We all think we know the story of the recent ‘bubble in credit’. As the explanation goes; Americans took on too much debt, those debts were ‘packaged up’ into complex financial instruments, those instruments were then bought, sold and ‘re-packaged’ by people who didn’t even understand them, blah blah blah… Even with this cursory and boringly consensual view of recent history, at least people have figured out that they shouldn’t blindly trust the mathemagicians… or have they? Here I ask; what about the king of all derivatives; the one that deviously subsumes all others? Indeed, what about the derivative that even derivative traders assume to be axiomatically fundamental and distinctly not derived? continue reading »

It may seem a little suspect to use the words ‘another’ and ‘rare’ together as has been done in the title. After all, if one is using the adjective ‘another’, shouldn’t one be questioning the supposed rarity of the object to which it refers? Well, there is a point to this; so if the immediate trends in the Fed’s balance sheet continue, we will probably have to stop using such phrases. The reason why it’s ok for now is because there have only been four weeks in 2011 (including this one) in which the Fed’s balance sheet contracted. Here, I present several charts relating to the Fed’s balance sheet and consider the investment implications of the recent stagnation in the total balance sheet size. continue reading »

If we had to choose to indulge in just one form of pseudo financial mysticism, we would undoubtedly go for the view that financial assets tend to move in generational cycles.  In short, we believe that nothing is more conducive to action than good old muscle memory. Here, I explain why the recent crash in the array of ‘risk assets’ is corroborating our hunch about the generational nature of trends in financial assets. Moreover, I consider one way in which widespread apathy towards speculation may come to pass.

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We seem to have reached an intermediate-term extreme in revulsion for the Federal Reserve note. It seems to us that the status quo of the currency markets is highly dependent on the Federal Reserve accommodating the market’s perception of it. Here, I present the usual Federal Reserve balance sheet charts and briefly outline why we continue to anticipate a short-term rally in the dollar.

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Mr Doubter, otherwise known as the child who pointed out the Emperor’s lack of clothes, has always played a key role in monetary affairs. However, the tools with which he has done his doubting have evolved over time. Here, I detail the means by which alert speculators have questioned the currency systems of the past, and the means by which they question the irredeemable fiat currency systems of today.

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The ongoing chaos in London has been widely covered by the press over the past few days. Unfortunately, the lenses with which the consensus views the world have muddled the reality of the situation. Rather than considering this to be another development in a long story of souring social mood, commentators have reported it as random violence — to be likened to a strike of lightening… To be sure, we don’t think that the specifics of the last few days could have been predicted with any precision, but we scarcely consider the ordeal to be a ‘surprise’ as such! Here, I consider the decline in social mood in the developed world and outline the implications for its great ‘international’ cities. continue reading »

After the torrential decline in the so-called ‘risk assets’ over the past week, it would seem that the investment community at large has got QE3 on the brain. Will they? Or won’t they? Indeed, does it matter? As Marc Faber said in an interview on Friday (paraphrasing); ‘Now we will find out if Mr Bernanke is a true money printer, or just an amateur money printer’.

 

Here, I present the usual weekly Federal Reserve balance sheet charts and show why we believe that the coming weeks will involve ‘hypersensitive monetary policy’… That is to say; regardless of the type of monetary policy to be implemented, it’ll be a rough ride!

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