Thread by @profitsplusid

1/ Are any financial assets safe anymore?

As we have seen with Canada and now with Russia. Governments can enforce rules that can affect depositors or investors directly or indirectly.
Individuals trying to manage risk need to understand the concept of force majeure.

2/ Holding wealth on paper is convenient and efficient in times of calmness and certainty. However, over the last 2 years individuals, investors, and depositors have been thrust into a controlled and uncertain environment.

3/ The recent reaction by Canada to shut depositors from their bank accounts was a complete shock. The broad sanctions on Russia and their Central bank have been far reaching with direct and indirect consequences to investors and their savings. War is ugly and horrible.

4/ However, this article is about investor confidence and the longer-term reactions to sweeping government policies.
Confidence is a tricky thing. It takes time to build and foster, however, once lost, it is much more difficult to gain back.

5/ Although Canada, reversed their emergency rule, the damage was done. Who wants to live in a world where your ability to transact can be simply turned off? With the recent sanctions on Russia, many western investors, pension funds, and individuals around the world have become

6/ trapped overnight by a complete collapse in those companies’ stock and debt. For vendors and customers of these companies, their ability to conduct business has been critically impaired. The indirect effects of these policy moves do have longer term lasting effects.

7/ How does an individual protect their financial well being when on and off ramps to the financial system can be turned off overnight? Or entire investments can be made worthless or illiquid?
Is Crypto or Bitcoin really the answer?

8/ Physical gold and silver held directly have been viewed as financial assets without counterparty risk for thousands of years.

Physical assets do have risk. Especially when someone else wants to take it. Fast forward to today’s climate of uncertainty and inflation.

9/ Has the perception of one’s financial security been shaken? Stampedes or avalanches take time to develop. An event, however slight, can become an unlikely trigger. How the event unfolds will determine if it is short lived or creates massive destruction.

10/ Physical gold and silver have historically become a barometer for fear or uncertainty. Paper or digital currencies require full faith and confidence of its users. Likewise, paper financial instruments also require full faith and confidence.

11/ How can holding a paper investment assure any financial security if it can be turned off overnight or hacked? Many look at physical gold and silver as a neutral reserve asset since it can be traded in any currency.

12/ Central banks hold gold on their balance sheet as an anchor of tradition and financial stability. Many individuals are interested with how governments can use this asset for their own purpose; to restore trust, strengthen its balance sheet, or inflate the money supply

13/ by revaluing gold against their existing currency. To do this, governments or their country’s central banks may acquire gold by conventional or unconventional means. Unconventional means would be during times of uncertainty, fear, or doubt by market participants.

14/ I am asked constantly, how one protects itself from confiscation or nationalization. These are 2 completely different events. Confiscation does not provide any remuneration, whereas nationalization does. The question is whether the currency received will retain its value.

15/ How does this apply to Gold especially in the USA? I view confiscation very unlikely. Much of the metals are tied up in investment structures like ETFs, futures contracts, London allocated accounts, etc. This low hanging fruit could easily be nationalized, and

16/ investors could be cash settled simply by means of how their user agreements or prospectus read.
Investors have already agreed to nationalization without even knowing it. The concept is called force majeure, and this is built into every gold investment product.

17/ By understanding this concept, lets see how a government could apply this to accumulate gold in an unconventional manner. The following is a hypothetical situation of nationalization based on my opinion.

18/ The following could be the most efficient and effective way for the US Government to benefit from the accumulation of gold while strengthening the Federal reserve’s balance sheet and compensating Wall Street banks all at the same time.

19/ After the close of the market, the US Treasury announces a gold initiative to create financial trust among its citizens, debt holders, and central bank counterparties. The US Government announces with the Federal Reserve,

20/ physical gold held in regulated investments or derivatives will be acquired at a stated price well above the closing market price. Investors in these products would be cash settled. The Federal Reserve would take custody of the gold (as it does MBS, Treasuries).

21/ Primary dealers or other authorized financial participants would be used to carry out the transactions for a fee and sell the gold back to the Federal Reserve.
Investors have a capital gain on the revaluation of price and can redeploy those assets into other investments or

22/ the economy. The Federal Reserve can strengthen their balance sheet by placing a neutral reserve asset on its books. This promotes confidence among its other central bank counterparties and allows the Federal Reserve to keep expanding its balance sheet to buy more debt from

23/ the US Government. The US Treasury benefits, by promoting gold as a confidence builder which in turn allows the Treasury to keep borrowing more money. But most of all the US Government benefits because the capital gains realized by investors creates a taxable event

24/ which brings a windfall of tax revenue into the Treasury.
This example of gold nationalization accomplishes numerous goals without firing one shot. What happens after all this is another story.

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