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While I'm mostly indifferent on the government holding strategic reserves of gold (which they already do) or gold-like digital assets (which is being proposed)
by pembrook 2y ago
While I'm mostly indifferent on the government holding strategic reserves of gold (which they already do) or gold-like digital assets (which is being proposed) I don't think Cliff Asness's opinion should sway you either way.
Finance media loves the appeal to authority fallacy, but it's important to know anytime you ask someone who runs a fund their opinion, they're talking their book. Hedge funds make money on management fees, not on being right about everything.
Cliff Asness is in the anti-gold camp and runs a long-short hedge fund almost exclusively based on the five-factor research. Obviously he wouldn't like to promote the idea of long-only gold (crypto or otherwise), that's not a fund AQR sells.
You can just as easily find a hedge fund billionaire with the opposite opinion, ie. like Ray Dalio who is in the gold camp and sees it as a diversifier, and surprise surprise this is a selling point to his institutional investors who are also in that camp.
What do either of these billionaires opinions mean for what you should think about this idea from first principles? Nothing.
Is it non-productive and stupid that gold and bitcoin have value? Yes. Are the people touting both usually annoying? Yes. But it doesn't change the fact that they have historically offered uncorrelated positive returns.
- jgalt212 2y agoGold has offered barely positive returns over long time periods.
- pembrook 2y agoA financial asset with barely positive returns but uncorrelated to other financial assets is actually an extremely valuable thing. Heck, if you can find a basket of 4-5 uncorrelated return streams that only deliver 1% per year after inflation, you could start a hedge fund. Non-correlation = reduced volatility = the ability to apply massive leverage to increase that 1% return.
- kgwgk 2y ago> Non-correlation = reduced volatility If the volatility of each uncorrelated thing is high you may need to put together many more than 4-5 to bring it down.
- jgalt212 2y agoonly if such assets have very low / no vol. With any level of leverage such a strategy brings along a significant risk of gambler's ruin.
- jaredklewis 2y agoHow about engaging with any of the arguments made in TFA? Such as: - Crypto is more volatile than stocks, already a volatile asset - sovereign wealth funds are tool for industrial policy, which is a bad idea - sovereign wealth funds tend to be associated with corruption - money would be better spent paying down debt or (in absence of debt) reducing taxes or UBI And so on.