Investment (Mutual) Funds
Most investors measure returns based on stock market performance. But this is a fallacy in a world with massive money printing and credit creation. In real terms, most funds have not achieved positive returns in the last 12 years. Measured against real money – Gold – the Dow jones for example has declined over 80% since 1999. (Click for chart). If MAM’s long term projections are accurate, the Dow is likely to lose another 90% in real terms (Gold) in the next few years. This is a more than plausible scenario in an inflationary or hyperinflationary environment.
When stock markets are vulnerable, investors turn to the bond market. In a deflationary economy, interest rates continue to be depressed and bonds appear to be a safe investment. The problem with a deflationary downturn is that none of the bank or government loans that were created during the credit bubble would ever be repaid. Thus a deflationary implosion would most probably involve a collapse of the financial system.
However, governments are totally aware of the massive risks in the financial system and are therefore likely to print unlimited amounts of money in the next few years due to continued deficit spending worldwide as well as the fragility of the banking system.
Gold & Investment Funds
Due to the fragile state of the world economy, the risk to investors are major. Whether we get a deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect investors against both scenarios.
The key is not whether MAM is correct or not in its assumptions. What is more important for fund managers is to protect against the eventuality of either scenario happening. To hold some physical gold would be a responsible insurance strategy against either event.
The difficulty for fund managers is to determine what percentage of physical gold should be held in the portfolio as insurance. There have been several studies made on this subject. Most of the studies indicate that at least a 2% allocation to physical gold improves the risk return tradeoff across a range of typical fixed income / equity portfolios. This percentage increases depending on the portfolio mix, volatility and correlation. (“Gold, a strategic asset allocation“)
Evaluating counterparty risk should take a much higher priority in a fragile financial system. Is the bank or custodian where assets are kept safe? Will bond issuers (whether government or private) repay their debts with stable or debased money? What is the risk of default of bond issuers?
To protect counterparty risk is vital in a world where most governments are virtually bankrupt and can only survive with money printing and where the banking system only survives by valuing toxic assets at maturity value rather than market value.
Gold is the only triple A risk!
Physical gold stored outside the banking system protects investors against both a deflationary implosion and inflation/hyperinflation. It also gives investors “insurance” against counterparty risk. GodSwitzerland can provide institutions with protection for a relevant percentage of their assets. GoldSwitzerland has a pricing offer for institutions that is competitive with any other method of acquiring allocated and segregated gold. Please contact us for details.