Wall Street's Best Minds
Central Banks’ Endgame Not Good for Markets
A William Blair strategist writes that the unwinding of ultra-easy monetary policies will create a bad outcome.
By Brian Singer
We believe the unwinding of ultra-easy monetary policies will create a bad outcome for markets.
The temporary nature of quantitative easing tends to lead to saving.
At the same time, given the ambiguous environment for central banks’ monetary policies and for global economic growth, we are placing particular emphasis on convexity—the use of options—in the portfolio today.
That means, all else equal, we currently have a preference to use options to gain exposures to those fundamental opportunities that have risk coming from stage two of our investment process (determining why value/price discrepancies exist) to help protect against extreme events, while maintaining the ability to participate in the upside.
Photo: Getty Images
How Global Elites Forsake Their Countrymen
Those in power see people at the bottom as aliens whose bizarre emotions they must try to manage.
By Peggy Noonan
This is about distance, and detachment, and a kind of historic decoupling between the top and the bottom in the West that did not, in more moderate recent times, exist.
Recently I spoke with an acquaintance of Angela Merkel, the German chancellor, and the conversation quickly turned, as conversations about Ms. Merkel now always do, to her decisions on immigration. Last summer when Europe was engulfed with increasing waves of migrants and refugees from Muslim countries, Ms. Merkel, moving unilaterally, announced that Germany would take in an astounding 800,000. Naturally this was taken as an invitation, and more than a million came. The result has been widespread public furor over crime, cultural dissimilation and fears of terrorism. From such a sturdy, grounded character as Ms. Merkel the decision was puzzling—uncharacteristically romantic about people, how they live their lives, and history itself, which is more charnel house than settlement house.
Ms. Merkel’s acquaintance sighed and agreed. It’s one thing to be overwhelmed by an unexpected force, quite another to invite your invaders in! But, the acquaintance said, he believed the chancellor was operating in pursuit of ideals. As the daughter of a Lutheran minister, someone who grew up in East Germany, Ms. Merkel would have natural sympathy for those who feel marginalized and displaced. Moreover she is attempting to provide a kind of counter-statement, in the 21st century, to Germany’s great sin of the 20th. The historical stain of Nazism, the murder and abuse of the minority, will be followed by the moral triumph of open arms toward the dispossessed. That’s what’s driving it, said the acquaintance.
It was as good an explanation as I’d heard. But there was a fundamental problem with the decision that you can see rippling now throughout the West. Ms. Merkel had put the entire burden of a huge cultural change not on herself and those like her but on regular people who live closer to the edge, who do not have the resources to meet the burden, who have no particular protection or money or connections. Ms. Merkel, her cabinet and government, the media and cultural apparatus that lauded her decision were not in the least affected by it and likely never would be.
Nothing in their lives will get worse. The challenge of integrating different cultures, negotiating daily tensions, dealing with crime and extremism and fearfulness on the street—that was put on those with comparatively little, whom I’ve called the unprotected. They were left to struggle, not gradually and over the years but suddenly and in an air of ongoing crisis that shows no signs of ending—because nobody cares about them enough to stop it.
And so the great separating incident at Cologne last New Year’s, and the hundreds of sexual assaults by mostly young migrant men who were brought up in societies where women are veiled—who think they should be veiled—and who chose to see women in short skirts and high heels as asking for it.
Cologne of course was followed by other crimes.
The journalist Chris Caldwell reports in the Weekly Standard on Ms. Merkel’s statement a few weeks ago, in which she told Germans that history was asking them to “master the flip side, the shadow side, of all the positive effects of globalization.”
Caldwell: “This was the chancellor’s . . . way of acknowledging that various newcomers to the national household had begun to attack and kill her voters at an alarming rate.” Soon after her remarks, more horrific crimes followed, including in Munich (nine killed in a McDonald’s MCD 0.12 % ) Reutlingen (a knife attack) and Ansbach (a suicide bomber).
***The larger point is that this is something we are seeing all over, the top detaching itself from the bottom, feeling little loyalty to it or affiliation with it. It is a theme I see working its way throughout the West’s power centers. At its heart it is not only a detachment from, but a lack of interest in, the lives of your countrymen, of those who are not at the table, and who understand that they’ve been abandoned by their leaders’ selfishness and mad virtue-signalling.
On Wall Street, where they used to make statesmen, they now barely make citizens. CEOs are consumed with short-term thinking, stock prices, quarterly profits. They don’t really believe that they have to be involved with “America” now; they see their job as thinking globally and meeting shareholder expectations.
In Silicon Valley the idea of “the national interest” is not much discussed. They adhere to higher, more abstract, more global values. They’re not about America, they’re about . . . well, I suppose they’d say the future.
In Hollywood the wealthy protect their own children from cultural decay, from the sick images they create for all the screens, but they don’t mind if poor, unparented children from broken-up families get those messages and, in the way of things, act on them down the road.
From what I’ve seen of those in power throughout business and politics now, the people of your country are not your countrymen, they’re aliens whose bizarre emotions you must attempt occasionally to anticipate and manage.
In Manhattan, my little island off the continent, I see the children of the global business elite marry each other and settle in London or New York or Mumbai. They send their children to the same schools and are alert to all class markers. And those elites, of Mumbai and Manhattan, do not often identify with, or see a connection to or an obligation toward, the rough, struggling people who live at the bottom in their countries. In fact, they fear them, and often devise ways, when home, of not having their wealth and worldly success fully noticed.
Affluence detaches, power adds distance to experience. I don’t have it fully right in my mind but something big is happening here with this division between the leaders and the led. It is very much a feature of our age. But it is odd that our elites have abandoned or are abandoning the idea that they belong to a country, that they have ties that bring responsibilities, that they should feel loyalty to their people or, at the very least, a grounded respect.
I close with a story that I haven’t seen in the mainstream press. This week the Daily Caller’s Peter Hasson reported that recent Syrian refugees being resettled in Virginia, were sent to the state’s poorest communities. Data from the State Department showed that almost all Virginia’s refugees since October “have been placed in towns with lower incomes and higher poverty rates, hours away from the wealthy suburbs outside of Washington, D.C.” Of 121 refugees, 112 were placed in communities at least 100 miles from the nation’s capital. The suburban counties of Fairfax, Loudoun and Arlington—among the wealthiest in the nation, and home to high concentrations of those who create, and populate, government and the media—have received only nine refugees.
Some of the detachment isn’t unconscious. Some of it is sheer and clever self-protection. At least on some level they can take care of their own.
Weekend Edition: China’s New Silk Road to Make a Big Move in Gold
Editor's note: Today, we're sharing one of the biggest stories you're not hearing about…
China is hard at work on the largest, most ambitious infrastructure project in history. Below, International Man editor Nick Giambruno breaks down why the U.S. should be worried… and why this project could send gold to the moon.
By Nick Giambruno, Senior Editor, International Man
It’s one of the great engineering achievements in history…
At 48 miles long, the Panama Canal cuts through a narrow strip of land in Central America.
It links up the Atlantic and Pacific oceans, allowing ships to pass through the landmass instead of sailing around a whole continent.
Ships pay dearly to use this shortcut… up to $375,000 for a one-way toll.
It’s worth the price.
There’s only one other route between the Atlantic and Pacific oceans: a 7,872-mile journey around the tip of South America.
This trip can take weeks and cost hundreds of thousands of dollars in fuel.
The U.S. built the Panama Canal in the early 1900s. At a cost of $9 billion in today’s dollars, it was the most expensive construction project in U.S. history at the time.
So when other countries (including Germany and Japan) tried to build a second canal in nearby Nicaragua, the U.S. wouldn’t have it. A second canal, just 500 miles away, would dilute its value.
In 1912, the U.S. military even occupied Nicaragua to make sure there would be no Nicaraguan canal.
And there never was.
But that’s all about to change…
The Chinese are preparing to build a Nicaraguan Canal. Like the Panama Canal, it will be a shortcut for ships to pass through Central America.
If all goes to plan, China will finish its canal in about 10 years.
And here’s the thing…
China’s Nicaraguan Canal is just a small piece of a much larger strategy of building strategic infrastructure to bypass U.S. control.
The focal point of this strategy is a project called the “New Silk Road.” And if China has its way, the New Silk Road will help it dethrone the U.S. as the dominant world power.
The New Silk Road is the biggest story you’re not hearing about. The U.S. media has barely made a peep about it. Maybe because it’s just too big and complex to fit into soundbites…
The World’s Most Ambitious Infrastructure Project
For over a thousand years, the ancient Silk Road was the world’s most important land route. It was a main trade route for lucrative Chinese silk.
At 4,000 miles long, it passed through a chain of empires and civilizations and connected China to Europe. Merchant Marco Polo traveled to the Orient on this path.
Today, China’s New Silk Road will include high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. It will link the Atlantic shores of Europe with the Pacific shores of Asia. It’s history’s biggest infrastructure project.
New Silk Road Routes
Chinese President Xi Jinping announced the gigantic plan in late 2013. The Chinese government rules by consensus. They’re careful long-term planners. When they make a strategic decision of this magnitude, they’re totally committed.
Plus, the Chinese have the political will to pull it off… and the financial, technological, and physical resources to make it happen.
There’s a saying that the new national bird of China is the construction crane. I was recently in Shanghai, Hong Kong, and Macau, and I can see why. These cities are full of impressive buildings and large skyscrapers.
The plan is still in the early stages, but important pieces are already falling into place. Late last year, a train carrying containerized goods left Yiwu, China. It arrived in Madrid, Spain, 21 days later. It was the first shipment across Eurasia on the Yiwu-Madrid route, which is now the longest train route in the world. It’s one of the first components of the New Silk Road.
In short, the New Silk Road is all about building alternatives to U.S. power.
Part of that, of course, is displacing the U.S. dollar, the world’s premier currency.
So it should be no surprise that China’s New Silk Road project is about to make its first big move in the gold market.
China’s Gold, a Threat to Dollar Dominance
According to recent press reports in Asia, China’s $40 billion New Silk Road Fund is likely to make a bid for a gold mine in Kazakhstan.
The Vasilkovskoye mine is owned by Glencore, an Anglo-Swiss mining company. It produced 380,000 ounces of gold last year. The New Silk Road Fund is considering buying it for $2 billion.
This is just the beginning…
China will continue to build new infrastructure for the New Silk Road. And continue to accumulate lots more gold.
This is not good news for the U.S.
Most people don’t realize it, but if the dollar loses its status as the world’s reserve currency, the dollar would collapse.
That would send gold to the moon.
Decline of Empire: Parallels Between the U.S. and Rome, Part IV
by Doug Casey
Now to gratify the Druids among you.
Soil exhaustion, deforestation, and pollution—which abetted plagues—were problems for Rome. As was lead poisoning, in that the metal was widely used for eating and drinking utensils and for cookware. None of these things could bring down the house, but neither did they improve the situation. They might be equated today with fast food, antibiotics in the food chain, and industrial pollutants. Is the U.S. agricultural base unstable because it relies on gigantic monocultures of bioengineered grains that in turn rely on heavy inputs of chemicals, pesticides, and mined fertilizers?
It’s true that production per acre has gone up steeply because of these things, but that’s despite the general decrease in depth of topsoil, destruction of native worms and bacteria, and growing pesticide resistance of weeds.
Perhaps even more important, the aquifers needed for irrigation are being depleted. But these things have all been necessary to maintain the U.S. balance of trade, keep food prices down, and feed the expanding world population. It may turn out, however, to have been a bad trade-off.
I’m a technophile, but there are some reasons to believe we may have serious problems ahead. Global warming, incidentally, isn’t one of them. One of the reasons for the rise of Rome—and the contemporaneous Han in China—may be that the climate cyclically warmed considerably up to the 3rd century, then got much cooler. Which also correlates with the invasions by northern barbarians.
Economic issues were a major factor in the collapse of Rome, one that Gibbon hardly considered. It’s certainly a factor greatly underrated by historians generally, who usually have no understanding of economics at all. Inflation, taxation, and regulation made production increasingly difficult as the empire grew, just as in the U.S. Romans wanted to leave the country, much as many Americans do today.
I earlier gave you a quote from Priscus. Next is Salvian, circa 440:
But what else can these wretched people wish for, they who suffer the incessant and continuous destruction of public tax levies. To them there is always imminent a heavy and relentless proscription. They desert their homes, lest they be tortured in their very homes. They seek exile, lest they suffer torture. The enemy is more lenient to them than the tax collectors. This is proved by this very fact, that they flee to the enemy in order to avoid the full force of the heavy tax levy.
Therefore, in the districts taken over by the barbarians, there is one desire among all the Romans, that they should never again find it necessary to pass under Roman jurisdiction. In those regions, it is the one and general prayer of the Roman people that they be allowed to carry on the life they lead with the barbarians.
One of the most disturbing things about this statement is that it shows the tax collectors were most rapacious at a time when the Empire had almost ceased to exist. My belief is that economic factors were paramount in the decline of Rome, just as they are with the U.S. The state made production harder and more expensive, it limited economic mobility, and the state-engineered inflation made saving pointless.
This brings us to another obvious parallel: the currency. The similarities between the inflation in Rome versus the U.S. are striking and well known. In the U.S., the currency was basically quite stable from the country’s founding until 1913, with the creation of the Federal Reserve.
Since then, the currency has lost over 95% of its value, and the trend is accelerating. In the case of Rome, the denarius was stable until the Principate. Thereafter it lost value at an accelerating rate until reaching essentially zero by the middle of the 3rd century, coincidental with the Empire’s near collapse.
What’s actually more interesting is to compare the images on the coinage of Rome and the U.S.
Until the victory of Julius Caesar in 46 BCE (a turning point in Rome’s history), the likeness of a politician never appeared on the coinage. All earlier coins were graced with a representation of an honored concept, a god, an athletic image, or the like. After Caesar, a coin’s obverse always showed the head of the emperor.
It’s been the same in the U.S. The first coin with the image of a president was the Lincoln penny in 1909, which replaced the Indian Head penny; the Jefferson nickel replaced the Buffalo nickel in 1938; the Roosevelt dime replaced the Mercury dime in 1946; the Washington quarter replaced the Liberty quarter in 1932; and the Franklin half-dollar replaced the Liberty half in 1948, which was in turn replaced by the Kennedy half in 1964. The deification of political figures is a disturbing trend the Romans would have recognized.
When Constantine installed Christianity as the state religion, conditions worsened for the economy, and not just because a class of priests now had to be supported from taxes. With its attitude of waiting for heaven and belief that this world is just a test, it encouraged Romans to hold material things in low regard and essentially despise money.
Today’s Christianity no longer does that, of course. But it’s being replaced by new secular religions that do.
Gold Has Now Entered Its Strongest Seasonal Period
Investors should make use of golds’ lack of ‘correlation’ with other assets which makes it the best hedge against currency risk. Last May of 2016, there was a huge trend change in U.S. gold investment as the Swiss exported a record amount of gold to the United States. There has been a huge increase in gold flows into the Global Gold ETFs & Funds. Something seriously changed, in May of 2016, as the Swiss exported more gold to the U.S. within one month than they have done so over the last year.
Gold has a “clear presence” to play in a world dominated
with ‘global economic uncertainty”
Despite the fact that we are in for a period of great financial turmoil, investors can safeguard themselves by investing wisely in gold. Do not be left behind and witness your dollar assets losing their value.
It is in these very conditions that gold (precious metals) is the only investment that will appreciate in value over time. Gold will continue to perform its’ role as a “safe haven” during these times of crisis which currently appear to be never ending. The metals surge of as much as 8.1% on the day of the “Brexit” vote, last month, is an indicator that its’ luster of safety is undimmed in the current markets.
There is little to be gained from arguing whether such beliefs are right or wrong: Governments, around the globe, have moved to a new stage of desperation by toying with the idea of “helicopter money”.
It is my belief that since “Brexit” occurred, it could unleash a general exodus and the disintegration of the European Union is now almost unavoidable.
The list of prominent Hedge Fund Managers who are investing in gold is growing. Paul Singer, of Elliott Management Corporation, is the latest name to lend his support. It is likely that more investment institutions will turn to gold as the logical solution to countervail the effects of many years of ‘quantitative easing”.
Gold has been traded for over 5,000 years and for the first time has a positive carry in many parts of the globe as bankers are now experimenting with the absurd notion of negative interest rates. Some regard it as a precious metal while I regard it as a currency!
Soros Fund Management LLC, which manages $30 billion for Mr. Soros and his family, sold stocks and bought gold and shares of gold miners whilst anticipating weakness in various markets. Investors view gold as a ‘safe haven’, during times of turmoil but they tend to be late to the game as they don’t buy gold until there truly is turmoil and gold will have already appreciated substantially at that point.
“It’s a glaring warning sign of deflation. We’ve never really had deflationary fears throughout such a widespread part of the world before,” said Phil Camporeale, a Multi-Asset Specialist at JPMorgan Asset Management.
The FED is doing everything in its’ power to prevent a rise in the dollar. They are willing to “orchestrate” any scenario so as the stock market will continue to soar and people will feel a “wealth effect” from new stock market highs while the others are experiencing the economy “contracting”.
The FED is getting everything it wants, in this regard, and will continue to do so as their number one priority is “debasing” the U.S. Dollar.
As the U.S. Dollar falls from all of the FEDs’ QE, it will lift up gold prices to unprecedented highs.
Investors of all levels of experience are attracted to gold as a solid, tangible and long-term “store of value” that historically has moved independently of other assets classes.
Golds’ importance, even in today’s environment, was clearly visible during the massive rally at the start of the year, when all other asset classes were tanking. Investors piled into gold on the scare of an imminent global financial reset.
Investors should make use of golds’ lack of ‘correlation’ with other assets which makes it the best hedge against currency risk.
Does Gold Continue Its Bull Market Towards $1500.00?
The trend for ETFs to pile in to the precious metal sent the price of gold soaring by 25% in H1, the biggest price rise since 1980. For the first time ever, investment, rather than jewelry, was the largest component of gold demand for two consecutive quarters.
Up and Down Wall Street
Clinton and Trump Both Embrace Keynesianism
Calls for expensive projects to boost infrastructure recall Nixon’s famous speech. The focus on fiscal stimulus favors value stocks, commodities.
By Randall W. Forsyth
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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