Silver, Wine, Art and Gold (SWAG) To Protect From Inflation

This is a great article over at ZeroHedge

A hard currency instrument like gold, but with more industrial uses. Up almost 500% over a decade. Useful as a diversifier from gold. Roseman is optimistic about industrial demand. That said, this makes it a less pure play on the theme of a rising money supply and inflation.

The most investable fine wines have done well over the past decade and studies indicate they have low correlation with traditional assets. Finite supply of the great investment wines, portability and relatively low storage costs are an advantage. There also has been huge growth of demand from prestige-oriented drinkers in China and other emerging markets.

However, this is a double edged sword: while Chateau Lafite, the wine to serve to impress your regional party boss in China, has surged in price, so has fraud. By some estimates the amount of Lafite drunk in China last year exceeded total yearly production by almost 10 times. Wine investing requires storage charges, and wine funds are often quite expensive. Due diligence and caution are key in selecting advisers and storage places, as instances of fraud and overcharging are far from unknown.

The oddest of the group, and the one of which Roseman seems most fond. What is art? Hard to say, but whatever it is, it seems to go up satisfyingly in price, with sections of the market sky-rocketing even during the tough times in recent years.

While I have concerns that this is a market highly dependent on the 1pc, and thus vulnerable to falls if their share of income falls, Roseman believes that the growth of the very wealthy in emerging markets will drive future price growth.

There are collective investment vehicles specialising in art, but once again charges will tend to be high and due diligence is incredibly important. Needless to say, fraud is a real risk.

This is the classic hedge against having one’s pocket picked by money printing and inflation. Supply is limited and new sources take time to come on line. Gold has performed fantastically in the past decade — up more than 400pc — and has become far more mainstream, attracting institutional investors. Carrying costs can be low, and, thankfully, no need to pay an investment manager.

Roseman argues that for investors with perhaps $5m (€4m) to $10m in investable assets, a weighting of 20pc in SWAG would be appropriate. He urges caution and due diligence.

I have a lot of sympathy with the underlying concerns driving a SWAG allocation, but I do worry about costs, fraud and the potential that the same events that are driving money printing and financial repression could have an impact on wine and art values.

Roseman, argues, convincingly, that actually, compared with many financial assets, SWAG tends to be simple and robust.

In some ways the decision boils down to the classic dilemma facing investors considering paying high fees — the promise of truly uncorrelated and defensive assets against the sure thing of higher costs to get a shot at the good outcome.

If Roseman is right, my concerns about costs will look small-minded. We agree about due diligence: if huge amounts of cash flow into art and wine, you can bet fraud will rise.

A bit of prudence can go a long way, both in terms of protecting investors through due diligence and in the genuine hedge value of SWAG assets during an all-too-believable scenario of financial repression and rampant money printing.

Saft’s article, Adding SWAG To Your Portfolio can be read here.

full article: Silver, Wine, Art and Gold (SWAG) To Protect From Inflation | ZeroHedge

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