When Investors Can’t Get Their Money Back

Everything we see in the world of financial news tells us to buy gold!  War, debt, spending, corruption, monetary flimflams, rampant cronyism.  

But there’s aren’t many financial stories much worse than the ones about investors who can’t get their money back.  It doesn’t matter much if it’s a hedge fund scoundrel like Bernie Madoff, a failing S&L, a bank holiday, or your no-good brother-in-law that can’t pay you back.  In any case it is a screaming, blaring warning signal.

Currently the warning signal is coming from the private, non-bank credit markets.  Investors in private credit institutions are running into trouble and even if you are not one of them, you should not ignore the warning.  It reflects stress in the credit system at large, a system that makes the entire economy go around.

We noted recently the clampdown on withdrawals among the private credit funds of Blackstone, BlackRock, and Blue Owl.  But the problem is bigger than that. There are liquidity challenges at others we didn’t mention, including Ares and Morgan Stanley.  One of the latest to make customers stand in line to make redemptions is Apollo, a $15 billion private credit fund.  It received request from clients to withdraw 11.2 percent of their funds.   

Request denied.  Good luck.  Wait in line.

It is a problem that there isn’t sufficient liquidity to meet withdrawals.  But it is also telling that their clients want to make withdrawals.  That suggests the possibility of skepticism about the funds themselves as well as their possibility need for liquidity for challenges elsewhere in the economy.

It is an early warning signal.  Everything in the economy is not hunky-dory.  With a war going on, oil in short supply, fertilizer at a premium, and interest rates creeping higher, who could have guessed there is trouble?  Private credit vulnerability will deepen and spread to other credit markets – to bank credit – as the economy deteriorates from the compounding of war stresses. 

It’s time to sum up with our short message that gold is liquid everywhere, all the time.  It has no counterparty risk.  The gold you have in your possession is secure even if a mine floods or if a bunch a radicals try to nationalize it.  It is secure even if the exchanges change the rules of the game and prohibit withdrawals.  It is secure if the banks close, or even if the government collapses. 

That is what we mean when we say physical gold (and silver) that you own and take in your possession – the way we recommend you in invest in precious metals – protects you from counterparty risk.

That is why precious metals have been the world’s premiere and enduring form of money for thousands of years.