Behold, after a near-tripling in the total size of the Fed’s balance sheet over just three years, it seems that the monopoly producers of the world’s base currency have finally decided to act in a pseudo-responsible fashion. Although the Fed continues the reality-denying folly of attempting to fix prices in the realm of the production of IOU claims upon central bank notes (ZIRP), at least it’s trying to cease the outright monetary debasement that we’ve all become accustomed to (i.e. central bank balance sheet expansions). Here I outline the implications of a nominally ‘responsible’ (ahem!) Federal Reserve and outline our thoughts on the manner in which the inevitable U-turn back to monetary profligacy might come to pass.

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Lacking the haughtiness of the pure ‘intellectual’ fields, the investment business is often thought to consist of all-encompassing ‘camps’ rather than ‘schools’. Apparently, if you’re buying gold, then you’ve got to be in the ‘inflationista’ camp; if you’re long government bonds, then surely you’re a patriotic bond bull; if you’re long stocks then of course you regularly sport rose-tinted glasses and are ever-vigilant for the silver lining,… right?


Wrong! We cannot stress enough that it’s most prudent to be in your own unique camp! However, for anyone who cares to listen, here I outline a key conviction of the pack (yes… we’re even more brutish than the established investment community): — that it makes sense to be both long gold and long the dollar! continue reading »

Until the mid-19th century, the means of retribution for the stiffed creditor was debtor’s prison. If the creditor could not see the return of his capital, then at least he could temper the pain and humiliation by witnessing the incarceration of the defaulted debtor. In our age of monetary lunacy, it would seem that some of the world’s more dollar-dependent central bankers are quietly (or perhaps not-so-quietly), yearning for a similarly harsh ‘debaser’s prison’. Here I speculate about the peculiar world of the dollar-dependent central banker and consider the consequences of the dearth of entrepreneurial spirit in the money production business.

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After four months or so of trading in a tight range, it seems like the dollar is well and truly on the move! Of course, there is no guarantee that this will continue over the coming weeks and months, but nevertheless we think that it’s important to understand the ironic and paradoxical reasons for a strengthening dollar (against some of the other sinking currencies of the world). Rather than repeating what has been said here on over the past few months, I thought I’d present a few articles that may be of interest now that the dollar is on the rise!

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While perusing the history books, one cannot help but encounter repeated governmental interventions in the monetary sphere. Back in 16th century England, the fetish of the monarch who meddled with money was the nasty cocktail of a vicious debasement with a stubborn maintenance of legal tender laws. Today’s manipulations are so wide-ranging that one can scarcely list them all with any ease. However, one notable means of denying economic reality today is the monetization of paper. Any sign of trouble in supposedly ‘socially key institutions’ is deemed to give rise to a hearty: ‘No problem, the central bank can buy it!’ Is it any surprise, then, that the most ‘socially key’ (hah!) of all ‘socially key institutions’ — governments — are seen to put virtually the entirety of their paper on their respective central bank balance sheets? Be this as it may, we must always recall the glimmer of hope in monetary affairs; the dealings among free men have always revealed folly (if only momentarily). Here I discuss the ‘mechanisms of reconciliation’ in currency markets and conclude the potential for a short position in the EURJPY currency pair.

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Praise the deposit. If only one thing in this world is to be guaranteed, let it be the holy financial instrument that is the commercial bank deposit. — Prayer 3:23, The Book of State-Banking


In recent years, the above prayer has been answered by the oh-so-benevolent monetary authorities of the West — we were ‘saved’ by the self-sacrificial debauchery of Western central banks. Alas, the commercial banker that owed what wasn’t his’n, wasn’t faced with the unappetizing prospect of buying it back or going to pris’n! Consequently, the question that repeatedly presents itself is: ‘Who got stiffed then?’ continue reading »

The concomitant surges in the dollar prices of gold and the US treasury note seem to have got many market participants scratching their heads. For isn’t gold an ‘inflation asset’ and the treasury note a ‘deflation asset’? Aren’t they supposed to be antagonistic to one another? We square this price action by noting that the means of the currency skeptic are distinctly peculiar in this post-Bretton Woods experiment — it matters that the Federal Reserve note is by and large ‘backed’ by US government securities and gold. That being said, our hunch is that this price action is a relatively temporary phenomenon; for whereas gold remains intact regardless of an increasingly precarious stock of irredeemable claims upon it, US government securities do not. We believe that the current tolerance of the US bond market should be regarded as the last gift from above. Here I outline why a world with an intolerant bond market might not be that pleasant. continue reading »