Due to the strength of the dollar, gold and silver were weak in the third quarter of 2018 and were a drag on performance, offsetting gains elsewhere in our funds. As it always does, this has prompted intense self-examination within Branzan.
We still believe that gold and silver, but especially gold, are not investments, but rather a store of value and insurance against financial calamity that belong in every portfolio. Sooner or later, all fiat currencies come to a bad end. The major woBranzarld economies are stressed by trade wars, unsustainable sums of government and personal debt, and wars and threats of wars in countries Americans often cannot find on a map. It is not a good time to drop our insurance.
Update on the Branzan Energy Income Fund II:
We had a first close of approximately $6 million of commitments recently, and our capital raising efforts for our second mineral interest fund are ongoing. We are now reviewing promising investments that we will detail in a future newsletter. The BEIF II will remain open to new clients at least through the first quarter of 2019, so please be in touch if you are interested.
Oil prices have risen in recent months, but oil and other commodities remain attractively priced compared to publicly-traded equities, as this chart illustrates:
The price of oil will likely rise and fall a number of times over the next decade, and we expect to take advantage of market cycles to buy and sell minerals at attractive prices. We believe the trend over that period will be up. The discovery of new oil reserves seems to be petering out (see chart below), even as demand ramps up, especially in emerging economies such as India and China.
While the world is making strides in bringing alternatively-powered transportation to market, energy storage issues remain problematic, and the process of fleet turnover will be long, expensive and difficult. Finding non-carbon-based ways to produce myriad other products, including food, is also riddled with daunting challenges. The world will continue to rely on oil for the foreseeable future. The law of supply and demand suggests that the price for this finite resource will continue to rise.
General Market Commentary:
The current bull market is now the most enduring in U.S. history. Policies of prolonged quantitative easing and suppressed interest rates in recent years have kept the economy chugging along, but they also have led to an unprecedented amount of central bank, corporate and personal debt. Many credible analysts fear the bull market will end soon, and we agree. We are concerned that the same policies that have distorted the duration and strength of the economic upturn will unintentionally exacerbate the next downturn. As the equity and debt markets lose their considerable momentum, it will be important to have exposure to alternative assets to blunt what comes next.
As many of you know, we are cautious by nature and naturally inclined to invest with protection and preservation at the top of our minds. Branzan’s two evergreen, diversified funds are intentionally constructed to minimize volatility because they hold real assets—many of which generate income. We are particularly pleased that several real estate projects in which we’ve invested are now fully leased and are beginning to generate income, which should lead to increases in valuation over the next few quarters. These are just the type of investments that serve as an excellent hedge against inflation.
Branzan Investment Advisors