Mario Draghi has said the European Central Bank would intensify efforts to support the eurozone economy and boost inflation toward its 2pc goal if necessary.
Speaking a day after the ECB’s moves to expand stimulus fell short of market expectations, the central bank president said that he was confident of returning to that level of inflation “without undue delay”.
“But there is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would,” he said in a speech to the Economic Club of New York.
“There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate,” he said.
The bank cut its key deposit rate by a modest 0.10 percentage points to -0.3pc, and only extended the length of its bond purchase program by six months to March 2017.
Critics said that was not strong enough action to counter deflationary pressures on the euro area economy.
Some analysts believed a desire for stronger moves, like an expansion of bond purchases, was stymied by powerful, more conservative members of the ECB governing council, including Bundesbank chief Jens Weidmann.
But Mr Draghi insisted that there was “very broad agreement” within the council for the extent of the bank’s actions.
And, he added, it would do more if necessary: “There is no particular limit to how we can deploy any of our tools.”
He acknowledged some market doubts that central banks are proving unable to reverse the downward trend in inflation, saying that, even if there is a lag to the impact of policies in place, they are working.
“I would dispute entirely the notion that we are powerless to reach our objective,” he said.
“The evidence at our disposal shows, on the contrary, that the instruments we are currently deploying are having the effect intended.”
Without them, he added, “inflation would likely have been negative this year”.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
12/06/2015 - Stealing from Savers to Allow Government & Corporate Borrowing
Are We Stealing from SAVERS to Allow the Government & Corporations to Accelerate Borrowing?
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
12/04/2015 - Bill Gross: Financial Repression – Central Banks Are Turning Savers Into Financial Eunuchs
“Central banks are casinos. They print money as if they were manufacturing endless numbers of chips that they’ll never have to redeem. Actually a casino is an apt description for today’s global monetary policy .. Central banks haven’t really succeeded – this is a testament to what I and others have theorized for some time. Martingale QE’s and resultant artificially low interest rates carry distinctive white blood cells, not oxygenated red ones, as they wind their way through the economy’s corpus: they keep alive zombie corporations that are unproductive; they destroy business models such as insurance companies and pension funds because yields are too low to pay promised benefits; they turn savers into financial eunuchs, unable to reproduce and grow their retirement funds to maintain expected future lifestyles. More sophisticated economists such as Kenneth Rogoff and Carmen Reinhart label this ‘financial repression’. Euthanasia of the saver is the result if it continues too long .. Timing is the key because as gamblers know there isn’t an endless stream of Martingale chips – even for central bankers acting in unison. One day the negative feedback loop on the real economy will halt the ascent of stock and bond prices and investors will look around like Wile E. Coyote wondering how far is down. But when? When does Martingale meet its inevitable fate? I really don’t know; I’m just certain it will.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
12/04/2015 - The Unintended Consequences Of Central Bank Policies
Mises Institute posted essay refers to the recent letter to the Federal Reserve from the “savers of America” written by Ralph Nader .. the letter emphasizes how savers & retirees have been shafted by very low interest rates on bank accounts & fixed income investments .. it’s financial repression .. it’s the result of the unintended consequences of central bank & government policies & financial reform/regulations .. the essay makes a few great points to counter those seeing the “positive” short-term boom aspects of central bank money printing: “If Yellen is asserting that things are more affordable because it’s easier to borrow cheap money, then she’s just ignoring the trade-offs involved. Low interest rates and inflation mean that people must borrow more because it’s far more difficult to save under those conditions. Yes, debt is cheaper, but people must also take on more debt because it’s so difficult to save or make money off investments unless you’re not already rich. And, of course, this just applies to people who are at a stage of their life where it makes sense to take on more debt. If you’re old or on a fixed income, all you’re getting from the Fed is a huge ‘screw you.’ Moreover, when it comes to affordability of everyday, things, who is Yellen kidding? Home price growth and rent growth are at historic highs. Are we to believe that immense growth in rents and mortgage payments (the largest single expense for families) are a good thing for families? For people who already own homes, rising home prices are often a hurdle that can be overcome. But for people who don’t already own real estate, there’s little hope of buying one under these conditions. Surely, the Fed has played no small part in driving the homeownership rate in America down to a 30-year low. And again, if you’re retired: good luck. You’re gonna need it. Yellen no doubt believes that wages are higher because of Fed intervention. But in a world of sky-high rents, real wages are in fact lower.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
12/03/2015 - Brett Rentmeester Outlines: APPROACHES TO SOLVING YIELD CHASING & HIGH VALUATION RISKS
FRA Co-Founder Gordon T. Long interviews Brett Rentmeester on Austrian economics and the importance of having an entrepreneurial mindset in investment. Brent Rentmeester is the president of Windrock Wealth Management and has been in the wealth asset management for over 18years. Mr Rentmeester believes the uniqueness of Windrock is its focus on the macroeconomic picture, Austrian economics and what it all means for investment implications as well as an entrepreneurial mindset on how to find investment opportunities.
The Austrian school to him is the “acknowledgement of the influence that central banks have on the business cycle and interest rate and therefore the opportunities left for investment”.
He mentions that the traditional stock, bond portfolio is under a lot of challenge going forward because there is no real and safe income anywhere today. As a result people are becoming speculators and risk takers even when they don’t want to.
Brett believes having an entrepreneur mindset when investing, is the key to addressing the dilemma of income and the future of investment. Secure private lending is lending money to borrowers that is backed by real tangible assets or an income stream. According to him, what makes this a unique category is that it addresses the pockets of lending that is being neglected by the big banks as a result of the financial banking distress that took place in 2008.
On examples of secure private lending, Brett highlights 3 different categories with his examples. He explains that in auctioned rental properties, the government organizations Fannie Mae and Freddie Mac by law are restricted from buying mortgages on such properties until after 2 years, this results in a niche market for private lenders. “In energy markets more states are moving towards a deregulated market”. What this means is that a consumer can buy energy from a variety of energy companies. Now this system is facilitated by third party brokers who go door to door offering this energy from various energy companies. Now because the brokers want the commissions up front and the energy companies can’t provide it, we see people coming in to pay the brokers a discounted fee upfront and then agree to collect the 3year contract provided by the energy companies.
Trade financing
“Global trade happens between different parties but often times it’s financed by big banks, trade receivables. So one party needs to buy goods and a supplier supplies them but someone’s got to finance that transaction and it’s often the third party bank”.
Due to new regulations, banks are required to reserve more capital in such situations, as a result an opportunity is created for private money to finance the transaction between the customer and supplier.
“Rather than taking on more risk you don’t have to today, you just have to be more creative”
– Gordon. T. Long.
Brett echoes this sentiment saying:
“So much of the industry and investors think in a very narrow box of stocks, bonds and maybe hedge funds but there’s a lot of things outside of that, that if you open your mind to the opportunities, are quite interesting to research”.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/27/2015 - Negative Interest Rates & The War On Cash: It’s About Making It Easier To Confiscate Your Savings?
Ellen Brown* elaborates on the emergence of negative interest rates around the world & why it is happening .. she identifies 4 European central banks now promoting negative interest rate (NIRP) .. for now the Federal Reserve & the Bank of Japan are still at zero interest rate policies (ZIRP) .. it’s all financial repression .. The stated justification for these policies is to stimulate “demand” by forcing consumers to withdraw their money & go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive – “This is supposed to boost spending and kick-start an economic recovery.That is the theory, but central banks have already pushed the prime rate to zero, and still their economies are languishing. To the uninitiated observer, that means the theory is wrong and needs to be scrapped. But not to our intrepid central bankers, who are now experimenting with pushing rates below zero.” .. Brown concludes that the big driver for the move to negative interest rates & a war on cash is the idea that should the banks get into trouble again with another banking crisis, perhaps stemming from a derivatives crisis, the banks could then easily take bank deposits, given the fact that most deposits/cash would in banks & not outside of the banking system .. “And that may be the real threat on the horizon: a major derivatives default that hits the largest banks, those that do the vast majority of derivatives trading .. The promise of Dodd-Frank, however, was that there would be no more government bailouts. Instead, insolvent systemically-risky banks were supposed to ‘bail in’ (confiscate) the money of their creditors, including their depositors (the largest class of creditor of any bank). That could explain the push to go cashless. By quietly eliminating the possibility of cash withdrawals, the central bank can make sure the deposits are there to be grabbed when disaster strikes.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/20/2015 - PURU SAXENA SAYS: “FINANCIAL MARKETS ARE SO DISTORTED AND SO TWISTED THAT RELIABLE INDICATORS ARE NO LONGER WORKING. EVERYTHING IS BACKWARDS!”
Special Guest: Puru Saxena – Founder and CEO Puru Saxena Wealth Management
As part of the ongoing series of Austrian School of Economics, FRA Co-Founder Gordon T. Long sits with Puru Saxena, of Puru Saxena Wealth Management. Mr. Saxena is the portfolio manager of his firm and he oversees discretionary investment mandates. He is also responsible for heading the firm’s research process and formulating investment strategy.
Mr. Saxena has extensive investment experience and he is a registered investment advisor/money manager with the Securities & Futures Commission of Hong Kong. Highly respected in the investment management business, he is a regular guest on various media such as CNN, BBC, CNBC, Bloomberg, Reuters and a host of other channels. Furthermore, he is regularly featured in several publications such as Barron’s, Hong Kong Economic Times, South China Morning Post, Benchmark magazine, Hong Kong Business and China Daily.
Mr. Saxena is also the editor of a monthly economic report – Money Matters. A highly acclaimed publication is read by professional and retail investors in numerous countries. He first began publishing his monthly economic report in June 2000 and it has now attracted a wide following. Prior to establishing Puru Saxena Wealth Management in 2005, he was a Founding Director and President of financial services firm – Bridgewater (now Tyche Group), where he oversaw the firm’s investment strategy.
LIMITING CENTRAL BANKS BALANCE SHEET GROWTH
“Financial markets are so distorted and so twisted that reliable indicators are no longer working. Everything is backwards”.
People are so conditioned now of believing the stimulus jargon that every time a central bank utters the word stimulus, everybody starts buying stocks again. If you look at japan, they have tried this for nearly 25 years now, and we have had recession after recession. There are zero percent short term interest rates, and not much economic growth in Japan. I don’t think this monetary experiment is going to end very well.
CENTRAL BANKS FUTURE ACTIONS
“I would be very weary by promises from the government and central banks at this point because they have a vested interest.”
I think they will try and inflate this in a typical Keynesian manner. We have negative interest rates already throughout Europe, so it won’t surprise me if you have it in the US.
“The problem isn’t a liquidity problem, it is a debt problem.”
The world has never been so indebted; the debt to GDP ratio is now over 280% globally. When you have this much accumulated debt, history has shown that economic growth slows down. Economic growth, by definition, comes from the private sector taking on more debt. When people borrow, they bring forth tomorrows consumption, today, and they consume without ever buying any assets.
“Whatever they’re doing, it’s not working.”
Central planners do not realize that if somebody is already in debt, they are not going to borrow anymore with interest rates at zero. We are currently in a deflationary environment. Central planners are trying to fight this by implementing quantitative easing, and all sorts of bizarre experiments. But at the end of the day the monetary velocity is at a decade low.
At some point, maybe even next year, we are going to get a recession. We are going to get a global recession which will occur at a time where interest rates at the short end of the curve are already at zero.
“Asset prices are going to deflate quite sharply and when this happens, there will be chaos.”
CURRENT MARKET MISCONCEPTIONS
“Major mistake people have is that QE works, or stimulus works.”
First one is that QE causes hyperinflation and therefore everybody drove up the prices of commodities to multi year highs. Investors still believe QE causes economic growth, I do not believe this. People think stimulus will cause economic recoveries and economic growth. When people realize stimulus actually leads to anti-growth you will see a big sell off in equities.
The one thing I’ve learned from being in this field from 16 years is that markets go up and markets go down. There is no one way street.
TO DIVERSIFY INTERNATIONALLY
“I think investors should keep a large chunk of their money in cash right now and long term treasuries are also a good idea.”
But if you’re look at a long term horizon, (i.e. 5 years+) I think investors should start looking at the beaten down commodity areas. Commodities have been decimated over the last 4 tears. If it was me I would not buy any equities right now. We personally don’t own any stocks on the long side for our clients at the present. The downside risks for many stocks is greater than their upside potential.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/20/2015 - Robert Wenzel – The Fed Flunks! My Austrian Economic Speech at the NY Federal Reserve
Special Guest: Robert Wenzel – Editor & Publisher of Economic Policy Journal.com & Target Liberty
Investing based on The Austrian school of Economics
FRA Interview of Robert Wenzel by FRA Co-founder Gordon T Long.
Across well-known literature, the Austrian school of economics has earned and put its indelible mark on the complicated world of economic analysis and theory. The school of thought varies significantly from the mainstream schools of economics like the classical, neoclassical and Keynesian schools of thought. In essence the Austrian school of thought believes in using logical thoughts to explain and solve economic problems rather than getting technical and going into mathematics to explain the same problems.
“The key to understanding is that what you have with mainstream economists is that they look at things from a very mathematical, very empirical approach… unlike in physical sciences you cannot do that for the science of economics because you’re dealing so many variables like changes and desires”
Unlike the mainstream none-Austrian economists, Wenzel believes that there’s a lot to be understood from the economy based on logical build up from solid premises. He goes on to mention that another key aspect to be understood is that Austrian economists believe that when the Fed injects money into certain sectors of the economy, it’s those sectors that turn to boom. According to Wenzel, when the Feds eventually start tightening this money supply it leads to a crash.
On the current economy:
“We’re in a period of accelerated money supply”
Wenzel thinks there could be an increase in price inflation and the possibility of another dip in the price of oil.
Explaining how we have inflation in some areas and deflation in others when we’ve been pumping money into the system, he explains it by outlining how it depends on how quickly people want to spend the money.
“if there’s a great desire to hold money, you’re not going to see the inflation right away”
When people don’t spend money what happens is you have money building up in cash balances which Wenzel terms “the desire to hold cash balances”. With this you see people reluctant to spend money and hence a low velocity of money.
On the confusing environment of economics and how understanding the Austrian school can help to clear things up …. Understanding the business cycle and inflation comes about in terms of the Austrian school of thought. It definitely helps to clear a lot of things up but even more can be taken from this approach. The methodology additionally helps out in terms of having people analyzing the world through logic rather than attacking it solely with empirical data.
On considering Quantitative easing and going into negative nominal rates …. QE is a method where the fed prints a lot of money and buys long durtion debt. The negative nominal rates idea is based on the Keynesian idea that it’s spending that helps the economy to grow, so the idea is to use negative rates to pressure people to spend their money. Wenzel calls this “a tax on holding money”.
Asked if he sees Hyperinflation in the future:
It could happen at some point. The Fed’s target of 2% could easily go up to three 3% with accelerated printing of money. At this point they might raise rates but if the inflation is at 5% and they raise rates from 12bp to 2% that still won’t be able to fight the inflation. However it may be too soon to say hyperinflation.
The business cycle should be understood as a boom and bust cycle.
“Whatever is going up now does not necessarily mean it will go up long term. The bust will occur but they will pump it up with new fed printing, which is eventually where the inflation comes in”
The infographic above shows some differences in Keynesian and Austrian views. Courtesy of The Austrian Insider.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/20/2015 - Alasdair Macleod – THE FALSE PERCEPTION OF LIVING IN A WORLD OF INFINITE CREDIT
FRA co-founder Gordon T. Long deliberates with Alasdair Macleod, head of research at GoldMoney on the Austrian School of Economics in an Era of Financial Repression.
Alasdair. Macleod began his career as a stockbroker in 1970 on the London Stock Exchange. Through experience he rapidly learned about things as diverse as mining shares and general economics, within nine years he had risen to become senior partner of his firm.
Subsequently, he has held positions at director level in investment management, as a mutual fund manager, and also at a bank in Guernsey as an executive director. For most of his 40 years in the finance industry, he has been de-mystifying macro-economic events for his investing clients. From the accumulation of his experience he concluded that unsound monetary policies are the most destructive weapon governments’ use against people.
“I want to destroy this business of printing money as the solution to everything.”
Mr. Macleod strives to educate and inform the public in layman’s terms what governments do with money and how to protect themselves from the consequences.
WHAT IS AUSTRIAN ECONOMICS
“Prices are entirely subjective.”
It began with Carl Menger who was one of the 3 economics who came up with marginal theory of prices. Where Menger differed from other two was that he appreciated that prices were purely subjective. You cannot forecast tomorrow’s prices because prices are determined by the consumer who always has the option to buy.
“It overturns the cost theory of prices which is what Adam Smith believed in. It is completely irrelevant.”
The law of the markets, the reason you and I work is we go out to earn something. We need to transform our skills into consumption. In a free market economy we have people who use their skills to earn money for consumption; the intermediary in this is money. Money is nothing more than the temporary storage of someone’s labour that is transferrable into goods. If you understand this you will see how unsound money is bad for an economy. The idea by printing money which runs a budget deficit that a government can generate economic growth is nonsense.
“In regards to investing one thing that is desperately important to understand is that asset prices always refer back to their production.”
This applies across every asset that you buy. If you see that the prices of assets have moved away from their underlining productive value then you know that you are in a bubble.
A WORLD OF INFINITE CREDIT
“The world post 1970’s is a completely different world from before the 1970s.”
After 1981 rates had been lifted to a point which stopped the relationship between businesses and savers. This is what killed the price inflation up until the early 90s. Banks not only had the liberty to print credit but also to monopolize and control securities markets, if you combine these two thongs together; it is basically a money making machine, which is what we have today.
The end point in credit comes from the logical conclusion of that development. At every cyclical peak the level of interest rates which collapse the economy gets lower. The reason it gets lower is because this combination of credit control in securities markets does nothing more than just pumps up the level of debt. The overhang of debt means the rise in interest rates to stop the economy from getting out of control is getting lower. You cannot raise interest rates by more than one or two percent without serious economic dislocation.
NEGATIVE NOMINAL INTEREST RATES
“The effect of negative interest rates would be to throw every commodity into backwardation.”
There is no doubt that negative interest would drive up inflation, or rather, it would lower the purchasing power of said currency. Negative interest rates for the reserve currency in which all commodities are priced have a severe risk which we will generate runaway inflation, but in fact it is a collapse. In order to make negative interest rates work you need to ban cash entirely. I have no doubt at all that that is the underlying reason why there is so much emphasis on anti-money laundering.
THE FMQ CONCEPT
“The fiat money quantity is the amount of money that would have to be redeemed for gold that once was deposited.”
The fiat money quantity was put together to try to quantify the amount of money that Is being issued in return for the gold that we originally gave to our banks which the banks then handed to the federal reserve.
The reason for doing this is to try to get an idea of how much money is not only in public circulation, but also not in public circulation and potentially in public circulation. From looking at the Feds balance sheet and considering other factors like repos and reverse repos, we see that the growth curve has taken off; and in the very broadest sense we have monetary hyperinflation.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/19/2015 - FRA’s Gordon T Long Is Interviewed By Dan Popescu On Financial Repression
Discussion between Dan Popescu & Gordon T Long .. Financial repression & interest rates .. Deflation, inflation or hyperinflation .. The currency wars and the dollar: up or down? .. Gold & Silver: an insurance policy .. Banning cash & the cashless society .. China gold, yuan & the SDR .. 25 minutes
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/13/2015 - Round Table with Charles Hugh Smith & Rick Ackerman – What We Should Expect From the Fed
Special Guests: Charles Hugh Smith – OFTWOMINDS.COM; Rick Ackerman – rickackerman.com
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site “Of Two Minds”, which started in 2005. His work has been featured on a number of highly acclaimed sites including: Zerohedge.com., The American Conservative and Peak Prosperity.
Rick Ackerman has professional background including 12 years as a market maker on the floor of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader. Rick Ackerman is the editor of Rick’s Picks and a partner in Blue Fin Financial LLC, a commodity trading advisor.
Co-founder of The Financial Repression Authority, Gordon T. Long has an in-depth discussion on the current financial situation with Charles Hugh Smith, of OfTwominds.com and with Rick Ackerman, trader and forecaster of Rickackerman.com.
THE OUTLOOK ON QUANTITATIVE EASING
Rick:
“I’ve been shouting from the rooftops that the fed will never raise interest rates.”
If you want to find out if QE is working the first person you have to go to is the retiree. The whole idea of stimulus should have been refuted simply by the fact that savers have been cheated for so long.
Charles:
They may go ahead and do the quarter point rates increase because they have built up so many expectations to that. They will need to do this to create the allusion that the economy is recovering or else it’s robust.
Gordon:
The market may be a key driving factor, not because of the wealth effect; but because of collateral.
THE STATE OF JAPAN:
Charles:
“The Juggernaut of deflation is so huge now, that there isn’t going to be any time to react. Keep a shoebox full of cash because on that day we might wake up and the banks won’t be open, we will need that cash.”
I don’t see the possibility of massive inflation. The only viable way of getting money into the system is to borrow it into existence.
Japan, is a developed economy that has been in a deflationary setting for almost 25 years now. We can see what they’ve done and what effects it has. They have attempted to stimulate their economy by improving roads and infrastructure. But it has not worked. Japan refuses to cleanse their financial system to allow real investment so they have consequently brought in mal-investment with borrowed money.
Rick:
Japan had something over the last 20 years that we didn’t have, and that is us. Japan has a global economy to export into; we were the buyer of last resort.
NEGATIVE INTEREST RATES
Rick:
“If you can extrapolate a somehow positive benefit from negative interest rates, where would this benefit be and how long would it last?”
The idea is if people can no longer park money anywhere, they can only spend it or invest it, we have to ask, where are they going to invest or spend it? It’s inconceivable that money can find itself into somewhere in the economy that would promote growth and economic health.
Charles:
In a current example of negative interest rates we see what is happening with Sweden who is actively pursuing negative rates. The net result is that it is taking their housing bubble and inflating it even further. Basically it is pricing everybody out of housing and creating a credit bubble.
COLLATERAL GUARANTEES
Gordon:
“It is in the cards, in the middle of the next crisis.”
We have an approximately $500 trillion swaps market that is underpinned with collateral. So if bond prices were to drop it would be a horrendous situation. We were able to stop the 2008 crisis, we did not fix it we only stopped it. Now it will be a global issue, and the central banks will be forced to come in and pay attention to these collateral values. We have a huge pool of bond ETF’s that have exploded in the past few years, somebody has to sell these bonds but they are not easily transferred. The central banks will have to intervene in a massive way. I believe many people are betting on this, and are therefore taking risk adjusted positions.
Rick:
“We are really talking about a quadrillion dollar bubble.”
Much of borrowing and leveraging shifted into rehypothecation. It occurred mostly in London markets that were more unregulated than US markets. So when we had the real estate bust in 2008 we needed something to pledge as collateral.
When you look at the entire quadrillion dollar enchilada, somebody may say the actual size of the bubble is only several hundred trillion dollars. When in reality the gross amount is something everyone involved in the daisy chain thinks they have a claim on a particular asset.
Charles:
We must own real assets, and have no debt. Whatever financial wormhole we are going to go through,we must own the right tools, because the tools will still exist after we get through the wormhole.
THE INDIRECT EXCHANGE:
Regarding a recent show with Warren Buffet, and Ty Andros, Editor at Tedbits Newsletter,
Warren Buffet so masterfully utilizes the indirect exchange. He takes paper, which is his entire insurance side of business and plows it back into real hard assets that will sustain themselves at a fair price. Buffet has don’t this so consistently for so many years and that is why balances; paper products (insurances, bonds, and structures against real assets). Buffet has certainly been a consistent winner without question.
Rick:
Buffet has also resisted the temptation of going after easy money. His money is not in Uber, Dropbox, and Instagram etc. It’s simple to see that it is not going to end well, not only for the companies but for the whole city, if I were to short any city in this country it would be San Francisco. Everything is so pumped up in that city because there are companies that hire these people that are extremely overvalued.
Buffet has demonstrated amazing restraint and discipline for sticking with the nuts and bolts, instead of going after the alluring high attraction companies. He has found real businesses with real products that have a sustaining capability to survive during good times and bad.
Charles:
Raising the issue of risk, how do we deal with the kind of systemic global risk that we currently have? Risk is extremely misrepresented to the average middle class American. We are trying to help people make a realistic assessment of the global risk they are engaged in by having a 401k that is involved in these risky financial assets.
CLOSING REMARKS
Rick:
“You can’t look at what’s in prospect as hypothetical, if you don’t think there is going to be a collapse then you don’t understand the problem.”
There is no way we can continue to muddle on, for one its taking a lot more debt to create the dollars’ worth of GDP growth at the margin. We are really going to face a day of reckoning. The most important thing is for us to be resourceful and ready for when it comes.
Charles:
“This enormous supernova of debt is going to implode and whatever is left will not be a financial instrument.”
Gordon:
“Crisis is nothing more than change trying to happen.”
We have so many global imbalances. We have political, economic, and financial systems that are not correct, we are still running from a Bretton Woods; post WWII model. And during this process, mal-investment, lack of price discovery and mispricing are rampant.
But on the flip side, for those who have prepared themselves for this storm, I think the world is going to see its greatest years. The advancements in technology, and so many other endeavors is staggering. !5-25 years out will be an incredible time for the world but meanwhile we are going to go through some rough times, but there will be winners and there will be losers, and the winners are always the ones who prepare.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/08/2015 - Financial Repression: How Central Banks Can Implement Negative Interest Rates Without Confiscating Physical Cash
Article explaining recent research paper to address the big problem with forced negative interest rates – depositors would see the numerical value of their bank deposits go lower & withdraw the cash to put it into their safety deposit box or to store it at home .. Miles Kimball, professor of economics at the University of Michigan, explains that flight to cash could be prevented in the latest economic review from the National Institute of Economic and Social
Research (NIESR) .. the basic idea is to attribute a negative interest rate for banks to accept physical cash if you deposit the cash into your bank account & to set this negative rate higher (more negative) than the negative interest rates you are getting at the bank account .. that way you are not only encouraged to spend your money before you have less of it, but also to bring in your physical cash as quickly as possible to the bank before it losses even more value faster .. “Paper money would be depreciating in value more quickly than electronic money. In effect, paper money would have higher inflation than electronic money.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/04/2015 - 2 Solutions To Investing In Financial Repression By Vulpes’ Stephen Diggle
Vulpes Investment Management Founder Stephen Diggle goes through the math to explain the challenges for investing sufficient capital & generating enough yields for retirement .. how do you get yield in today’s environment of repressed interest rates & quantitative easing ., on concerns these investments are illiquid: “These sorts of solutions to the Yield Problem do have the major disadvantage of being illiquid and that is a real consideration. However, well run endowment and pension funds are supposed to have a clear idea of the ‘long term liability matching’ which they exist to do, so while a cash reserve of liquid assets would always be prudent, it’s hard to see how that safety amount would ever exceed 10-15% of assets. Liquidity is a nice thing to have, and usually better than illiquidity (although some make an argument that a long term commitment when enforced produces better returns); but when the price of liquidity is investment failure; as we would see the whole sovereign bond market, it is a crutch that must be foregone. In the real world no-one will have a pension fund comprising of one alternative asset, but the returns above are not fictional. We believe they are distinctly possible both for the pension disaster of traditional assets and the transformational impact of high yielding alternatives. We’d go further to say that it is almost inevitable that the coming crisis in retirement will lead pension funds of the near future into many more alternative assets, agriculture and real estate included.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/01/2015 - Financial Repression – The Unintended Consequences
“Financial repression is not a conspiracy theory, it is rather a collective set of macroprudential policies focused on controlling and reducing excessive government debt through 4 pillars – negative interest rates, inflation, ring-fencing regulations and obfuscation – to effectively transfer purchasing power from private savings.” – The Financial Repression Authority
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/01/2015 - The Era of Financial Repression: Norway’s Sovereign Wealth Fund says Monetary Policy is a Risk to Watch
“Monetary policy does affect pricing in today’s market to such an extent that monetary policy itself has been a risk you have to watch .. Investors are focused more on monetary policy changes than has been generally the case, than at any time, as far as I can remember .. As anything that moves prices is a risk that has to be monitored, here the effects of monetary policy affect prices dramatically .. It’s of course always been the case with long rates, and now more significantly with the currency. That’s just a fact of the current market.”
– Yngve Slyngstad, chief executive officer of Norway’s $890 billion sovereign-wealth fund
“Financial repression is not a conspiracy theory, it is rather a collective set of macroprudential policies focused on controlling and reducing excessive government debt through 4 pillars – negative interest rates, inflation, ring-fencing regulations and obfuscation – to effectively transfer purchasing power from private savings.” – The Financial Repression Authority
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/01/2015 - Financial Repression Is Making It Difficult To Retire: How Do You Retire On Little Or No Savings?
Essay by our strategic partner Charles Hugh Smith who explains the challenges and issues for Americans (applies also to Canadians and Europeans) to retire, especially when interest rates are repressed to virtually 0% by central banks to the point where it is difficult to get any yield out of savings. Is there a way to retire on little or no savings and little or no income?
OLYMPUS DIGITAL CAMERA
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
11/01/2015 - Scotiabank’s Guy Haselmann on Financial Repression
Guy Haselmann of Scotiabank checks the definition of a free-market economy, confirms that is not what we have today .. given the financial repression of “regulatory macroprudential policies conspiring with zero (or negative) interest rates & asset purchases to exterminate the markets’ ability to freely calibrate clearing market prices based on supply and demand factors. It is impossible for central banks to sustain controlling influence on market sentiment, investor behavior, correlations, and valuations, simply because effectiveness wanes over time.”
Some pointers for investors in an environment of long-term 0% interest rates & worldwide QE programs .. “Stock and bond diversification alone will not be enough to adequately protect a portfolio” .. Scotiabank’s Guy Haselmann suggests: 1) It is time to find ways to preserve capital. Return of capital strategies now trump return on capital pursuits. 2) Where possible, transition from financial to real assets .. such as, real estate, farm land, collectables, art, other non-correlated & less-cyclical assets. 3) Cash has never had better optionality or a lower opportunity cost. 4) I remain a bond bull in long U.S. Treasuries for regulatory, technical, fundamental reasons. 5) Find companies & countries with low levels of debt & stable cash flows. 6) Despite recent bad press, alternative investments should be considered. 7) Place larger premium on market liquidity & counter-party risk.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
10/31/2015 - Ty Andros – The Austrian School of Economics Uses the “Indirect Exchange” to Capture Real Wealth
Special Guest: Ty Andros – CIO Sanctuary Fund, Publisher of “Tedbits”
FRA Co-Founder Gordon T. Long deliberates the Austrian School of Economics with Ty Andros of Tedbits Newsletter. Ty Andros began his commodity career in the early 1980’s and became a managed futures specialist beginning in 1985.Mr. Andros attended the University of San Diego, and the University of Miami, majoring in Marketing, Economics and Business Administration. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis.
WHAT IS AUSTRIAN ECONOMICS?
“Austrian economics is just human behaviour, and common sense, and history.”
“But what’s happening is human behaviour, nonsense, and history. We are at a period where people have forgotten history and are doomed to repeat it. “
“Austrian school and capitalism are one in the same.”
“Austrian Economics is production of wealth, producing more than you consume. Meeting people’s needs and doing it in a superior manner; in other words, capitalism.”
The historical school, had argued that economic science is incapable of generating universal principles and that scientific research should instead be focused on detailed historical examination. The school thought the English classical economists mistaken in believing in economic laws that transcended time and national boundaries.
APPLYING AUSTRIANISM TO INVESTING
“You have to prey on paper.”
“The only real way the middle class will get to success is going out serving others and getting rewarded for it.”
“Austrian school is just history, common sense, and the production of wealth; everything else will flow from there. The reason middle classes cannot rise is somehow the public has gotten the idea that they are going to raise their lifestyle through the stroke of a pen at a central bank or other government bodies.”
THE INDIRECT EXCHANGE
“In today’s world economic growth is a function of a printing press; consumption presented as production.”
It is a situation in which goods, services, etc. are traded between two countries using the currency of a third country. Real wealth can only be created by growing it, mining it, building it, manufacturing it; being rewarded for providing more goods and services for less to consumers. What we have now is phony capitalism, which is more money for less goods and services, while consumer demand is being mandated by government planning and controlled by central banking.
EVENTS TO UNFOLD IN THE UPCOMING YEARS
“We are in a death event.”
“If you date interest rates going back 600-600 years, we have never once had a scenario where they were kept at zero for 6 years. What we have is a flat line; just like in any medical monitor a flat line is fatal.”
“The system is dead, we are just sitting there on the fumes and they can’t relight it because they have outlawed free enterprise capitalism, and wealth creation. Look at the health care system right now, it is just a leviathan. They went in there and wrote Obama Care for themselves and that’s how they became supporters. It was government sanctioned.”
“Just look at Japan, we are headed right there.”
“The long term the yield curve is going to invert, but it is going to invert near zero. There is no growth, the only growth there is, is just credit creation. To spurt credit creation they have to make it easier for people to borrow so people can miscalculate their returns.”
CURRENCY EXTINCTION
“Currencies expire when people wake up, the value that currencies hold are only values within people’s minds.”
There is absolutely no value in them. As long as they are perceived as having real worth, you can purchase real things; this is the indirect exchange. Money is a store of value because it is not pegged to anything, as long as this allusion is there; we are substituting it to grab a hold of real cash flowing assets.
THE LEVERAGE COLLAPSE
“The dollar is going down, and it is going to die; but it will be the last to die.”
“They really have people thinking that the dollar is a risk free asset, and it is not. It is a worthless junk bond. Currencies don’t float, they just sink at different rates, and the sinking is managed by the BIS and the ECB, Bank of England, Bank of Japan etc. and they all mange the theft of remaining value with their printing presses.”
“The financial systems were given the keys to the castle. These economies are not run for the benefit of the entrepreneur; they are run for the benefit of the financiers. It is a game that the central banks have been playing since the 1600’s when the Rothschild’s went after the Bank of England. We are in troubling times and we need to be well informed. If you are an investor and you do it right, it will be the greatest time in history.”
“A Depression is incoming and this one will be nasty, in fact it will be the worst one ever.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
10/30/2015 - Chris Casey: The Austrian Case for Inflation
Special Guest: Chris Casey – Managing Director, WindRock Wealth Management
FRA Co-Founder, Gordon T. Long interviewed Chris Casey of Windrock Wealth Management on the concept of inflation and other applications of Austrian economics to investment theory. Mr. Casey, an Austrian economist, is a frequent speaker and writer on macroeconomic topics and their related investment implications.
WHAT IS AUSTRIAN ECONOMICS AND WHY DOES IT MATTER?
The Austrian school offers the “most realistic interpretation” of society and economics according to Mr. Casey. Gordon agrees in noting that “mathematical models are only as good as their assumptions.” While equations and models may be useful as a construct to frame concepts, any social science cannot be scientifically tested due to the inability to control the countless variables at work. As such, Mr. Casey prefers the Austrian approach which “looks at basic self-evident axioms as it relates to mankind in nature and then uses deductive reasoning to describe how the real world works.” According to Mr. Casey, the unique Austrian explanations of inflation and the business cycle (recessions) have direct applications to practical investment ideas.
THE AUSTRIAN EXPLANATION OF RECESSIONS
Most mainstream economists believe recessions are inherent to capitalism since their repeated cycles largely began during the industrial revolution. The Austrian school recognizes a different causation occurring at the same time: fiat money with or without central banking. By artificially increasing the money supply through fiat money, interest rate levels are temporarily lowered. This incents businesses and individuals to make investment decisions they would not otherwise have made: in short, malinvestments. Recessions to liquidate the inevitably follow monetary mischief.
THE AUSTRIAN EXPLANATION OF INFLATION
The Keynesian school of economics has two theories of inflation which fail to comport with reality and are theoretically faulty. Their “demand-pull” explanation requires full employment and full capacity in an economy, but Mr. Casey demonstrates that fails to account for a doubling of prices during the 1970’s during economic weakness.
The “cost-push” theory is equally wrong. By blaming a particular price increase in a commodity such as oil for all price increases, it would have predicted pronounced inflation and deflation over the last 15 years as the oil price gyrated wildly. In addition, it is theoretically faulty as more money spent on oil means less money is spent on other goods and services – which lowers their prices and renders the overall price level largely unaffected.
“Prices are merely a function of the supply and demand for money” states Mr. Casey. More supply means dollars are worth less while higher demand lowers prices as people seek to increase cash balances by selling goods and services through lower prices.
WHEN WILL WE EXPERIENCE INFLATION?
Mr. Casey believes that “once we have another downturn, the Fed . . . will step right in. Once we have that . . . we’ll really start to see the inflation take off.”
What will the Federal Reserve’s next move be? They have other options besides another round of quantitative easing. Mr. Casey notes they may stop paying interest on excess reserves held by commercial banks at the Federal Reserve, and they may also lower the reserve requirement which could have a pronounced and immediate impact on increasing the supply of money.
WHAT SHOULD INVESTORS DO?
“Timing is everything, so utilize investments which pay well now, but in an inflation will be a home run.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
10/30/2015 - Doug Casey: Retirement & Living Overseas for Americans – The Growing Trend (& Need!)
Special Guest: Doug Casey – Casey Research Personal Freedom Through Financial Freedom
FRA Co-Founder Gordon T. Long interviews Doug Casey on the different and emerging trends that are taking place in the U.S. Doug is an author, investor and founder of Casey Research.
On trends and changes in the U.S, Doug relates it to a “lush, comfortable and well maintained prison”. In his opinion th
e country is gradually degrading. He points out that the standard of living in other countries is steadily going up unlike before when the standard of living in the U.S was clearly ahead of others.
He agrees with Gordon on the fact that very soon people will be forced to retire outside of the U.S due to the rising health and medical costs. Doug points out this trend will only just increase because for years the current good standard of living being enjoyed by the U.S is a result of the heavy borrowing that has been taking place for years.
“When you take on debt, you are either mortgaging your future or you are consuming capital that somebody has saved in the past and lent to you to increase your standard of living now, but when you pay the debt you reduce your standard of living by more than that amount because you have to pay interest on it in addition”.
He predicts that when interest rates start going back up, things are going to get bad quickly, and he advises people to take precaution now by diversifying both politically and geographically while they can. He also recommends that people should acquire as many gold and silver coins as possible as it would be a great way to conserve capital.
“I don’t think in today’s high tech world, the government serves a useful purpose. There’s nothing that the state does that could not and would not be done better and cheaper and without coercion by the free market”.
“If you are the citizen of a country, the government considers you as its property this is why you are better of living in a country where you are not a citizen, and so they treat you as a guest to be cultivated as opposed to a milk cow that has to be milked”.
On the issue of people renouncing the U.S citizenship, Doug believes that this trend will simply keep on increasing. He likens this increasing exodus to what happened in the past, when the American predecessors left England in search of greener opportunities. He advises that Americans’ who value their freedom should look into getting dual citizenships.
“The quality of medical care is at least as good outside the U.S as it is in the U.S and it is much much less expensive”.
Doug believes that the popular belief held by most people, that the medical coverage you get when traveling the world is of a lesser quality as that in the United States is wrong. In his opinion you receive a cheaper and much better service.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
12/06/2015 - “THERE CANNOT BE A LIMIT TO STIMULUS!” says ECB president Mario Draghi
