While retail market watchers have been focused on Bitcoin these past two weeks, it is important to consider that gold, the Japanese (and US) stock market, as well as global cocoa, the US Housing Price Index and Malaysian palm oil are all moving around their historic price highs.
What do all of these have in common? They are “hard assets,” meaning that the underlying-asset has an intrinsic purpose (not necessarily value) unlike “cash” or money. The exceptions are gold and Bitcoin, neither of which, exactly like cash, can keep the rain off your head, cover your private parts, or be eaten.
Bitcoin (BTC) and gold serve as alternative forms of currency, functioning as “cash substitutes.” They are acquired and traded with speculative intent, their value derived from the conversion price back into cash. Understand that cash is only a “store of wealth” because it is a “medium of exchange.” Try using a “Japanese Philippines 500 Pesos Occupation Note” to buy your next two-piece Chickenjoy.
Remember the lady on the sinking Titanic who took several oranges with her in the lifeboat rather than her diamond jewelry?
The prices of hard assets vary, and not all of them are currently valued at a high price. Nickel is trading at just under $18,000 a ton, down from $48,800 a ton in early 2022. Unless the government intervenes rigorously, prices are always subject to supply/demand. Indonesia controls about 75 percent of the premium nickel supply and banned exports. Other producers spent heavily to increase production. Now Indonesia has been dumping nickel on the global markets to force other producers out of business, and it is working.
BHP Group Limited, an Australian multinational mining and metals producer, just wrote down the entire value of its Western Australian nickel mining operation after reporting an 86 percent year-on-year plunge in net income for the second half of 2023. Miner Anglo American Plc. was forced to take a $500 million write-down on its nickel business last week.
Throughout 2024, there has been a consistent trend of individuals actively converting their cash into tangible hard assets.
The debt load of the US is growing at a quicker rate in recent months, increasing about $1 trillion nearly every 100 days. From $31 trillion 12 months ago, it now stands at $34.4 trillion. We are told that this is unsustainable. Bank of America investment strategist Michael Hartnett writes, “Little wonder ‘debt debasement’ trades [are] closing in on all-time highs, i.e. gold [at] $2,177/oz, Bitcoin $68,134.” Moody’s Investors Service lowered its ratings outlook on the US government to “negative” from “stable” last November.
Conventional economic wisdom says that the US currency should undergo debasement, resulting in a weaker value. But the US Dollar Index is at a 21-year high and has been since mid-2022. Also, the US 10-year bond interest rate is at a 16-year high and has been since mid-2023, which makes owning US dollar and lending it to the US government desirable and safe. The fact is that all Western currencies are now subject to political intervention.
So why are investors large and small moving to “hard assets”? The answer is found in history.
Brandon Smith: “The Roaring Twenties was a decade of economic growth and widespread prosperity, driven by recovery from wartime devastation and deferred spending, a boom in construction, and the rapid growth of consumer goods such as automobiles and electricity in North America and Europe. It was an era of mass production and rampant consumerism, but it was all fueled by easy access to debt.”
All governments are going to tell the people that it has the economy under firm control and to quote English anchoress Julian of Norwich in 1365 during the middle of a black plague, “All shall be well, and all manner of thing shall be well.”
Yet the markets that are ultimately controlled by the people and the people’s money are never wrong in the long run. During a depression or recession, people sell assets and run to the bank. In inflationary times, they buy assets and get rid of the cash. The latter is what we are seeing now.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.