Short and Sweet

The core problem is the debasement of the currency

graphic illustration of decling US dollar

“The strategies, in which portfolios hold 60% stocks and 40% bonds, have produced just two down years since 2007,” writes Bloomberg’s Michael Mackenzie and Liz McCormick. “… But it posted losses in September and November and is down 0.4% so far in December, just as the Federal Reserve started signaling a hawkish shift.” The bottom line is that both sectors – stocks and bonds – are overvalued, as we are constantly warned in financial reports these days. One analyst said: “In this environment, we think 60/40 is pretty dangerous.” Inflation undermines the value of the very currency in which those assets are denominated. So the problem at its core is the debasement of the currency.

Switzerland-based analyst Claudio Grass, who receives considerable attention among market watchers for his insights on monetary policy, holds what many would consider a controversial view on the Fed’s tapering program. He believes that “most investors can see through the political narrative and the ‘packaging’ of the central bank’s decisions. They realize they can depend on continued support and that there’s no reason to fear that the monetary expansionism of the last decade will be reversed anytime soon. And they are justified in their assumptions.”

“Of course,” he concludes in a short analysis posted at the Gavekal website, “as might have been expected from the track record of central planners this ‘strategy’ is extremely short-sighted. Keeping the money faucets open and persisting in maintaining an environment of extremely low rates is only postponing the inevitable. As conservative, rational investors and precious metals owners clearly understand and have seen coming for a very long time, this myopic approach might put off a recession over the next weeks or months, but it is has created much larger, deeper, systemic risks, ranging all the way from an inflationary crisis to the potential for actual currency collapse.”

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