The King of Lydia

“Count no man happy until he be dead,” said Athenian statesman and poet Solon.

The man to whom Solon gave the advice was the richest man alive at the time (the 6th century B.C.) – the king of Lydia, Croesus.

Croesus considered himself to be the happiest man alive. But he discovered that fortune could turn against you, no matter how rich and powerful you were. His son died in an accident. His wife committed suicide. And he was captured and burned alive by Cyrus, king of Persia.

And now, poor Warren Buffett must be feeling the heat. He’s 84 years old and the most successful investor of all time. Respected. Admired. Beloved, especially by the thousands of people he has made into millionaires. And “as rich as Croesus” himself. Buffett celebrated the golden anniversary of his investment conglomerate, Berkshire Hathaway, last week. And what a success!


975px-Honthorst_solon_and_croesus Croesus and Solon , painting by Gerard van Honthorst,  1624

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The End Result of Decades of Fiat Money

We have recently come across a few house price charts – the Economist has a handy tool that allows one to compare global house prices and a few related indicators, like price/rental yield and price/income. Based on house price indexes alone, the cheapest real estate is currently available in Japan (where prices have been declining since 1989 in spite of the fact that they are not making any new land there – imagine that!), while the by far biggest real estate bubble appears to be underway in South Africa.



Two large bubbles on black background

Photo credit: Getty Images


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Commentators spent the weekend trying to figure out what Janet Yellen’s testimony before the Senate meant for markets. What did she say? What did it mean? Why was she there at all?

“It is important to emphasize that a modification of the [interest-rate] guidance should not be read as indicating that the [Fed] will necessarily increase the target rate in a couple of meetings,” Ms. Yellen told the Senate.

The modification in question was the elimination of the word “patience” in reference to the Fed’s decision to raise short-term interest rates.

Here, we offer a translation: Pssst … the coast is clear.



Photo credit: DPA


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A Billion Here, A Billion There …

We always wondered a bit why the Austrian government was so eager to adopt the EU’s bail-in law (a.k.a. the Bank Recovery and Resolution Directive) one year earlier than demanded by the EU Commission. What was the rush? Well, now we know. Last year, the decision to wind down the former Hypo Alpe Adria (HAA) “in an orderly manner” helped push Austria’s government debt above 87% of GDP – a level perilously close to what has so far in many cases proved to be the point of no return.


HAA blooded

 Heta Asset Resolution, formerly Hypo Alpe Adria International: The situation is hopeless, but it isn’t serious …

Image credit: fmh

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Mortgages Are Cheap, Cheap, Cheap, but …

On the left hand side of the chart below, mortgage rates peaked at 18.28%. By comparison, today’s rate is hovering at less than 4%, a whopping 4.5 times off the peak.  More importantly, there was no time in history when a mortgage loan was cheaper than today.  As we now know, it was all the Fed’s doing.  Mathematically, unless they figure out a way to go negative, they are done.  Can the real estate market flourish when 35 years of continuous stimulation is removed?


reid2Image via


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Too Much Debt

The Chair and the Vice Chair of the Fed both spoke last week.  Janet Yellen testified in front of the House and Senate with this speech.  Stanley Fischer’s speech was delivered here.  They were basically the same speech, Yellen’s just had more fluff for the politically motivated audience.

The message was negative for housing.  Allow me to elaborate.



Image via


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The Only Stocks You Should Be Holding Right Now

First, let us check in with the markets. Little change since yesterday. Gold is holding above $1,200 an ounce. Stocks still near record highs, as US corporate earnings fall. Bloomberg:


“[T]he current estimates show [earnings] will drop 4.5% this quarter. And don’t forget, that’s compared with a 2014 period that included the famous polar vortex … The second quarter’s not expected to be much better, with a 2.8% drop projected.

“The stock market’s march into record territory in the face of deteriorating profit trends makes many professional investors, including ourselves, instinctively uneasy,” Carmine J. Grigoli, chief investment strategist at Mizuho Securities USA Inc., wrote to clients today.”


Our advice: Stay in cash, gold and stocks you won’t want to sell even if their market prices get cut in half. This is no time for the amateur speculator to be in the US stock market.

Now, back to Part II of our series, “Money Isn’t Everything.”

 moneyImage via


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Going Against the Grain  

Back in 2013, Botswana was alone among African countries in its vehement rejection of the fraudulent election in Zimbabwe that kept the aging dictator Robert Mugabe in power.

An article in Bulawayo 24 [Bulawayo and Zimbabwe’s online news resource … Ed.] goes on to note that some critics in Botswana believe that the government is not entirely consistent in applying its foreign policy ideals. However, that shouldn’t detract from the fact that it very often finds itself alone in Africa when it is voicing its disapproval of injustice elsewhere on the continent.



The Okavango Delta

Photo credit: Ross Serven

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The season of fasting is upon us. No more high living. It’s time to cinch up our belts … to put on a gaunt face and a smug look. Alone among friends and associates, we will keep Lent.

So neglected is Lent that even Google has forgotten about it. When we did a search it proposed “lentil soup.” Lent is meant to rehearse the 40 days and nights that Jesus spent fasting in the desert before going public.

We remember the lean days with prayer, meditation and self-denial. No alcohol will cross our lips from Ash Wednesday till Easter Sunday. (Except on Sundays. And saints’ days. And national holidays. And days that begin with the letter “T” or that have a date that is a prime number.)

Yes, dear reader, we will be true to the church calendar, with a few emendations of our own.



Photo credit: Tao Zhyn


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Boom-Bust Mechanics

We want to focus on a specific aspect of the current money supply expansion in this part. The topics of “price inflation”, as well as investment and production will be discussed in a follow-up post shortly.

Let us consider the mechanics of past boom-bust cycles in the US. In “normal” booms, banks expand credit to companies and households, with the former employing the funds mainly for investment and the latter for consumption. Banks that don’t have sufficient reserves will borrow them in the interbank market (Federal Funds market), where the Fed stands ready to satisfy any excess demand for reserves that threatens to push the overnight Federal Funds rate above its administered target rate. In short, monetary inflation is driven by bank credit expansion and accommodated by the central bank. To the extent that the Fed-administered target rate manipulates market interest rates below the natural rate dictated by society-wide time preferences, this seemingly “harmonious” inflationary process will promote ever more malinvestment of scarce capital as well as overconsumption. Eventually the central bank becomes worried that the credit expansion may push consumer prices above its arbitrary target for CPI and begins to hike rates – then the artificial boom falters with a lag and a bust ensues. The central bank thereupon lowers rates again. Lather, rinse, repeat.

 economyImage credit: mevans


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Victim of Good Fortune

The following is a two-part series. The views expressed may or may not coincide with those of Bonner & Partners. They may not even coincide with those of their author.

Sometimes right, sometimes wrong, always in doubt – we try on ideas like a grown man trying on a pair of shorts. We want to see how they look before we buy them. We leave it to you to decide for yourself which of the following ideas look most ridiculous.



Photo credit: U.S. National Park Service


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Money Supply Growth Surges Across the World

Michael Pollaro has recently updated his global TMS data up to the end of December 2014 (more up-to-date figures aren’t available yet). He delves into far more details than we usually do, and there are a number of things worth mentioning about the most recent data.

First of all, it is worth noting that in the final three months of 2014, and especially in December, money supply growth rates have accelerated sharply on an annualized basis in all three major currency areas (US, euro area, Japan). Here is a summary of the main data points (note, this is monthly growth annualized, quarterly growth annualized and y/y growth):


US: TMS-1: 1 month: 62.1%,   3 month: 21.9%, year-on-year: 8.8%

TMS-2: 1 month: 21.8%,   3 month: 13.8%, year-on-year: 7.8%


Euro Area: TMS: 1 month: 28%,  3 month: 19.6%, year-on-year: 9.3%

M3: 1 month: 15%,  3 month: 9.8%,   year-on-year: 4.7%

ECB credit was rising at a 73% annualized rate in December 2014 – a result of the CBPP3 (covered bond) and ABS purchasing programs and TLTROs, but not yet including the new sovereign QE program


Japan:   TMS: 1 month: 29.1%,  3 month: 13.7%, year-on-year: 4.5%

M3: 1 month: 12.2%, 3 month: 8.0%, year-on-year: 2.8%


As can be seen above, year-on-year growth rates are quite high in the US and the euro area, but not at an exceptional level (yet) compared to previous peaks. It could be that the acceleration in annualized growth rates in the fourth quarter and the month of December has partly to do with seasonal effects, but it seems actually more likely that there is more to it than that.

 全球货币Image credit: Matt Collins


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The Concept of Money

I wrote what I thought was a fairly simple article for Forbes on Tuesday. I noticed that some people really got it, and they were very excited. However, others were skeptical or asking questions that went into the weeds. The former tells me that I said something important, but the latter says that I said it in a way that not everyone could relate to.

I started with the observation that many people argue (vehemently) that money should be defined as the medium of exchange. In the US, the dollar is used to purchase everything. Therefore the dollar circulates as the medium of exchange. Therefore the dollar is money. Q.E.D. The catch is that the dollar only circulates because the government forces it to circulate, and forces gold not to. This means that the very concept of money is under the control of the government.

Ayn Rand noted that force is not essentially about a physical push, or a bullet hitting flesh. She said, “Force and mind are opposites…” She added, “To force a man to drop his own mind and to accept your will as a substitute, with a gun in place of a syllogism, with terror in place of proof, and death as the final argument—is to attempt to exist in defiance of reality.”


aynrandAyn Rand: no friend of government coercion

Photo credit: Henry Talbot


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Squirrelly and Subtle

Yes, we were in London, taking care of business. Now, we’re back in Buenos Aires. We’ve tried medication. We’ve tried prayer. We’ve tried heavy drinking – all in an effort to understand how our crazy money system works. And where it leads.

You’d think it would be easy. It’s just Central Banking 101, no? Well, no. It is squirrelly… and diabolically subtle. We doubt anyone understands it – especially those who are supposed to control it.

The basic unit for the system is a kind of money the world has never had before: the post-1971 fiat dollar. It’s paper money – worth as much as people think it is worth … and managed by people who think it should be worth less as time goes by.



Photo via Pixabay


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Interview with Václav Klaus


“The best environment for man is the environment of liberty.”

Václav Klaus



Former president of the Czech Republic and strong defender of the ideas of classical liberalism, Professor Václav Klaus

Photo via

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future