We’re living in an uncertain world…
Around every corner — crisis and opportunity. There seems to be more crisis these days. From trade wars to the threat of real war.
Not to mention, here in New Zealand, the ever-present risk of earthquakes, volcanic eruption and tsunami. Which is why I’m looking at an Argo. And going back into bitcoin. But more about that in a moment.
When threats loom on the horizon like dark clouds, risk assets like stocks pull back. That old stablemate, gold, starts to rise. And when the sun comes up and the world looks OK again, investors plough back into stocks while gold waits.
So, on my trading desk, I have all the stocks I follow on various exchanges around the world. And I have gold — spot price per oz. This allows me to observe the dynamics on a daily basis.
But I’ve noticed something new these days. I’ve added bitcoin to my desk and started watching other cryptos.
When world events are such that stock markets duck for cover, gold rises. But crypto seems to strengthen too.
Toward the end of May, the US v. China trade war looked ugly. Huawei got banned from Android. Tensions in the South China Sea with Taiwan got unsettling. Same with Iran.
Last week of May, the Dow started tumbling. Shortly after, in response to that, gold jumped. Bitcoin eased and then began a rally through June.
It felt like the market had just remembered there was a new gold out there.
When I was in Europe, I formed a friendship with a goldbug. He’d worked as the financial controller for years at one of the world’s largest precious metal dealers and managers. They worked with vaults around the world. He sometimes went to inspect them.
It was eye-opening to hear about the extent of gold holdings. They had clients around the world.
I asked him where the bulk of his business came from.
Europe, North America, increasingly wealthy states in Asia, Australia.
Not so much. A few clients in New Zealand who he termed ‘doomsday survivalists’.
They had homes and gold holdings in the South Island. And they feared catastrophic world financial meltdown or nuclear holocaust.
Which, when you look at it, is not unrealistic.
Rogue states like North Korea are fast developing functional long-range weapons. There’s a first-strike theory in nuclear war. While MAD (Mutually Assured Destruction) through nuclear bombs has thankfully never been tested, one strategy is ‘first strike’.
By striking the opponent first and hard, you could wipe out their ability to respond with their own nuclear attack.
Now imagine you’re a multimillionaire near San Francisco. Kim Jong-Un has sent a missile toward California. It’s landed in the sea. There’s likely to be a pre-emptive strike from Trump. But with missiles in North Korea on hidden and mobile installations, the situation could escalate. Your city is in range.
Fortunately, you have a lakeside home with a bunker in the South Island. One of the world’s few locations most likely to get through a nuclear holocaust. Plus, New Zealand is a country with only 5 million people, able to feed 50 million.
So you find a private pilot willing to fly you there.
Then a bomb hits the American West Coast.
Your NYSE and NASDAQ holdings collapse. The US dollar tanks and has little use in New Zealand. Your gold is unreachable in vaults.
The pilot’s price has shot up — given the conditions. And he wants paid in bitcoin. It’s anonymous. It’s digital. And its role as a global medium of exchange has just become a whole lot more essential.
So you now see how bitcoin and other cryptocurrencies could work better than gold in a time of absolute crisis.
Now, I am somewhat swayed by survivalist thoughts. I have some gold.
Yet, I think the most likely crisis scenario in the world today will be more around financial warfare and financial meltdown than anything nuclear.
So if you have a view toward crisis, gold is a good choice. It’s held its value since biblical times. And in times of crisis, when markets crash, it should go up.
But if you want to be able to transact in a crisis too — and are prepared to take on a lot more holding risk — then crypto could be an option.
Of course, bitcoin has experienced high volatility. There have been numerous well-reported hacks and thefts. But it remains the preeminent global digital currency — separate from the controls of central banks or the swings of other markets.
One of the larger physical risks in a more remote country like New Zealand is natural disaster. I live in Auckland, home to numerous dormant volcanoes and exposed to tsunami risk.
Worse, I live on the coast in an area that would be difficult to evacuate.
So, along with gold and watching bitcoin for a point of re-entry — I’m considering an Argo (see photo above). An amphibious vehicle to cover land or water. It can conquer rough terrain and with the addition of an outboard motor, traverse a harbour quite reasonably.
Meanwhile, I can use it to dodge some traffic.
But, ultimately, when it comes to surviving most tough times — the old choices are likely best. Canned goods. Water. A dust mask. A backup holding of gold.
Speaking of which, if the world continues to become more market-volatile, there are ways to invest in the precious metals industry that could yield bigger returns than gold itself. In the early days of gold mining, fortunes were made selling equipment, clothing and in various other side necessities.
I’ve come across an Aussie business that could be poised to capture some of these gains big time. That analysis and recommendation is available in my newsletter — Lifetime Wealth Investor.
The flipside of crisis is opportunity.
Stay safe out there.
Editor, Money Morning New Zealand