Precious metals are a disappointment to the investment community.

Cryptocurrencies have stolen the attention, gold's centuries of history all but forgotten & the business news anchors laugh at metals.

For contrarians, it's probably a good time to start paying attention.
Everyone has their own view on this asset class.

There is a die-hard Goldbugs camp, there is also a lot of hate towards Gold, plus everything in between.

Gold has become very much disliked in the West, while countries like China & India have a strong tradition towards it.
Gold floated in the early 1970s, but my chart starts in 1988 — cutting out the 70s is maybe not a fair way to measure its performance.

Regardless, it should be clear that Gold has had periods of very strong returns (25% CAGR over a decade) as well as disappointing periods.
Our own opinion on precious metals are:

• as a non-income producing asset, Gold isn't really an attractive buy&hold strategy

• every portfolio should carry some Gold, not as an investment, but as an insurance policy with a proven 5,000-year historical track record
• for those with the ability to time things better than others, Gold can offer incredible returns over 5 or even 10 year periods

• Gold is very much uncorrelated to other classic & traditional asset classes such as stocks, government bonds, credit & a great hedge vs cash
• as a family office, we are very much disconnected from Wall Street's non-sense advice and caution against holding only West-centric views

• instead, we focus on global investing & sympathize (to a degree) with traditions of owning Gold as a proven insurance policy
Is Gold and the precious metals sector an easy asset class to invest in?

No, definitely not.

One can easily observe that the Gold Mining index, popular with Gold bugs, has not made any progress over the last 4 decades.
But one should also observe Gold Miners recorded one of the best 5-year returns — compounding at 30% CAGR.

Miners outperformed the S&P, Small Caps, Emerging Markets, Dow Jones, any real estate GP & any mezzanine debt deal.

And even the mighty Nasdaq 100!


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More from @TihoBrkan

1 Apr
Emerging Markets thread.

The EM stocks have been consolidating for 14 years plagued by one crisis after another.

For their stocks to outperform, we need:

• sustained weaker $USD
• accelerating growth vs DM
• higher commodities (inflation)
• booming global exports (demand) Image
Relative to the US market, Emerging Markets have been underperforming since 2011 — coincides with the bottom in the $USD.

The underperformance is actually worse if we remove the China Tech sector (Tencent, Alibaba, etc).

EM: a value trap or once-in-a-decade buying opportunity? Image
Within the Emerging Economies complex, Asia has been the outperformer while the rest of the countries have lagged considerably.

The chart below shows the EM ex Asia, which recently traded below the March 2009 bottom (11 years ago).

These countries are dirt cheap, in our view. Image
Read 7 tweets
31 Mar
Cash levels have constantly remained low throughout this bull market.

The majority are invested & any turbulence sees central banks step in, saving the day.

However, low cash will eventually be a concern when forced liquidation starts since there will be no marginal buyers. Image
S&P 500 is approaching a record valuation of 3 times forward-looking sales.

Even if the market was to crash by -30%, valuations would be expensive since the market would trade at around 2X revenue — this was a top back in the year 2000.

CBs have created a monster bubble. Image
Jeff Gundlach is saying the US stock market is incredibly overpriced by any traditional metric and the next crash will be for the history books.

Thinks the $VIX will spike to never-before-seen levels surpassing the crash of 1987 & 2008.…
Read 10 tweets
30 Mar
Mezzanine financing is one of the most opportunistic ways to allocate capital, whether it's in public or illiquid markets — and yet it is very misunderstood.

In this super thread, which will be ongoing, I will disclose the theory & practice I've learned about the asset.
Mezzanine financing occurs in situations where a business or a project has insufficient creditworthiness or collateral to borrow in classic (& cheaper) form like a bank loan or senior debt & potentially where owners/sponsors refuse to dilute shareholders or give up legal control.
From what I've learned over the years, mezzanine deals are looked at differently in the US vs other developed markets like Eurozone & Anglo-Saxon jurisdictions.

There is a large misunderstanding between players, both with private equity & real estate, due to these developments.
Read 43 tweets
30 Mar
A collection of threads, which will focus on what we are doing with our capital and the strategies we employ to achieve targeted returns in public & alternative assets.

None of this is advice, but merely a journal of how we allocate & opportunities we are attracted to.
We invest in real estate passively (LPs) & actively (sole ownership or JVs).

We also focus on residential strategies like value add & development in several countries.

This thread showcases one of our luxury value adds in Prague. 👇

A mega-thread on mezzanine financing.

Also known as "the funding gap" between classic bank loans & common equity ownership, it is one of the most opportunistic ways to allocate capital from the risk vs reward standpoint.

Read 5 tweets
27 Mar
Few more things on mezzanine debt.

Important to understand mezz play is not super-safe debt, but rather a hybrid "in-between piece" in a classic debt & equity structure.

The inter-creditor deed will often not allow mezz to foreclose without the senior's permission.

...if the values are down 35%?

In a single year? Highly unlikely, but can happen.

As the project goes into administration — depending on your LTV — mezzanine will most likely be in trouble or wiped out (if leverage was too high).

But so are equity investors, right?
So it shouldn't be a surprise.

Keep in mind that well-structured mezz can survive a -20% to -25% downturn — equity often cannot.

In other words, mezz debt is for investors who are after higher returns & are willing to take more risk (with solid downside protection).
Read 4 tweets
23 Mar
With the $USD short squeeze underway, various parts of the stock market are correcting — some more than others.

We expect Emerging Markets $EEM to be under some serious pressure, considering the index doubled from March to March and traded as high as 33% above its 1-year mean.
Another one worth watching is the S&P small caps. $IJR

Followers will remember our bullish call during the Covid panic.

The situation has completely changed!

The index traded almost 50% above the 1-year mean. We believe it will probably crash by 20 to 30% from here.
Finally, focusing on the S&P Energy small caps. $PSCE

From October 2020 to March of this year is a rally for the history books.

The index rallied a staggering 90% above its 1-year mean.

Folks, markets are mean reverting and gravity is real. Expect some serious downside here.
Read 4 tweets

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