As fiat money continues to devalue over time due to the rampant inflation and loose fiscal and monetary policy employed by governments and central banks, those downstream are either getting creamed or desperately looking for alternative stores of value.
The race to debase money so it can be used by the government to artificially direct the economy and its citizens in a direction they choose is always going to be attractive, having that power won’t soon be let go and it’s why the smart money is doing seemly dumb things to the outsider.
Forget creative accounting; it’s now about creative investing.
You can either be a cash holder and bank on the solvency of governments or the hope that deflation eventually does win and leaves currencies standing, an idea that I doubt will happen since it would blow up all credit markets.
The other option is to get out of cash and hold things that are hedges against inflation. When debasement continues to accelerate, it encourages investors to become more creative with their investment choices so they can get the most out of the money they invest in today.
As cash devalues, you many have moved into Bonds, stocks and real estate and even credit markets which are ALL at all-time highs. While I don’t see these markets dropping any time soon, the theory of diminishing returns comes into play it can only move smaller amounts higher with new cash, so your returns are decreased over time as you invest more money at nose bleed levels.
Of traditional assets, precious metals look like it could be the next market to gobble up remaining capital trying to get out of fiat, but that remains to be seen as we have yet to break all-time high’s, but we’re getting pretty close.
The debasement has also given rise to the non-traditional asset, we saw that in the genesis block of Bitcoin, it’s inspiration was banking bailouts and today we’ve got a growing industry known as cryptocurrency. This market is still very much in the early stages of adoption and only appeals to a small subset of investors for now, but interest grows each month.
Alternative stores of value
Markets such as rare Brandy, whiskey, rum, fine wines, art, collectable cars, collectable cards have all seen massive improvements in capital flows and value.
To me this always a sign that a market is collapsing, when people are so desperate to store their money than anything that is remotely rare regardless of its utility value skyrockets, that to me is a strong indicator of an economy moving towards collapse.
Would I want a $1300 bottle of Pappy van Winkel sitting on my bar? Sure, perhaps 2, one to drink and one to admire lol.
The growing demand for these rate items and collector’s items has even seen the growth in services around it like fine wine portfolio managers. These are businesses that help wealthy individuals invest in, let’s say fine wines and track their ROI via his investment vehicle, just like you would have stockbrokers for equities.
The dangers of illiquid markets
While it’s all good and well to invest in something that maintains or increases in value, there’s a rule about liquidity; liquidity is the market. You can value a product or retail it at any price, but if there is not a willing buyer to take it off your hands, your market value means nothing.
So don’t see every collectable as a major coupe, until you can realise its capital value in another asset like cash or make a loan against it, it’s pretty much useless, apart from the sentimental value.
So have you invested in any collectables? In fact, I have, I’ve been long Pokemon cards for years now, and they’ve been a sound investment as crazy as that sounds.