<<In the USA, FDR confiscated gold bullion not gold mines>>
... when, not if, gold spot price inevitably and inexorably keeps its destined appointment with the now gold shadow value of usd 60k+++ or then shadow value of usd 70k, 120k, or 240k, and officialdoms clop all private gold hoard,
they may well have to clop all mines, all around the planet;
and only then can folks be forced into using a '1:1 gold-backed' paper currency (as opposed to gold and silver directly) that can gradually and surely, once more, devolved into yet another iteration of fiat paper money backed by nothing. it is but the cycle, nothing more complicated.
the above is premised on the total implosion and pulverization of usd, the global reserve currency, and same again of europe and japan, and on probability that china may well either refuse to accept the true burden of global reserve status or simply go on gold standard of own volition.
during the darkest interregnum leading up to zero-state monetary reset, i am also figuring a deep and extreme political and societal cleansing will be in much of the world, centered on the home of the then ex-global hegemon, and thus nothing will work as before and all will go into basket ... so, roaming mercenaries, food riots, idle farms, etc etc
you do not actually believe that all them trillions of unfunded liabilities getting reset to effectively zero would have no consequences of the worst sort, do you?
60k gold is baked-in as of today. the shadow value can only increase, in real terms, either by continued printing, or by deflation of all assets, in nominal or real terms.
usa gdp going to 5% of global allocation is just about baked in.
the clock is wound up, we are just watching the ticking. for god most assuredly did not mention that total and absolute collapse for the same set of obvious reasons only works for and on all empires past, except team usa, because it is somehow dynamic and someway flexible, sporting one wastrel one vote and can and do kill the most people around the world. you have not actually signed on with pritchard, did you?
trust the obvious is now clearer :0)
in the mean time, just in in-tray, per GREED n fear
· Investors should continue to give the upside the benefit of the doubt in global equities in terms of the potential for a “melt up” into year end. The rising oil price continues to suggest increasing risk tolerance while in Asia the China A share market continues to exude more positive vibes.
· US banks’ excess reserves continue to rise at the Federal Reserve, which suggests velocity of money in circulation is still declining. The macro-economic backdrop in America remains deflationary which is why the Fed will continue to play down talk of tightening.
· Billyboy warned this week about the risk of “asset bubbles” in Asia and the need for macro economic “rebalancing”. But the irony is that the Asian asset bubble risk is the direct consequence of Simple Ben’s monetary policy, while “rebalancing” involves America saving as well as Asia spending. But to GREED & fear Bernanke’s policies seem entirely aimed at trying to get American consumers to borrow again.
· Politics remains unfinished business in Thailand which suggests that a final showdown between pro and anti Thaksin forces lies in the future and not the past. This is unfortunate since without this issue Thailand would be a very interesting investment story with the ability to play catch up on the already more booming areas of the region as a laggard play on GREED & fear’s emerging Asia bubble theme.
· The Thai stock market has the potential to head higher for as long as political tensions do not return to the fore. The Thai market has certainly enjoyed a benign interlude in recent months in the context of both the present government’s staying power and the economy’s surprisingly resilient performance. This benign interlude can continue for now if the issue of the King’s health does not come to the fore.
· A general election in Thailand is not expected imminently partly because neither side wants one in the short term, particularly the government which most observers think will lose if a poll were held today. The pro-Thaksin opposition would also like to change the constitution prior to the next election so that their banned MPs can return to active politics.
· One obvious nearer term potentially destabilising factor in Thailand is the health of King Bhumibol Adulyadej. This raises the risk of a potential power vacuum, sooner or later, that could suddenly bring to the fore all the fault lines in Thai politics. Thaksin or at least the Thaksin legacy has not lost its ability to garner support at the grassroots level.
· The Thai stock market is no longer dirt cheap even if it remains relatively cheap in an Asian context. There is a chance for Thailand to continue to outperform providing politics does not intervene. The property market, like the banking sector, has demonstrated its resilience this year in the context of a contracting economy.
· The Thai economy has been supported by significant government stimulus. This stimulus is also another important reason why the present Democrat coalition government has survived so far. This is because political parties need to be part of the coalition to share in the disbursement of funds.
· There has of late been a pick up in foreign net buying of Thai stocks. There is room for foreigners to buy more if politics does not intervene. Meanwhile, the domestic mutual fund industry remains predominantly invested in bonds rather than equities.
· The inauguration of SBY for a second term and the announcement of his cabinet this week in Indonesia is a reminder that SBY has a chance to make a real difference given the decisive mandate he has won and the country’s fiscal health which gives the government plenty of scope to borrow money.
· The central issue now is whether in his second term SBY gets things done in areas where he was a comparative failure in the first term. The key area in this respect remains infrastructure. A real infrastructure cycle could easily lift Indonesia’s trend economic growth rate above 7% from the 5-6% rate it has been running at in recent years.
· The word in Jakarta is that the new government will prioritise pushing through a law on compulsory land acquisitions. Investors should wait for hard evidence that the usually ultra cautious SBY is willing to invest the necessary political capital. For policies like compulsory land purchase will have to be sold to the public given the still vivid memories of the extremely high handed approach of the Suharto regime to such matters.
· The new cabinet is predominantly the usual compromise of politicians selected from rival political parties to ensure parliamentary support in the Javanese tradition of “consensus building”.
· The Islamic party is still a force to be reckoned with. While the Islamic issue is certainly not a reason not to own Indonesian stocks, it does have the potential to create some negative public relations “own goals” which could deter foreign investors and make Indonesian Chinese’s businessmen think twice about investing more money in their country.
· GREED & fear is for now happy to remain overweight Indonesia in the relative-return portfolio in the hope that an infrastructure-driven cycle will now kick in to add an exciting macro dynamic to what has been in recent years a very solid bottom up story as reflected in high profit margins, low gearing and high dividend payout ratios.
· The profitability of Indonesian corporates is now recognised in terms of the market’s valuation which is no longer cheap save perhaps for property stocks. While if SBY shows hard evidence of following through on the infrastructure story, there is every reason to buy more.
· The continuing strength of the rupiah as a result of the US dollar carry trade is continuing to drive down inflation expectations creating more potential for interest rate cuts. Clearly, any global equity correction will likely lead to US dollar strength which will in turn hit the Indonesian stock market. But this will be a reason to buy more Indonesian domestic demand stocks aggressively.
· Japanese bank stocks have been spectacularly out of favour of late. The most obvious negative facing the sector is the potential for increased capital raising as a result of higher regulatory capital requirements. But the Japanese mega bank stocks’ valuations are sufficiently distressed to discount at least some if not all of this risk.
· Financial Services Minister Kamei seems to have backed off his proposed scheme for a three year moratorium on loan repayments for SMEs. But even if such a scheme were implemented it would prove to be more bark than bite since the big banks would still refuse to take on dubious SME credit risk, which would mean that any new scheme would have to piggy-back off some specially created government fund.
· Contrarian value-orientated investors might care to consider the case for Japanese banks, if only in terms of a mean reversion trade in terms of their relative performance. Japanese banks are certainly overdue some outperformance. But the better risk-reward trade in the domestic sphere still seems to GREED & fear to be in the domestic REITs.
· The DPJ government may have to sell more bonds this fiscal year than the initially projected ¥44tn in order to make up for a shortfall in tax revenue. This will put the general government debt, including local government debt, on course to reach 210% of GDP by the end of this fiscal year. With this initial sign that the DPJ is not willing to bite the bullet on government spending, GREED & fear repeats the advise that macro traders should look to short the 10-year JGB as far out in time as possible.
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