I like Gold. I like money too but I don’t want to be long it. In fact I want to be short money and long assets. You have to cross a kind of financial Rubicon to want to be short money because that means being long debt.
Its standard advice to pay down your debt and save your cash, but that if 101 Finance not the arena where the real wealth circulates.
Above the reality of get out of high interest debt there is the world of borrow cheap money and buy appreciating assets, the world of the ‘carry trade.’
If someone will lend you $10m at 1% and you can get 3%, you will make $200,000 a year. Would you take that trade? Most would say no, they would not want to be on the hook for $10m. Then add in the chance the whole deal will go sour and leave you with an unpredictable debt from a little sum of money to perhaps the whole $10m then ask again and most will say ‘no way.’
However what are you going to do if you cash is going to be seriously eroded. Sit and watch your money burn or take on risk.
People do this all the time of course. Its called a real estate mortgage. They put 10-40% down and lever themselves up 2.5 to 10 times. They hope the mortgage rate will be lower than the capital accumulation and that they can service the debt from cash flow from employment or rental. Most won’t see it like that but that is what is happening and for most it is their only way to financial security. Short money long property has been a winning trade for generations and who know it maybe for the next hundred years to come.
Property will probably be a good thing to own in the coming years of never-ending money printing, but like all investments it pays to be diversified.
For many who fear inflation, the answer is to buy Gold. The ‘gold bugs’ as they used to be called love Gold . There is a lot to love. It is delightful stuff. Can anyone not marvel at it when they hold a slug of it. I believe it to be evolutionarily wired into our brains as gloriously precious. Why fight that when the world is running the digital money presses hot to bail out economies smack down 10-20%.
But Gold has its problems. Do you really want 5% of your wealth in a sock, or draw, or safe. You cant move it about easily. It expensive to have someone else hold it and inaccessible. It is often slow to transact. Its not very fungible. It costs and doesn’t earn for you.
If only it was as convenient as Bitcoin the so called digital Gold. If only you could deposit it and earn interest.
Well you can. In a way the will confuse some and scare many.
Now this is where I disclose, I am doing this myself and not getting paid to write the following because this method is very specific.
I use a Crypto finance site called Blockfi. They pay very nice interest on Bitcoin (as of writing 3-6%), Ethereum (8%) Its another world from what banks pay. They have significant funding from Venture Capital. There is a reason there is demand to borrow Crypto and therefore providers of Crypto savings get paid. It all makes sense but it is of course not without plenty of counterparty risk. In the end any deposit is open to Lehman events and Euro crisis haircuts, not to mention the near guaranteed inflation haircut that will spirit away your buying power whatever happens. The key risk however is in the ‘who are these people’ and for that you can only do your own research and decide whether you want to take the plunge. You can however take comfort from the fact none of them ever being the non-exec chairman of the Nasdaq.
Now elsewhere in ther Cryptospace is a outfit called PAX, also well-funded by VC. They do the PAXG token, a token back by gold 1:1. Once token costs the same as an ounce of Gold and hey clip some dollars for making the token. It is both a pro and con that I cant fondle the gold on see the gold behind it but once again we are back with the risk of holding gold in your sock draw and risking a visit from a robber and trusting a counterparty. They pass my test so I am buying PAXG as a part of a diversified portfolio of GHold exposuire.
So here comes the punch line.
I can lodge PAGX gold backed Crypto and get 5% on Blockfi, paid monthly. So I get exposure to the Gold price and a 5% dividend.
The upside PAXG is liquid, instantly moveable, convertible into other Cryptos, and the fiat value can be easily sent after conversion on a platform like Coinbase to a bank.
For me this is a very useful solution for me to keep money in the Crypto realm while using some of that to build up my gold position. The 5% interest is a tremendous kicker and clear demonstrate the enabling power of crypto over the current system unable to pay even 1%.
These platforms underscore why Coinbase is worth more than the owners of the NYSE and the Nasdaq combined. The legacy finance world with their vast overheads and ingrained rapacity will have to adapt radically if they are not to be left behind by these new Fintech innovations. I for one find it hard to stomach the idea of rematerializing these assets into the grasping, customer hostile, call centre degenerate, world of legacy banking.