More than 5 years of studying hard asset-related industries, businesses, and investment managers leads us to conclude that we are in the midst of some fundamental shifts in the global economy. This conclusion has changed the way we think about, and advise, the activities of business and investing (which are two sides of the same coin in our book).
America is electrifying, and decarbonizing, and reshoring, and AI-ing…among other things. But the materials and energy and people required to undertake these projects are not in abundance. Certainly not the way they have been for the last three decades. Hold that up against a background of government fiscal deterioration and we should all be concerned about the long-term cousin problems of inflation and currency debasement.
For most businesses, these problems challenge the robust profit margin expansion of the last twenty years. These problems become headwinds to future profit growth.
But assets that are resilient to – or even benefit from – inflation and debasement offer a hedge of sorts. These are “hard assets” – they are connected in some way to relatively scarce materials. The good news is that some of these assets are priced at bargain levels. The bad news is that these assets are tough to own - as the chart below(1) shows, hard assets (here represented by commodities) can remain at low prices relative to financial assets for intolerably long periods of time!
If I’ve been conditioned for twenty years to simply buy a stock index and watch it go up, do I really have the patience and fortitude to own assets whose pricing in the capital markets is highly erratic and unpredictable?
At some point, the long-term risk of ignoring these assets exceeds the short-term price fluctuation discomfort that goes with ownership. We think we’ve already reached that point.
The views expressed represent the opinions of Bluestone Financial Advisors as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
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