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‘Real Assets’ are cheaper than they’ve ever been in modern history

ByPimpHesus

May 25, 2023

Via Sovereign Man

I’ve just returned home to Puerto Rico from a wonderful weekend in Panama City, Panama where we hosted an exclusive event for our Total Access members.

We chose Panama for a specific reason: the first conference I ever held back in 2011 was in Panama.

Twelve years ago I stood on stage in front of the audience and explained my core ethos: the United States, and the West in general, were in social, political, and economic decline.

I took no pleasure in saying that, but my lack of joy didn’t make it any less true.

I explained to the audience back in 2011 that America’s vast national debt— and specifically the outrageously high growth rate of the national debt, was going to one day create a huge problem for America’s finances.

Similarly, I said that the dollar would eventually run into serious trouble, and even be in danger of losing market share as the world’s dominant reserve currency.

Twelve years ago I even showed the audience a chart of a logarithmic decay curve.

The idea behind logarithmic decay is that something declines very slowly and gradually at first. But over a period of time, the rate of decline becomes faster and faster until it’s practically a vertical drop down.

Civilizations decline logarithmically— gradually, then suddenly.

Back in 2011, I told the crowd that we don’t know where we are on that chart. Are we just starting the slow part of decline? Are we in the middle? Or are we standing on the edge of the steep, downward slide?

I explained that we wouldn’t know until after the fact.

Most of all I told the audience that the decline of the US would be one of the biggest stories of our lives, and it would come to dominate so many aspects of our existence.

I suggested, for example, that we’d see significant inflation, social chaos, and extreme political dysfunction.

Back then these assertions were considered highly controversial. Today they are front page news.

I mean, the government is days away from default and led by a guy who shakes hands with thin air.

This morning’s headline from the Wall Street Journal says it all: “Debt-Ceiling Fight Sends Investors Hunting for New [Safe] Havens”. And the article goes on to explain how even AMERICAN investors are dumping US Treasury bonds because they no longer have confidence in the government.

And this is in part why I decided to hold this weekend’s Total Access event in Panama— to return to the very first place where I made those ‘controversial’ assertions that have come true.

I also wanted to showcase Panama as a sort of case study.

Panama is a very small central American country. But if you’ve never been, you would be really surprised.

The capital city’s skyline resembles Miami, with its soaring towers, world-class hotels, and rooftop night clubs. Having lived in Panama, and routinely revisited over the past two decades, I’ve witnessed the extraordinary economic growth and development in this country first hand.

No place is perfect, of course. But overall, Panama is a major success story, and it’s not an accident.

Success, like personal health, is not rocket science.

Unless you’re trying to be a highly competitive world-class athlete, better health is simple: don’t overeat, try to avoid processed sugars, get some exercise, don’t smoke, don’t drink to excess, etc. In short, better health is the result of good choices and a little bit of discipline.

It’s the same thing for countries. Panama made reasonable investments in infrastructure and avoided overspending. They made good choices and exercised some fiscal discipline. And they’re much better off than they were 12 years ago.

The US, on other hand, is much worse off than it was 12 years ago. And that decline is the result of terrible choices and ZERO discipline.

But despite the discussion of decline, the event was not one of doom and gloom. Far from it. We don’t dwell in “the end is nigh” predictions. On the contrary, I’m actually quite optimistic.

I explained to our audience this weekend, in fact, that there is a very simple way out of all these problems— and I’ll write some articles about that soon.

But we also focused on several interesting opportunities that, in many respects, are a result of this decline.

One of those themes is real assets, which I’ve written about many times before… and will continue to do so.

The term ‘real assets’ covers a lot of ground, but it typically includes commodities and natural resources, real estate, high value collectibles, and productive technology. In general, these are assets that cannot be conjured out of thin air by governments or central banks.

One of the guest speakers from this past weekend’s event showed our audience a very simple chart demonstrating the long term relationship between the price of real assets relative to financial assets.

And the chart shows very clearly that real assets have literally never been cheaper than they are right now, compared to financial assets.

(For people who love statistics, real assets are multiple standard deviations below their long-term arithmetic mean relative to financial assets.)

Inflationary times tend to be accompanied by real asset booms.

In the 1970s inflation era, for example, assets like gold, oil, and farmland performed incredibly well. Real estate in hot markets like southern California boomed (obviously before the state government went insane). Home prices in Beverly Hills went up 7x during the 1970s.

And then of course there were incredible success stories in technology from the 1970s, including two little startups called Apple and Microsoft.

I’ve been very clear in my view that, absent a massive productivity boom (which is possible thanks to AI), the US is once again looking at a long-term inflationary period.

Real assets have the potential to do very, very well. And it certainly helps that they’re literally cheaper than they’ve ever been.

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‘Real Assets’ are cheaper than they’ve ever been in modern history was first posted on May 24, 2023 at 5:52 pm.
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