by Aran Murphy
The market-makers wondered aloud at the end of 2016: Which way will our economy turn with new policy makers in Washington? Will our national debt become difficult to service with higher interest rates? Will our unfunded pension liabilities force broad-scale local bankruptcies? Or will we pull the government back, liberate our taxpayers and traders, and allow our entrepreneurial base to do what it does best?
A consensus emerged in December that our days of forestalling hard debt and demographic-driven choices are limited. Many worry that it is too late, or that the incoming President is too politically inexperienced to put our national finances back on track. Others think – with the recently elected – we may see tremendous opportunity to re-establish growth and loose our economic fetters. From bonds to stocks to more pure measures of market volatility, President-elect Trump continues to bring opposing views out after long years of – what many will consider stagnating – policy consensus.
After the US elections, stock market indices took off. The bond markets tumbled. The Federal Reserve Bank raising rates didn’t help bonds, of course. Gold, silver and platinum prices eased as the world creeps out from under the Sword of Damocles that has long been the official policy of zero interest rates(One can’t have functioning capital markets when central banks are pricing capital at zero). The markets overall seem tentative about what direction, economically, the US should expect. Will the US experience crisis, or will it find the real growth in incomes and economic opportunity that has eluded us for the past 12 years?
Uncertainty and Opportunity – Platinum can reduce the former, but increase the latter in one’s portfolio.
Following the mixed signals of the markets at year-end 2016, one could be forgiven for being conflicted. Should an investor protect investments against debt deflation, or worse, Venezuela or Zimbabwe style inflation? Or should one avoid more overt economic collapse by staying out of markets altogether? On the more optimistic side, might an investor sell stocks for cash and therefore miss a massive potential economic revival?
We believe that physical platinum holdings in a portfolio will allow protection against inflation and financial asset deflation, while allowing positive upside in value when the US economy regains its freedom and hence its strength.
Platinum has typically traded at huge premiums over gold (graph below). Today, with gold at $1,192 and platinum at $974, you can buy it at a 18% discount! An old investment rule of thumb is “when platinum sells at a discount to gold, back up the truck, Chuck, and load ‘em up!”
What makes platinum different in a portfolio than gold? For starts, there is relatively little reserve platinum above ground. This is unlike gold, for which nearly all the gold ever mined is readily available above ground. This helps stabilize prices as stocks flow to market in response to price moves. A relative lack of above-ground supply makes platinum more volatile. Volatility can make Monday morning quarterbacking a temptation, second- guessing a better price for one’s transaction no matter what one invests in. However, platinum’s volatility makes it ideal as a portfolio diversifier. With low correlation to other asset classes and high volatility, the metal packs disproportionate weight per dollar investment. Professional portfolio managers who follow Markowitz portfolio theory might see platinum as a diversifier of returns…as “high octane gold.” Continue Reading →