AUSTIN, TEXAS. You’ve probably watched one--- at least for a few minutes. Yes, I’m talking about those end-of-the-world video ads on the Internet informing us, ever so slowly, that our houses are about to become worthless and our money is about to disappear along with our retirement accounts and everything else. Now is the time to buy gold, we’re told.
I get a lot of reader mail asking about Porter Stansberry and his advice on investing for a new and even more horrible financial crisis. A few are asking about similar (and equally long) Internet videos from James Dale Davidson.
It’s good to remember that these fellows are marketing newsletters and make their ordinary U.S. dollars from the idea of crisis. But what about someone who is literally responsible for investing in gold and precious metals as part of an enormous retirement fund? What’s the view from that window?
Well, the man looking through that window is Shayne McGuire. He works for the Teacher Retirement System of Texas. It is the 18th largest pension plan in the world. It’s also one of the few pension funds that has an actual commitment to gold and precious metals and an investment committee to manage it.
“As far as I know, we’re the only fund that has a dedicated allocation to gold and precious metals and a specific gold strategy separate from commodities,” he said when I visited him in the TRS offices. He quickly pointed out that it has never been more than 1 percent of fund assets.
To put that 1 percent in perspective, gold recently accounted for only 0.6 percent of global financial assets. So while much of the world ignores gold altogether, the Teacher Retirement System of Texas, treats it as a serious, if minor, asset.
Mr. McGuire went on to say there were three big points to understand about gold.
“First, gold is an asset class that competes against equities and other asset classes, generally on a weaker footing (because) …in the long run (periods like 25 years) it cannot outperform stocks, bonds or real estate.
“Second, gold tends to like bad news. If houses go down, it tends to go up. It makes you feel like you’re betting against the home team.
“Third, a lot of peculiar people seem to like gold and most people don’t want to be like them.”
While the second two reasons introduce a lot of fuzzy thinking on the subject of gold, Mr. McGuire and other serious investors focus on the first factor--- gold as an asset class compared to other asset classes. He then pointed out that, in a way, gold is a new asset class because it has traded as a commodity only since the 1970s. During that entire period, he observed, there were gurus who believed America and the dollar were going to fall to a long list of competitors---Japan, the Middle East, a united Europe, emerging markets and, now, China. But it hasn’t happened.
“What would a dollar crash mean? What would rise? Yes, if it happens, gold would probably rise,” he said. That, he indicated, would be interesting, but not earth shaking.
“I don’t think gold is an end-of-the-world asset class,” he added. “For that you need to have water, food, fuel, ammunition and a Bible.” There was, he said, a telling scene in Cormac McCarthy’s post-apocalyptic novel “The Road” where the father is going through an abandoned underground bunker. Here’s how the scene reads:
“In the bottom of a big plastic jar of bolts and screws and miscellaneous hardware he found a double handful of gold krugerrands in a cloth sack. He dumped them out and kneaded them in his hand and looked at them and then scooped them back into the jar along with the hardware and put the jar back on the shelf.”
He also found bullets. But he never found what he really needed, a gun.
“The notion that gold is an Armageddon asset is a modern notion. It would not have made sense to J.P. Morgan. It was money, a store of value. Yet today we think about Armageddon when we think about gold. Historically, that just doesn’t make sense. Long ago it was an unquestioned store of wealth to pass money from generation to generation.”
So, when you put all the drama aside, gold is just another asset, a minor asset at that, and a careful investor owns some--- sometimes more, sometimes less, but some.