Hedging The End Of The World
Regular readers are familiar with my views on the futility of hedging geopolitical risk.
I suppose there's some tension between the notion that the vagaries of geopolitics aren't amenable to hedging and my raison d'être. If the fate of markets is "inextricably intertwined with the ebb and flow of geopolitics" (as I've long asserted) and if "you can’t fully comprehend markets without a thorough understanding of concurrent political outcomes and societal trends" (as I habitually insist), then
During the late 1990s Asian Crisis, I loaded us up with gold shares. The classic flight to quality trade, right?
Well, it did not work because — during the recessionary crisis locals SOLD their gold hoards to fund day-to-day living expenses. That selling overwhelmed buying by silly dinosaurs like me.
And you should have seen the faces of the goldbugs in 2008…
Nothing wrong with a little gold. It’s 10-year performance is +72% and its 15-year is plus 135%. Yes, I know, a the SPY index fund would have crushed it. But a 5-10% position rebalanced is fine for many portfolios as a hedge.
I’ll bite. A hedge to what? If Gold can’t rally when the financial sector is imploding (2007-8-9), what’s the point of the thing?