When priced against real assets.
I know the gold bugs – and there are many of them – compare the amount of gold in existence (160 thousand tonnes being the total ever mined) with the amount of nominal money (including bank deposits etc) in existence. Gold adds up to $4.7 trillion at $950 per oz – nominal money maybe 60 trillion.
They thus assume that gold must go up.
I am not going to approach that argument – because much of the cash really is trash (or should be trash after we have got through throwing it out of helicopters).
What I want to note is the widespread headlines that maybe 50 trillion dollars of nominal wealth has been “wiped out” in this crisis and that something between 150 and 200 trillion remains. The official figure for the total US household wealth about 51 trillion. I don't have a number for the whole world – but just under 200 trillion is a reasonable guess in total – the US being just under a quarter of global activity – and having slightly more expensive equity markets than most the rest of the world.
Now does anyone really believe that the store of gold in vaults is worth over 2% of all tangible assets everywhere? Seriously?
Gold may be cheap against nominal assets in which case you would be better off holding gold than US Treasuries. But I can't believe you would be better off holding gold than diversified timberlands or other real assets. Unless of course the world degenerates into total war and all your timberlands burn down.
I know the gold bugs will hate this idea – because it harks back to the argument against gold – which is that it has no intrinsic value. We spend a lot of money (and kill a lot of birds with cyanide) to dig gold out of the ground only so we can bury it again with expensive guards on the vault.
And I am not bullish on nominal assets. Long Treasuries at very low yields look like a very bad bet to me. But maybe now is the time for lowly levered real assets.
Even better is highly levered real assets – but where the debt is very long dated and cannot be called and has no covenants attached. You get to be long the real assets (good) and short the nominal assets (also good) without the financial crisis risk of being called on the debt (very bad). Candidates for that (rare) category highly desired.
Post script - looking at the comments in the email most people are giving me assets where the asset value has not been marked down appropriately (lots of real estate for instance) or where there are problems rolling the debt (most assets).
I am being pretty picky. I want an asset appropriately priced for NOW as if it were non-leveraged - but with huge leverage and with NO DEBT ROLLS at all. If it requires a debt roll I am not interested.
Leverage is death if you need to roll it. But long dated debt that you do not need to roll for 20 years - that is wonderful. That is effectively short treasuries.