+ Is now generating zero-to-negative returns. The only way to hold it is to make a bet on a massive decline in risky assets valuations going forward. As uncertainty (and risk) of negative and more deeply-negative yields on deposits rises (and it is rising), we've converted cash +
+ into a risky asset, making cash holdings speculative, rather than purely defensive. Next up: gold. This still holds value as a purely defensive play, but risks are rising here too. First, risk of sell-off in a general markets correction (when investors dump all assets they can+
+ dump, gold has a risk premium as well). Second, risk of financialization: as gold became more financialized over the years, its properties (hedging, safe haven etc) have drifted toward other risky asset classes. Third, risk of sovereign expropriation: holding physical and +
+ financialized gold exposes us to extreme sovereign risks. Until now, we have been living in the world where such risks are minor. But they are rising with growth in political nationalism, populism and fiscal desperation. Four, risk of sovereign wealth funds sudden sell-off. +
+ Governments around the world have been accumulating gold holdings as a hedge against geopolitical risks and weaponisation of the U.S. dollar. Should these banks try to sell-off some of their gold reserves on scale, gold price will be vulnerable. So if not cash, nor gold, what+
+ does the trick for wealth preservation? Real estate? Nope: too much liquidity risk, too much exposure to sovereign power, too much long term risk (secular stagnation). Government bonds? Monetary authorities and treasuries holdings of Government bonds do provide a sustained +
+ floor under bond values. True. But these floors are neither set in stone (monetary reversals can happen, and banks’ holdings of these for capital purposes are vulnerable to general markets sell-offs risks and systemic crises risks). Bond prices are now at massive over-pricing+
+ levels, too, so there is normal risk built into these going forward. In the nut shell, we are now desperate for wealth preservation/storage instruments. So much so, we have one of the most volatile, highest risk and purely speculative assets - Bitcoin - floating around the +
+ markets with a label ‘Store of wealth’ attached to it. This is nuts. It is contrary to any theory and any practice in finance. But there is one logical explanation of these dynamics. Uncertainty over the duration and the extent of monetary easing has now spilled over into +
+ uncertainty over the tools that the Governments will now deploy to fund their ever-mounting debt exposures. This has meant that all asset classes, including cash, are now carrying material and rising risk premium on expropriation risk (via negative deposit rates & / or rising+
+ taxes &/or use of financial & trade systems to extract state funds from investors and savers. In this world, can any1 really talk about ‘safe havens’ and ‘risk hedging’ anymore without gaining security in the short run by trading down security in the longer term?
