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TANGIBLE
INVESTMENTS
by David Shvartsman
Finance Trends Matter
August 28, 2006
Over the past few years, we've seen the beginning of a move away from
paper assets and towards tangible investments and stores of value.
Check the news and you'll see the trend is clear. Wealthy investors,
wary of the stock market and the machinations of Wall Street salesmen,
are embracing "alternative investments" such as hedge-funds,
commodities and commodity-related investments, and art. Economic growth
in Asia is leading to increased demand for time honored stores of
wealth. In India and China, the burgeoning middle classes will step up
their purchases of precious metals and increasingly, diamonds. Global
investment demand for gold has grown and this, as a result, is leading
to a revived interest in silver's monetary value.
Private investors are not the only ones getting in on the act. Central
banks across the globe are now diversifying out of some of their dollar
holdings and heading back into gold. Pension and endowment funds are
moving some of their assets into precious metals and commodity futures.
Meanwhile, other institutional and retail investors are gaining exposure
to the commodities market through various ETFs and ETNs.
So what is driving this move into tangible assets? As mentioned earlier,
investors souring on financial products and services offered by
brokerages and banks might partly explain the shift. Another factor may
be a growing sense of distrust of fiat currencies. Sophisticated
investors and ordinary savers alike are once again waking up to the fact
that official inflation statistics often fail to accurately reflect
their rising cost of living. They see their purchasing power evaporating
before their eyes and will naturally want to mitigate that loss with
some tangible store of value.
This phenomenon may be playing itself out again here in the U.S. as a
sort of throwback to the 1970s era of inflation. The difference between
the 1970s and the present is that we now have a large group of moneyed
Russian, Chinese, and Indian buyers vying for the same assets. Be it
gold bullion, contemporary art, or antiquities, the market for these
tangibles is no longer limited to rich Westerners. For more on this, see
the December 2004 article, "Art
as Investment, Inflation Hedge".
For all these reasons and more, the pendulum has started to shift
towards a preference for tangible assets. In fact, research by Barry
Bannister puts this shift into perspective by categorizing the
present period as an inflation cycle in which commodities and tangibles
tend to outperform paper assets.
Investors and analysts such as Jim Rogers, Marc Faber, Richard Russell,
and Jim Puplava have echoed this theme and expanded on it. Anyone
seeking to better understand the current economic and investment
environment would do well to seek out their writings.
And for those who would like an added look at how this trend is shaping
current events, the Financial Times Wealth section covers us
nicely.
To find out how investors and speculators are gaining exposure to
commodity returns through exchange-traded notes, have a look at John
Authers' article, "A
new and less expensive way to bet on oil".
On tracking art returns, see Deborah Brewster's, "Buying
painting by numbers".
For a current look at the demand for rare objects, see Kathryn Tully's
article, "Antiquities
weather the market".
And last but not least, John Dizard's piece entitled, "Every
cloud for the stock market has a golden lining".
© 2006 David Shvartsman
Editorial Archive
CONTACT
INFORMATION
David
Shvartsman
Finance Trends Matter
Chicago, IL USA
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