By Kris Sayce, editor, Casey Daily Dispatch

Here’s a story.

Bloomberg tells us:

Japan’s Government Pension Investment Fund made a record cut to the weighting of [U.S.] Treasuries in its portfolio last fiscal year as the world’s safest asset led a global debt selloff.


We laugh at the idea that people still refer to U.S. Treasuries as the “world’s safest asset.”

If by “safest” they mean an asset that has depreciated by 77% over the past 44 years, then sure.

But truly, it’s sad that folks still see U.S. bonds as a “safe” asset.

It makes no sense.

In today’s Dispatch, we’ll show you how the government and Federal Reserve have devalued your money, and why investors are right to look for safety elsewhere.

A place that makes a whole lot more sense than losing money in Treasuries… or even cash…

If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.

At the Dispatch we have two goals:

  1. To introduce you to the most important investing themes of the day, and

  2. To show you how to profit from them.

We do this by showcasing ideas from our in-house investing experts: Nick Giambruno and Dave Forest. And from the founder of our business, Doug Casey.

The Fed Has Failed

You may have figured it out already… This is another story about inflation.

We don’t apologize for continuing to beat the drum on this.

If there’s one thing – just one thing – that the U.S. Federal Reserve has failed to do, it’s to meet its stated goals.

It has failed to do so with one goal more than any other. That is, to “promote effectively the goals of… stable prices.”

Now, we should make it clear that Congress only gave the Fed this goal in November 1977. Perhaps Congress figured it needed to do something after the value of the U.S. dollar had collapsed so much in the previous 30 years.

As the chart below shows, from 1947 to 1977, the real value of $100 had fallen to just $34.58 in 1977.


Clearly, the government and Congress felt they had to do something about it.

The end of the Bretton Woods agreement in 1971, the crippling cost of wars in Vietnam and policing the world, and the 1970s oil crisis, had all driven down the value of the dollar.

And so, for some reason – despite the Fed’s track record of devaluing the dollar by 65% in 30 years – Congress thought the Fed was up to the job.

So how did that play out?

The chart above shows in full detail. Rather than achieving a goal of “stable prices,” the Fed failed.

The dollar’s value has fallen even further. The 1947 $100 that was only worth $34.58 in 1977, is now only worth $7.79 today.

In other words, the Fed, without its stated mandate from 1947 to 1977, managed to devalue the dollar by 65%. Since 1977, with its mandate, the value of the dollar has fallen by a further 77%.

Great job!

Don’t Get This Wrong

Turning back to the quote above about Japan’s Government Pension Investment Fund…

The Fed’s inability to maintain stable prices (in other words, protect the purchasing power of the dollar), means that it’s no surprise investment funds are ditching the dollar.

Now to be fair, Japan’s Government Pension Investment Fund is just reverting its U.S. debt exposure back to where it was in 2014.

The exposure had increased to 47% of its foreign debt holdings as the Fed increased interest rates in 2018. Today, it’s back to the 2014 level of 35% of the fund’s foreign debt holdings.

But regardless of the reasons and the timing… and regardless of how much U.S. debt Japan’s biggest pension fund owns… It’s clear that even big investors are worried about inflation and how it devalues assets like bonds.

So where is Japan’s pension fund putting its money? Again, according to the Bloomberg report, it’s reallocating those funds into “higher returning equities” and “overseas debt.”

The overseas debt is mainly European debt – maybe the pension fund hasn’t learned its lesson… or maybe it’s a case of the lesser of two evils.

Who knows?

What we do know is that regular investors should take note. While we believe that it makes sense to hold some cash, there is a real danger of holding too much cash.

That’s especially true if the returns on non-cash investments (e.g. stocks, bonds, gold, etc.) aren’t high enough to make up for the devaluation of their cash.

Remember, over the past year, while interest rates have been close to zero, the inflation rate was over 5%. That means, in effect, the value of each $100 you had in cash at the start of 2020 is now only worth $95.

Therefore, if as an investor you have a significant cash holding as part of your portfolio, you need to make sure the rest of your investments are in higher-return assets.

It’s something that most investors likely don’t consider.

Rather than looking at their total return across all assets, they may just look at the return of their stock portfolio… and assume they’re doing just fine.

That’s a big mistake.

That’s why we’re devoting this week to asset allocation 101. It’s crucial if you want to build a portfolio that works for you as a whole… not just part of it.

Getting this right or wrong can have a major impact on your portfolio and your wealth. Stick around as we look at this in more detail in the days ahead.



Kris Sayce
Editor, Casey Daily Dispatch