CHAPTER 6
“Top-Down”—It Starts at the Top
Gold is the child of Zeus Neither moth nor rust devoureth it.
Pindar, c. 522-442 B.C.
 
This statement does not apply for any paper currency or debt obligation issued in the history of mankind. In fact, virtually every type of paper currency or debt obligation ever “created” or “printed” has eventually succumbed to moth or rust, in one sense or another.
A chart I saw in Grant’s Interest Rate Observer (I think) sometime in the late 1980s or early 1990s had a profound impact on me. As anyone who has followed the markets during the past 20 years already knows, whether they agree with him or not at any given time, James Grant is the authority in the history of interest rates and is one of the top purveyors of the global fixed-income markets in the world.
The chart was in the form of a pyramid, with the riskiest investments (e.g., penny stocks) lined up along the bottom row of the pyramid. Each successively higher row of blocks, with every block representing a single category within a broader spectrum of asset classes, contained fewer blocks and comprised less risky investments.
Toward the top of the pyramid for example, would be U.S. Treasury bonds, above agency debt, which would be above emerging market debt, and so on, just for the fixed-income class. For sure, U.S. Treasury bills were near the top of the pyramid, as one of the safer investment categories that would go bust long after penny stocks, real estate, and just about anything, except ...

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