregulation, monetary policy overreach and group think. Hedge funds are hemorrhaging and investors, desperate to generate any kind of nominal return on their capital, continue to ignore the concept of risk-adjusted returns. Some market strategists believe this is a positive environment for risk assets; I am not among them.

As John Mauldin, another esteemed economic commentator further observes, regarding Michael’s work:

Michael pays particular attention to the credit markets, and he doesn’t like what he sees.  He points out that corporate debt is now much higher than it was on the eve of the financial crisis in 2007, driven by Fed-fueled leverage. This leverage problem is really hurting the energy industry but goes far beyond it, as Michael explains:

Companies in the United States have taken advantage of low interest rates to issue record levels of debt over the past few years to fund buybacks and M&A. This has driven the total amount of debt on balance sheets to more than double pre-crisis levels. However, cash flows have not kept pace, resulting in leverage metrics that are the highest in 10 years.

Reading through the above remarks, at the very least, one must consider that we may not be in the most secure of economic times, and perhaps even entertain the possibility that we are indeed heading towards more difficult times.

Having introduced the premise that the current economic and monetary order of things may indeed be perilous, or at the very least its soundness be questioned, let us revisit the well understood concept of a balanced diversified investment portfolio discussed above.   To get right to the point on that score, in light of the alarming economic assessment and observations above, why would one not seriously consider genuinely diversifying an investment portfolios into alternative asset classes which are not contingent upon economic vitality, and actually inherently unrelated to it.   Particularly, those distinctive assets that are decidedly not associated with economic performance both national and global, but even more importantly, not directly beholden to any entity operating within those economies.

Hard asset classes, which are not dependent upon the welfare or performance of either private or public concerns, be they institutional or individual, are self evidently an essential uncorrelated investment class to hold as a counter weight to stocks and bonds, particularly in uncertain economic times.  Quite simply, hard assets must be considered as crucial diversifying holdings providing wealth protection.  Stated more succinctly, they are financial insurance.  Nothing could be more diversified and balanced than owning financial insurance against the fragility of standard financial assets in uncertain economic times.

Astoundingly, the great majority of the very financial advisers that tout the imperative of portfolio diversification are out to lunch when it comes to the simple logic of this long standing tried and true concept of wealth preservation.   For whatever the reason, the hard asset classes, essential to balance good economic times from bad ones, are completely off their radar.   Hard to comprehend when not even the very best experts in the field of economic analysis can themselves predict what the economic future holds, especially long term.

Protection against the unknown is precisely why most of us hold health insurance, property insurance, fire insurance, flood insurance, automobile insurance, theft insurance….etc.   We accept these cost, as they insure asset preservation should any hardships come upon us.   Yet, astonishingly the great majority of investors do not apply the very same responsible principle when it come to their financial holdings, which in many cases are the largest wealth assets they own.

At the end of the day, we are all responsible for protecting our financial assets from economic hardship.   Moreover, we clearly should not put our trust in asset managers within the established financial industry who seem to go out of their way to avoid advising us on the importance of considering the countervailing imperative of the hard asset classes..

This brings us to the longest standing hard asset class of them all, as well as the most uncorrelated of the asset classes, Gold.   Through out recorded monetary history, going back over 3,000 years of human civilization, Gold has always served as the quintessential measure of veritable wealth, a store of value which is NOT beholden to the performance of any counter party, be it public or private.  This is why nearly all of the richest individuals in the world hold a percentage of their financial assets in precious metals for wealth protection, including the central banks of the wealthiest and most advanced nations on the globe.

Gold is a crucial asset class to hold, especially when the monetary authorities are so clearly out of their minds……..

Get Gold or Get Gang Debased………………………….same as it ever was.