Investors who have studied Economics 101 have surely come across the idea of 'creative destruction,' developed by Joseph Schumpeter. Around this concept, Schumpeter established that the economy evolves in a business cycle, where economic growth and innovation are driven by cycles of disruption and renewal. Schumpeter believed that the business cycle is inherently tied to entrepreneurial innovation, which introduces new products, processes, or technologies that disrupt existing markets. These innovations lead to periods of rapid economic growth as new industries emerge, but they also result in the obsolescence of older industries, which can trigger recessions. Over time, the economy moves through phases of expansion and contraction, with each cycle being fuelled by the continuous process of creative destruction. Schumpeter’s theory highlights the dynamic, ever-changing nature of capitalism, where innovation is both the engine of growth and the cause of periodic economic downturns.
In essence, business cycles are marked by the alternation of phases of expansion and contraction in aggregate economic activity, and the co-movement among economic variables in each phase of the cycle. Aggregate economic activity is represented not only by real (i.e., inflation-adjusted) GDP, a measure of aggregate output, but also by aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of business cycle peak and trough dates.
To simplify, business cycles can be summarized into four quadrants, which can be compared to the four seasons of the year. The economic cycle begins its ‘spring’ after a deflationary bust, spurred by rate cuts and fiscal support, leading to growth upticks without immediate inflation. Financial markets thrive in this environment, marked by deflationary boom and asset rallies, particularly in growth stocks. As the economy heats up into the ‘economic summer,’ inflation rises, transitioning into an ‘inflationary boom’ phase. During this period, cyclicals, emerging markets, and commodities outperform. However, accelerating inflation prompts rate hikes, impacting growth and leading to a gloomy ‘inflationary bust’. Periods of stagflation are the worst for most assets, except for gold. Inflation eventually slows as the economy falls into recession, paving the way for a deflationary winter bust.
The business cycle is closely linked to technological development, as advancements often drive both periods of economic expansion and contraction. During times of innovation, new technologies can boost productivity, create new industries, and enhance economic growth, leading to an expansion phase in the cycle. For example, the rise of the internet and digital technologies in the 1990s spurred significant economic growth and job creation. However, as these technologies mature, they can also disrupt traditional industries, causing job losses, structural changes, and sometimes triggering economic downturns as markets adjust to new realities. Additionally, as businesses adopt new technologies, the benefits may not be evenly distributed, contributing to cycles of economic inequality and volatility. Thus, technology acts as both a catalyst for growth and a disruptor within the business cycle.
In a nutshell, it's important to understand that the business cycle, which is also a credit cycle is inevitable, and everyone must prepare for it to mitigate its impact on society. Despite technological advances like AI, the business cycle, rooted in scarcity and abundance, remains a fundamental part of economic systems.
Just as farmers adapt their behaviour to the seasons and weather to plan their harvest and ensure the fruit of their labour over time, investors must first understand the business cycle to adjust the asset allocation of their portfolio and benefit from all four seasons of the cycle. In the 1980s, Harry Browne, a politician, investment adviser, and advocate for free markets and individual freedom, developed the Browne Portfolio, also known as the 'Permanent Portfolio.' The 'Permanent Portfolio' was introduced by Browne as a simple, all-weather investment strategy designed to perform well across any economic environment. Browne, a libertarian and financial author, created the portfolio in response to the unpredictability of business cycles and market conditions.
Browne’s aim was to design a portfolio that could safeguard wealth in times of prosperity, inflation, deflation, and recession without requiring constant adjustments. The original allocation called for equal portions (25%) in stocks, long-term bonds, gold, and cash. Each asset class was chosen for its ability to perform in different economic conditions—stocks during growth, bonds during deflation, gold during inflationary bust, and cash during recessions. Over the decades, the Permanent Portfolio gained popularity for its simplicity and risk-averse nature, offering a balanced approach to long-term investing that remains relevant today.
Source: https://harrybrowne.org/
Anyone with a basic understanding of finance knows that financial assets can be divided into two categories: contracts and properties. In the context of financial assets, a contract refers to a legally binding agreement that establishes a claim to future payments. For example, a bond's contract outlines its interest rate (coupon), maturity date, and repayment terms. Properties, on the other hand, represent ownership in a corporation and provide a claim on a portion of the company’s assets and profits. The most common form of property is stocks, which are issued by companies to raise capital for various business purposes, such as expanding operations, financing new projects, or even repaying debt. As investors should already know, gold is the only property that carries no counterparty risk, having been accepted for centuries as the ultimate form of money. As John Pierpont Morgan famously said: 'Gold is money, everything else is credit,' meaning that all properties and contracts involve counterparty risks, but physical gold is the only asset that does not. This is why physical gold serves as the only true hedge against government risk, especially relevant today, as governments worldwide have implemented reckless policies to advance their Keynesian agendas, which are part of a broader Malthusian agenda tied to the forever bankers’ wars.
Some contracts and properties have long maturities, such as government bonds and equities, while others have short maturities, like cash and gold. To summarize, the 'forever portfolio' can be subdivided into four quadrants as well based on two dimensions: properties and contracts on one axis, and long and short duration on the other.
By aligning the Schumpeter business cycle with the Browne Portfolio, investors can understand that, just as their wardrobe evolves over the four seasons of the year, there is a preferred asset class for each phase of the business cycle. The Browne Portfolio is designed to perform well across all phases of the business cycle by allocating assets to four key areas: stocks, bonds, gold, and cash. Each asset is intended to thrive under different economic conditions. Stocks benefit during periods of prosperity and economic expansion, bonds perform well during deflation or recessions when interest rates fall, gold provides protection during inflationary busts, and cash serves as a safeguard during deflationary busts. By balancing these assets, the Browne Portfolio aims to mitigate risk and volatility, providing stable returns regardless of fluctuations in the business cycle. This approach reflects Browne's belief in preparing for a variety of economic outcomes, from inflation and deflation to booms and busts, without attempting to predict them. If we match the four seasons of the business cycle with the four assets of the Permanent Portfolio, investors can easily determine which asset is best to own in each season. Therefore, the primary task of a portfolio manager is to assess which season of the business cycle the economy is currently in and adapt their investment portfolio accordingly.
Back testing the permanent portfolio across countries show the incredible results of a portfolio growing by between 3% and 4% per year in real currency terms with very low volatility and almost complete absence of double-digit drawdowns for most of the country from developed markets to emerging markets.
For those who are not convinced by these results, let’s examine the cases of 2 different economy systems like the United States and China as case studies of how the Browne Portfolio has delivered such steady performance by simply rebalancing the portfolio on a quarterly basis among the four asset classes. Since 1970, in the US, the Browne’s Portfolio has not outperformed the stock market index, but it has outperformed cash, bonds, and gold. Moreover, it has achieved a very similar absolute return to a classic balanced portfolio maintained at 50% in the S&P 500 and 50% in long-dated US Treasuries and delivered just below 4% real returns. However, its returns are much more stable, with lower volatility and significantly smaller drawdowns.
Even in the past decade, when the returns on cash and bonds in the US were dismal both in nominal and real terms, the Permanent Portfolio performed reasonably well, thanks to surging equity values and, more recently, soaring gold prices. Since the beginning of 2014, the US Permanent Portfolio has returned 3% in real terms. This is slightly less than the returns from 1970 to today but falls within the 3-4% range seen across other countries. What is interesting is that the property asset components of the portfolio (equities and gold) have performed well, while the contract assets (cash and bonds) have each lost 17% in purchasing power. Clearly, US policy over the last 10 years has pursued the ‘euthanasia of the rentier,’ with value transferred from savers who own contract assets to holders of gold and shares. In short, US policy has favoured the transfer of wealth from the poor to the rich, regardless of political consequences. Returns available to savers holding contracts were artificially depressed by abnormally low interest rates, which led to accelerating inflation and spectacular returns for stocks and gold.
Looking at China, the situation has been quite different. Looking at the performance of the Chinese Permanent Portfolio over the past 10 years, despite all the talk about how China has been a dismal place for investors, the Chinese Permanent Portfolio has generated real local currency returns of 5% per year over this period. This compares to 3% for the US Over the past decade, each component of the Chinese Permanent Portfolio has generated a positive real return, meaning that no owner of any of the four assets has suffered a decline in purchasing power.
A significant portion of the divergence in real returns between the US and China is due to the different paths of inflation over the past few years. This highlights how inflation is detrimental to at least half of the Permanent Portfolio and emphasizes that policymakers who do not want to disadvantage one part of their population for the benefit of another should always aim to keep inflation in check.
US CPI Index (blue line); China CPI Index (red line) rebased at 100 as of December 31st 1994 (in local currency).
This last observation shows how important the actions of the government are in the way investors build their portfolios, as reckless government spending and uneconomic regulations can impact the creation of wealth for owners of contracts and properties. This highlights the important philosophical point regarding the role of government between monetarists like Milton Friedman and Keynesians like John Maynard Keynes.
In the case of monetarists, governments are a necessary evil whose primary goal is to ensure the game is played as fairly as possible, according to established rules. The obvious analogy here is the referee in soccer or rugby, who stoically does the best job he can while suffering abuse from players, pundits, and the public, knowing that without him, the game could not proceed.
In the case of Keynesians, governments are active participants in the game, tipping the scales for one team against the other.
A quick look at the recent history of the US and China shows that the more governments participate in the game like it has been the case in the western world and the US over the past few years, the greater the inequality they create, and the more inequality is spread between those who own and do not own properties. If we accept that governments should tip the scales for one set of participants against another, isn’t it unavoidable that the rich and powerful will capture the government and tilt the scales in their favour? And isn’t this what has happened in the US? As PJ O’Rourke once wrote, ‘Giving money and power to government is like giving whiskey and car keys to teenage boys.’
This may seem harsh, but history shows that when pillaging is accepted, we create moral and religious justifications for it. In recent years, some have argued that:
Low interest rates promote long-term growth. This belief is misguided, especially since the US cut rates to zero and has destroyed the ability for those who do not have the resources to own properties to create wealth.
Economic growth stems from consumption; therefore, governments should stimulate it when growth falters. This view is also flawed, true growth occurs when returns on invested capital exceed the cost of capital, as evidenced by Switzerland’s long-standing prosperity.
Discouraging saving leads to higher economic growth. This idea is not only incorrect but also counterproductive.
Despite this, many believe US authorities excel in managing the economy, while their Chinese counterparts do poorly, largely due to US stock market performance. Yet, the real returns of the Browne portfolios over the past decade tell a different story: 5% annually for China versus 3% for the US in local currency terms. Moreover, all components of the Chinese portfolio have seen real gains, fostering a sense of fairness among the population and promoting political stability.
Returning to asset allocations, investors may ask themselves why they should bother with asset allocation if the Browne Portfolio can deliver a 3% to 4% real return over time with minimal drawdowns. The answer is that the success of the Permanent Portfolio is based on mirroring real wealth creation in times of peace. Indeed, in wartime, the situation is different, and the ‘Permanent Portfolio’ is no longer so permanent. During wartime, centralized assets such as government bonds and cash lose value as government defaults and inflation erode the ‘fixed income’ portion of the portfolio. For example, debt securities lost 97% of their real value in France between 1914 and 1950!
A contemporary example of the inefficacy of the Permanent Portfolio during wartime is Russia. Consider an extreme scenario: a country at war with an invader. None of the countries in the study of the permanent portfolio faced this issue during the 50-year sample period. In a wartime economy, the state often seizes private savings and redirects production for military purposes, prioritizing national defence over the economic well-being of the population. While building bombs generates economic activity, it does not create lasting wealth. In this context, the Permanent Portfolio would suffer from the loss of benefits associated with healthy economic activity. It is not a secret for anyone that Ukraine’s economy has been devastated, with much of its fixed capital—factories, roads, homes—destroyed by the war. However, the Russian economy hasn’t escaped damage either. The Russian Permanent Portfolio, composed of the MOEX stock index, long-term and short-term local currency bonds, and gold, lost around 35% of its value early in the conflict. Although Russia has not experienced significant domestic fixed capital destruction, the risk of long-term decline is evident. Looking at France’s history over the last 200 years, we find that while the Permanent Portfolio can withstand many challenges, it struggles during wartime.
However, in times of financial disaster inflicted by war, the permanent portfolio never falls to zero. Thanks to the 25% allocation to gold, it should always retain a significant percentage of its value. This is compounded by the false belief that government bonds and cash are risk-free assets. While Western investors have become accustomed to living in countries where governments have been relatively stable, emerging market investors know that reckless policies, like those implemented by current governments in the Western world, can lead to government changes and defaults. For example, in July, Ukraine avoided defaulting on $20 billion in loans by reaching a preliminary agreement with private creditors. Given the financial burden of war, the country suspended interest payments on international debt over the last two years, which was set to expire on August 1, 2024. Without this new debt restructuring, this default would have ranked among the ten largest in recent history. The last time Ukraine defaulted on its debt was in 2015, after Russia’s invasion of Crimea. As the world is slowly but surely entering a period of rising war cycles, investors should look back at history to see how the war cycle has impacted confidence in public institutions and how it has influenced asset allocations.
Despite widely spread misconceptions, a country does not need to be the epicentre of a war to default. For example, Greece’s $264.2 billion default in 2012 stands as the largest overall, occurring when the country was mired in recession for the fifth consecutive year. The country defaulted again just nine months later, making it the fourth-largest default ever. Leading up to the crash, Greece ran significant deficits despite being one of the fastest-growing countries in Europe. Furthermore, in 2009, the newly elected prime minister revealed that the country was $410 billion in debt, substantially more than previous estimates. Following closely is Argentina, which recorded the second-highest default when it failed to repay interest on $82.3 billion in foreign debt in 2001. Like Greece, Argentina is a repeat offender, having defaulted numerous times since gaining independence in 1816. Today, it is the largest debtor to the International Monetary Fund, despite being Latin America’s third-largest economy. Next in line is Russia, which defaulted on $72.7 billion in loans in 1998, coinciding with a currency crisis that erased more than two-thirds of the rubble’s value in a matter of weeks. That year, several other countries, including Venezuela, Pakistan, and Ukraine, also defaulted on their debts after the Asian Financial Crisis of 1997 spurred instability in global financial markets. Just as 1998 saw a wave of defaults, 2020 was marked by major debt upheavals. Due to the pandemic and collapsing oil prices, it became a record year for sovereign defaults, reaching a total of seven. Among these, Lebanon, Ecuador, and Argentina experienced the largest defaults amid deepening fiscal pressures.
Contemporary Americans may not recall that the United States defaulted on all debts incurred by the previous Continental Congress, despite Article VI of the Constitution stating that those debts would be honoured. When George Washington became the first US president in 1789, New York was the capital. By 1792, during his second term, the capital had moved to Philadelphia. While it’s often taught that Philadelphia served as the capital for ten years, it had previously been the home of Congress and the site where the Declaration of Independence was signed.
In more recent history, in his memoirs, Herbert Hoover commented on the 1931 sovereign debt crisis reflected his concerns over the destabilizing effects of global financial turmoil. As the Great Depression deepened, Hoover believed that the collapse of European economies, exacerbated by sovereign debt defaults, was a significant threat to global stability and US recovery. He saw the excessive borrowing by European countries during and after World War I as a root cause of the crisis. Hoover argued for a temporary moratorium on war debts and reparations to alleviate the pressure on struggling nations, hoping that this would stabilize international finances and prevent further defaults. His proposal, the Hoover Moratorium of 1931, aimed to give countries breathing room to reorganize their debts, although it was met with mixed reactions. Ultimately, Hoover's efforts underscored his belief that the global financial system was interconnected, and that sovereign debt crises abroad could severely impact US economic recovery.
As the 2020s progress, it's evident to anyone with common sense that the war cycle is steadily, and unfortunately, on the rise. In this context, investors must reassess their strategies for navigating such a challenging environment, recognizing that gold is an essential asset to hold during times of conflict.
https://www.cnbc.com/2024/09/24/jpmorgan-ceo-jamie-dimon-warns-geopolitics-is-getting-worse.html
This rise in the war cycle coincides with increasing distrust in public institutions, which have been mismanaged to benefit a minority. Regulations favouring the plutocracy surrounding governments are harming those outside this elite group, with rules designed to advantage the top 1% at the expense of the 99% who have not.
https://www.pewresearch.org/politics/2024/06/24/public-trust-in-government-1958-2024/
The last time the world experienced such a deep distrust of public institutions was between 1882 and 1934. During that period, there were numerous financial panics, the beginning of the Progressive Era, the rise of socialism in 1912, and the onset of World War I in 1914, which was part of a plan by governments to default on their debt. Today is no different: Keynesian governments may push towards World War III, allowing them to default on their debts again by promoting climate change, which is ultimately linked to their aim of exploiting ‘Global South’ natural resources.
Gold and war have long been intertwined. Spain's wealth from New World conquests financed its military but led to domestic inflation rather than economic development. The influx of silver devalued metals in Europe and widened the gold-silver ratio, benefiting England and the Netherlands, who supplied goods to Spain. This weakened Spain in future conflicts. During the French and Napoleonic Wars, Britain abandoned the gold standard in 1797 due to rising debt but leveraged its strong financial reputation to borrow heavily, despite higher inflation. In contrast, France retained its bimetallic standard, limiting its borrowing capacity and forcing reliance on taxation. This difference gave Britain an advantage in sustaining a prolonged war, as France's history of defaults restricted its financial flexibility. On the eve of WWI, Imperial Russia held vast gold reserves, which were heavily depleted during the war. By 1918, both the Bolsheviks and counter-revolutionary Whites accessed this gold. The Bolsheviks used seized Imperial gold, circumventing Allied blockades to fund crucial imports. The Whites controlled a portion known as "Kolchak’s gold," from Kazan’s Imperial vaults, though it ultimately fell into Bolshevik hands. By 1921, Bolshevik reserves were drained, leading Trotsky to seize private gold, which helped sustain the revolution and secure their victory.
During WWI, the Allies’ access to substantial gold reserves, notably from the British Empire, gave them an edge over the Central Powers. South Africa’s gold production was critical for Britain, which blocked shipments to Germany, limiting its ability to import necessary war supplies. Britain abandoned the gold standard in 1914, increasing its money supply, while France and Russia sent gold to the UK to finance war efforts. Germany’s gold reserves were smaller, but it preserved them through war loan subscriptions and lent gold to allies like the Ottoman Empire. These dynamics re-emerged in WWII, with Nazi Germany seizing gold from occupied territories to fund its war efforts.
Gold and silver have long been essential for financing wars, acting not just as spoils but as strategic resources to sustain conflict. The side that manages its bullion most effectively often gains a significant advantage. For instance, Britain, despite abandoning the gold standard during the Napoleonic Wars, leveraged gold to fund coalitions. In both world wars, the Allies' access to gold and credit greatly bolstered their war efforts, while depleted gold reserves signalled economic strain for the losing side. Gold provides confidence to creditors, stabilizes currencies, and often indicates shifts in power.
Outside wars, the 2020s have also been marked by reckless government spending aimed at implementing Keynesian policies designed to control citizens in every aspect of their lives. Western governments have adopted the belief that increased public spending will create prosperity. However, from an ethical perspective, incidents like the government’s incompetent response to Hurricane Helene illustrate two key issues: (1) government employees have a myopic vision, lacking long-term perspective, and (2) they tend to see only what is directly in front of them, which is not an admirable quality for those in power.
This was perfectly highlighted by the last US president who truly understood how excessive government can harm the economy and its citizens. As Ronald Reagan famously stated, the nine most terrifying words in the English language are, ‘I’m from the government, and I’m here to help.’
From an economic perspective, gargantuan government spending has resulted in the US government achieving the highest debt-to-GDP ratio outside of wartime and recession. One doesn't need a PhD in economics to recognize that this rising debt-to-GDP ratio has been and will remain a significant tailwind for gold prices. In short, the more reckless governments are in managing their finances, the higher gold prices will climb when priced in the respective fiat currencies of these governments.
Gold prices in USD terms (blue line); US Government Debt to GDP ratio (red line) & US Recessions.
For those still unconvinced that the recklessness of politicians in managing public funds is closely tied to gold prices, a look at the correlation between gold prices and US CDS (the cost of insuring against a US government default) should serve as a wake-up call. It is widely understood that gold remains the only effective hedge against government risk, including a sovereign default.
Gold price in USD terms (blue line); US 5-year CDS Rate (red line) & Correlations.
The broader implications of rising government default risks (indicated by higher CDS) include increased volatility in equity markets as such periods of potential default are typically associated with a risk-off sentiment, which negatively impacts equity returns negatively.
US 5-year CDS Rate (blue line); CBOE Volatility Index (VIX index) (red line) & Correlations.
For asset allocators, wartime conditions present a unique challenge few have encountered in their careers. In this environment, gold may be poised for a breakout against beta, especially as volatility increases. Gold typically gains traction when stock market risk metrics rise, prompting an uptick in the gold-to-S&P 500 ratio and driving its outperformance relative to equities. This dynamic is particularly relevant as US assets become increasingly weaponized by Western governments and as the ‘unlimited friendship’ between China and Russia boosts gold demand among investors in the Global South.
Relative Performance of Physical Gold to S&P 500 index (blue line); CBOE Volatility Index 200 day moving average (red line).
Despite Wall Street's phantasmagorical disinflationary narrative, in an environment of continuous reckless government spending, supply shortages driven by armed conflicts across the globe, and uneconomical regulations imposed by Keynesian policies, and with the next US president, whoever that may be, expected to pursue more fiscal stimulus, the economy seems poised for a reflationary wave. When coupled with the European Central Bank cutting rates and China implementing new monetary and fiscal measures, it seems clear that the world is heading toward either an ‘inflationary boom’ or, at worst, an ‘inflationary bust’ (i.e Stagflation) if wars exacerbate inflation-driven misery for consumers, as has historically been the case. Indeed, one major risk to the inflationary boom is an energy shock. Historical precedents from 1973, 1979, and 2008 show how rapidly rising energy prices can turn an inflationary boom into a bust. For example, the 2008 Sichuan earthquake disrupted coal transport, causing oil prices to spike. While we haven’t reached that point yet, the risk is increasing. Investors will recall that during an inflationary bust, gold typically rises in value, as it has consistently since the 1970s.
US Stagflation proxy index (blue histogram); USD Gold price (red line); Correlation & US Recessions.
Not only did gold rise in value relative to fiat currencies during an inflationary bust, but it has also historically outperformed bonds as the inflationary environment erodes the returns of those holding fixed income assets.
US Stagflation proxy index (blue histogram); Relative performance of USD Gold price to Bloomberg US Agg Total Return Bond index (red line); Correlation & US Recessions.
In the meantime, low economic growth during an inflationary bust impacts corporate profitability, leading to the outperformance of gold against equities during this time period of the business cycle.
US Stagflation proxy index (blue histogram); Relative performance of USD Gold Price to S&P 500 Index (red line); Correlation & US Recessions.
To summarize the path that has brought the world to the brink of World War 3, it is clear to those who can analyse history with an open mind that Washington's warmongers have waged endless wars since Vietnam that they have been unable to win. They lied to the American public to justify these wars, as Robert McNamara admitted before he died when he said, ‘WE WERE WRONG' about Vietnam, acknowledging that the Russians were not involved, and it was merely a civil war. The cost of the War on Terror has been estimated at $8 trillion by a Brown University study, yet there has been no victory. There were no weapons of mass destruction in Iraq, and no one was ever held accountable.
Fast forward to today, EU leaders are pushing for conflict with Russia to distract from the economic failures of the European Union, a vision of a unified Europe that has repeatedly faltered throughout history, from Charlemagne to Hitler and Napoleon. It was Chancellor Kohl who blocked the debt consolidation. He admitted he acted like a dictator and took Germany into the euro, denying the German people any right to vote because he knew he would have lost the vote seven to three. As a result of that decision, the euro could never replace the dollar, and institutional investors still had to compare one member state against another.
Originally, the EU was intended to prevent wars through centralized governance, but now it seeks conflict to mask its mismanagement and flawed euro design. Historically, centralized control has failed, leading to civil unrest, as seen in the US before its independence and under Communism in Russia and China. The EU's centralized government is becoming increasingly ungovernable, and the only way for European leaders to save face is to push their countries into war, which would allow them to default on their sovereign debt. This is particularly true as organizations like NATO and all the lobbyists enriching themselves have no reason to exist if the forever bankers’ wars end.
As tensions escalate in the Middle East, the critical question is whether the conflict between Iran and Israel will intensify to the point of disrupting Iran's oil production. Such a scenario could lead to widespread instability in the region, which is a major oil supply source, especially considering the U.S. shale industry and Russia are currently under embargo. The potential for a broader conflict raises concerns about global oil supply, prices, and overall market stability.
After spreading their deadly war agenda from the borders of Russia to the Middle East, the Washington and Brussels warmongers of the North Atlantic Terror Organization are now threatening to extend conflicts into Asia by provoking North Korea. NATO recently issued a statement condemning North Korea and Iran for 'fuelling' Russia's war of aggression against Ukraine through direct military support to Moscow. This hypocrisy highlights NATO’s and the West's arrogance, as they can fund Ukraine but threaten those who support Russia. In response, North Korea warned NATO that if it infringes upon the dignity, sovereignty, or security of the country, NATO will be held wholly responsible for the tragic consequences that follow. It should be clear to anyone with common sense and an open mind that NATO and the American neocons prefer to threaten the world rather than seek peace. This is a war they desire, and the population in Europe and America needs to wake up, as the people have no say in this matter of war.
https://youtube.com/shorts/cNBGpV1qkbs?si=K2QrErC9hDmDpo4x
In this context, North Korea is removing all references to reconciliation with the South from its constitution. The 11th session of the 14th Supreme People’s Assembly (SPA) is expected to address these revisions, nine months after North Korean leader Kim Jong-un redefined inter-Korean relations as being between 'two hostile states' and vowed to no longer consider South Korea a partner for reconciliation and unification. That says it all. This signals a third proxy war emerging in Asia this time as the Washington and Brussels warmongers once again expand their Malthusian agenda to a new continent, threatening countries that do not follow their narrative. The US and its Malthusian allies seek to impose their fake vision of prosperity on the mercantilist Global South, which is building alliances around Russia and China. As 2025 approaches, investors will have another hot spot in North Asia to watch closely.
https://www.koreaherald.com/view.php?ud=20241009050029
Over the past century, numerous conflicts have spread chaos and death, bringing the world to the brink of Armageddon many times. Focusing on two major wars in the past 70 years, the Vietnam War (1955-1975) and the Second Gulf War (2003-2011), gold outperformed stocks (i.e., Dow Jones) by more than threefold when adjusted for inflation over these bellicose periods. This outperformance also came with much lower drawdown than for stocks.
Evolution of $100 invested in physical gold adjusted to inflation (blue line); the Dow Jones adjusted to inflation between 1955 and 1975. (Vietnam War).
Evolution of $100 invested in gold adjusted to inflation (blue line); the Dow Jones adjusted to inflation between 2003 and 2011 (Second Gulf War).
Fast forward to the 2020s, for those who want a better understanding of how the four pillars of the Browne Portfolio have performed since the start of the Russian special operation in Ukraine, it’s helpful to look at how gold (XAU currency), equities (e.g., the S&P 500 index), government bonds (e.g., Bloomberg US Agg Total Return Index), and cash (e.g., Bloomberg S T-bills 1-3 months Index) have performed since then. While the US and its NATO allies have consistently denied being directly at war with Russia, anyone with common sense can see that the current conflict in Eastern Europe is nothing else than a war between the US and Russia. One doesn’t need a PhD in finance to contemplate that over the past 30+ months, gold and equities (S&P 500 index) have significantly outperformed cash and bonds
Performance of $100 invested in Gold (blue line); S&P 500 index (red line); Bloomberg US Agg Total Return Index (green line); Bloomberg S T-bills 1-3 months Index (purple line) since 24th February 2022.
Looking at the inflation-adjusted return of the same assets over this same period, it becomes clear that the inflationary impact of wars has been even more detrimental for investors holding contracts such as bonds and cash. The inflation, fuelled by the economic disruptions and war-related misery over the past 32 months, has indeed eroded the nominal returns on cash entirely.
Inflation adjusted performance of $100 invested in Gold (blue line); S&P 500 index (red line); Bloomberg US Agg Total Return Index (green line); Bloomberg S T-bills 1-3 months Index (purple line) since 24th February 2022.
Savvy investors understand that wars create shortages of critical resources such as energy, metals, and food, all of which are essential to sustaining a war economy. When looking at the performance of other commodities, such as oil (WTI), metals (Bloomberg Industrial Metals Index), and agricultural commodities (Bloomberg Agriculture Index), it's clear that, despite these shortages, only gold has consistently preserved investors' wealth during wartime. This was even the case during the second Gulf War between 2003 and 2011, despite the fact that the war occurred in a major oil-producing region.
Performance of $100 invested in Gold (blue line); Crude oil (WTI) (red line); Bloomberg Industrial metal Index (green line); Bloomberg Agriculture Index (purple line) between 2003 and 2011 (Second Gulf War).
As everyone knows, if history doesn’t repeat itself, it sure does rhyme! So, it’s no shocker that despite once again involving a big oil producer like Russia, gold has totally outshone oil, metals, and agricultural commodities ever since the special operation in Ukraine kicked off.
Performance of $100 invested in Gold (blue line); Crude oil (WTI) (red line); Bloomberg Industrial metal Index (green line); Bloomberg Agriculture Index (purple line) since 24th February 2022.
In a nutshell, gold is the asset to own during wartime. In such times, paper currency is discounted and practically worthless in countries ravaged by war-related destruction. Governments have historically used war as an excuse to renege on their contract promises (i.e. bonds), either by failing to pay out, restructuring debts, or inflating their value away. In war, gold becomes the currency of choice. Like all tangible commodities, it rises in value with inflation linked to supply shortages during the war cycle. As the war cycle continue to escalate, gold won’t become cheaper anytime soon, and inflation will worsen as long as wars prevail.
Read more and discover how to position your portfolio here: https://themacrobutler.substack.com/p/gold-is-for-war
If this report has inspired you to invest in gold and silver, consider Hard Assets Alliance to buy your physical gold:
https://hardassetsalliance.com/?aff=TMB
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