The Hard Money Investment Portfolio

By | July 27, 2020

It appears that the enlightened investor is now more likely to use Bitcoin to diversify their portfolio rather than physical precious metals held in their possession. Recent price performance and sentiment have all but wiped precious metals off the map – even for the most prudent of value investors.

But has anything really changed? Has the case for extreme portfolio insurance been altered by a turn around in macroeconomic events? We would argue no.

From a risk perspective, the relatively high danger of downsides in equities, bonds, and housing has never been higher.

Of the trillions of dollars sitting in retirement portfolios and mutual funds, less than one percent is allocated to safety and even less so to physical safety insurance.

Any one of a dizzying array of potential outcomes makes the average portfolio fragile to large downside swings.

Whether it be the unforeseen and ignored long tail events, the so called black swans, the next taper announcement, a surprise military development, a bail in, MF global, China liquidity crisis, or Eurozone defection – all are possible threats.

The turnaround moves in bonds and equities began after the lows but well before full capitulation or the full cleansing had finished. The central banks have simply fought the great deflationary unwind with unsustainable liquidity injection.

Boiling Frogs

While the worry of over inflation is the last thing on the minds of the institutional investors, the slow loss of purchasing power over time is manifesting itself in the mindset of the culture and in the growth of the wealth fare state.

This puts even more onus on the treasury to find new buyers to fund these ballooning programs. Especially now that our largest creditors are officially pulling back and letting their US Bond holdings mature.

The crossover from slow inflation to fast moving money will most likely come from the coffers of the US treasury – spending to keep an ever growing portion of the population at bay.

At this rate, the average baby boomer will surely see a major shift in their relative purchasing power, and as a result, quality of life.

The sudden change in lifestyle will create an eerie political landscape, ripe for radicalism in a time where cool heads will be needed.

The alternative is to hold something immune to large shocks.

Out from the ashes of the dot com bubble and first housing bubble, we find ourselves in the midst of now at least three major asset valuations: Bonds, Equities, and Housing.

The Illusion of Fair price

The commercial bullion banks create the price foundation and price direction. They use high frequency trading to either stack the bid or spoof sell. This triggers selling by speculators or the hedge fund community. The bullion banks then buy whatever is being sold on these sudden downdrafts that often occur during low volume or at key market openings around the world.

The common misconception is that the banks are always selling.

They are not. They are the trigger point.

Evidence of this shows up in the weekly report released by the Commitment of Traders report that shows the relative shifting of positions.

While it is true that the hedge funds are currently positioned and following through with selling, the crucial point is that the bullion banks, via their overall size, dominance, and position, facilitate the environment for those trades to happen.

The reverse happens on the way up. Bullion banks are ready and willing to cap prices by placing new shorts on the way up.

The commercial banks always win, whether the price is moving up or down.

Holding a concentrated position is the next best thing to “holding the gold” and this means to move prices.

In many ways, what has happened over the last few years on generally weaker prices is the commercials have been able to accumulate or buy back positions.

In essence they are positioned for the next leg up.

As far as sentiment goes, the last washout seems upon us. The final capitulation — where even the majority of the strongest hands become negative or selling has begun in earnest by measures of sentiment and performance in the mining sector.

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