The Big Short is Long Gold: The Great Rebalancing Has Begun!
Recent headlines confirm investors are looking for alternatives beyond bonds.
I have given several presentations recently explaining why the coming years will be characterized by 'The Great Rebalancing.' By this, I mean that investors will be looking for alternatives beyond bonds due to increasing uncertainty about massive debt accumulation, the higher volatility associated with bonds, and central banks' efforts to keep interest rates low and inflation relatively high.
The Big Short is Long Gold
I conclude my presentations with the slide below, showcasing the latest investment portfolio of Michael Burry, known from 'The Big Short.' It reveals that Burry invested over 7% in a physical gold ETF last quarter. The next line shows that Burry also increased his stake in Block (formerly Square), led by Jack Dorsey. Block recently announced that it is developing its own Bitcoin mining system and has started a 'dollar cost averaging' program to steadily increase its already sizeable allocation.
The central message I want to convey with Burry's example is that investors should expect an acceleration in the flow of announcements from companies, investors, and asset managers implementing allocations to gold and Bitcoin. In addition, you do not want to be the last investor to make the 'crossing.'
It's real!
Since I started using Burry's portfolio as an example reflecting the start of 'The Great Rebalancing,' the number of headlines confirming its 'reality' has increased. Here are some of the most notable examples:
The State of Wisconsin Investment Board (SWIB), managing the assets of the Wisconsin Retirement System, the ninth largest and among the most financially robust pension fund in the United States, has added Bitcoin to its investments. With over USD 100 billion in assets under management, the USD 160 million purchase is peanuts. However, if SWIB believes Bitcoin deserves a place in the system's strategic mix, more purchases must follow for Bitcoin to make a meaningful on the fund's investment performance.
George Soros has invested nearly 2% of his portfolio in MicroStrategy. While that might sound modest, it is 40 times the weight of MicroStrategy in the MSCI World Index, which it was recently included in.
Semler Scientific, a U.S. medical risk assessment company, announced that 'its board of directors has adopted Bitcoin as its primary treasury reserve asset.' In a June 6 update, the company indicated it now holds 828 Bitcoins worth USD 57 million, fully funded by the company's USD cash.
Earlier, the Japanese company Metaplanet announced Bitcoin as its largest holding on its corporate balance sheet. It bought about 30% of its balance in Bitcoin and appointed (my Bitcoin friend) Dylan LeClair as Director of Bitcoin Strategy. Also, Block, formerly Square, took a further step with the announcement to increase its existing Bitcoin holdings through a dollar-cost-averaging strategy.
About 30 companies have stated they will use Bitcoin as a treasury or cash asset on their balance sheets. Even if all 30 were in the MSCI World Index, which is not the case as neither Semler nor Metaplanet is included, it would still only account for 2% of the index names.
During the Greenwich Economic Forum in Hong Kong, Ray Dalio, the founder of Bridgewater Associates, again indicated that gold is the preferred investment tool to protect against the risks of 2024.
However, nothing goes up in a straight line, which also applies to 'The Great Rebalancing.' For instance, China bought no gold for the first time in nearly two years. In May, the (official) sales figures were zero.
On the right track
To follow the development of 'The Great Rebalancing,' it is crucial to monitor the news flow from a broad perspective – thus beyond looking for messages that confirm one's beliefs. When this flow reaches a critical mass, another, larger, group of investors will reconsider their strategic investment mix, and so forth. The examples above indicate that we are moving in the right direction.