In March 2012, Okayama Metal & Machinery became the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Okayama manages pension funds for about 260 small and mid-sized companies in the Okayama area. "By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible." Of its 40 billion yen ($477 million) in assets, the fund has invested around ¥500 million-¥600 million in gold, he said. Initially, the fund aims to keep about 1.5% of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”. Other pension funds in Japan are following their lead according to the Wall Street Journal. Japanese pension funds are diversifying into gold "largely to mitigate the damage from possible market shocks"... Mitsubishi UFJ Trust and Banking Corporation said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.
The anchoring bias in the world's major sovereign bond markets (most notably those that have printing presses) is tremendous. As Jim Grant notes during this interview with Lauren Lyster, the blind indifference to the possibility of rising interest rates now is extremely similar to the indignance to the possibility of interest rates falling during the 1970s and 80s. In a broad and insightful few minutes Grant sheds a critical light on the similarities between then and now and fears that our unshakable confidence in the ability of the PhDs running our world monetary policy is false and that the market will eventually win out. The fear that is dominant among central bankers is indeed that of deflation and there is little to no fear of inflationary concerns and notes that there is a less than small probability that the world falls out of love with the US government's financial position. The truly humbling lesson of cycles past, he notes, is that they don't issue a press release (or ring a bell) at the turning point. "Things can remain seemingly excessive, until you turn your back and the reversion to some sort of mean begins." Grant believes we are approaching that, if not having already begun, that path back to reasonableness in interest rates. Grant continues with a discussion of potential income-generating ideas (in prime rate or leveraged loan funds) and concludes with his views on Bernanke's miscalculcations and most recent regime shift, the concerning idiocy of Japan (who seemingly can neither "procreate, nor re-inflate"), MMT, and the path to total central planning.
It is apparent, according to Jim Grant in this excellent discussion on CNBC, that we are living in a world where only PhDs know what is best for us all. As the Fed hides behind the political cover of its dual mandate to centrally-plan our lives, the Fed-fighter notes "we are off the common-sense-mandate and in a PhD-Standard." In the brief and wonderfully erudite segment Grant guides the erstwhile CNBC Fed-cheerleaders to a new reality of inflation not being what they think it is (i.e. not the PCE Deflator but more prosaically too much money chasing too few products exemplified in bloated real estate prices in the past and now equity prices), of a '32-inch' yard, and of a dream-like world where we "return to capitalism", and markets are finally "allowed to clear." As ever, Grant is worth the price of admission as he explains how the 'monetary mandarins' have interjected themselves between us and the public price mechanism as the Fed's 'influence' has grown exponentially since its inception.
Never try to teach a pig to sing, advised Robert Heinlein. It wastes your time and it annoys the pig. Similarly, never try to convince a central banker that his policies are destructive. After five years of enduring crisis, market prices are no longer determined by the considered assessment of independent investors acting rationally (if indeed they ever were), but simply by expectations of further monetary stimulus. So far, those expectations have not been disappointed. The Fed, the ECB and lately even the BoJ have gone “all- in” in their fight to ensure that after a grotesque explosion in credit, insolvent governments and private sector banks will be defended to the very last taxpayer. Conventional wisdom is that such moves are justified during this period of economic slowdown, as everyone agrees that the market is ’deleveraging’. But as the consistently excellent Doug Noland points out, this idea of deleveraging (i.e. reduction of available credit) in the US is a myth.
One of the most astute financial analysts in the world, Jim Grant, founder of highly respected Grant's Interest Rate Observer, was asked by Maria Bartiromo on CNBC yesterday “how high can gold go”? Grant responded that "there is no telling."
You put Jim Grant on TV and someone mentions the Fed and the result every single time is the equivalent of waving a red curtain in front of a rabid bull. This time was no different, as the Interest Rate Observer once again let Bernanke, with whom he clarified is no longer on speaking terms, have it. The ensuing central-planner bashing was in line with expectations, and just as we presented yesterday in "The Experiment Economy", so too does Grant believe that the Fed is "learning by doing" and follows up by clarifying that this is an experiment, "and we are lab rats in the financial markets." He then proceeds to lament that the credit markets, clueless NYT econopundits notwithstanding, have now lost all informational value as every rate instrument is purely in the manipulated domain of the Fed. "We are all living in a land of speculation and manipulation" is Grant's summary of the current predicament of anyone who wishes to trade these "markets" and it may as well be the best synopsis of the New (ab)normal. And aside from an odd detour into Government Motors, Grant once again hones in on the only true antidote to central planner idiocy, gold: "the best thing about gold is that it's got no P/E multiple. Gold is a speculation on an anticipated macroeconomic outcome, the systematic debasement of currencies by central banks. Why wouldn't they do QE4? What intellectual argument do they have against doing it again, and again, and again." Well...none.
It seems most have strong views on who should not be the Chairman of the Fed but based on a recent survey at a Morgan Stanley conference, it seems Ron Paul still has an outside chance. What of Justin Bieber? Jim Grant? Maria Bartiromo? Chuck Norris?
The bow-tied-and-bespectacled bringer-of-truth was on Bloomberg TV this morning providing his own clarifying perspective on what we should hope for (and what we should not) from J-Hole this weekend. Jim Grant's acerbic comments on Krugman's view of the world, on the gold standard as a "force for growth and stability", and the "unproven and truly radical methods" of the SNB and Fed, pale in significance when he is asked about the stock market distortions: "I think we live in a hall of mirrors in finance thanks to the zero interest rate regime and the chronic nonstop interventions," and when asked when Bernanke should start raising rates, the simple (yet complex) response is "Last Year! And Eric Rosengren would be in a different line of work." Must watch to understand the central-banker-meme-du-decade.
Yesterday, when discussing the forthcoming implications of the Libor scandal, we said that in the barrage of coming lawsuits, "the entity that will be sued by proxy is the Federal Reserve, whose Federal Funds rate is really the setter for the baseline Libor rate." This claim came at an opportune time, just hours before one of the Fed's most vocal critics (and gold standard advocates), Jim Grant, appeared on TV to discuss precisely the same thing. Best summarizing his position is a cartoon that appeared in a recent issue of Grant's Interest Rate Observer in the context of Lieborgate, and who is really at fault here.
On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio; the renaissance of gold in finance; "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.
A simple enough question it would seem. As Jim Grant so eloquently begins his oratory (describing how the Fed operates in contrast to how it was meant to operate per its founders) at Ron Paul's Fed Lecture Series from earlier in the year: "If one reads the Federal Reserve Act, you will be struck by how little the 21st Century model resembles the projected central bank - as in fact the founders advocated for a De-Centralized system." Note the specific wording at the end of the Act: "...to establish more effective supervision of banking in the United States; AND for other purposes." It is the 'other purposes' that provide the jumping off point for everything that has come since...
News and headlines from the day
In preparation for what we are about to receive from the Charmain of the Fed, may we be truly grateful, Jim Grant offered CNBC's Maria B the forthright advice last night "prepare for platitudes but watch what they are doing not what they are saying". The ever outspoken Grant notes that the Fed's balance sheet has been contracting (unlike Maria's mainstream perspective); for the past three months the Fed's balance sheet has contracted at an annualized rate of 10% - even as Fed-head after Fed-head talk up QE and so on. So unless they continue buying securities - since the short-dated positions will continue to roll off - the Fed's balance sheet will continue to contract and therefore the stimulative effect will fall. Grant does expect QE3 since it is the fun-drug that we have been using for 4 or 5 years and that Bernanke will need little pushing to continue the Grand Manipulation. He ends on a rather interesting note that the Wisconsin win and the potential for an Obama loss in November may be more of a positive driver for stocks since markets begin to revert to a free market once again - we suspect this is not the case given the donors/beneficiaries under Romney's wing. But rest assured - the bespectacled bear ends on the chilling note that 'the long-term implications are bad' for the ongoing manipulation that is now the status quo.
Highly respected economist and strategist David Rosenberg has told that Financial Times in a video interview (see below) that gold “will go to $3,000 per ounce before this cycle is over.” Markets are repeating the downturns of 2010 and 2011 and it is time to search for safety, David Rosenberg of Gluskin Sheff tells James Mackintosh, the FT Investment Editor. Rosenberg sees a “very good opportunity in gold” as it has corrected and seems to be “off the radar screen right now”. He sees gold as a currency and says the best way to value gold is in terms of money supply and “currency in circulation.” As the “volume of dollars is going up as we get more quantitative easing” he sees gold at $3,000 per ounce. Mackintosh says that Rosenberg’s view is a “pretty bearish view”. To which Rosenberg responds that it is “bullish view on gold and gold mining stocks.” Mackintosh says that it is “bearish on everything else”. Rosenberg says that it is not about being “bullish or bearish,” it is about “stating how you view the world” and he warns that the major central banks are all going to print more money and keep real interest rates negative “as far as the eye can see.”
While we have heard a lot from Jim Grant recently - all pointedly correct and substantial - today marked the pinnacle of propaganda-brinksmanship. Explaining to Maria B just why the world in which she lives, Bernanke-lovers-all, is nothing but a hall of mirrors - a fake mirage - of the true reality thanks to central bank repression of all that we know about risk and return. "By changing interest rates, central banks change the perception of every asset class - so what seems cheap may not be cheap" as Grant notes that when you can fund investment at 0%, we are collectively being manipulated and moreover should try to realize - as an investing public - that we are Jim Carrey in The Truman Show. Of course the 75% of professional investors who believe Bernanke is doing a great job would prefer to stay inside the fake reality where their bonuses get paid and leveraged tranche losses get soaked up by some account transfer from the fed or loan loss provisioning adjustment - for the rest of us - wake up and smell the unreality. The money-honey pulls the blame and deflect card - noting the ECB are just as bad - but Grant brings her back to the reality that we are facing as he suggests being in the crowd who own Treasuries and Bunds when the next risk flare occurs will not end as well as many hope, preferring gold (and gold stocks) as a hedge as "The Gold move is not over".