The best of times, the worst of times: a tale of Gold ‘n Growth

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

–  A Tale of Two Cities, Charles Dickens (1859)

Happy hump day, reader.

Late last year, when our publisher Nick O’Connor asked myself and our other editors here at Southbank Investment Research for our predictions for the year ahead, it was those opening lines of A Tale of Two Cities that came to mind.

I wasn’t predicting a world in lockdown at the time – this was well before the pandemic panic spread and loo roll began to fly off the shelves. I was predicting a stockmarket melt-up benefiting only the wealthiest and a rise in social unrest as a result.

Though my predictions haven’t panned out exactly as planned, Dicken’s introduction of opposites seems all the more poignant now. As we’ve explored recently, there’s been an incredible rise in tech stocks amid the unemployment boom – Shopify ($SHOP) yesterday being a particularly feverish example.

(Coincidentally I’m currently trying a brand of chewing tobacco called Oliver Twist. The flavour I’m on at the moment is ironically named “Royal” – it tastes like liquorice, but smells like a bowl of bran flakes. I’m not sure I’d be begging for more, bowl in hand etc, but it does the job and doesn’t make you want to spit like a camel. I give it a 6.5/10).

But there are several other “Tales of Two Realities” out there. The Chinese mainland stockmarket is on an extraordinary tear right now, right as some of the countries which have appeased the Chinese Communist Party (CCP) and have empowered the country’s export-led growth have begun growing a spine.

It looks like Huawei will be thoroughly ripped out of the UK’s 5G rollout, and as we noted last week, the US is growing ever bolder in its attacks on the CCP’s crimes against humanity in Xinjiang. And this is all amidst international condemnation of the CCP’s encroachment on Hong Kong through national security legislation.

One reader with boots on the ground in Hong Kong wrote in a response to Friday’s note. It’s grim reading:

As a regular reader I was very pleased to read your robust article on the WuFlu and the useful idiots who knowingly or otherwise rebroadcast the propaganda.

It is clear that over the last decade the soft power machine has gained a foothold in universities, boardrooms and the media and at least that now seems to being recognised.

But back to your article and the ‘casual racism’ accusation. I live in Hong Kong and we have been on the receiving end this week of the Motherland’s love.

Already arrests have happened citing an ill defined piece of legislation; the HK Public Libraries have started to remove books from the shelves that might be deemed in violation; the schools are under pressure to revise text books; individuals are deleting their social media posts and the press self censoring. Not a bad result for 3 days and the Thought Police are not even set up yet…

It’s a story more Orwell than Dickens, that’s for sure. If you’re reading this in Hong Kong: good luck and stay safe.

As the CCP tightens its grip on HK and Cold War II intensifies, the CSI 300, an index of the 300 largest stocks on the Shanghai stock exchange, is taking this all as great news:

Charlie Morris remarked on the phenomenon to subscribers of The Fleet Street Letter Wealth Builder yesterday:

In 2006, I bought into the Asian boom, and it was a spectacular trade. It was funny how the market ignored double-digit GDP growth from 2002 to 2006, only to melt up six-fold in 2006. It crashed during the credit crisis, recovered in 2014 as the People’s Bank of China flooded the market with liquidity, only to crash the next year as the Chinese economy cooled as growth was downgraded to single digits. It is unquestionably a manipulated market, but it’s going higher and that will boost emerging markets in general.

With its international relations at a turning point, you may think it’s an odd time for a China surge, but that’s financial markets for you. Liquidity is abound, and the marginal dollar sets the price. There is a good chance that China could move to an all-time high, and that will underpin emerging markets. Fasten your seatbelts…

It’ll be interesting to see if this jump in Chinese stocks will “trickle down” into other emerging markets and give them a jump. Perhaps it may even lead to a boost in that Africa play he set up recently which I wrote to you about.

Charlie has written numerous times on the value of a “Gold and Growth” portfolio, which only owns gold bullion and growth stocks. He’s backtested the data and it’s very compelling, with the two assets hedging out the other’s losses, and leading to very strong returns over the long run.

Here’s a snippet from a note he wrote to his subscribers in May last year on the concept:

The reason why this concept makes sense is because both gold and growth will deliver returns over the long term, but at different times. That is, gold performed terribly during the 1980s and 1990s, while growth surged. In contrast, gold surged in the 1970s and 2000s, while growth was more lacklustre.

By blending two opposing concepts, the portfolio becomes more efficiently diversified, than by holding one alone. For gold to thrive, you need to see that the world will slash rates from here or see inflation surge.

That could easily happen with the adoption of dubious concepts such as Modern Monetary Theory (MMT), or helicopter money. But we can’t be sure as the growth cycle may continue for longer, which would hurt gold.

Similarly, for growth to thrive, we just need inflation to stay low while the economy chugs along, while money is channelled into already highly priced stocks.

What brought that Dickens quote to mind today is that a Gold and Growth portfolio is like a candle burning at both ends: gold and growth are booming at the same time. It’s the best of times, and the worst of times…

All the best,


Boaz Shoshan
Editor, Capital & Conflict

Category: Market updates

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