Disorder Will Come – As Confucius Warned

When bubbles burst, we will discover how very few superior men there actually are – as defined by Confucius:

“The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved.” – Confucius

Superior man can exist at many different levels in society, not necessarily linked to money or investments. There will be many people without money who are prepared at an intellectual or psychological level. These people are probably the happiest since sadly many wealthy people worry about their money all the time rather than enjoy it.

In this piece, I am talking primarily about preparedness in relation to one’s wealth.

PS Important Postscript at the end of the article.

FOCUS ON WEALTH PRESERVATION

The investors we meet in our business are people who are risk-averse and therefore very much focus on wealth preservation. These investors buy physical gold because they are concerned about the excessive risks in markets. They want to protect and insure their wealth against unprecedented financial and currency risk. Like ourselves, these investors consider physical precious metals, stored outside a fragile banking system, as the ultimate form of wealth preservation.

But investment gold represents less than 0.5% of world financial assets. This means that a minuscule percentage of investors insure their wealth in gold. This is clearly surprising bearing in mind that over 5,000 years gold is the only money that has survived.

INFLATION IS COMING

There are of course other real assets like land and property that have held their values very well over time. As we expect major inflation in food prices, agricultural land is likely to do well in coming years. As I have pointed out in recent articles, we are already seeing high inflation in agricultural and other commodities. See chart below.

BOND YIELDS DO NOT REFLECT THE MASSIVE RISK

But commercial and residential property is a different matter. The incessant creation of credit since 1971 has driven property prices ever higher. In addition, central banks have given borrowers the best leg up ever by charging virtually nothing for money.

In Switzerland for example you can get a 15 year fixed mortgage at a fixed rate of 1%. This is like handing out money for free. But low-interest rates in no way represent the generosity of governments or central banks. Instead, it is the consequence of their profligate spending.

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