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Give Your Portfolio SWAG

Written By Brian Hicks

Posted August 21, 2012

James Saft over at Reuters has advice for investors deploring the status of their financial holdings: acquire SWAG.

SWAG refers to Silver, Wine, Art, and Gold. Investors could rely on their materiality to resist buffeting winds when changes in state policy could seriously affect the monetary supply.

Reuters quotes Joe Roseman, who has 16 years of experience at Moore Capital as a money manager and who first recommended SWAG:

“These assets effectively act as a money supply index tracker. If the authorities are going to bail themselves out, money supply will expand. Every single time governments have been here, this is exactly what they have done.”

Roseman’s argument is basically that equities and bonds will suffer due to the pressures of enormous debt, a population that’s growing older, and perennial resource scarcity, in combination with repressed finances worldwide.

Although bonds have been a typical safe haven in such situations, they won’t hold up because policymakers will want to create inflation and utilize assets as sources of government funding.

Money printing and financial repression will become the tools of escaping debt via controlled inflation and of sourcing funding for governments under pressure.

On the other hand, SWAG, unlike fiat currencies, cannot simply inflate in any way. That also means that they do not carry any innate debt. Finally, since they do not have any currency affiliation, they are not subject to the whims of monetary and fiscal policy, natural disasters, or wars.

Silver, like gold, is a hard currency, except it has more uses in industry. It has risen around 500 percent over the past decade. Roseman claims to be optimistic about its continued demand within industry.

Wine is seen as an investment (obviously, we’re talking about the finer end of wines here). A finite supply, portability, and low storage costs all work to its advantage. However, fraud is rampant and needs to be kept in mind, especially when considering the booming demand for high-end wines from emerging markets.

Saft expresses some concerns about Roseman’s valuation of art, mostly in view of its ephemeral and non-quantifiable nature. His point mainly is that art is a market comprised almost entirely of “the 1%” and so could be pegged to their fortunes. But the growth of the 1% could also influence a growth in price for art. Of course, fraud remains the biggest risk here.

As for gold, that’s always been the traditional bet against money printing and inflation. In the past ten years, gold has gone up more than 400 percent, and it has become very popular among investors of varying stripes.

According to Roseman, individuals with investible assets between $5 to $10 million should carry around 20 percent of their investments in SWAG. Saft stresses the necessity for extreme caution in all the areas in question given their vulnerability to fraud. But for a careful investor willing to do his due diligence, these could be safe havens for the portfolio.