Posted August 22, 2021
By Sean Ring
Thiel’s Palantir Buys Gold Bars
Good morning. It’s the start of another week.
Grab a coffee while I try to unpack the news that Palantir bought physical gold bars and why it did so.
I imagine my erstwhile colleague Jim Rickards rubbing his hands in barely disguised glee.
First, who is Palantir?
Palantir Technologies is a big data software company founded by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, and current CEO Alex Karp.
In 2003, Thiel pitched an idea to Karp: Could they build software that would uncover terror networks using the approach PayPal - Thiel was PayPal’s CEO - had devised to fight Russian cybercriminals?
The idea germinated into the company it is today.
Though it’s 18 years old, Palantir DPOed on September 30, 2020. That is, they avoided the big banks and made a direct public offering at $10. They didn’t use the IPO method (initial public offering), whereby banks would buy the stock directly from the owners and then resell them to the public at a higher price.
No one knows why they DPOed instead of IPOed, but some suspect it has to do with the founding group’s philosophy.
After the opening at $10, through November 2020, PLTR rocketed to the mid-20s. It had another jump and broke $40 intraday in January. But since then, it’s been a bit of a dog.
Disclosure: I have owned PLTR since 2020. This is not a recommendation to buy the stock. Far from it, actually.
What Does Palantir Do?
Palantir was named after the all-seeing, unbreakable crystal balls from The Lord of the Rings.
That gives you a clue to the kind of goals this company has set for itself.
Here are the things PLTR listed on its website about what it does:
- We make products for human-driven analysis of real-world data
- We build our company around mission-driven engineering
- We meet the problems where they live
- We design technology to help institutions protect liberty
- We go where we're needed most
The fundamental raison d’etre of the company is the 4th line. Thiel and Co were concerned that liberty was at risk.
Thiel is a libertarian who backed Trump. That’s reason enough to like him. That he turned $500,000 of his PayPal money into $2 billion is another reason to respect him.
But his concern for human liberty, and the willingness to back the idea that freedom was at risk by building a company around the concept, is pretty hard not to like.
That PLTR’s client list is the CIA, FBI, NSA, and the Armed Forces may give one pause.
It certainly does for me.
But if you believe the US Government and its various agencies need this information to protect and not curtail liberty, this client list might excite you.
You may remember the movie Sneakers, which stars Robert Redford, Sidney Poitier, Ben Kingsley, and Dan Ackroyd.
When River Phoenix’s character realizes what his team has uncovered, he said, “So… it’s a codebreaker.”
Redford’s character thoughtfully replies, “No. It’s the codebreaker.”
Palantir is not so much a codebreaker. It looks for patterns in data. It’s better to think of it as a big data organizer.
That makes it more powerful, theoretically, than a simple codebreaker.
Why the Gold Purchase is Scary
If you believe PLTR can predict changes thanks to its big data prowess, then this gold purchase is likely to trouble today’s policymakers.
Why does one purchase gold?
It’s a hedge against inflation and bad monetary policy. Safety is the name of the game.
Over the same time period as PLTR’s publicly traded life, gold has been a bigger dog.
You know how I’ve poo-pooed gold over the past few months. I’ve been disappointed with its movement, especially considering the high inflation prints in June and July.
There’s one upside to gold staying down: it’s cheaper to buy.
So PLTR announced it bought $50 billion in gold bars. The physical stuff. Not the futures or an ETF.
Though PLTR didn’t disclose why it bought the gold, one can deduce PLTR sees a black swan on the horizon.
A black swan is a low probability, high impact event that’s impossible to predict. Nassim Taleb coined the term about 20 years ago. It’s now a part of the financial and economic lexicon.
Interestingly, even though black swans are unpredictable, the reasons why PLTR sees a black swan coming are not.
After Dopey Joe’s dopey withdrawal from Afghanistan, the threat of war indeed increased. Right now, who’s afraid of America from a conventional warfare perspective?
The Fed, along with its other big central bank brethren, has been out of control for a while. They’ve printed insane amounts of money and kicked the can down the road since 2008.
The civil unrest and downright hatred between the red states and the blue are at an all-time high.
Thanks to the government-mandated private-sector shutdown, the global supply chain is a mess.
Those are just some apparent reasons something awful may happen. There are plenty of others beneath the surface, as well.
Jared Dillian wrote this in his The 10th Man column this week:
In a sense, this isn’t much different than MicroStrategy (MSTR) or Square, Inc. (SQ) or even Tesla (TSLA) buying bitcoin. Although the motivations are different. Palantir bought gold as an insurance policy of sorts. MicroStrategy and Tesla are engaging in rank speculation. You could make the argument that Square is holding it to facilitate payments someday. But nobody holds bitcoin because they think the world is going to end, because if that happens, as a risk asset, bitcoin will probably go down. Bitcoin also wouldn’t do so well with the power off.
As gold investors (I hold a bunch), maybe we should stop thinking about gold as a trade or an investment and start thinking about it as an insurance policy. But if we did that, people would have to do some serious thinking about why they hold gold. If you have homeowner’s insurance, you don’t hope that your house will burn down so your insurance policy will pay off. A lot of gold investors seem to want the planet to go down the tubes. They get sweaty palms thinking about it.
There you have it.
Interestingly, though, PLTR also allegedly paid off all its debt. That’s not something you do if you believe an inflationary crisis is heading your way.
Anyway, Peter Thiel is the kind of man you want to bet on. Though I think PLTR will be a beast one day, its stock is a bit stagnant.
PLTR’s gold purchase may be the canary in the coal mine.
Keep a weather-eye out.
But first, have a wonderful week ahead!
All the best,