China and Tangible Assets: Culture. Pragmatism. Context.


Why are we dedicating an article to tangible asset in the context of 2020’s developments? Let’s just say that in the opinion of the team, what is happening in 2020 represents a textbook scenario which makes it clear why tangible assets are desirable, a compelling argument in favor of including them in pretty much any portfolio. In the absence of tangible assets, it is our firm view that true diversification will not be achieved.

Furthermore, do keep in mind that not all tangible assets are correlated. For example, real estate tends to do well when the overall economy is booming, whereas gold can be and frequently is used as a hedge or if you will, insurance policy. Therefore, just like diversification in general makes sense, the tangible asset dimension of your portfolio must be properly diversified as well.

However, from real estate to precious metals, all tangible assets have one characteristic in common, one which represents a selling point which cannot and should not be ignored in the context of 2020’s unprecedented stimulus on all fronts (both monetary and fiscal): the fact that they cannot simply be willed into existence.

Yes, it is true that for example mining-related technological advances could pop up which result in an above-average increase in supply (anything from asteroid mining to output improvements here on Earth). For example, discoveries on the American continent have resulted in such a supply surge in Spain in the distant past that the very monetary and economic system was shaken. As such, yes, problematic increases can occur as far as precious metals are concerned. The same principle is valid when it comes to other tangible assets as well, for example excessive construction that results in an increase in housing supply far beyond what demand dictates.

However, there is a world of difference between such scenarios and what is currently happening with pretty much all currencies. While supply shocks can exist, have existed and will most likely re-emerge at one point or another with tangible assets, the elephant in the room in terms of nuance and differences is represented by the fact that they cannot be created out of thin air. The same cannot be stated about unbacked fiat currencies.

Why should 2020’s developments worry investors to enough of a degree that they end up increasing their exposure to tangible assets?

Haven’t measures which were considered inflationary by many economists also been implemented in the aftermath of the Great Recession, with inflation nowhere to be seen?

While it is true that 2020 is hardly the only year during which central banks and governments have engaged in aggressive stimulus initiatives, this doesn’t mean inflation can never possibly become a threat again just because it hasn’t done so in the relatively recent past. As any investors worth his salt will tell you, it occasionally makes sense to zoom out.

Furthermore, it is important to pay attention to the structure of 2020’s stimulus measures when compared to the Great Recession or even Dot-Com Bubble days. As explained on other occasions as well here at, the likelihood of newly-created currency finding its way to the “real” economy more so at this point than in the past is quite high.


For reasons such as:

  1. The increase in aggressiveness by all central banks and governments compared to the Great Recession days, with pretty much no political actors questioning the viability of these methods and on the contrary, right-wing and left-wing politicians out-bidding one another in terms of stimulus: more business-oriented stimulus on the right compared to more individual-oriented stimulus on the left, of course, but out-bidding is still out-bidding
  2. The ubiquity of it all, with even countries which were considered extremely conservative such as Germany jumping on board and throwing hundreds of billions of EUR at the problem right from the beginning
  3. On a similar note, yes, the “speed” element deserves to represent a stand-alone reason, with the fact that central banks and governments from all around the world quickly resorted to unprecedentedly aggressive methods speaking for itself
  4. The fact that this time around, far more attention is being paid to the fiscal stimulus dimension than in the aftermath of the Great Recession. Therefore, unlike the post-GR currency creation initiatives which led to money finding its way more so to the banking system reserve dimension than to Main Street, it is far more likely that the real economy will also be on the receiving end this time around, which dramatically increases the likelihood of us also seeing consumer price inflation rather than merely asset price inflation at best
  5. The political landscape being remarkably different, in light of the fact that in the aftermath of the Great Recession, populist leaders were exceptions. Nowadays, populism is seeing worrying “critical mass” numbers and from Brazil to the United States, a populist status quo is no longer a figment of the imagination of those writing scripts for B-rated movies but actually firmly in reality territory

These five reasons represent the most obvious choices but the list is by no means definitive. The bottom line is this: there have been few junctures throughout history which painted a more compelling picture in favor of embracing tangible assets than the 2020 developments. Does this mean impressive returns are guaranteed? Most definitely not, as it can oftentimes take the market remarkably long to make up its mind. This much is pretty much certain, however: the probability of tangible assets ultimately doing very well is so high at this stage in the game that Chinese asset investors and pretty much everyone else would be doing themselves a great disservice by not tweaking their portfolios accordingly. This doesn’t, of course, mean going all-in by proverbially betting the farm on tangible assets, it simply means treating them far more seriously than in the past. Fair enough?

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