You sound so innocent, all full of good intent
Swear you know best
But you expect me to jump up on board with you
And ride off into your delusional sunset
Who cares if you disagree?
You are not me
Who made you king of anything?
So you dare tell me who to be?
Who died and made you king of anything?
Sara Bareilles - King Of Anything
You don't need the people to elect you, and you can devalue our currency without one iota of input from Congress or the President, are you King? Clearly Ben Bernanke believes he is king. He has the unelected power to print money at will and devalue the governments massive debt, and our assets, as he sees fit -- "Who died and made you king of anything?" While he tries to sooth us with his good intentions; I'm just trying to make people feel better (aka Wealth Effect) so they will spend more money, and then that will make corporations start hiring again. I just don't buy it. You "swear you know best, but you expect me to jump up on board with you and ride off into your delusional sunset." Sorry King Ben, but that's one trip that I'll skip.
And it appears that I'm not alone. Since the Fed actually began it's QE2 process we have seen wicked declines in just about everything that ramped up prior to the actual event. A simple case of "Buy the rumor, sell the news?" There were wrenching declines in everything that raced up the most; including precious metals (gold down 6%, silver down 13%), copper (-10%), cotton (-19%), and commodity currencies. The broader markets also saw some fairly strong declines. What may be a bit surprising (and frustrating to King Ben) is that interest rates have actually edged higher, especially at the long end of the curve. In fact, this is the only time that I can find that you, Joe Citizen, can get a 30 year mortgage for 4.17%, while Uncle Sam has to pay 4.25% to borrow at 30 years! That's right, Mr Bond Market is saying that you are a better credit than Uncle Sam. Of course that's not the case since Uncle Sam can tax you to death to make his interest payments, but it is a pretty good example of just how delusional/fake/phony our markets have become.
Not all of this turmoil can be laid at King Ben's feet, he's had plenty of help. The Presidents humbling experience at the G20. The continuing Euro saga; with the imminent Irish bailout, and ongoing problems with Greece, Portugal, and Spain. Rising interest rates in China, where they are actually trying to slow inflation. Yes, the world is a risky place, but can you afford to leave your assets invested in cash earning a negative return after inflation and taxes? On the one hand you have the guaranteed negative return on cash, and on the other hand you have the very volatile (though potentially positive) return on risk assets ... tough choice.
For now we are still choosing risk assets and continue to be very nearly fully invested. The one asset that is nearest to turning neutral and heading to bearish territory is US Treasuries.
The following is a note I got from an old friend Jason Trennert. Jason used to work at ISI, but left a few years ago to start his own firm Strategas Research Partners LLC. I thought you might enjoy it.
“It just can’t be right,” said the 30-something hedge fund manager through a towel after a grueling 45 minutes on the squash courts of the New York Athletic Club.
“I mean, G. Gordon Liddy is trying to sell it to me on Fox News. My orthodontist owns gold -- he wears gold, for crying out loud. It just can’t be right,” he said, shaking his head, his voice trailing.
The case against gold is well-known and, until relatively recently, time-tested. The yellow metal is never ever really consumed, provides no yield, and carries with it storage costs. The polemic surrounding gold, like the inflation vs. deflation debate, is enough to result in bar fights in some sections of this grand city and it’s hard to find too many investors who are agnostic about it. You either see it as the barbarous relic of the retail crowd or a necessary hedge against the cupidity of politicians the world over. Despite the recent run-up in gold, it is, by our lights, too early to fade. There are now, unquestionably, elements of froth in the market that should give investors pause. But if there is one fact that is missed among investment sophisticates, it’s that investing in gold is still considered a hopeless backwater at most large mutual fund companies in this country. It is for this reason, that we believe that it is not yet over-owned.
I find a certain irony in the fact that I have two friends in the investment business who, after enjoying great success and fortune managing other peoples’ money in the 1980s and 1990s, have been, in their retirement, buying physical gold. They are unknown to each other and are different in many ways save for the fact that they were born in foreign lands – one in Armenia, the other in Cuba. They live in America, not by tradition or family ties, but by choice. Despite the fact that they so obviously believe in the great promise of this country, they have both come to the conclusion that they should hedge their hard-earned fortunes with hard assets. For them, their decision to own gold isn’t the result of some ethereal academic exercise, it is based on life experiences most people born in America couldn’t possibly understand.
While the hard asset story may seem tired and old to some in the investment business, it is just starting to capture the consciousness of many professional and retail investors alike who thought it was overly alarmist to believe the political class might seek to devalue its way out its own profligacy. This isn’t to say that we believe the Fed is intentionally trying to cheapen the dollar. We take the Chairman at his word that he is simply trying to decrease the tail risks associated with deflation. But intentional or not, the net result of further monetary accommodation is the same – weaker purchasing power of the greenback. Ultimately, we believe the crux of the case for gold is that it’s hard to quadruple the size of the Fed’s balance sheet and run budget deficits of nearly 10% of GDP and also stick the landing on inflation. However you might handicap the prospects of either a Reinhart-Rogoff style deflation or efforts to reflate that work too well, gold remains one of the best hedges against the volatility of inflation. In the past century, the asset “worked” in two distinct periods – the deflation of the 1930s and the inflation of the 1970s. Given the uncertainty of global monetary and fiscal policies today, there is probably still room for it to garner the respect it deserves.
THE SELF ESTEEM SOCIETY
Availing myself of the pleasures of commercial airline travel each week and frequently subjected to the sullen ennui of the cashiers at Duane Reade here in Manhattan, I had thought that I was well past the point at which the nerve endings of my dignity could register the slightest offense. That was until we decided to place postings for a variety of entry-level jobs in recent months and we started to receive cover letters from recent college graduates that would have made Donald Trump blush in their pomposity. “The question isn’t whether you should hire me,” started one, “it’s whether I’m going to want to work for you.” Another candidate made it clear that he was “a caged tiger waiting to enter the arena of the world of finance.” Subsequent interviews with candidates whose cover letters were the least obnoxious often didn’t go much better – and regardless of how little ego you may think you have, it’s hard to maintain your composure when a 22-year old kid expresses disgust at the fact that your company doesn’t possess green initiatives greater than recycling.
Of course, we are a small company and only four years old and our offices have a certain Eastern European DMV-vibe. There is no fish tank, no tragically beautiful receptionist. We know we’re not Goldman Sachs but we are, after all, offering these candidates the prospect of gainful employment and a paycheck which, one would presume, might engender some humility among the unemployed. Of course, most of us are idiots when we first leave college, often not nicked-up enough by the slings and arrows of outrageous fortune to understand how hard life is and how little to which others actually think we’re entitled. This all started to make sense to me upon reading a small squib in the paper about how American kids, when compared to their contemporaries in 29 other developed countries, ranked 25th in math, 21st in science, while ranking # 1 in only one category -- confidence. I started to think about my late father, as I often do in the quiet of long transcontinental flights. At his core, he was a sweet man with the heart and soul of a poet. But he was a man of different era in which there were no participation trophies. His code was based on the belief that self esteem had to be earned and he had zero tolerance for phonies or pretense of any kind. When confronted with those who had no appreciation for the great opportunities this country afforded, he could make The Great Santini look like Deepak Chopra. The transformation of a society in which prior generations prized an equality of opportunity to one that insists on an equality of outcome seems so much more important now, when the country is again faced with the need to make sacrifices to ensure its long-term fiscal viability and to compete with increasingly aggressive economic rivals. It is in this context that we should all be somewhat saddened by the reaction of those on both the right and the left to the recommendations of the President’s Commission on Fiscal Responsibility. Everyone recognizes that, despite our status as a reserve currency, the U.S. cannot sustainably spend far in excess of its means. But when it seems as if we all want the other guy to make the necessary sacrifices we reveal, in the process, our own, although more mature, sense of entitlement. This is, of course, not a uniquely American problem. One doesn’t know whether to laugh or cry at the spectacle of 17-year old French students protesting the fact that their retirement age needs to be extended from 60 to 62 in a country in which the average life expectancy is nearly 81 years old. But without political leadership designed to do the right thing regardless of the electoral consequences, it’s hard not to feel that the correlation between the West’s sense of entitlement and the price of gold will only grow.
“I mean, G. Gordon Liddy is trying to sell it to me on Fox News. My orthodontist owns gold -- he wears gold, for crying out loud. It just can’t be right,” he said, shaking his head, his voice trailing.
The case against gold is well-known and, until relatively recently, time-tested. The yellow metal is never ever really consumed, provides no yield, and carries with it storage costs. The polemic surrounding gold, like the inflation vs. deflation debate, is enough to result in bar fights in some sections of this grand city and it’s hard to find too many investors who are agnostic about it. You either see it as the barbarous relic of the retail crowd or a necessary hedge against the cupidity of politicians the world over. Despite the recent run-up in gold, it is, by our lights, too early to fade. There are now, unquestionably, elements of froth in the market that should give investors pause. But if there is one fact that is missed among investment sophisticates, it’s that investing in gold is still considered a hopeless backwater at most large mutual fund companies in this country. It is for this reason, that we believe that it is not yet over-owned.
I find a certain irony in the fact that I have two friends in the investment business who, after enjoying great success and fortune managing other peoples’ money in the 1980s and 1990s, have been, in their retirement, buying physical gold. They are unknown to each other and are different in many ways save for the fact that they were born in foreign lands – one in Armenia, the other in Cuba. They live in America, not by tradition or family ties, but by choice. Despite the fact that they so obviously believe in the great promise of this country, they have both come to the conclusion that they should hedge their hard-earned fortunes with hard assets. For them, their decision to own gold isn’t the result of some ethereal academic exercise, it is based on life experiences most people born in America couldn’t possibly understand.
While the hard asset story may seem tired and old to some in the investment business, it is just starting to capture the consciousness of many professional and retail investors alike who thought it was overly alarmist to believe the political class might seek to devalue its way out its own profligacy. This isn’t to say that we believe the Fed is intentionally trying to cheapen the dollar. We take the Chairman at his word that he is simply trying to decrease the tail risks associated with deflation. But intentional or not, the net result of further monetary accommodation is the same – weaker purchasing power of the greenback. Ultimately, we believe the crux of the case for gold is that it’s hard to quadruple the size of the Fed’s balance sheet and run budget deficits of nearly 10% of GDP and also stick the landing on inflation. However you might handicap the prospects of either a Reinhart-Rogoff style deflation or efforts to reflate that work too well, gold remains one of the best hedges against the volatility of inflation. In the past century, the asset “worked” in two distinct periods – the deflation of the 1930s and the inflation of the 1970s. Given the uncertainty of global monetary and fiscal policies today, there is probably still room for it to garner the respect it deserves.
THE SELF ESTEEM SOCIETY
Availing myself of the pleasures of commercial airline travel each week and frequently subjected to the sullen ennui of the cashiers at Duane Reade here in Manhattan, I had thought that I was well past the point at which the nerve endings of my dignity could register the slightest offense. That was until we decided to place postings for a variety of entry-level jobs in recent months and we started to receive cover letters from recent college graduates that would have made Donald Trump blush in their pomposity. “The question isn’t whether you should hire me,” started one, “it’s whether I’m going to want to work for you.” Another candidate made it clear that he was “a caged tiger waiting to enter the arena of the world of finance.” Subsequent interviews with candidates whose cover letters were the least obnoxious often didn’t go much better – and regardless of how little ego you may think you have, it’s hard to maintain your composure when a 22-year old kid expresses disgust at the fact that your company doesn’t possess green initiatives greater than recycling.
Of course, we are a small company and only four years old and our offices have a certain Eastern European DMV-vibe. There is no fish tank, no tragically beautiful receptionist. We know we’re not Goldman Sachs but we are, after all, offering these candidates the prospect of gainful employment and a paycheck which, one would presume, might engender some humility among the unemployed. Of course, most of us are idiots when we first leave college, often not nicked-up enough by the slings and arrows of outrageous fortune to understand how hard life is and how little to which others actually think we’re entitled. This all started to make sense to me upon reading a small squib in the paper about how American kids, when compared to their contemporaries in 29 other developed countries, ranked 25th in math, 21st in science, while ranking # 1 in only one category -- confidence. I started to think about my late father, as I often do in the quiet of long transcontinental flights. At his core, he was a sweet man with the heart and soul of a poet. But he was a man of different era in which there were no participation trophies. His code was based on the belief that self esteem had to be earned and he had zero tolerance for phonies or pretense of any kind. When confronted with those who had no appreciation for the great opportunities this country afforded, he could make The Great Santini look like Deepak Chopra. The transformation of a society in which prior generations prized an equality of opportunity to one that insists on an equality of outcome seems so much more important now, when the country is again faced with the need to make sacrifices to ensure its long-term fiscal viability and to compete with increasingly aggressive economic rivals. It is in this context that we should all be somewhat saddened by the reaction of those on both the right and the left to the recommendations of the President’s Commission on Fiscal Responsibility. Everyone recognizes that, despite our status as a reserve currency, the U.S. cannot sustainably spend far in excess of its means. But when it seems as if we all want the other guy to make the necessary sacrifices we reveal, in the process, our own, although more mature, sense of entitlement. This is, of course, not a uniquely American problem. One doesn’t know whether to laugh or cry at the spectacle of 17-year old French students protesting the fact that their retirement age needs to be extended from 60 to 62 in a country in which the average life expectancy is nearly 81 years old. But without political leadership designed to do the right thing regardless of the electoral consequences, it’s hard not to feel that the correlation between the West’s sense of entitlement and the price of gold will only grow.
By: Jason DeSena Trennert
Strategas Research Partners LLC
Strategas Research Partners LLC
If You're So Smart, Then You Solve The Deficit Problem!
This weekends NY Times had a fun article on balancing our massive budget problem. While it is by no means totally accurate, it is a fun exercise that helps show where the bang for the buck is.
I solved our budget deficit problem with 79% spending cuts and 21% tax increases. Click on the following link to see how you do.
So, What Are You?
During election season I got asked this question fairly often, and I assumed they meant Republican, Democrat, or other. Fortunately there is a very short quiz you can take that does a pretty good job in telling you what you are. The Washington Post said it has “gained respect as a valid measure of a person’s political leanings.” The Fraser Institute said it’s “a fast, fun, and accurate assessment of a person’s overall political views." I took the 10 question quiz, and my results are pretty much where I imagine myself — fiscally conservative, socially progressive. I don’t have a problem with gay marriage, legalized pot, cutting spending, or letting insolvent companies die.
If you want to take the quiz, just go to theadvocates.org/quiz, and it tells you where you stand politically. It seems to go beyond the Democrat, Republican, and Independent spectrum.
Chris Wiles, CFA
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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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