The last time this graphic of Exter’s Inverted Pyramid of Risk appeared on Goldtent was in 2017.  So today I thought a refresher is probably in order. Those of you familiar with it will recall that the asset classes on the top levels of the pyramid are the riskiest and in largest supply when looking at total notional value.

The bottom of the pyramid is reserved for the most secure assets in all weather. And naturally, that is where we find gold (which is a tier 1 asset on Central Bank balance sheets). Its right below paper money which is still considered one the safest of all classes although lately there are a lot of people questioning just how secure it really is! Silver is not mentioned but don’t be alarmed. Neither is stainless steel sheets, copper pipe, uranium rods, coal piles or aluminum ingots. Gold is representative of physical assets and industrial metals in this context as a store of wealth but we will not forget there are indeed many kinds of stores of wealth that are equally secure albeit harder to carry around in a backpack.

John Exter, the developer of this chart, was an economist who served as a Board Member and one of the Governors of the Federal Reserve System. So he had some pretty good credentials and more insight than the average person. If John said gold was the most secure all all assets then there is little reason to doubt him. We here at the Tent know it to be the truth in any event so there won’t be much debate on that subject.

The reason I posted this chart today however was not to highlight gold, but rather to bring attention to the position on Exter’s Pyramid of real estate and to simply point out that is where most Canadians store the majority of their wealth. During normal times nobody would bother looking at such a chart but since instability is clearly on the rise around the globe we need to reconsider just how risky real estate is in the big picture. Don’t ask your realtor about it though. They always give the same pat answers. To them, homes are the bedrock of finance and investing. Nothing else is equal.

But John Exter did not see it that way and his chart demonstrates why. During a crisis, real estate is not in the best of positions. Look lower on the chart for better security of your wealth and less volatility. We need to keep in mind that housing is fundamentally speculative at current price levels. If this were my chart I think I would elevate Canadian housing to an even higher level given the outsize risk posed to homeowners should a genuine economic crisis unfold.

Homes and related investments have eaten the entire Canadian economy. There is nothing else there anymore. Its the equivalent of a monoculture or a farm that only grows one kind of wheat and is subsequently at extreme risk when certain bugs, fungus and rusts appear on the scene. Or when bad weather comes early and stays late. After so many years of seeing prices rise its pretty obvious Canadians think their homes are bullet proof.

But are they? Because when the shit hits the fan….it’s coming for everyone!