“One day you’ll look up and wonder why … “ Well, forewarned should leave us prepared to make the requiste changes before it’s too late and we’re surprised and hurt. Thanks for your good work and lucid explanations.
Sensible question, and the right one to be asking. Truth is, even from a mainstream investor's perspective, most of the old safe havens just aren't very safe anymore. Government bonds are the very thing under pressure. The dollar and the yen are both being debased, and the euro is no different.
That mostly leaves the things no government can print or default on, gold first (silver alongside it). It's no accident that the central banks themselves recently made gold their number one reserve asset, ahead of U.S. Treasuries, for the first time in modern history.
Fair worry, James, it comes up a lot. A few thoughts.
First, the confiscation fear traces back to 1933 and FDR's Executive Order 6102, when Americans were ordered to hand in their gold. But context is everything. Back then the dollar was backed by gold, so the government actually needed the metal to run the monetary system. That's no longer true. The dollar isn't backed by anything now, which means the main reason to seize it is gone. And confiscating bullion from millions of people is impractical and politically radioactive. The far likelier play is a tax on gains, or a revaluation, not agents knocking on doors. Also, keep in mind, the 1933 order was gold only. Silver was never part of it.
On silver being named a critical mineral, that part is real, it was added to the list recently. But "critical" is about strategic and industrial supply security, the stuff that goes into solar, electronics, and defense. It's a measure of how badly the economy needs silver, not a step toward taking yours. If anything, it's bullish for demand.
That said, a little prudence never hurts. Holding some metal outside the banking system, and not keeping it all in one place, is just sensible. But I'd put the odds of door-to-door confiscation well below the near-certainty of the slow debasement we've been talking about. I mean it’s not even close. That's the threat you can actually count on, and it's the whole reason to own the metal in the first place.
I really appreciate your insights. I read another story that several countries have been adding to their treasuries like the UK and Japan. Accurate? And won’t the us have decent leverage with Japan if it does come to trade negotiations?
Great questions, Russ. Foreign holdings of Treasuries did rise over the past year, the UK especially (and Japan's nominal pile ticked up too). So that part is accurate.
Two things to keep in mind, though. First, a lot of that increase is valuation rather than conviction. When bond prices move, the dollar value of the holdings moves with them. And the UK figure is a bit of a mirage: London is the world's financial plumbing, so much of "UK" holdings is really other people's money and hedge-fund positions routed through the City, not the Brits voting confidence in U.S. debt. Meanwhile China has quietly been cutting, now at its lowest since 2008. And the deeper signal is where central banks are putting fresh reserves: into gold, which as you might now, recently overtook Treasuries as their number one reserve asset.
Second, timing. Most of those additions happened while Japanese rates were still near zero. My whole argument is about what changes as that flips… and that's only just beginning.
On leverage: Yes, the U.S. has decent leverage with Japan. The latter leans on the American security umbrella and the U.S. market. Plus, it can't dump Treasuries without crashing the value of its own stash and spiking the yen (which would clobber its exporters). So neither side actually wants to weaponize this. But the main danger I'm describing isn't necessarily Japan pulling the trigger in some negotiation. It's the slow, forced unwind driven by Japan's problems at home… the kind no amount of leverage on either side can stop. Hope that helps.
Great writing. I love the way Lau explains things.
Thank you, John. One of the best things a writer can read. Saw the pledge too. Means a lot.
Yes, it’s a real skill.
“One day you’ll look up and wonder why … “ Well, forewarned should leave us prepared to make the requiste changes before it’s too late and we’re surprised and hurt. Thanks for your good work and lucid explanations.
fantastic piece as always!
I do wonder where the safe haven(s) in the markets will reside? If any?
Sensible question, and the right one to be asking. Truth is, even from a mainstream investor's perspective, most of the old safe havens just aren't very safe anymore. Government bonds are the very thing under pressure. The dollar and the yen are both being debased, and the euro is no different.
That mostly leaves the things no government can print or default on, gold first (silver alongside it). It's no accident that the central banks themselves recently made gold their number one reserve asset, ahead of U.S. Treasuries, for the first time in modern history.
I do worry about confiscation…….Silver has also been classified as a Critical Metal?
Fair worry, James, it comes up a lot. A few thoughts.
First, the confiscation fear traces back to 1933 and FDR's Executive Order 6102, when Americans were ordered to hand in their gold. But context is everything. Back then the dollar was backed by gold, so the government actually needed the metal to run the monetary system. That's no longer true. The dollar isn't backed by anything now, which means the main reason to seize it is gone. And confiscating bullion from millions of people is impractical and politically radioactive. The far likelier play is a tax on gains, or a revaluation, not agents knocking on doors. Also, keep in mind, the 1933 order was gold only. Silver was never part of it.
On silver being named a critical mineral, that part is real, it was added to the list recently. But "critical" is about strategic and industrial supply security, the stuff that goes into solar, electronics, and defense. It's a measure of how badly the economy needs silver, not a step toward taking yours. If anything, it's bullish for demand.
That said, a little prudence never hurts. Holding some metal outside the banking system, and not keeping it all in one place, is just sensible. But I'd put the odds of door-to-door confiscation well below the near-certainty of the slow debasement we've been talking about. I mean it’s not even close. That's the threat you can actually count on, and it's the whole reason to own the metal in the first place.
Good points…..being my savings is in IRA I’m not holding physical metals…..using Sprott as my hedge
We value you, Lau.
Thank you 🙏🏻
A Brilliant, Useful and Very Timely article.
Thank You Lau!
I really appreciate your insights. I read another story that several countries have been adding to their treasuries like the UK and Japan. Accurate? And won’t the us have decent leverage with Japan if it does come to trade negotiations?
Great questions, Russ. Foreign holdings of Treasuries did rise over the past year, the UK especially (and Japan's nominal pile ticked up too). So that part is accurate.
Two things to keep in mind, though. First, a lot of that increase is valuation rather than conviction. When bond prices move, the dollar value of the holdings moves with them. And the UK figure is a bit of a mirage: London is the world's financial plumbing, so much of "UK" holdings is really other people's money and hedge-fund positions routed through the City, not the Brits voting confidence in U.S. debt. Meanwhile China has quietly been cutting, now at its lowest since 2008. And the deeper signal is where central banks are putting fresh reserves: into gold, which as you might now, recently overtook Treasuries as their number one reserve asset.
Second, timing. Most of those additions happened while Japanese rates were still near zero. My whole argument is about what changes as that flips… and that's only just beginning.
On leverage: Yes, the U.S. has decent leverage with Japan. The latter leans on the American security umbrella and the U.S. market. Plus, it can't dump Treasuries without crashing the value of its own stash and spiking the yen (which would clobber its exporters). So neither side actually wants to weaponize this. But the main danger I'm describing isn't necessarily Japan pulling the trigger in some negotiation. It's the slow, forced unwind driven by Japan's problems at home… the kind no amount of leverage on either side can stop. Hope that helps.
Looks like tough times for everybody except China and possibly Russia.