Hedging Debt Storm – Cash, Bitcoin, Gold Or Other?

Hedging Debt Storm – Cash, Bitcoin, Gold Or Other?

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all it’s glorious insanity.


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While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, I’m a capitalist.

In this week’s edition of the WOW we’re covering hedges to the debt-based system

As the world waltzes gleefully into a full blown debt crisis, we take some time out of our day to look at some possible hedges for our portfolios.

But first…

The fact that we have today over $13 trillion in negative yielding debt is quite some achievement. Hats off to our central bankers – they have now achieved the seemingly impossible.

And speaking of the seemingly impossible, I thought it worth sharing with you some historical “impossibilities” – just for context.

Market Manias

The Dutch in the 1600’s, not having dot-coms to chase, instead chased Tulip bulbs.

Like all bubbles, it continued to inflate well beyond even the most bullish traders’ expectations. And then, when every last man, woman, goat, and child was involved and there was nobody left to sell to, the price collapsed (quite literally) as people realised with astonishment that, “gee, it’s only a bulb for a pretty flower”.

Then the South Sea experiment is a truly fascinating concoction of crazy refinancing mechanisms, debt swaps, and equity issuance which perhaps 1 in 100 investors actually understood (not unlike the mortgage backed securities and collateralised debt obligations found in the buildup to the GFC). As is the case with all bubbles, investors were found to blindly chase a rising value.

Then of course we have the roaring 20’s where between 1921 and 1929 the Dow catapulted from 60 to 400, making geniuses and millionaires out of anyone long.

As with any other “bubblicous” environment buying pushed up valuations which brought more buyers into the game who, emboldened by recent riches gained from their fellow neighbours and the local hairdresser, wanted a piece of the action. Given that not 1 in 100 paid any regard for earnings multiples or anything of the sort, action is indeed what they got but just not of the variety they’d been expecting.

The resulting collapse ushered in the Great Depression, a pretty shitty period of time where over a third of Americans lived below the poverty line and many forced to live in shanty towns and eking out a living anyway they could. Ironically, all of this is inconceivable to most Westerners today, despite the warning signs.

There are countless others, including the Nikkei boom and bust, the housing boom, and bust of recent memory – and they all follow the same pattern.

That this experiment will end badly is a foregone conclusion, what and how that unfolds is what really matters. Not only what and how it unfolds but how to invest in such a unique environment is what consumes our every waking hour. It is a challenging but also a potentially extremely profitable time to be an investor.

As mentioned above, we have a record amount of debt trading at or below the waterline. And yet, at the same time, risks have never been higher with warning signs flashing daily.

For instance, Italy, that country which brought us the Godfather, Ferraris, regular devaluations in the lira, and now bank-runs (unfolding as I write this to you – contacts in the country tell me ATMs are empty), also mysteriously sports a yield on its 10-year bonds of a minuscule 1.16%.

The bank runs are easy enough to have seen coming with Italian bank NPLs (non-performing loans) accounting for nearly a fifth of the country’s output. The yield on sovereign debt – not so much:

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The question that is more important than ever is one of protection. There are many ways or strategies to attempt to profit from the folly but the ability to first protect oneself is paramount.

And so, I’m curious as to how you are positioning yourself. Please let me know below:


What is your primary means of protection?

Something else?

Leave a comment below.

Know anyone that might enjoy this? Please share this with them.

We’d love your feedback and if you have a market you think worthy of covering please send it to me here.

– Chris

“The four most dangerous words in investing are, it’s different this time.”  -John Templeton

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Capitalist Exploits is a team of globe-trotting professionals dedicated to seeking out and investing into unique, undiscovered, and profitable opportunities worldwide. This could be an asymmetric trading opportunity in the global currency markets, seeding a tech startup in Israel, or co-investing into a bespoke private equity deal in Ghana! Our team lives and spends time in several different countries, on several different continents. Although we all come from different cultural backgrounds and parts of this great ball of dirt hurtling through space, in today’s world this matters little, as our values and mission are all aligned.
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