Hard Assets Matter When Geopolitics and Markets Turn Chaotic | Jeremy Schwartz
Summary
- Traditional 60/40 portfolios and cash allocations are failing to provide adequate real returns and diversification in the current geopolitical climate.
- US investors are structurally under-allocated to international equities and gold, with US retail allocation to gold sitting at roughly 2% compared to 8% in Europe.
- Central banks, particularly China, are actively replacing US Treasuries with gold, creating a massive structural tailwind for precious metals.
- Farmland offers a unique, uncorrelated return stream with zero vacancy risk, plus massive upside optionality from AI data center and solar conversions due to its inherent land and water rights.
Trade Ideas
"You see the last 12 months you see international starting to work... The neutral allocation to foreign today is roughly 60/40... most people are nowhere near 50/50." US retail and institutional investors have spent the last 15 years heavily overweighting US large-cap tech. As international markets begin to show relative strength, portfolios will be forced to rebalance toward historical neutral weightings, driving sustained capital inflows into ex-US equities. LONG broad international equity ETFs to capture the mean reversion in global asset allocation. Continued US economic exceptionalism; a surging US dollar that suppresses foreign equity returns.
"Central banks is one of the key buyers of gold recently... we have three different gold overlays today in the US. GDE is the equity core with gold futures. The miners is GDMN and more recently GDT that does TIPS." Retail investors are vastly under-allocated to gold because they do not want to sacrifice the yield of equities or bonds. Capital-efficient ETFs solve this by using futures to stack gold exposure on top of core stock and bond holdings. As the narrative shifts from crypto speculation back to structural central bank gold buying, these capital-efficient vehicles will attract significant AUM. LONG capital-efficient gold and miner ETFs to capture central bank-driven price appreciation without sacrificing core portfolio yields. Central banks abruptly halt their gold purchases; a spike in real interest rates causes non-yielding assets to sell off.
"They buy dirt. They lease it out to farmers... you see all these farms converting to data centers because we need these data centers. They need land where there's good water and that often overlaps where we had farmland." Farmland provides a baseline of stable, inflation-protected rental income with virtually zero vacancy risk. However, the explosive upside comes from the AI infrastructure boom. Tech companies are desperate for land with access to massive water supplies to cool data centers. Public farmland REITs will benefit from this dramatic revaluation of their underlying acreage. LONG farmland REITs as a backdoor, lower-volatility play on AI data center expansion and inflation protection. High interest rates pressure REIT valuations; a crash in agricultural commodity prices leads to farmer tenant defaults.
