Due to server migration the next post will be published on Thursday, June 4.

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An Inexperienced Herd

A recent Bloomberg article discusses the fact that most traders active today have never known anything but the era of easy money, and wonders how they will handle the potential end of that era. To this it should be mentioned that the widely expected rate hike cycle may well never begin. The economies of industrialized nations have been severely undermined by loose monetary policy for many years. In concert with over-regulation and over-taxation, this has encouraged ever more capital consumption. Continued economic weakness may encourage the Federal Reserve to simply continue with the ZIRP policy, although it appears to be eager to end it.


herd-3Once the herd stampedes, nothing can stop it

Photo via pixshark.com


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A Peek into Our Personal Portfolio …

We came to Switzerland to visit our money …

Many years ago, we opened an account with one of the country’s oldest and most prestigious banks. Occasionally – usually in spring, when we can find white asparagus with cream sauce in the restaurants – we come to say hello.

Yesterday’s reunion was neither filled with joy nor with disappointment. Our portfolio – Swiss francs, gold, and a few stocks – has gone up 2.5% so far this year. Not bad. Not good. Satisfactory.

But you don’t use a Swiss account to make money. Or to hide money. Or avoid taxes. Those days are long gone. You put money in Switzerland in the single hope that it will still be there when you need it, say, 30 years later.


swiss-federal-bank-zurich-600Safe deposit boxes at the Swiss Federal Bank in Zurich, late 19th century

Image credit: Schenk Fotos


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Good Cop Under Fire

On June 5, Greece has to pay €240 million to the IMF. A week later another €270 million are coming due. All in all, Greece has to pay back €1.5 billion in IMF loans over the month of June. All indications are that the Greek government doesn’t even have the €240 m. that are coming due next week. In light of this, its intransigence in the negotiations with the euro-group may be slightly bewildering, but as we have pointed out already when it became clear that Syriza would likely win the Greek parliamentary elections, the situation always was akin to a Mexican standoff.


modern greece

Image credit: António Jorge Gonçalves


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GDP Contracts in Q1, but “Everything is Fine” Anyway?

Not surprisingly, Q1 GDP growth data have been revised lower into contraction territory. However, everybody “knows” that this was just a temporary weather-related stumble and there will be a magical second half. This “second half” hopery has been with us for years now. Alas, the strong recovery has never arrived – instead, the economy is at best muddling through, in what has so far been the weakest recovery of the entire post WW2 era.

Readers of this blog probably know why this is so. The Fed and the commercial banking system have increased the true US money supply by well over 100% since 2008. Monetary pumping can create a temporary illusion of economic strength by misdirecting scarce resources into what would otherwise be loss-making activities. In so doing, it severely undermines the economy on a structural level. If the economy’s pool of real funding is already in trouble – and we would argue that this is definitely the case in the US economy after one credit bubble too many – then money printing cannot even conjure up an illusion of economic strength anymore.



Image via Newsday


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Many Questions

On the 7th of January two gunmen attacked the office of Charlie Hebdo, a French weekly magazine. The shooters were two brothers who belonged to the Yemeni branch of the Islamist terrorist organization Al-Qaeda. The attack resulted in 11 casualties and many injured, while the shooters were shot a few days later in an exchange of fire with the police. Charlie Hebdo is a satire magazine, and its jokes and cartoons and its secular approach are widely considered anti-religious. Social media went into a frenzy with the hashtag “Je suis Charlie”. Four days later two million people including tens of world leaders participated in a rally for national unity in Paris, and over three million participated across France. A lot of questions were raised by this tragic event and its aftermath that we will look at in this article.


charlie-hebdo-shootout-videoSixteenByNine540The gunmen who attacked Charlie Hebdo and their get-away car

Photo via Reuters TV

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Mellon’s Idea

Today … what we learned over dinner from a surprisingly smart central banker. But first, to the markets …

The Dow shot up 121 Dow points yesterday, recovering most of Tuesday’s slide. In a series of business meetings Tuesday and Wednesday, we explained why nobody but us is rooting for a depression.

Yes, there’s no point in hiding it. We would like to see a depression. Short, swift, and decisive – a quick and sharp end to the biggest credit expansion in all of history.


andrew_mellonAndrew Mellon had the right idea – but it would remain wishful thinking, as Hoover immediately began to intervene in the economy in grand style. While he was secretary of commerce under Harding, he was overruled when he proposed the same policies. This time, Mellon found himself overruled. Not surprisingly, what could have been a run-of-the mill recession eventually turned into the Great Depression.

Painting by: Sir Oswald Hornby Joseph Birley


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Why I’m Looking Forward to the Next Big Crash

First, the Dow dropped 190 points on Monday – or 1%. It was threatening to close below 18,000 for the first time in almost three weeks. We’ll wait to find out. Yesterday, a London-based magazine and a TV station interviewed us. Both asked if we were “pessimistic.”

“Of course not,” we replied. “We expect today’s financial system to fall apart in a terrible crash and depression. But we’re looking forward to it.”

This was not exactly the answer they were looking for… And there’s not enough time in an interview to explain why this view makes any sense at all. The audience must have thought we had lost our mind.

We also had a meeting with our old friend and editor of the Gloom, Boom & Doom Report Marc Faber yesterday. He helped make sense of our “pessimism.”

“The system is corrupt,” he said. “The government. The banks. The central banks. Big business.”


organized crime


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More Ominous Charts

We have decided to expand a bit on our recent post about “ominous charts” and show a few more charts that should at least give one pause. We hasten to add that none of them should be seen as timing indicators. It must be stressed that we continue to be in unprecedented situation, with central banks worldwide cutting interest rates to the bone with policy rates in the major currency areas having been kept at or near zero for an unusually long time period.


roman-orgy-vasily-alexandrovich-kotarbinskyParty on dudes!

Painting by Vasily Alexandrovich Kotarbinsky


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Erroneous Assumptions

“The top 25 hedge fund managers made more than all the kindergarten teachers in the country,” declared President Obama in a discussion of poverty at Georgetown University. Calling them “society’s lottery winners,” he proposed to hike their taxes.

Predictably, battle lines have been formed between two polarized sides. One side—let’s call them the Gauche for convenience’s sake—is unhappy with the pay disparity. CBS News, in an almost neutral tone, asks, “Which group provides more value to America?” The reader is supposed to somehow answer that question, presumably in favor of teachers. Gawker goes much farther, calling hedge fund managers the biggest gangsters of all. It asserts, “It is, as the myth goes, capitalism at its most pure …”


the-us-federal-reserve-board-buildingThe imposing HQ of the US Federal Reserve. Central banks are socialist central planning institutions, and are subject to the constraints the socialist calculation problem imposes on all planners. An economy with a central bank is no longer a free market economy – it is at best a hampered market economy.

Photo credit: Susan Candelario


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Dream On

Fed chief Janet Yellen is talking about raising rates. From USA Today:


“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” Yellen said in a speech at the Providence Chamber of Commerce in Rhode Island.

She added, however, that after the first hike, “I anticipate that the pace [of subsequent increases] is likely to be gradual. […]

Yellen said that “it will be several years” before the Fed’s benchmark rate is back to normal – which is close to 4% in an economy that’s performing well.”


us-federal-reserve-chairwoman-janet-yellenJanet Yellen levels her rate-hike gaze at us …

Photo credit: Kevin Lamarque / Reuters


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