Investing in a debased world

Gold has reached $4000 and silver is trading at $50. Their performance YTD is 50% and 66% respectively. The explanation can be found in the chart below. The global fiat based system has accumulated $340 Tn of debt which represents 325% of GDP. The percentage of debt over GDP has decreased since 2021 due to inflation, which has diluted the value of the debt, and likely will continue to do so for the foreseeable future. It’s the only way out at this point to avoid a full fletched default (although financial repression is considered a form of default). As we get closer to the end of the year and investors start thinking about 2026 and the Asset Allocation bets they will put in place, who will want to bet on fixed income in this environment at current yields? It is true that world population, particularly in the developed world is getting older, and for that reason, looks for cash flow in retirement, and also there are insurance companies and defined benefit pension plans that use liability driven strategies to manage their portfolios, but there are very few arguments to support debt based strategies, since the investment approach needs to be confronted in real terms, not in nominal terms. Fiat currencies are being debased and, debt expressed in fiat currencies will be inevitably debased as well. Unless we’re confronted with a deflationary environment, which is unlikely, since we are in a fiscal dominant world where government spending is the norm, we will see another inflation wave (perhaps not reflected in official numbers but felt in your pockets), and yields should adjust to the upside accordingly.

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