Better the Devil You Know?

We are providing around-the-clock nursing care to our invalid wife, who is back at home, with cracked ribs, unable to move. We are upstairs in the bedroom – the shutters closed against the heat (we have no air-conditioning) – taking a few minutes to update our Diary… but with nothing important to say.

 

2016_presidential_marathonEvery day, we look at the headlines, think about what is going on in the big wide world and try to connect a dot or two. It is probably the same in your life. You go about your business. You have work to do. Projects, goals, deadlines. Your priorities. Your investments. Your schedule. Your plan.

Cartoon by Ramirez

 

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President Nixon’s Decision to Abandon the Gold Standard

Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.”  Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.

 

NIXONNixon points out where numerous evil speculators were suspected to be hiding. No, wait… actually, Nixon points to the black hole that has swallowed countless lives and a great deal of treasure under his and his predecessor’s watch – ultimately leading to the US default on the Bretton Woods gold exchange standard.

Photo credit: Richard Nixon Presidential Library

 

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Empty-Nesters

OUZILLY, France – Poor Donald Trump. He has had to apologize for hurt feelings. He has had to reshuffle his campaign team. He has been kicked so often by the press that he is starting to hide behind chairs, like a university president. Here at the Diary, we favor lost causes, diehards, and underdogs. “The Donald” may soon qualify on all three counts.

 

trumpsterUnderdog spotted! But is he really such a “lost cause?” He may not be, actually… in spite of his uncanny ability to occasionally put his foot in his mouth.

 

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Distortions and Crazy Ideas

We have come across a few articles recently that discuss some of the strategies investors are using or contemplating to use as a result of the market distortions caused by current central bank policies. Readers have no doubt noticed that numerous inter-market correlations seem to have been suspended lately, and that many things are happening that superficially seem to make little sense (e.g. falling junk bond yields while defaults are surging; the yen rising since the BoJ adopted negative rates; stocks rising amid a persistent decline in earnings growth; bonds, gold and stocks moving in unison, etc., etc.).

 

puzzled-man-scratching-headUnknown veteran trader experiences another WTF moment.

Photo credit: Everett Collection

 

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Mining Stocks, Gold Prices and Commodity Price Trends

Gold has gone up >400% over the last 16 years. Ironically, it is hard to find a gold mining equity exhibiting similar performance. In retrospect, if one invested in gold, one not only made much better returns, one also took a relatively insignificant risk in comparison to owning equities—equities can go to zero while it is hard for a commodity to fall much below its cost of production. Moreover, depending on the jurisdiction, owning gold might have resulted in lower (or no) tax liabilities.

 

South DeepSouth Deep gold mine in South Africa

Photo via mining.com

 

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The Lighthouse Problem

Measured in gold, the price of the dollar hardly budged this week. It fell less than one tenth of a milligram, from 23.29 to 23.20mg. However, in silver terms, it’s a different story. The dollar became more valuable, rising from 1.58 to 1.61 grams.

 

Lighthouse in StormWho put that bobbing lighthouse there?

Image credit: John Lund / Corbis

 

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No CPI Change

Several ill-defined economic data points were unveiled this week.  Namely, the Labor Department’s July consumer price index report.  According to the government data, on whole, consumer prices for the month didn’t change one iota.

 

1-CPI percent changeCPI change rate –  clearly, there’s not enough money printing just yet… – click to enlarge.

 

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AEP Speaks for Himself

We are all Keynesians now, so let’s get fiscal.” This is one view according to Ambrose Evans-Pritchard from The Telegraph who believes the time is right for the UK government to loosen its fiscal stance.

 

KeynesAmbrose Evans-Pritchard is channeling JM Keynes these days (depicted above). Alternative media long regarded AEP as a rare exception in the mainstream press, willing to take on economic orthodoxy. We are happy to report that we had his number early on. First he outed himself as a monetarist and advocated money printing, and now he has apparently moved over to Keynesianism. Readers may want to review some earlier articles in this context: Parade of the Inflationists, Tapering Paranoia, and Anglo-Saxon Central Banking Socialism = Free Lunch.

Photo credit: Keystone/DPA

 

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When Will the Helicopter Take Off?

The quarterly meeting of the Incrementum Fund’s advisory board was held on July 19. A pdf transcript of the discussion can be downloaded via the link below. We were once again joined by special guest Brent Johnson, the CEO of Santiago Capital.

 

Helicopter_money_05.20.2016_largeThe new obsession of liquidity junkies around the globe: helicopter money! This should cement the “TINA” rationalizations for buying hopelessly overvalued stocks and bonds, right?

Cartoon by Bob Rich

 

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Alarmed Experts

A fall in the US velocity of money M2 to 1.44 in June from 1.51 in June last year and 2.2 in May 1997 has alarmed many experts. Note that the June figure is the lowest since January 1959.

 

slow,slow,slowMoney velocity is widely considered “too slow”. But what does the formula really tell us?

 

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A First Step Toward Sound Money

The Arizona House of Representatives has convened an Ad Hoc Committee on Gold Bonds. The purpose is to explore if and how the state could sell a gold bond.

 

fourth-liberty-loan-50-gold-bond-of-1933-1938-8A United States gold bond of yore: the 4.25% Liberty Loan of 1933-1938

 

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Lies and Distortions

Despite trillions of paper currency units poured into the world economies since the start of the financial crisis, there has been no recovery, in fact, all legitimate indicators have shown worsening conditions except, of course, for the pocketbooks of the politically – connected financial elites.

 

1-GDP per decadeA comparison of average annual GDP growth in different time periods since 1949. The last bar shows Q2 2016, the one before it the time period 2009 – 2016. In this time period, the by far biggest fiscal and monetary stimulus of the entire post WW2 era was applied. Obviously, it hasn’t worked as advertised. Growth wasn’t so weak in spite of, but because of these policies (keep in mind that “measuring” aggregate growth in an inflationary system is even more flawed than it would otherwise be).

 

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