Tag Archives: bernanke

5 reasons to love the yellow shiny metal

11 May

My mom used to tell me never to talk to strangers. One stranger told us all that inflation was controlled and below expectations, that consumers don’t want to buy gold, that he is not printing money and that his definition of the dollar is what it can buy. I don’t trust strangers, especially those who do not tell the truth.

Without me enduring more cheap analogies at this late hour, I will save you the discomfort so 5 Reasons Gold Will Continue to Shine courtesy of the TheStreet.com. The only caveat is that gold as an investment vehicle needs to be purchased on an incremental basis over time; it is not a momentum trade or for the very short term speculator. The key themes are below:

1. The declining dollar and outlook for rising U.S. inflation

2. Strong emerging market demand

3. Central banks from sellers to buyers

4. Not just a defensive asset

5. Supply has been constrained

The SEC is weak by almost every barometer

9 Apr

The SEC mandate is to provide a fair trading environment; a quick look at the options market immediately prior to Buffet’s Lubrizol purchase indicated heavy open interest even before any newswires reported the takeover agreement. The option interest was uncharacteristic and stretched compared to historic performance. Purchases of open calls were amplified and the fact that this has not been investigated is disgusting. The SEC is clearly behind the curve; it has not even registered with them. The laissez faire approach of the SEC undermines confidence in the ability of regulators to enforce, even if superficially.

The Government don’t understand risk, profit and complex interplays.  Even after the crisis, governments worldwide encouraged financial institutions to hold more liquid tier 1 capital, and this was something that was considered to be essential. However, they specifically encouraged government paper including sovereign debt as they implied a government guarantee and these debt instruments were also heralded by the ratings agencies. It’s not the government’s job to advise financial institutions as to how they should specifically allocate their capital. Capital allocations should be weighted towards gold, silver, cash, foreign currencies, stocks, direct investments, commodities and materials. Purchasing government bonds in countries which have significant deficit imbalances should be avoided. The constant search for yield in bonds should be avoided, as they have weakened and have lost real value. There is also significant principal risk given the current inflation trajectory.

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