Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Reply to @hank: I'm more bearish than 90% of this board, and even I don't bother to listen to Hussman's repeated calls for a crash. He needs to focus on his fitness program.
From Michael Aronstein,Marketfield Fund (MFLDX)Portfolio Manager(pages 4-5) 3rd Quarter Commentary http://www.nylinvestments.com/polos/MSMK02h-101345910.pdf We are highlighting the connection between inflationary monetary policy, asset inflation and the destructive consequences within society because we believe that the inflationary effects are on the verge of expanding within the real economy. This will place even more pressure on those wrestling with the burdens of poverty. A gradual and unanticipated acceleration of prices within traditional economic sectors is likely to be the next phase of consequence of a monetary experiment that has far outlived its usefulness. The Federal Reserve Board’s (FRB’s) first actions five years ago as a lender of last resort were appropriate. Now that lending to anyone with a plausible collateral story has become the national pastime, the Fed has mutated into a cheerleading squad for the bond market. The most radical monetary experiment in many generations is not likely to end well. We are at the early stages of positioning the portfolio for a time when markets no longer welcome policies that are appropriate for 1932. It is likely that the process will take years. Like most of the incipient long-term trends that we have witnessed, the pace of development and popular recognition is very deliberate. We have continued to move equity holdings toward more economically geared businesses. Our exposure to materials producers continues to rise. Short positions are mainly in companies that are vulnerable to margin pressures should input and employment costs begin to rise. We continue to regard the recent rally in high grade fixed income markets as another selling opportunity. Oct. 29, 2013 Michael C. Aronstein President, CIO & Portfolio Manager More Week-end Reading Helicopter Ben was a better solution? Central bank stimulus is here to stay, but what if it fails? Opinion By Anatole Kaletsky NOVEMBER 14, 2013 'The new records on Wall Street and other stock markets suggest growing confidence among investors that monetary stimulus will finally deliver decent levels of growth next year — and this does indeed seem likely. But what if the optimism turns out to be wrong? What if the U.S. and Britain fail to grow by at least 3 percent next year, and what if Europe stays stuck with sub-1 percent growth and mass unemployment? In that case, the monetary and fiscal policy experiments since the Lehman crisis would have to be judged as failures — and that judgment would open the way to much more radical ideas than zero interest rates and QE. Such radical ideas would be of two opposing types.' http://blogs.reuters.com/anatole-kaletsky/2013/11/14/central-bank-stimulus-is-here-to-stay-but-what-if-it-fails/ Or More Detroits "In practice, the biggest beneficiary has not been Main Street or Wall Street, but it has been the government," Dobbs said in an interview. That outsized benefit suggests that when the time comes for central banks to reduce quantitative easing, the biggest risk is from rising costs to governments as interest rates increase, and the possibility that governments would then be forced to cut spending. Fed's bond buying hasn't boosted stocks, McKinsey study finds http://profit.ndtv.com/news/global-economy/article-feds-bond-buying-hasnt-boosted-stocks-mckinsey-study-finds-372184 Mckinsey Site(a little more color) http://www.mckinsey.com/insights/economic_studies/qe_and_ultra_low_interest_rates_distributional_effects_and_risks
His move follows a stream of high-level government officials joining private equity firms. Among the latest was David Petraeus, retired four-star general and former director of the Central Intelligence Agency, who joined Kohlberg Kravis Roberts & Co in May.
Reply to @TSP_Transfer: ....and moving money to Marketfield next week. I could not agree more with that letter (and the entire letter is a worth a read.)
Reply to @scott: Hi Scott. I agree with your positive take on the manager's comments. However. that's not enough to make me love these LS or "go anywhere" funds any more than I presently do (not much:-). Nonetheless, it's a refreshingly different and candid assessment. These high equity markets make me jittery. But if the scenario of much higher inflation holds true, Dow 16000 may look trifling cheap half dozen years or so from now. Who knows? I'll note too that the recent history of commodity-rich funds hasn't been a good one. Than again -- these investments are kinda like the weather -- wait a bit and things change.
Also, his comments on the disparity of wealth are painfully accurate. No wonder many in power are immensely satisfied with current system & resist change so vociferously. Regards
For those who think "destructive" inflation is right around the corner, here's a piece (and there are many others like it from actual economists, rather than money managers who think they're economists) that may bring on some cognitive dissonance.
Money has no velocity in this economy, fiscal policy is contracting, and there is no wage-price spiral in the cards, with wages overall at absolute lows on a generational basis. Destructive deflation is just as likely as, maybe more likely than, destructive inflation in the current scheme of things.
"The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. The frequency of currency exchange can be used to determine the velocity of a given component of the money supply, providing some insight into whether consumers and businesses are saving or spending their money. There are several components of the money supply,: M1, M2, and MZM (M3 is no longer tracked by the Federal Reserve); these components are arranged on a spectrum of narrowest to broadest. Consider M1, the narrowest component. M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits). A decreasing velocity of M1 might indicate fewer short- term consumption transactions are taking place. We can think of shorter- term transactions as consumption we might make on an everyday basis. The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals. Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving. MZM (money with zero maturity) is the broadest component and consists of the supply of financial assets redeemable at par on demand: notes and coins in circulation, traveler’s checks (non-bank issuers), demand deposits, other checkable deposits, savings deposits, and all money market funds. The velocity of MZM helps determine how often financial assets are switching hands within the economy." research.stlouisfed.org/fred2/series/M2V?cid=32242
Comments
http://www.hussmanfunds.com/wmc/wmc131111.htm
http://www.hussmanfitness.org/index.html
http://www.nylinvestments.com/polos/MSMK02h-101345910.pdf
We are highlighting the connection between inflationary monetary policy, asset inflation and the destructive consequences within society because we believe that the inflationary effects are on the verge of expanding within the real economy. This will place even more pressure on those wrestling with the burdens of poverty.
A gradual and unanticipated acceleration of prices within traditional economic sectors is likely to be the next phase of consequence of a monetary experiment that has far outlived its usefulness. The Federal Reserve Board’s (FRB’s) first actions five years ago as a lender of last resort were appropriate. Now that lending to anyone with a plausible collateral story has become the national pastime, the Fed has mutated into a cheerleading squad for the bond market.
The most radical monetary experiment in many generations is not likely to end well. We are at the early stages of positioning the portfolio for a time when markets no longer welcome policies that are appropriate for 1932. It is likely that the process will take years. Like most of the incipient long-term trends that we have witnessed, the pace of development and popular recognition is very deliberate.
We have continued to move equity holdings toward more economically geared businesses. Our exposure to materials producers continues to rise. Short positions are mainly in companies that are vulnerable to margin pressures should input and employment costs begin to rise. We continue to regard the recent rally in high grade fixed income markets as another selling opportunity.
Oct. 29, 2013
Michael C. Aronstein
President, CIO & Portfolio Manager
More Week-end Reading
Helicopter Ben was a better solution?
Central bank stimulus is here to stay, but what if it fails? Opinion By Anatole Kaletsky NOVEMBER 14, 2013
'The new records on Wall Street and other stock markets suggest growing confidence among investors that monetary stimulus will finally deliver decent levels of growth next year — and this does indeed seem likely. But what if the optimism turns out to be wrong? What if the U.S. and Britain fail to grow by at least 3 percent next year, and what if Europe stays stuck with sub-1 percent growth and mass unemployment? In that case, the monetary and fiscal policy experiments since the Lehman crisis would have to be judged as failures — and that judgment would open the way to much more radical ideas than zero interest rates and QE. Such radical ideas would be of two opposing types.'
http://blogs.reuters.com/anatole-kaletsky/2013/11/14/central-bank-stimulus-is-here-to-stay-but-what-if-it-fails/
Or More Detroits
"In practice, the biggest beneficiary has not been Main Street or Wall Street, but it has been the government," Dobbs said in an interview.
That outsized benefit suggests that when the time comes for central banks to reduce quantitative easing, the biggest risk is from rising costs to governments as interest rates increase, and the possibility that governments would then be forced to cut spending.
Fed's bond buying hasn't boosted stocks, McKinsey study finds
http://profit.ndtv.com/news/global-economy/article-feds-bond-buying-hasnt-boosted-stocks-mckinsey-study-finds-372184
Mckinsey Site(a little more color) http://www.mckinsey.com/insights/economic_studies/qe_and_ultra_low_interest_rates_distributional_effects_and_risks
More on the Monied Class
"If the Federal Reserve was hoping to affect Main Street through QE, it is caught between a rock and a hard place; they have created a pool of funds for the affluent (the investing class) with little or no cross-pollination to Main Street. Fiscal policy is the only thing that might help create a balance, but that is hard to find in this dysfunctional government of late."
http://seekingalpha.com/article/1828862-what-a-banana-republic-and-monetary-policy-can-teach-us-about-the-future-of-u-s-housing?source=email_macro_view&ifp=0
http://www.reuters.com/article/2013/11/16/us-usa-fed-geithner-idUSBRE9AF02A20131116?feedType=RSS&feedName=businessNews
Geithner said in statement Warburg appealed to him because of its global strategy and ethical reputation.
His move follows a stream of high-level government officials joining private equity firms. Among the latest was David Petraeus, retired four-star general and former director of the Central Intelligence Agency, who joined Kohlberg Kravis Roberts & Co in May.
Also, his comments on the disparity of wealth are painfully accurate. No wonder many in power are immensely satisfied with current system & resist change so vociferously. Regards
Money has no velocity in this economy, fiscal policy is contracting, and there is no wage-price spiral in the cards, with wages overall at absolute lows on a generational basis. Destructive deflation is just as likely as, maybe more likely than, destructive inflation in the current scheme of things.
From FRED:
"The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.
The frequency of currency exchange can be used to determine the velocity of a given component of the money supply, providing some insight into whether consumers and businesses are saving or spending their money. There are several components of the money supply,: M1, M2, and MZM (M3 is no longer tracked by the Federal Reserve); these components are arranged on a spectrum of narrowest to broadest. Consider M1, the narrowest component. M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits). A decreasing velocity of M1 might indicate fewer short- term consumption transactions are taking place. We can think of shorter- term transactions as consumption we might make on an everyday basis.
The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals. Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving.
MZM (money with zero maturity) is the broadest component and consists of the supply of financial assets redeemable at par on demand: notes and coins in circulation, traveler’s checks (non-bank issuers), demand deposits, other checkable deposits, savings deposits, and all money market funds. The velocity of MZM helps determine how often financial assets are switching hands within the economy."
research.stlouisfed.org/fred2/series/M2V?cid=32242