04/04/2017 - Former Federal Reserve Advisor Danielle DiMartino Booth On The Adverse Effects Of Monetary Policy On Savers

04/04/2017 - GMO’s Jeremy Grantham: Stocks “Decently Different This Time”

Jeremy Grantham, co-founder of Boston investment firm GMO, doesn’t expect valuations to drop back to normal levels for two decades. But he is keeping cash on hand to take advantage of any dip, which he says would need to be 15-20% to act.

03/23/2017 - Financial Literacy Day – Mark Your Calendar – Live Stream on March 30th – Link From Here


LINK HERE to get the Live Stream


Financial Literacy Day

Mar 30, 2017

Event Navigation

Cumberland Advisors and the University of South Florida Sarasota-Manatee are proud to invite you to our Financial Literacy Day being held on March 30, 2017. This event will feature panel discussions by experts on:

  • Fiduciary/Trustee Roles and Responsibilities
  • Women’s Financial Issues
  • Investment Options/Outlook for Investors and Financial Markets
  • The Global Economic Outlook

The keynote remarks will be given by William C. Dudley, President and CEO of the Federal Reserve Bank of New York.

USF Sarasota-Manatee at the Selby Auditorium
8350 N. Tamiami Trail
Sarasota, FL 34243

Parking Information:
Please use the parking lots on the south side of Seagate Drive. You will not need a parking permit if you’re attending this event.

Schedule of Events



  • David Kotok, Chairman & CIO, Cumberland Advisors
  • David BersonSenior Vice President and Chief Economist, Nationwide Mutual
  • Michael ChrisztVice President & Public Affairs Officer, Federal Reserve Bank of Atlanta
  • Tracy CollinsAssistant Professor of Economics, New College of Florida
  • Neal D. ColtonFormer Shareholder (retired), Cozen O’Connor (Philadelphia, PA) 
  • Ray Dillon, President & CEO, Deltic Timber Corporation (Retired)
  • Michael DruryChief Economist, McVean Trading & Investments, LLC.
  • Megan Greene, Managing Director and Chief Economist, Manulife Asset Management
  • Edward F. Keon, Jr.Managing Director and Portfolio Manager, QMA 
  • Kozo KoideChief Economist, Asset Management One Co. Ltd. (Japan)
  • Ramiro Lopez Larroy, Partner & Director, Integras Capital
  • Cheryl LoefflerRealtor & Former Chairman Board of Trustees of Ringling College of Art & Design
  • Laura Mattia PhD., CFP ®Financial Planning Program Director, University of South Florida
  • Michael McNiven, PhD., Managing Director & Portfolio Manager, Cumberland Advisors
  • John Mousseau, CFA, Executive Vice President and Director of Fixed Income, Cumberland Advisors
  • Dr. Donal O’SheaPresident & Professor of Mathematics – Natural Sciences, New College of Florida
  • Kimberly Walker, Attorney specializing in Labor & Employment, Williams Parker


  • Judy Hangartner, CPAAssistant Professor, State College of Florida
  • Alison GardnerFirst Vice President — Wealth Management, Morgan Stanley
  • Michael McKee, Radio Host and Economic Editor for Bloomberg Television
  • Janet SperlingSenior Vice President, Investments, WMS, Raymond James (Sarasota, FL)

Dedication of the
David Kotok/Cumberland Advisors Financial Information Laboratory

The day will also feature the dedication of the new David Kotok/Cumberland Advisors Financial Information Laboratory equipped with Bloomberg Professional Services. This new Lab will provide access to the same data and analysis used by financial experts and managers around the world to students across the Sarasota-Manatee region. David Kotok and Cumberland Advisors were recently featured in the October 2016 edition of SCENE Magazine (pg. 50 – 51), explaining the importance of having these services accessible to financial professionals and students in the Sarasota-Manatee area.


03/22/2017 - McAlvany: Printing Money To Save The System Will Not Work Anymore

Who’s absorbing the liquidity from international money printing? The FED’s grand stimulus experiment has lost its effectiveness, Negative consequences soon to be felt. Inflation risks create key changes in the market that could lead to 2017 being an inflection year.

03/12/2017 - Rob Arnott On Why Valuations Matter, Contrarian Investing And The Unintended Consequences Of The New U.S. Administration’s Policies

Rob Arnott Of Research Affiliates:

02/25/2017 - Yra Harris Warns Of Massive Global Slowdown If U.S.$ Appreciates 20% On Top Of A 20% Border Adjustment Tax

02/22/2017 - Will A Trump Administration Cause Rising Inflation And Rising Interest Rates?

02/12/2017 - Danielle DiMartino Booth: An Insider Exposes The Fed

Danielle DiMartino Booth, former analyst at the Federal Reserve Bank of Dallas, has just released the book Fed Up: An Insider’s Take On Why The Federal Reserve Is Bad For America.

The Federal Reserve is controlled by 1,000 PhD economists .. The Fed continues to enable Congress to grow  the U.S.’s ballooning debt and avoid making hard choices, despite the high psychological and monetary costs. And the addiction to the “heroin” of low interest rates is pushing America’s economy towards yet another collapse ..

“That’s the trillion-dollar question. We didn’t used to call it that did we? We used to call it the million-dollar question. But it’s now the trillion-dollar question. The punditry up there will tell you that The Fed has been in tightening mode since the taper began several years ago, but I say hooey to that. What we have today is absolute fungibility with central bank purchases on a global basis. You’re talking about something upwards of $200 billion every single month. What the global bond market now revolves around, and relies upon, is the assumption that somebody somewhere will be conducting quantitative easing. As long as they do that, we’re operating in a bond market that is assuming that every single bond purchased by a central bank globally has been expired permanently .. You’re taking supply out of the system, which is the only thing that could get you to justify where bond yields are and, therefore the mirror image of that, where bond prices are, which is at record highs or close to record highs. That I think is at the crux of central bankers’ global dilemma. The first central bank that even hints that they are going to reduce the size of the balance sheet or even worse, sell off a single bond, it is game over at that point for the world bond market.”

On The Ticking Pension Time-Bomb: “The problem with pensions is that the sins are compounding over time. They are piling up. Every single fiscal year that goes into the history books with a 6%+ gap between what was assumed versus what was returned piles on to the next year of equal, if not worse, relative underperformance .. You’re talking about having to make up for all of that lost time, but in spades — at multiples of what the current rate of return assumptions are. Going forward, on an ongoing basis for years to come. Which is highly unrealistic when you are staring down the barrel of an almost 40-year bull market in bonds and the second longest bull market in US history. The assumptions are simply Herculean in magnitude and impossible to achieve. That’s why you’re seeing rate of return assumptions begin to come down. This is all good, fine and well until you completely square the circle and understand that every time a municipality or a state pension plan reduces their rate of return assumptions, some entity, whether it be the state, the school district, some entity has to write a bigger check in order to make up for the cash flow that is no longer being assumed in by the actuaries via rate of return investments. It doesn’t work. You can’t do it for very long when you’re not bringing money in as a state municipality.”

02/06/2017 - Grant Williams: A Punch To The Face For Central Banks

Peak Prosperity special .. Grant Williams, publisher of the economic blog Things That Make You Go Hmmm and principal of Real Vision TV, returns to the podcast this week to discuss his expectation of a return of volatility to the markets .. Grant warns that over the past seven years, the various financial markets around the globe have melded into a single world market dominated by trading algorithms and the central banks. This new system only knows how to operate effectively in one direction: Up .. Grant is very concerned that a return of volatility will act as a wrench tossed into the gears, quickly throwing the world financial system into panic.

01/28/2017 - James Grant: It’s A Different Investment World Now

A different investment world. Financial Thought Leader, James Grant, Editor of Grant’s Interest Rate Observer declares the 35 year bull market over and sees few opportunities to replace it. WEALTHTRACK broadcast on January 27, 2017.

01/18/2017 - McAlvany Commentary: Russell Napier On Financial Repression

Russell Napier: Gold Will Rise With the Dollar 

Financial Repression will increase, just ask Carmen Reinhart, Euro & Yen will devalue as Dollar and Gold will rise, Societies that feel a threat to their private property buy gold. You can find Russell’s Book “Anatomy of the Bear: Lessons from Wall Street’s four great bottoms.”

01/12/2017 - McAlvany Report: Capital Controls And Financial Repression The New Tools Of Captivity

01/09/2017 - Russell Napier On Financial Repression: “You Are Not Supposed To Know It Is Happening”

Financial Repression – “Put inflation about interest rates and to maintain them there” .. it’s being done by the central banks, and it could be forced by financial institutions upon investors by governments .. it’s all about governments trying to maintain & reduce the burden of government debt .. but now the need to repress is higher than after World War II, since there is also a lot of private debt as well .. “we are at the very early stages of this [financial repression]” .. 

01/09/2017 - Dr. Marc Faber: Federal Reserve Likely To Launch QE4 In 2017

“Let’s say the Fed realizes that the deficits for the U.S. go up and that interest rates increase and that the economy slows down, do you really think that they will increase the Fed funds rate three times in 2017? Never. What they will aim at, then, is to essentially bring interest rates down, especially if by then the dollar is still strong. And so they will probably launch QE4 in 2017. I think that will be a surprise for many people — not for me, but for many people that will be a surprise.”

LINK HERE to the podcast

Also recommend watching the below video interview: Dr. Marc Faber sees emerging markets as outperforming the U.S., the U.S. Treasury Bond Market likely to correct (go higher) in the short term, & the U.S.$ likely peaking in 2017 .. sees the world’s big central banks – Federal Reserve, Bank of England, ECB and Bank of Japan – as coordinating monetary policies together on a global basis.







The Central Bankers have clearly painted themselves into a corner as a result of their self-inflicted, extended period of “cheap money”.  Their policies have fostered malinvestment , excessive leverage and a speculative casino approach to investments. Investors forced to take on excess risk for yield  and scalp speculative investment returns, must operate in an unstable financial environment ripe for a  major correction.  A correction because of the  high degree of market correlation that likely would be instantaneously contagious across all global financial markets.

Any correction more than 10% must be stopped. As a result of the level of instability, even a 10% corrective consolidation could get quickly out of control, so any correction becomes a major risk. What the central bankers are acutely aware of is:

  • If Collateral Values were to fall with the excess financial leverage currently in place, it would create a domino effect of margin calls, counter-party risk and immediate withdrawals and flight to areas of perceived safety.
  • The already massively underfunded pension sector (which is now beginning to experience the onslaught of baby boomers retiring) would see their remaining assets impaired. This could lead to social and political pressures that would be simply unmanageable for our policy leaders.
  • A falling stock market is the surest way of alarming consumers and signalling that things are not as “OK” as the media mantra  has continuously brain washed them into believing. In a 70% consumption economy, a worried consumer almost guarantees a further  economic slowdown and a potential recession.

As our western society continues to consume more than it produces, productivity is not increasing at the rate that justifies the developed nations standard of living as well as the current levels of equity markets. A possible corrective draw-down to the degree shown in this chart is simply “out of the question”!  The central bankers acutely aware of this.



The markets are presently, temporarily held up due primarily to three factors:

  • Historic levels of Corporate Stock Buybacks,
  • The chasing of dividend paying stocks for investment yield in a NIRP environment,
  • Unusual Foreign Central Bank buying (example: SNB)

Professionals, institutions, hedge funds etc have been steadily lightening up on equity markets (or simply leaving completely) leaving the public holding the bag.

It is estimated that the $325B that will leave the US equity markets in 2016 will be replaced by an artificial $450B of corporations buying their stocks. With corporate cash flows now falling and debt burdens triggering potential credit rating downgrades, this game is quickly slowing. The central bankers are aware of this.



The Market Technicians of all persuasions are almost unanimously calling for a major correction. What is most troubling here is that their indicators are not just short and intermediate term measures but critical long term indicators.

  • KONDRATIEFF CYCLE: The 55 Year generational Kondratieff Cycle  shows an overdue major downturn with a cleansing of debt as part of the end to what has been termed the “Debt Supper Cycle”,
  • DEMOGRAPHIC CYCLES: Harry Dent has done some major  work on Demographic Cycles and cycles overall. I interviewed him for the Financial Repression Authority where you can find the video and he lays out the seriousness of the shifting demographics and how it overlays of many different types of cycles he has studied.



The technicians who study Elliott Wave see clear evidence that we are now completing a multi-decade topping pattern in the form of a classic megaphone top.


Chart courtesy of Robert McHugh

The central bankers are aware of this.


I could keep on illustrating the types of warnings we are seeing, but let me share what the central bankers are likely most concerned about regarding Correlation, Liquidity and Volatility ETPs.

The markets have become so correlated (think of this as everyone on the same side of the boat) with asset correlations not only being higher, but the correlations themselves are becoming more correlated. While traditionally rising cross-asset volatility has resulted in volatility spikes, that is no longer the case due to outright vol suppression by central banks. While central banks may have given the superficial impression of stability by pressuring volatility, they have also collapsed liquidity in the process, leading to less liquid markets, a surge in “gaps”, and “jerky moves” that are typical of penny stocks.

The greater the cross asset correlation, the lower the vol, the greater the repression, the more trading illiquidity and wider bid ask-spreads, and ultimately increased “gap risk”, which becomes a feedback loop of its own. Global central banks are now injecting a record $2.5 trillion in fungible liquidity every year – in the process further fragmenting and fracturing an illiquid market which  is only fit for notoriously dangerous “penny stocks.”

“More than $50 billion has poured into low-volatility indexed exchange-traded funds over the past five years or so, in the wake of the 2008-09 market meltdown. There are now 14 “lo-vol” ETFs with assets exceeding $100 million each, and many more with less. Whenever the market hits a pothole, these ETFs enjoy a bump-up in assets.”


Even more concerning are Volatility ETPs (Exchange Traded Products) which are derivative of some underlying asset. Volatility ETFs are particularly strange animals since you’re buying a derivative (ETF) on a derivative (the futures contract) which itself is based on a derivative (the implied volatility of options) and those options themselves of course are derivatives which themselves are based on the S&P 500. Getting the picture? The folks at Capital Exploits warn:

….everyone is on the low volatility side of the boat, because the central banks have managed to create a sense of calm in the markets exhibited by record lows in volatility and  investor have used linear thinking extrapolated well into the future assuming ever greater risk ignoring market cycles and extremes at their peril.

Every time you sell volatility you get paid by the counter-party who is typically hedging the volatility (going long) of a particular position and paying you for the privilege. This is not unlike paying a home insurance premium where the insurer takes the ultimate risk of your house burning down and you pay them for the privilege. The difference however between selling volatility in order to protect against an underlying position and selling volatility in order to receive the yield created is enormous. And yet this is the game being played.

The central banks have managed to create a sense of calm in the markets exhibited by record lows in volatility and for their part Joe Sixpack investor has used linear thinking extrapolated well into the future assuming ever greater risk ignoring market cycles and extremes at their peril.

Again, none of this is going unnoticed by the increasingly worried central bankers.


So what can the central bankers be expected to do? We laid out this road-map at the Financial Repression Authority well over a year ago. We anticipated in our macro-prudential research much of what has now become mainstream discussion:

  • Helicopter Money (now openly discussed)
  • Fiscal Infrastructure Stimulus (has become part of all candidates election platforms)
  • Collateral Guarantees
    • Buying Corporate Bonds – DONE (ECB, BOE)
    • PLUS more on Collateral Guarantees


We now believe the Central Bankers and Federal Reserve specifically is preparing for more in the way of Collateral Guarantees.

We believe it will actually take the form of direct buying the US stock market similar to what the Bank of Japan is  already doing with ETFs.


My long time Macro Analytics Co-Host, John Rubino concludes in his most recent writing “Flood Gates Begin to Open“:

Individual countries have in the past tried “temporarily higher rates of inflation,” and the result has always and everywhere been a kind of runaway train that either jumps the tracks or slams into some stationary object with ugly results. In other words, the higher consumption and investment that might initially be generated by rising inflation are more than offset by the greater instability that such a policy guarantees.

But never before has the whole world entered monetary panic mode at the same time, which implies that little about what’s coming can be said with certainty. It’s at least probable that a combination of massive deficit spending and effectively unlimited money creation will indeed generate “growth” of some kind. But it’s also probable that once started this process will spin quickly out of control, as everyone realizes that in a world where governments are actively generating inflation (that is, actively devaluing their currencies) it makes sense to borrow as much as possible and spend the proceeds on whatever real things are available, at whatever price. Whether the result is called a crack-up boom or runaway demand-pull inflation or some new term economists coin to shift the blame, it will be an epic mess.

And apparently it’s coming soon.

It is our considered opinion that the monetary policy setters are presently even more worried about the current global economic situation than we are – if that is possible?

This is evident because over the last 14 days Fed Chair Janet Yellen, former Treasury Secretary Lawrence Summers and JP Morgan have all been out talking openly and publicly about the possible consideration of policy changes that would allow the Federal Reserve to buy US equitiesThese releases must be seen as trial balloons to condition expectations.

Japan and Switzerland amongst others are already doing it (as we previously reported) , while the ECB is also floating its own trial balloon on the same subject.

If you want to know what could create a Minsky Melt-up, this is it!

Here is our latest Financial Repression Authority Macro Map  illustrating what we see unfolding. We believe the dye has been cast!

The US Federal Reserve can soon be expected  to get congressional approval for equity purchases.  

Of course this will take a post election scare and a new congress to receive.



02/15/2016 - Financial Repression Pillar – Ring-Fencing Regulations: FATCA


Our international taxation partner John Richardson was recently on CTV:

Here is our other international taxation partner Mark Nestmann:

LINK HERE to our International Taxation Services website

Jim Jatras is an attorney and a Washington based government and media specialist who was previously a U.S. diplomat and U.S. Senate staffer .. a discussion on FATCA:

02/15/2016 - Gordon T. Long: The Credit Cycle Has Turned


Gordon T. Long – Credit Cycle Has Turned

from Financial Survival Network

Gordon T. Long says that the credit cycle has turned.

This is an ominous development for the stock market and the economy. Corporate revenue growth has been negative for a while. Earnings are now down and cash flow has hit the skids. Debt continues to accelerate and pretty soon there will be major credit problems, especially in the energy sector.

Where’s will the economy go next?

Click Here to Listen to the Audio

02/15/2016 - Gordon T Long: The Distorted Yield Curve Is Benefiting Governments, Large Corporations and Big Banks


Wall St for Main St’s Jason Burack interviews Gordon T Long on the negative consequences resulting from cheap credit, global credit cycle tightening, and a distorted yield curve .. a discussion about corporations doing financial engineering to grow earnings without increasing revenues & how leveraged buyouts (LBOs) have exploded since the financial crisis .. Gordon thinks the yield curve has been fully distorted to benefit governments, large corporations, big banks & Wall Street ..  thinks all of this ties into problems in the bond market, negative interest rates & financial repression .. a discussion about the bank stocks collapsing & about a potential stock market crash – Gordon thinks it is likely in the near future & that gold and silver prices have most likely bottomed .. the potential for gold to be confiscated – suggests silver may be safer than gold because governments are less likely to confiscate silver than gold .. Gordon sees an escalating massive tax grab coming  .. 54 minutes

02/12/2016 - FRA Brief – White Paper – What Is The Risk-Mitigated Way To Invest In Gold?

A Financial Repression Authority (FRA) Brief:

What Is The Risk-Mitigated Way To Invest In Gold?

Is it going on the stock market and buying a gold ETF like GLD? Is it buying gold mining stocks? Is it buying some gold coins and burying them in your back yard? Is it buying into a limited partnership where the gold is stored offshore? Is it buying gold coins and gold bullion bars and storing them in a safety deposit box at your bank?

The answer to all of the above is no from a risk-based perspective. What does a risk-based perspective mean and why is it important to invest in gold using a risk-based perspective?


Courtesy of Matterhorn Asset Management GoldSwitzerland

In this brief, we will answer those questions by assessing 15 different risks encompassing market risk, credit risk and operational risk. These risks are tabled below. These risks do not take into account certain risks such as the imposition of a windfall profits tax which may be taken by desperate indebted governments in certain jurisdictions.  Our organization, the Financial Repression Authority (FRA), has assessed how well these risks are mitigated by a wide variety of provider firms buying, selling and storing gold.


But before we get into looking at the risks, let’s consider the big questions about owning and investing in gold – Why does it make sense and why now? Why should anyone invest in an asset that does not pay any yield?  We point out below some of the simple yet powerful answers on why.

As to why now, we point out the trend so far this year has been bullish for gold in U.S. dollar terms, but emphasize how gold has already been bullish in most non-U.S. dollar terms over the past few years already.


In addition, gold is an asset which performs well in extreme inflation and extreme deflation environments[i], and serves as protection in times where there is a loss of confidence in government. There are strong deflationary forces in the world today[ii], and many like Martin Armstrong point out how a loss of confidence in government can lead to hyperinflation.[iii][iv] These trends are very bullish for gold now and we think very likely to persist for the remainder of the decade.

Why Gold?


Courtesy of Matterhorn Asset Management GoldSwitzerland

The quote from Voltaire has proven to be true for thousands of years. Paper money issued by governments eventually either loses its value or is taken out of circulation and existence. Here some long term charts showing this phenomenon[v][vi]:


Courtesy of Bullion Management Group Inc.


Courtesy of Bullion Management Group Inc.

In Roman history, coins were either phased out of existence or were chipped at the corner to reduce their value or were made with successively less gold and/or silver content.[vii][viii]

And since the creation of the Federal Reserve (U.S. central bank) in 1913, the purchasing power of the U.S. dollar has steadily decreased to a fraction of what it once had:


All of these charts and trends emphasize the importance of holding gold as an asset and a currency for wealth preservation – purchasing power protection. Indeed gold is real money as JP Morgan proclaimed:


We can also look at gold as money from the perspective of how the ancient Greek philosopher Aristotle defined money as.  He detailed characteristics of money as follows – gold meets all of these[ix]:

1.) It must be durable. Money must stand the test of time and the elements. It must not fade, corrode, or change through time.

2.) It must be portable. Money holds a high amount of ‘worth’ relative to its weight and size.

3.) It must be divisible. Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be ‘fungible’. describes fungible as:

“(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”

4.) It must have intrinsic value. This value of money should be independent of any other object and contained in the money itself.

This is all fine and dandy. But the real reasons why it makes sense to hold gold and to hold it now stem from the current risks in today’s economy, financial system and investment environment. And it is these risks and how to mitigate these risks which really determine how best to hold gold today. Let’s explore these risks and some associated mitigation strategies below.

Risk Management Is The Key To Properly Investing In Gold

FRA has put together a nifty matrix (contact us to get more information on this risk matrix) of the risks stemming from the good-intentioned (macroprudential) central bank policies, government fiscal policies and financial regulations focused on controlling excessive government debt, attempting to stimulate economic growth and minimizing the potential for financial and economic crises. Let’s explore a few of these risks applicable to gold below.

Counterparty Risk

This is the risk relating to the entity or provider of an investment in which the entity or provider:

  • does not live up to their contractual agreement
  • presents adverse risks caused by changes in the regulations or environment where the entity or provider operates
  • presents adverse risks caused by the limitations or vulnerabilities in how or where the investment is held or stored

For gold as an investment, examples are counterparty risks stemming from:

  • insecure vaults or volatile environments where the gold is stored,
  • a financially stressed or bankrupted limited partnership entity holding the gold as an asset for its partners
  • a bank where there is the high potential for theft or confiscation resulting from changing financial regulations relating to gold held in a safety deposit box at that bank
  • a provider offering low quality gold

Mitigation of Counterparty Risk: Gold as an investment already represents holding an asset with no liability to any party.

Also, buy the gold from a reputable provider which can deliver the highest quality gold – 999.9 or 99.99% for 1 kilo and 100 gram bars, and for 400oz bars a certification for London Good Delivery.

Additionally counterparty risk needs to be mitigated for storage provider and jurisdictional concerns. For that, invest and store physical gold outside of the banking system and diversify the location of the storage in different jurisdictions. Ensure that the gold is held in an allocated and segregated format with direct ownership (in your name or entity, not that of the provider or a limited partnership). And in the event that the storage providers go out of business, ensure that you still own the gold, and that you can easily and promptly get your gold. Also ensure that the gold is insured by a major international insurance company. And ensure that you can inspect your gold upon request, that you can collect your gold when you request to even in the event of a financial or economic crisis.

Default Risk

This is the risk for an entity or provider of an investment and its associated storage to not meet its payment or debt obligations. For example a gold storage provider is not able to, or does not pay, its loans, debt or bonds, and which provider subsequently goes bankrupt.

Mitigation of Default Risk: Invest and store gold with entities which have financially strong balance sheets, little or no loans or debt, and which are located in secure, stable legal jurisdictions protected through bailment and other laws which will clearly and promptly allow you to get your gold without any legal hassles or potential for confiscation in the event of a default with the entity or provider. And also ensure that the gold is insured by a major international insurance company.

Valuations Risk

This is the risk of entering into an investment when the valuation of that investment is not attractive. An example is like buying a stock at a stock market peak.  For gold, it is difficult to put a valuation to it as it lacks corporate earnings and yield. However, here is a chart showing how little interest there is now in gold as an investment asset class. With such a miniscule interest, it is not likely that its valuation is very high currently.


Courtesy of Dan Popescu

Gold is under owned relative to financial assets at this time. Incrementum has a great chart showing how small gold is relative to other investment asset classes[x]:


Courtesy of Incrementum Liechtenstein

Mitigation of Valuation Risk. At this time investing in gold already mitigates this risk due to the above considerations.

Purchasing Power Loss Risk

This is the risk of an investment not able to preserve how well it, or the proceeds from it after selling it, can be used to purchase the goods and services you need or want. It’s about preserving your wealth when a currency loses purchasing power from inflation or currency depreciation/devaluation.

If this year you have an investment from which you could liquidate to buy 100,000 cups of Starbucks Tall Dark Roast coffee priced at $200,000 but in 5 years from now the same investment only allows you to buy say 50,000 cups of Starbucks Tall Dark Roast cups of coffee, even though the price at that time is say $300,000, what good is the $100,000 gain in that investment?

A key characteristic of gold which has held for thousands of years is the preservation of purchasing power. The old saying of one ounce of gold is equivalent to a fine European cut suit is an illustration of this[xi].

Mitigation of Purchasing Power Loss Risk. Simply keeping a certain allocation of one’s assets in gold is sufficient to mitigate the purchasing power loss risk. The optimal percentage depends upon what assets you hold, what currencies those assets are in, and the correlation of those assets with gold. It is generally recommended to hold more or less 10% of your assets into gold – some say as low as 5% while some say as much as 25%.

Negative Yield Risk

This is the risk that an investment yields a negative yield, such as with many bonds and some bank deposits today around the world as central banks push us into the twilight zone of negative interest rates. For gold, there is no yield, so that there is no issue of negative yield risk.

Mitigation of Negative Yield Risk. Simply owning physical gold entails a yield of 0%, higher than a negative yield.

Liquidity Risk

This is the risk that an investment cannot be sold easily or quickly due to limitations in market participants or to the insufficient volume of a market.  For gold, this means the ability to sell your gold easily and quickly at reasonable market-based rates and to get the proceeds from such a sale easily and quickly as well.

Mitigation of Liquidity Risk. A provider setup to offer and store allocated, segregated and directly owned gold translates into gold that can be easily and quickly sold.

Correlation Risk

This is the risk of linkages and similarities in the performance between investments.  For gold, the historical data indicates an inverse correlation with stocks[xii]. Also many studies have shown that adding gold as an asset in a traditional stocks/bonds portfolio not only adds performance but also reduces overall risk & volatility to the portfolio.


Courtesy of Bullion Management Group Inc.

Mitigation of Correlation Risk. In an environment in which stocks are in a bear market, such as what appears to be in place for this year so far, gold is a great asset to own, given the inverse correlation to stocks. And even if stocks are not bearish, it is nice to have an asset allocation to gold just for purposes of balancing the correlation risks within a portfolio in general. And there is a case to be made for holding gold in a portfolio for asset allocation optimization[xiii].

Negative Interest Rate Risk

This is the risk of negative interest rates, whether they be nominal negative interest rates or real negative interest rates (nominal minus inflation rate), representing a loss of purchasing power over time.  As an asset in a negative interest rate environment, gold performs very well[xiv].

Mitigation of Negative Interest Rate Risk. Simply holding gold as an asset in a negative interest rate environment addresses this risk.

Capital Controls Risk

img12This is the risk of restrictions placed on the movement of capital and assets, whether physically or via wire transfer across international borders or between different jurisdictions. For gold, this means the ability to transport gold across international borders and also the ability to wire transfer the funds to purchase to buy gold, or to wire transfer the sales proceeds from sold gold holdings.

Mitigation of Capital Controls Risk.  Consider buying and holding gold in jurisdictions which are stable, secure and with strong legal infrastructures, a gold-friendly history and little or no debt, and the ability for capital and assets to freely (through minimal paperwork and restrictions) move across its international borders.  In this regard, we see jurisdictions like Switzerland, Hong Kong and Singapore as being some of the best. The mitigation of this risk is also tied to the mitigation of nationalization risk.

Nationalization Risk

This is the risk of assets, funds or companies or even specific resources being taken over, managed or controlled by the government.  For gold, this could mean a declaration or regulation instituted by the government to take over the ownership of gold within a country or jurisdiction.


Mitigation of Nationalization Risk. Monitor in an on-going basis your investment-related jurisdictions worldwide. Keep abreast of new or changing government regulations, edicts or legislations affecting any aspects of the purchase, sale or storage of gold. The mitigation of this risk is also tied with the mitigation of geographical risk.

Geographical Risk

This is the risk of geo-political events and jurisdictional regulations adversely affecting the valuation, holding or storage of an investment. For gold, this could mean events like war or social unrest affecting the safety and security of the storage of your gold. Or for another example, a regulation stipulating the illegality of investing in, holding or storing gold in a particular jurisdiction – like the U.S. for many years from 1933 referred to in the above under nationalization risk.

Mitigation of Geographical Risk. Diversify internationally where gold is held and how it is held from a country and jurisdictional perspective.  An emphasis on stable and secure political, economic and financial jurisdictions is important. In this regard, we see jurisdictions like Switzerland, Hong Kong and Singapore as being some of the best.

Wealth Confiscation Risk

The risk here is the outright confiscation of assets through bank bailins, wealth taxes or changes in ownership structure. For gold, this could mean bank bailins or bank account dormancy involving the confiscation of safety deposit contents, or the imposition of wealth taxes on gold profits or the valuation of holdings.


Mitigation of Wealth Confiscation Risk.  Consider buying and holding gold in jurisdictions which are stable, secure and with strong legal infrastructures and a gold-friendly history and little or no debt.  In this regard, we see jurisdictions like Switzerland, Hong Kong and Singapore as being some of the best. The mitigation of this risk is also tied to the mitigation of nationalization risk (addressed above).

Regulatory Risk

This is the risk of changes in regulations or legislation affecting the viability or operation of an investment. For gold, it could mean changes in how or where gold is bought or stored, by method, volume, timeframe, or use.

Mitigation of Regulatory Risk. The mitigation of this risk is covered by the mitigation of capital control risk, wealth confiscation risk, nationalization risk and geographical risk – addressed above.

Bank Bailin Risk

This is the risk of banks assigning or confiscating assets from bank depositors, which could extend also to bank safety deposit boxes, in the event of a banking crisis. For gold, it could mean getting your gold simply taken by the bank to shore up the capital adequacy of the bank in the event of a banking crisis.

Mitigation of Bank Bailin Risk. The mitigation of this risk is covered by the mitigation of capital control risk, wealth confiscation risk, nationalization risk and geographical risk – addressed above.

Custodial Risk

This is the risk of loss or theft on assets resulting from events or actions (such as insolvency, lawsuits, or expropriation) of the storage provider, holder, custodian or manager of the assets. For gold, this could mean a bankruptcy in the storage provider, resulting in difficulties or impossibilities on getting your gold, or a long drawn-out entanglement in court with unclear and confiscatory liquidation actions on bank assets, bank buildings and operations, and bank safety deposit boxes.

Mitigation of Custodial Risk. Invest and store physical gold in safe, secure non-bank vaults outside of the banking system and diversify the location of the storage in different stable, secure jurisdictions with little or no debt, minimizing the potential for insolvencies, lawsuits or expropriations. Ensure that the gold is held in allocated, segregated and direct ownership (in your name or entity, not that of the provider) format. And ensure that you still own the gold, and that you can easily and promptly get your gold in the event that the storage provider goes out of business. And also ensure that the gold is insured by a major international insurance company. And ensure that you can inspect your gold upon request, that you can collect your gold when you request to, even in the event of a financial crisis.


Investing in gold makes sense now and very likely for the remainder of the decade. However the way you invest in gold Is very important as there are many market, credit and operational risks which affect gold investing. These risks pose potentially adverse outcomes to vulnerabilities which could mean your investment in gold may not meet your expectations or worse, could translate into capital losses or legal complications.

A Financial Repression Authority (FRA) Brief

See our website for more information –


FRA Macroprudential Policy Advisors, 200-131 Bloor Street West, Toronto Canada M5S1R8,  tel/fax = +14163525508















02/12/2016 - Negative Interest Rates – The Next Central Bank Macroprudential Policy Tool

McAlvany Commentary  .. Negative Rates for All: The next central bank macroprudential policy tool .. 49 minutes