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Looking for Long Term Value

Daily Analysis - 21/12/2017

Determining what a store of value is

long-term-value


When considering how to store value in assets one assesses the asset’s ability to grow on value over time. Value is defined as the price averaged over time. As opposed to price which is merely a point at which a transaction occurred, value is the price that holds itself over time. We will look at this phenomenon through the lens of four different assets: The Euro, the British Pound, and the Japanese Yen ND Gold.

Governments, money and evaluation


The GBP chart reflects declining value, measured in US Dollars over time. In fact, all are measured against other assets. Whether gold or Yen, Euro or Sterling. Nothing has absolute value. And so we measure the ability of an asset to store value in another asset, always some currency. A homeowner in Britain likely saw the value of her home rise over the last decade that is in the number of GBP the home was worth rose. That however is only half the story. If the GBP lost value against other currencies, in other words had its value eroded because of inflation, then the home, as a store of value, did not deliver. This is in point of fact exactly what occurred in the case of the GBP or assets denominated in GPB, like our homeowner’s house.

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The curious case of the Japanese Yen


The Yen, relative to other currencies has been more stable in its ability to store value. In fact, depending on the particular period of time you examine, (all of today’s charts are very long range). Yet, it too has seen its value erode. In other words, relative to the US Dollar, it has not actually appreciated but merely held a stable value over time. Not bad but hardly an investment that has shown positive returns over the long run. So while the homeowner in Japan did not experience the type of decline in relative terms that the Brutish asset owner did, she hardly gained. Better than a loss to be certain. But no more.

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Euro fluctuates most


The chart of the Euro versus the dollar presents a more volatile picture. This currency has been subject to a wide array of buffeting effects and unstable shocks in its short lifetime. While we will save the reasons for this volatility for another session, suffice to say that the Euro as a store of value too has not been good. Remember, we are talking specifically of long term value today. Not the short term trading windows of hours or days we are usually focused on. So what does store value? Gold is often cited as the definitive store of value over time. But is this notion based in fact? Is it true in any meaningful way? Let’s examine the chart.

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Gold over time


As the chart shows the price of gold has risen and fallen over time. And, taking the longest view, say over 15 years or more, it indeed seems to have appreciated. However, as we mentioned with respect to all assets, they are denominated or measured in other assets. So, when you factor in the devaluation of the US Dollar onto the chart the appreciation of gold is hardly what the chart depicts. Rather, when taken from the perspective of a dollar that was weakened during this period of time, the appreciation of gold is less than half of what the gold/usd chart would have you believe. Gold in fact has not been a strong store of value over time because it is measured in us dollars which are worth less relative to other assets, including gold. And so fellow traders, there really is no sure store of value in this world. All we can expect is to make a relative profit over short(er) time periods. That is why trading to maximize profits has been and will remain the surest form of value protection we have.

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