Froth or fundamentals?

What explains investors’ enthusiasm for risky assets?

There may be more sense to recent market movements than you think

Even in normal times, there is an element of drama to the markets. The oil price may spike or slump in reaction to a geopolitical wobble; bond yields may leap on strong jobs figures; and shareholders may pump up a stock that posted juicy profits. 

But 2020 has taken the drama to an extreme (see chart 1). 

The equity sell-off in March was unmatched in its swiftness: stocks lost 30% of their value in a month. The yield on ten-year American Treasuries, the most important asset worldwide, fell by half between January and the middle of March and then by half again in a matter of days, before seizing up and yo-yoing. 

The contract for imminently delivered barrels of American oil briefly went negative. 

Over the course of 2020 timber prices have fallen by half, doubled, doubled again, fallen by half once more and then doubled again (overall, they have doubled in 2020).

If the plunge in asset prices as countries locked down terrified asset managers, then recovery—led by a fierce bull run in tech stocks over the summer—has made them uneasy. It was only in 2018 that a public company, Apple, first became valued at more than $1trn. 

In net terms, Apple has gained around $750bn this year. Tesla has increased in value six-fold this year, to a market capitalisation of more than $600bn, roughly the value of the other seven most valuable carmakers combined. 

Even stocks that were unloved earlier in the year, like banks and energy firms, have rebounded of late, on a spate of good news—of an effective vaccine, and of a clear victory for Joe Biden in America’s presidential elections. 

When Airbnb, a platform for booking overnight stays, made its public debut on December 10th—after a year in which no-one travelled anywhere—its share price leapt by 115%. On December 5th the value of global stocks crossed $100trn for the first time.

Financial markets reflect investors’ expectations about the future, so it is hardly surprising that they have been chaotic in 2020. 

But the rebound in risky assets amid fragile economic conditions prompts the question of whether bubbles have formed in certain assets, or whether the ups and downs can be explained by rapidly shifting fundamental factors.

Consider first the evidence for froth. Even as profits slumped, investors in the S&P 500 benchmark index earned 14.3% (excluding dividends) in 2020, about double the typical return over the past 20 years. 

The gains have pumped up measures of stockmarket valuations. 

One such gauge is the cyclically adjusted price-to-earnings, or “cape”, ratio, devised by Robert Shiller, a Nobel-prizewinning economist. This looks at inflation-adjusted share prices relative to the ten-year average of real earnings per share. 

When the ratio is high, stocks are dear relative to their earnings; such periods have tended to be followed by low long-term returns over the next decade. 

In America the ratio in November 2020 was 33, above its level earlier in the year (see chart 2). Only twice before has the ratio exceeded 30 in America—the late 1920s and the early 2000s.

The big tech firms, many of which were expected to benefit from online shopping and home working, have played a disproportionate role in the broader rally. 

They account for two-thirds of the total returns from holding the S&P 500. 

At the start of 2020 Alphabet, Amazon, Apple, Facebook and Microsoft were worth around $5trn and made up 17.5% of the value of the index. 

The five are now worth more than $7trn, and their share has risen to 22% (see chart 3).

Further evidence of froth is the frenzy around initial public offerings of firms such as Airbnb, and the revival in retail trading. Retail investors accounted for 20% of the volume of stock trading, up from 15% in 2019. 

In the summer small buyers of call options—bets on share prices rising—were responsible for more derivatives trading than large ones.

The circumstantial evidence, then, looks bubbly. But a cross-examination of fundamental factors suggests that these can explain more than a fair chunk of what is going on. 

Cyclical assets, like stocks in restaurants and retailers, or commodities, like oil and copper, tend to rally as business booms. 

These fell quickly in value in February and March, followed by slow recoveries as the world reopened. But since November 9th, when news of an effective vaccine broke, they have surged. 

Container-freight rates have risen to all-time highs. Brent crude oil rose above $50 a barrel for the first time since March on December 10th.

Moreover, the move in interest rates appears to more than explain the behaviour of equity prices. In isolation, the cape ratio ignores the impact of discount rates on valuations. 

The value of a firm, to its shareholders, is the present value of a firm’s future profits—meaning share prices tend to be sensitive to changing expectations of future profits, but also to the discount rate used to calculate what those are worth today. 

There have been enormous changes in this discount rate for stocks. At the start of 2020 the yield on ten-year Treasuries was 1.8%; by the middle of March it was just 0.6%. 

Since the vaccine news yields have risen once more, to around 0.9%.

To account for this, on November 30th Mr Shiller published “excess cape yield” numbers, which are calculated by inverting the cape ratio, to give an indication of the expected yield on equities, and then subtracting the expected real returns on holding bonds (which, thanks to low rates and modest inflation expectations over the next decade, are negative). 

The excess yield is actually higher than in January (see chart 4). 

In other words, equities have become more attractive than bonds—at first probably because bond yields fell so quickly, boosting the relative appeal of stocks, but lately thanks to the vaccine heralding the return of growth and profits, which a modest increase in yields has not offset.

The rise in share prices alone, then, is probably not enough to indicate a mania, given the shift in discount rates. 

This may not dispel investors’ disquiet, in part because they are surrounded by evidence of exuberance. 

But the case for a bubble, at the very least, is not open and shut.

With First Dibs on Vaccines, Rich Countries Have ‘Cleared the Shelves’

The U.S., Britain, Canada and others are hedging their bets, reserving doses that far outnumber their populations, as many poorer nations struggle to secure enough.

By Megan Twohey, Keith Collins and Katie Thomas

As a growing number of coronavirus vaccines advance through clinical trials, wealthy countries are fueling an extraordinary gap in access around the world, laying claim to more than half the doses that could come on the market by the end of next year.

While many poor nations may be able to vaccinate at most 20 percent of their populations in 2021, some of the world’s richest countries have reserved enough doses to immunize their own multiple times over.

With no guarantee that any particular vaccine would come through, these countries hedged their bets on a number of candidates. But if all the doses they have claimed are delivered, the European Union could inoculate its residents twice, Britain and the United States could do so four times over, and Canada six times over, according to a New York Times analysis of data on vaccine contracts collected by Duke University, Unicef and Airfinity, a science analytics company.

“The high-income countries have gotten to the front of the line and cleared the shelves,” said Andrea Taylor, a Duke researcher who is studying the contracts.

The United States has provided billions of dollars to back the research, development and manufacturing of five of the most promising vaccines against Covid-19, pushing them forward at a speed and scale that would otherwise have been impossible. But the support came with a condition: that Americans would get priority access to doses made in their country.

Other wealthy nations joined the United States in placing large preorders, often with options to expand the deals and acquire even more — undermining many countries’ ability to make timely purchases.

The United States has secured 100 million doses from Pfizer, with the option of buying 500 million more, and 200 million from Moderna, with an additional 300 million on offer. It has also preordered 810 million doses from AstraZeneca, Johnson & Johnson, Novavax and Sanofi combined; expansion deals could push that number to 1.5 billion.

Britain has claimed 357 million doses from all of those companies, along with a small company, Valneva, with options to buy 152 million more.

The European Union has secured 1.3 billion from most of the same companies, as well as the German company CureVac; it can have another 660 million doses if it chooses.

Nearly all of these vaccines have been developed as two-dose treatments. How quickly the wealthy countries will achieve full coverage is uncertain, in large part because the candidates are in varied stages of progress.

Pfizer’s vaccine, developed with BioNTech, is now authorized in Britain, Bahrain, Canada, Mexico, Saudi Arabia and the United States. Moderna’s is expected soon to follow. AstraZeneca, working with the University of Oxford, is likely to seek approval in Britain, India and several other countries in the coming weeks, armed with data from outside the United States, where it has suffered setbacks with regulators.

Valneva has not yet entered clinical trials. Sanofi, working with GlaxoSmithKline, recently changed its approval timetable to the end of next year after clinical results showed a poor performance in older people.

But the outlook for most of the developing world is dire. Because of manufacturing limits, it could take until 2024 for many low-income countries to obtain enough vaccines to fully immunize their populations.

Local vaccine manufacturing may be critical for lower-income countries

Not all of the less wealthy nations will face severe shortages. Some have secured a substantial number of doses that could come on the market next year by leveraging their own drug-manufacturing strengths.

India is on track to produce more doses of coronavirus vaccines next year than any other country. The Serum Institute of India, which has contracts for large quantities of the AstraZeneca and Novavax vaccines, has promised the Indian government half of its output.

“India gets priority because it’s my home country,” Adar Poonawalla, the company’s chief executive, said in an interview.

And the billionaire Carlos Slim has helped fund a deal for 150 million doses of the AstraZeneca vaccine in Latin America, drawing on manufacturing capacities in Argentina and his native Mexico.

The AstraZeneca vaccine is well suited to poorer countries because it is inexpensive and easy to store. Far more doses of AstraZeneca’s vaccine have been promised than of any other candidate: 3.21 billion, over half of them committed to poor and middle-income countries. The company has partnered with 10 manufacturers around the world.

Johnson & Johnson, whose vaccine is being tested as a single dose, making it another contender in the developing world, has pledged up to 500 million shots to low-income countries, without specifying which nations would get them.

China, which has the third-biggest vaccine manufacturing capacity in the world, has indicated that it intends to make its vaccines available to developing countries. Last week, the United Arab Emirates issued the first government approval of Sinopharm, citing preliminary data showing that it was 86 percent effective.

To address vaccine inequity, the World Health Organization and two nonprofits supported by Bill Gates launched an effort to secure a billion doses for 92 poor countries. A billion more would go to dozens of middle- and high-income nations.

Similar to the U.S. government’s investment but on a much smaller scale, the effort, known as Covax, has backed the development and manufacturing of vaccine candidates, including those of AstraZeneca and Novavax. In return, those two companies have promised Covax hundreds of millions of doses.

But the initiative has struggled to raise enough money to meet its target; even if it did, a billion doses would be enough for less than 20 percent of each poor country’s population.

Rich countries are also jostling for early doses

Though wealthy nations have reserved a vast number of vaccines, they have to wait in line to get their orders fulfilled. Manufacturers will need time to ramp up production after getting regulatory approval, and countries will not receive all their doses at once.

“Just because you’ve purchased 100 million doses doesn’t mean you’ll get 100 million doses in December,” said Kendall Hoyt, an assistant professor of medicine at Dartmouth who has studied the global rollout of vaccines.

In their contracts, companies have promised various time frames. Some public announcements specify that doses will arrive in early 2021, while others are more vague, indicating by the end of next year. And because the contracts are private, it has been hard for governments — and the public — to set realistic expectations.

Julia Barnes-Weise, head of the Global Healthcare Innovation Alliance Accelerator, who consults on these agreements, said it was “mind-boggling” that the global supply of Covid-19 vaccines depended on how these confidential agreements were negotiated.

Take Pfizer, which has said that it will manufacture 1.3 billion doses in 2021. The U.S. government bought 100 million, then was caught off guard when it was later told that it would have to wait until June to receive an additional 100 million included as an option under its contract.

And while Pfizer’s vaccines are already flowing to Britain, Canada and the United States, it is unclear when they will arrive in other countries. Mexico, according to an announcement, could get its first vaccines any time in the next 12 months.

Clemens Auer, a chief negotiator for the European Union, said an in an email that its contract with Pfizer for 200 million doses came with a “fixed delivery timetable,” but that he was keeping the details from the public. “Details don’t matter much,” he said, given the high volume of promising vaccines the E.U. had secured.

In Canada, the government has faced questioning over its contract with Moderna. The country secured an agreement in August for 20 million doses, with an option for an additional 36 million. The United States announced a deal for up to 500 million doses shortly after, and Britain and the European Union announced their own deals last month.

So when Moderna said recently that its first 20 million would go to the United States, Canadian politicians were accused of letting their country lose its place. It wasn’t widely known that as a condition for receiving U.S. financial support, Moderna had promised Americans its first doses.

In Canadian Parliament, Erin O’Toole, the Conservative leader, introduced a motion requiring the government to post fulfillment dates for its orders, saying that citizens “deserve to know when they can expect each vaccine type.”

Doses may be promised, but production is not guaranteed

Even if other promising candidates, like Johnson & Johnson’s, soon get approval and take pressure off Pfizer and Moderna, there’s no guarantee the companies will be able to satisfy their commitments next year.

“People think, just because we’ve demonstrated in Phase 3 clinical trials that we have safe and effective vaccines, that the spigots are about to be turned completely on,” said Dr. Richard Hatchett, head of the Coalition for Epidemic Preparedness, one of the global nonprofits leading the Covax program with the W.H.O. “The challenges of scaling up manufacturing are significant, and they are fraught.”

Some companies have already revised their projections based on manufacturing issues. Pfizer initially said it would produce 100 million doses by the end of this year, only to cut that number in half. Novavax delayed clinical trials in part because it couldn’t make enough doses.

In other cases, vaccine makers or their partners may have promised more doses than can be produced: 3.21 billion doses of the AstraZeneca vaccine have been committed, but manufacturing deals are in place for only 2.86 billion, according to Airfinity. Johnson & Johnson has pledged 1.30 billion but secured manufacturing for only 1.10 billion.

Pfizer’s and Moderna’s commitments are on par with their production abilities, but there appears to be little room for growth.

The companies’ commitments include not just preorders, but also expansion deals, which may not all come to fruition. Like the countries, the companies are also hedging their bets.

Rich countries are being told to share rather than hoard

As stark disparities in vaccine access become more visible, there is mounting pressure on wealthy countries to alter their plans.

Australia, Britain, Canada and the European Union have all made financial commitments to Covax. Now, they are being encouraged to stagger the delivery of their own doses so the developing world won’t be stuck at the end of the line.

“The worst possible outcome is you’re offering vaccines to a whole country’s population before we’re able to offer it to the highest-risk ones in other countries,” said Dr. Bruce Aylward, a senior adviser to the W.H.O.’s director-general who is working on the global vaccine initiative.

Rich countries, which may well end up with more doses than they need, are also being asked to donate vaccines. Canada has already begun discussions about how it might do that.

So far, the United States has been glaringly absent from efforts to address vaccine inequities. It has provided no assistance to Covax, and President Trump has promoted vaccine nationalism at every turn.

But he signed an executive order this month stating that once the federal government determines there is a sufficient supply for Americans, it will facilitate international access to its vaccines “for allies, partners and others.”

And with President-elect Joseph R. Biden Jr. a month from taking office, Covax officials hope the United States will do more. Mr. Biden has already pledged to reverse his predecessor’s withdrawal from the W.H.O.

But even if rich countries donate their excess vaccines, the rest of the world will not have all the doses it needs by the end of next year.

Some experts predict it will be 2024 before there is enough vaccine. Others, like Dr. Hatchett, think that as more people get sick and acquire natural immunity, the need for the vaccine will diminish and the supply will be adequate by late 2022.

Either way, many more people will die along the way.

And if it turns out this is a vaccine that is required every year, like the flu shot, that will change the projections entirely, said Dr. Krishna Udayakumar, director of the Duke Global Health Innovation Center.

“Then all bets are off,” he said. 

Time for US to address savings crisis for workers

Ravages of the pandemic means shift is needed to boost financial resilience

Michelle Seitz

                © Spencer Platt/Getty

US president-elect Joe Biden has sketched out ambitious plans to reinvigorate the pandemic-battered economy. But without addressing a festering savings crisis, efforts to revitalise the middle class are doomed to fail.

The US savings and retirement system is broken, and desperately needs an overhaul to give Americans an opportunity to build lifetime financial resilience.

The economic ravages of a pandemic mean that a national conversation in the US on change is imperative, starting with ways to move towards more universal access to auto-enrol savings and retirement schemes. Moreover, we need to increase our focus on providing real-time data and financial health scores so it’s easier for people to make good decisions.

A lesson from this past year is pretty simple: There is no “normal” in our intricately connected, swiftly-evolving global economy. What happens in Wuhan can upend Chicago, and more unexpected “black swan” events will probably emerge in the coming years.

Add to that the economic tumult of unprecedented technological change, which has been accelerated by the pandemic. We have seen millions of good jobs — in travel and leisure and retail — disappear virtually overnight. In a turbulent 21st-century economy, the health of an individual’s balance sheet is a critical buffer. 

Too many Americans are short on savings and drowning in debt. Our own research found that more than three-quarters of US households nearing retirement had virtually no chance of meeting their income needs.

It is also a generational problem. In 1990, when baby boomers reached a median age of 35, they owned 21 per cent of the US economy’s wealth; that percentage has continued to climb to more than 55 per cent. 

The smaller Generation X, now in their 40s and 50s, still owns less than 20 per cent. 

But the crunch befalls the Millennial generation. As they approach a median age of 35, millennials control only 3.2 per cent of the nation’s wealth — despite accounting for a bigger percentage of the population than the boomers.

We need to admit that our retirement system is stuck in the 20th century, the remnant of an era when life expectancy was 65, not 85, and workers enjoyed a pension after working decades with the same employer. It is hopelessly insufficient in an economy where workers frequently change jobs and even careers.

Last year’s passage of the Secure Act, which makes US retirement plans more accessible to small businesses and part-time employees, was a step in the right direction. The law enables small businesses to join together to create pooled retirement plans. 

This will help some of the 40m employees who cannot currently access a standard 401k scheme, largely small business or gig economy workers. While individual retirement accounts are available for such workers, they mostly require people to set them up themselves, determine their own investments, and fund them.

More change should be considered. Government and business should partner to increase universal access to savings and retirement plans at work. Automatic payroll deductions should be at the heart of any reforms because they give employees the opportunity to “pay themselves” first, putting money away to secure their futures. As the Aspen Institute noted in a recent report on the subject, employees are 18 times more likely to save when an automatic payroll deduction is in place. 

Australia relies on compulsory employer contributions to get to universal access. The country’s “superannuation” funds — now the fourth-largest holder of pension assets in the world — also allow retirement plans to follow workers and provide clear, easy-to-follow financial education and real-time numbers about how much to save to cover a range of outcomes.

That kind of system is, admittedly, a politically difficult path in the US.

In the US, there is promising experimentation at the local level. A handful of states require employers that do not offer their own 401k or similar retirement plans to enrol their workers in a state-facilitated individual retirement account. These remove the administrative burden from small businesses which cannot easily set up retirement accounts for their employees and enable features only accessible by larger plans.

In addition, companies including UPS are adding emergency savings options to their retirement plans.

Much more is needed, and presidential leadership in Washington, to move the needle towards a culture where financial resilience is at the centre of plans to shape an economy where hard-working Americans don’t have to worry about going broke before they die.

The writer is chairman and chief executive of Russell Investments

What Yellen Must Do

Although the United States has survived four years of gross incompetence and pathological mendacity, it now faces the daunting task of achieving a sustainable post-pandemic recovery. Fortunately, no one is better equipped to deal with today’s economic challenges than the next US treasury secretary.

Joseph E. Stiglitz

NEW YORK – US President-elect Joe Biden’s decision to appoint Janet Yellen as the next Secretary of the Treasury is good news for America and the world. The United States has survived four years under a mendacious president who has no understanding of, let alone respect for, the rule of law, the principles undergirding democracy and the market economy, or even basic human decency. 

Not only has Donald Trump spent the weeks since the presidential election spewing lies about non-existent voter fraud; he has also convinced a large majority of his party to embrace these lies, thus revealing the frailty of American democracy.

Undoing the damage will not be easy, especially with the COVID-19 pandemic compounding America’s problems. Fortunately, no one is better equipped – in intellect, experience, values, and interpersonal skills – to deal with today’s economic challenges than Yellen, whom I first met when she was a graduate student at Yale University in the 1960s.

First on the agenda will be recovery from the pandemic. With multiple vaccines in sight, the immediate task is to build a bridge from here to the post-crisis economy. It is too late for a “V-shaped recovery.” 

Many businesses have gone bankrupt, and many more will do so in the coming weeks and months; household and firm balance sheets are being eviscerated. Worse, headline figures may belie the depth of the crisis. 

The pandemic has taken a massive toll at the bottom of the income and wealth distribution. Those who have availed themselves of policies to prevent evictions and foreclosures are nonetheless falling deeper into debt, and could soon face a reckoning.

The current outlook would have been much better if only we had had a president and Congress that recognized back in May that COVID-19 would not just disappear on its own. Strong initial support programs that needed to be extended were not, resulting in avoidable economic damage that will now be hard to reverse.

The devastation of the restaurant and travel industries has received plenty of attention, but this may be merely the tip of the iceberg. Educational institutions, especially many colleges and universities, have been hit badly. 

And state and local governments constrained by balanced-budget laws now face plummeting revenues. Without federal aid, they will have to make deep cuts to employment and public programs, which will weaken the broader economy.

The US desperately needs large rescue programs targeted specifically at the most vulnerable households and sectors. The resulting debt from increased spending should not be viewed as a hindrance, given the enormous cost of doing too little. Besides, with interest rates near zero and likely to stay there for years to come, the costs of servicing new debt are exceedingly low.

Moreover, many of the necessary recovery programs can be designed to serve multiple goals, by putting the economy on a more sustainable, resilient, and knowledge-based footing. Much will depend on Congress, but the economic case for providing more support is clear, and Yellen is well equipped to articulate it.

Much will depend on the global recovery as well. Here, the new administration will have more room to maneuver. 

There is already strong global support for a massive $500 billion issuance of Special Drawing Rights, the supranational currency overseen by the International Monetary Fund, which would go a long way toward supporting many struggling economies. Trump and Indian Prime Minister Narendra Modi blocked this option. It should now be at the top of the agenda.

Moreover, with many countries soon to be unable to meet their debt obligations, a quick and deep restructuring would help enormously. 

To move that process forward, the Biden administration should state clearly that it is in America’s own national interest to uphold the basic principle of sovereign immunity, as endorsed by the overwhelming majority of United Nations member states in 2015. 

Debt restructuring is necessary for the global recovery and is the humanitarian thing to do. If there was ever a time when the principle of force majeure should apply, it is now.

Restoring multilateralism would help, too. For the past four years, innumerable conflicts between the US and everyone else has cast a pall of uncertainty over the global economy. It should go without saying that uncertainty is bad for business and bad for investment. 

A return to normalcy on the part of the US – rejoining the Paris climate agreement and the World Health Organization, for example, and re-engaging with the World Trade Organization (and allowing judges to be appointed to its Appellate Body) – would thus go a long way toward restoring confidence.

But a return to normalcy must not mean a return to neoliberalism. On trade and many other aspects of the twenty-first-century economic framework, policy agendas need to be revisited and reformed. 

It is unclear how far Biden will go down this road. But we can at least be confident that the new administration won’t embrace the zero-sum logic that underpinned Trump’s approach to everything.

Ensuring global stability will require deep cooperation in combating climate change, pandemics, and many other threats. The challenge will be to find ways to do so while remaining fully and vocally committed to our values. 

While Trump severely undermined the international political and economic order, its fissures were long evident before he arrived.

After all, the 2008 financial crisis discredited neoliberalism, with its belief in unfettered deregulation; and the subsequent euro crisis demonstrated that austerity under such conditions does not work. 

It is clear that neoliberalism has led to lower growth, higher inequality, and all of the social and political consequences that we have seen in recent years. Now, the pandemic has put the final nail in neoliberalism’s coffin, revealing an economy utterly lacking in resilience and a state left incapable of responding effectively to a crisis.

Yellen can help to provide the leadership necessary to build a better post-pandemic world. To succeed, an ideology that serves the few at the expense of the many must give way to one based on democratic values and shared prosperity.

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is Chief Economist at the Roosevelt Institute and a former senior vice president and chief economist of the World Bank. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.


by Matthew Piepenburg

Successful investing, from Baron Rothschild to Benjamin Graham, inevitably overlaps with contrarian investing.

In short: Cooler minds avoid the madness of crowds.

This is true regardless of strategy (growth to value, trend to arbitrage) or asset class (from stocks to bonds, rates to precious metals).

Successful gold investing is no exception to this contrarian pattern of standing apart.

As of today, precious metals make up only 0.5 % of total financial assets. By simply owning precious metals, one is already among a minority.

But is this a wise minority?


We have all seen the dispersions cast against precious metal owners as “gold bug” dreamers investing in a “barbarous relic” simply taken from the ground, purchased, and then put back in the ground/vault for a fee.

For decades, the majority of risk asset investors have either ignored or ridiculed buyers of gold and silver.

But here’s the rub: For decades (in fact, for centuries) being in the myopic majority has been a mistake, and this is no less true today when it comes to the topic of precious metals.


Contrarian investors in gold have in fact been enjoying an undeniable run of price appreciation.

Gold has dramatically outperformed stocks this century, gaining about 555% vs. the 79% gain for the MSCI All-County World Index of stocks or the 146% gains for the S&P.

Those are hardly “barbarous” results.

But informed and far-sighted gold investors (with an eye on wealth preservation and currency hedging) see much further than just price appreciation and a “last laugh” at the expense of their critics.

They are different from the rest. They are, again: Contrarian.

As such, gold owners are prone to feinting the so-called experts, choosing instead to rely upon basic math and history rather than the popular guidance of the “highest offices.”

And what better class of higher-office counterparties can there be than policy makers and politicians who, as history confirms, know almost nothing about, well…the history of money.


Ironically, nowhere is this economic ignorance more apparent than among that illustrious class of false idols otherwise known as central bankers, Treasury Secretaries and U.S. Presidents…

Despite some wonderful exceptions  (i.e. William Martin and Paul Volker, or Dwight Eisenhower and Harry Truman), the vast majority of fiscal and political leaders do what most holders of political posts do—try to keep their jobs via public bribery and lose money “stimulus.”

Unfortunately, such short-sighted and self-serving strategies have been an over-looked and downplayed disaster for economies and currencies for decades.


When FDR was in a pickle in 1933, for example, he responded to the debt disaster of the roaring 20’s by neutering the nation’s currency via the infamous Thomas Amendment, which devalued the gold content of the dollar yet did nothing to restore economic strength.

When a post-Bretton Woods Nixon later found himself in a similar bind with a gold-backed dollar (whose disciplines meant he couldn’t deficit spend to the moon for easy re-election), he simply welched on the gold standard, the disastrous results of which plague the greenback to this day.

And every U.S. President since, both red or blue, has engaged in continued binges of borrow and spend to stay re-electable as the trusting masses bury their heads in the sand, ignoring the data points below.


Sadly, central bankers are no less, well…stupid.

They have aided and abetted a long tradition of devaluing the purchasing power of their currency to buy near-term asset price inflation at the expense of their currency and the real economy.

But as anyone who has studied the history of our central bank, it’s no secret that this cabal otherwise mis-titled as a Federal Reserve is nothing more than a private banker’s bank.

As such, the Fed serves a Wall Street master not a national currency or economy.

For informed contrarians, this meant bad news for the purchasing power of currencies and good news for stores of actual value—i.e. precious metals.

In short, contrarians need patience and a sense of humor, for the Fed just keeps getting stupider with each new tragi-comedy otherwise known as a financial crisis.

When Greenspan, for example, became the new Fed sheriff in town just as Wall Street’s drunken traders had ushered in a disastrous flash-crash in 1987, what did he do?

He simply added more lose money/low rate punch to an already punchbowl-drunk Wall Street.

He did the same in 1998, buying the bubble a few more years of low-rate fun, followed by a market disaster in 2001-2003, when the NASDAQ gave away 80% of its gains.

Thereafter, Greenspan cut rates to record lows once more, ushering in the perfect set-up for the sub-prime mortgage crisis and market implosion of 2008.

Not surprisingly, the next Fed Sherriff, Ben Bernanke, followed Greenspan’s predictable lead in 2009 by slashing rates to zero and printing trillions out of thin air to buy another “recovery” paid for with fiat dollars and record-breaking debt levels fed by artificially repressed interest rates.

Party on.

The “experts” handed more spiked punch to the Wall Street party boys, sending markets temporarily higher and the purchasing power of the Greenback permanently lower.

The contrarians, of course, were watching.

For gold investors, such Fed fraud signaled clear signs to go long precious metals and short the so-called “experts.”

Yellen, and thereafter Powell, confirmed the contrarians’ distrust by supplying more low-rate, QE-driven punch for risk-asset bubbles whose distortions are now beyond precedent in the history of capital markets.

Does the consequent market inflation in the S&P emanating from such monetary policy look like a another asset bubble to you?


Sadly, the majority of investors ignore these dangers and pack together in an almost blind faith that the experts will save them, because, after all—they’re the experts.

In Japan, just before the Nikkei made its infamous dive in 1989, the most popular expression in Tokyo was: “If we are all crossing the street together, how can we get hurt?”

Such group-think may have been comforting, but what happened next was not.

They all got slaughtered crossing the same street.

Thirty years later, that Nikkei has yet to recover its highs as the Yen’s inherent purchasing power wanes by the second in a nation whose total debt to GDP ratio is over 700%.

The same (and insane) borrow-and-print template, of course, is playing out among all the major central banks and economies of the world.

Artificial markets are rising on debt-rollovers paid for by artificially repressed rates and fake, printed money.

For such “accommodation,” many central bankers, including Bernanke, have gone on book tours congratulating themselves for “saving” the world.

Ah, the ironies do abound.

Contrarian investors, however, have consistently bet against the experts, for as La Rouchefoucauld famously remarked: “The highest offices rarely, if ever, contain the highest minds.”


As someone wandering Harvard Yard when Larry Summer’s was its president, I remember how this former god-father of derivatives de-regulation at the Treasury Department later gutted the endowment of the very university he once led when those same derivatives destroyed the economy in 2008.

In 2008, Hank Paulson was no less self-serving when this former Goldman-CIO-turned-Treasury-Secretary agreed to a TARP bailout that benefited the banks at the expense of the real economy and the purchasing power of the dollar.

Again: So much for trusting the experts.

Their “wisdom” serves as a counter-indicator rather than guiding light for contrarian investors, and thus contrarians, by definition, act contrary to the “experts.”


And just what have the experts and their lose monetary policies given us?

As markets rose on hot air, those same policies lead to unprecedented wealth disparity in the U.S.

Today, the food lines of the 1930’s have been replaced by images like this in 2020:


In addition to a rotting Main Street, we now have the greatest global debt levels in the history of the world, tallying in at $277 trillion, representing a 3:1 global debt to ratio.

The IMF’s latest response to this debt crisis? Just add more debt and pay for it with a new global currency.


In the U.S., lose money has sent government debt north of $28 trillion, and combined household, Federal and corporate debt past $80 trillion.


Meanwhile, lose money handed down by Presidents, Treasury Secretaries and Fed Chairs have given us a stock market with PE multiples north of 28 and a bond market so thoroughly overbought and distorted by “accommodation” (i.e. front-running) that inflation-adjusted yields are now negative for the first time in U.S. and global history.


Again, central banks elsewhere have been no less, well, stupid, which helps explain why government bonds in Europe and Asia are offered with negative yields, which by definition, makes them defaulting bonds.

Now, China and the UK have joined the global club of negative yielding debt.


Still trust the experts?

Results, of course, speak louder than policy euphemisms (i.e. “stimulus,” “easing,” “accommodation,” etc.).

As global debt (and debt/GDP percentages) goes this way (UBS graph)…

…and insane levels of fake, paper money creation to pay for those debts goes this way…

…it comes as no surprise that when measured against gold, the purchasing power of the major currencies has gone this way…

So, do you still feel the experts have your (and your currency’s) back, or is it time to be contrarian and consider gold rather than “expert guidance”?

Your decision.

This week’s article is by Matt Piepenburg – Commercial Director of MAM. (Link CV)

Airline Cards Lose Luster as Coronavirus Persists

The cards have for years helped attract big-spending customers, but their perks are less compelling in a global pandemic

By AnnaMaria Andriotis and Alison Sider

The airline industry has been decimated by the pandemic, with check-in lines at Miami International Airport sparse in September. / PHOTO: LYNNE SLADKY/ASSOCIATED PRESS

Kimberley Moore called JPMorgan Chase JPM -1.02% & Co. in October to ask if it would lower the $450 annual fee on her United Airlines Holdings Inc. UAL +3.81% credit card. 

A United cardholder for roughly 15 years, Ms. Moore traveled often. 

Then the coronavirus pandemic hit and Ms. Moore, 53 years old, scaled back her spending and canceled travel plans.

Ms. Moore, a senior director at a national health care organization in Washington, D.C., decided to keep the card after JPMorgan offered her a $200 statement credit. But she has barely used the card since, and is instead mostly using debit cards.

Nearly nine months into the pandemic, banks and airlines are scrambling to rescue their airline rewards cards. The companies have deployed the cards for years to win big-spending customers, but the perks they offer—like flight upgrades and airport lounge access—are all but obsolete in a global pandemic.

Typically, card companies don’t disclose the volume of spending on their airline cards versus other, more general-purpose cards. But travel purchases were down about 70% on Visa Inc. cards in the last quarter compared with a year ago. Travel and entertainment purchases were down 69% on American Express Co. cards.

Other categories are faring better. At AmEx, spending outside of travel and entertainment was up 1% in the third quarter. (AmEx says this category represents the majority of its cardholder purchases.)

People moved away from credit cards in general during the pandemic and the accompanying economic downturn, often using debit cards instead as they sought to avoid incurring new debt. At Visa, the largest U.S. card network, credit card spending volume was down about 9% and debit volume was up 20% in its most recent quarter.

The average size of sign-up bonus offers for airline cards rose by more than 50% between the second and third quarters of 2020./ PHOTO: SARAH SILBIGER/BLOOMBERG NEWS

As more airline credit cards come up for renewal, more people are rethinking whether the hefty annual fees are worth it. Some are sticking their cards in a drawer, or downgrading to lower-frills versions. 

And while airlines and issuers expect consumer travel to eventually return, they worry that business travel might never fully bounce back.

Some banks have launched new airline cards that don’t charge annual fees and rolled out larger sign-up bonuses. 

Airline-card solicitations that were emailed or mailed in the third quarter had an average sign-up bonus of 50,037 miles or points, up 53% from the prior quarter, according to Competiscan, which tracks credit-card offers.

The airlines have adjusted frequent-flier programs to make it easier to earn and hold on to status, which allows for early boarding and free seat upgrades. And some rewards programs, which often give cardholders extra points for travel purchases, increased points for grocery purchases and other non-travel categories.

Still, everyday purchases are usually smaller than travel-related purchases. That can translate to less swipe-fee revenue. Merchants pay swipe fees whenever a customer pays via card, with the dollar amount based partly on purchase price.

“You can’t get enough grocery purchases to offset travel,” said John Grund, a managing director of payments at Accenture PLC.

Issuers don’t publicly disclose swipe fees collected from their airline co-branded cards. But overall swipe-fee revenue at major card issuers is falling. It totaled $5 billion at AmEx in the third quarter, down 24% from a year prior. It was down 6% at JPMorgan, and 20% at Citigroup Inc.

Card issuers say the decline in travel spending has been partly offset by airline cardholders’ spending on other categories, like groceries and home improvement. Airlines say the declines in travel-card spending have been much smaller than the declines in overall ticket purchases, which have plummeted.

But the situation is particularly fraught for the airlines. Many big banks have weathered the coronavirus crisis surprisingly well, in part because Wall Street trading has thrived in the crisis. Airlines, which got federal aid this year worth up to $50 billion, are all but completely dependent on a travel industry that continues to sputter.

Rachel Lauren, in Thailand in March 2018, looks forward to more travel—after the end of the pandemic. / PHOTO: RACHEL LAUREN

Rachel Lauren recently downgraded from an AmEx Delta card, which carried a $250 annual fee, to a free version of the card.

She now puts most of her spending on a Chase Sapphire Preferred card, which carries a $95 fee. Ms. Lauren, who is 24 and a venture capital investor, said she prefers the new card because it offers more flexibility to redeem points with different airlines. She plans to travel frequently once the pandemic ends.

Gordon Haff of Lancaster, Mass., canceled his United card with JPMorgan in October. “It makes no sense for me to be paying money for a United club that I’m probably not going to step foot in for another possibly close to 12 months,” said Mr. Haff, who is 61 and works in software marketing.

For banks, the cards represent an important way to reach affluent cardholders, market other services to them, and charge them high annual fees. They can also account for a large share of their card business. At AmEx, for example, Delta Air Lines Inc. cards accounted for about 20% of total card balances at the end of last year.

The airlines make money by selling miles to the banks, which dole them out to customers as rewards. The airlines also share in the swipe fees.

The airlines and their card partners are tied together in other ways too. In past crises, airlines have asked their card issuers to buy miles in bulk in advance, which can give the airlines a quick cash infusion.

This summer, when airlines like American Airlines Group Inc. and Frontier Airlines were negotiating loans from the U.S. Treasury, the government asked the airlines to negotiate extended card agreements as a condition of getting the bailout loans, according to people familiar with the matter.

Jeffrey Ward was on the cusp of canceling his American Airlines card after coronavirus hit.

But the issuer, Citigroup, announced that certain customers will receive a $225 statement credit to offset the $450 annual fee. And American announced in April that spending on the airline’s co-branded cards from May through December would count toward lifetime status benchmarks. 

Now, Mr. Ward, 59, a travel adviser in New York who once worked for American, is putting almost all his spending on the card.

Whether he keeps the card once he reaches his goal is another question.

“I think,” he said, “I will be traveling less.”

Airline cards have offered banks an important way to serve affluent cardholders. Travelers walked through the airport in Denver on Nov. 24. / PHOTO: KEVIN MOHATT/REUTERS