A few months ago, with a mischievous look in his eyes, Charles Gave noticed the S&P 500 was paying one gram of gold per annum in dividends!

What kind of hidden information lies behind this coincidence? Scarcity, efficiency, and the competition between them in asset markets.

For the first time since the end of the subprime crisis in 2009, the S&P 500 book stopped growing on December 31st, 2020 over 12 rolling months. The US market momentum is therefore fully supported now by intangible value.

« All the things I could do, if I had a little money » chantait ABBA en 1976.

Aujourd’hui, ce n’est plus l’argent qui manque. Les grandes banques centrales des EtatsUnis, de l’Europe et du Japon, en ont imprimé entre 6 et 7 billions de dollar américains depuis le début de l’année 2020. Comment comprendre cette monnaie ? Est-elle surévaluée, sous-évaluée ?

« All the things I could do, if I had a little money » ABBA sang in 1976.

Today, there’s no shortage of money. Since the beginning of 2020, the major central banks of the United States, Europe and Japan have printed between six and seven trillion US dollars combined. How can we approach this currency? Is it overvalued or undervalued?

Fragility in finance is equivalent to mass in physics. To understand the analogy, one must go back to the origin of time itself. Crucially, the genesis of our universe is remarkably similar to the genesis of finance. This claim shall lead us to a better understanding of what antifragility means. Antifragility in finance is equivalent to antimass in physics, the hypothetical ‘dark energy’ that has eluded cosmologists for so long.

We cannot fill our car tanks with letters of credit, and we can’t have banknotes for dinner. This is because ‘Wealth’, and ‘Money’, are fundamentally different. This is an issue we have considered in many of our papers, defining asset value and wealth out of free energy, not money. Today, we argue that cash rates set at artificially low levels by major Central Banks for too long deeply affect developed economies’ wealth creation.

Gold is the ultimate antifragile asset. Unlike fragile assets such as equity indices, antifragile assets react positively to stress. Does it make sense to constantly hold gold in a diversified investment portfolio? ‘No’, is the answer. 50% of the time, when currencies act as stores of value, gold is a useless asset. However, the other 50% of the time, when currencies are debased, gold is a vital asset, insofar as it is the centre of pricing of all other financial assets. This paper will take the former 50% of the time to be ‘Wicksellian times’, while the latter 50% to be ‘Keynesian times’. World economies re-entered ‘Keynesian times’ on January 31st, 2019, following the monetary policy reversal of the FED. Statistics on portfolio allocation advocate a switch in these periods: from bonds to gold, from developed economy equities to emerging equities, and from cash to real estate. Gold, however, is not antifragile by nature; it has only turned antifragile since the end of the Gold Standard in 1971 because of its pricing in currencies. And currencies are fragile assets

Gold’s purchasing power has remained remarkably stable in the past 400 years, at least until the end of the Bretton Woods system in August 1971. The ensuing debasement of major currencies created a new competition between gold and currencies to attract world savings, and also between currencies themselves. This letter looks to describe the terms of the competition and identify the best moments to buy currencies rather than gold.

Our previous letters on “Antifragility Revisited” principally dealt with the economic and financial meanings of fragility. A necessary step to progress on the theory is to now turn to scientific analogies. This letter focuses on the most profound yet troublesome, and contrived concept of modern science: entropy. It introduces the founding ground of a scientific definition of fragility.

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