Useless Economists - IMF, Reinhart and Rogoff

Crazed Economists and their supporters in Politics and Economists have successfully promoted theft as a major policy tool by promoting the ideology of 'Quantitative Easing' (Money Printing to you and me). Now two proponents of this useless guild (as Nassim Taleb would describe economists) go one step further and promote outright theft by direct expropriation of bank account balances. And all this under the auspices of that empire of bureaucratic excess and lavish perks, the taxpayer funded IMF. Urgent and drastic measures to preserve one's wealth should now priority for any rational investor.

Who will drive Lamborghinis?

Interesting paper extolling the advantages of Gold (or hard currency) in times of (Hyper)Inflation

Safest Asset in the World?

The well-known economist Robert Shiller claims that his number one investment recommendation would be inflation-protected treasury securities (TIPS as they are usually called in the US). We beg to differ as he implies that there is no risk of government meddling with inflation statistics - or worse, the wholesale repudiation of the promise to link interest payment and principal to the value of the currency. In light of recent econonmic developments in many major economies we suggest that blind trust in the honesty of politicians is untimely.

Today's War: Savers versus Speculators

When the manager of the world's largest bond fund says that people are facing 'financial repression' it highlights the battle between the ordinary citizen-savers and the speculators who caused a near-collapse of the financial system and the ensuing artificial depression of real interest rates. Despite this deplorable consequence of poor financial regulation investors should not be tempted into risky investments in order to make up for the low interest rates they receive at the moment. While a return of 1 percent a year may be hurting in the pocket it is nothing compared to a much larger loss in ill-conceived gamble in speculative shares or 'investment products' marketed by aggressive salesmen that are only out to cash in on fat sales commissions. It would take years to make of for a loss of only 10 percent of principal and the risk for much higher losses cannot be excluded.

Bonds- Certificates of Confiscation again?

A controversy about the value of bonds as investment vehicles between respected investors highlights the risks investors face when locking in today's record low interest rates. Even if one can make some adjustment for the likely returns one still has to account for the negative impact of inflation and income tax as well as the fees charged by investment managers or mutual funds.

IMF proposes new 'virtual currency'

Investors should be prepared for the next global conspiracy of the 'global elites' that is intended to confiscate their assets. Recently the IMF proposed a significant expansion of the SDR scheme. At a time when the world drowns in liquidity this is the last thing that anyone interested in stable currency value would wish for.

Bundesbank loses last sensible bullwark against Inflationists

Axel Weber's resignation from the top of the German Bundesbank leaves the world adrift in a sea of paper money that irresponsible politicians and their puppets at the helm of the main central banks use to paper over the cracks of their incompetent economic policies. Gold, Silver and other hard assets may have reached record highs but given this sad political backdrop a change in flight to safety is not in sight.

Is Gold a Hedge against Inflation?

I notice today that in an interview an asset manager stated that Gold was not suitable as a hedge against inflation. The manager - let him remain unnamed - picked the year 1980 when Gold reached a temporary all-time high of more than $US 800 as the base period and claimed that in real terms even Gold at its current price of around $ 1350 has not held its ground against inflation. But you can prove anything with statistics. If the comparison were made with the price of $US 35 on which the price was fixed by the US Government until the early 1970s the comparison would be very different. A look back to 1792 shows that gold more than held its own in real terms since then.

Are Governments more risky than some banks?

This is the question asked by a national newspaper today. The reason for this is the fact that the cost of insuring against the British Government defaulting on its outstanding debt during the next five years has surged to 100 basis points above Libor at one stage.
This is more than the premium charged to insure bonds issued by the stronger banks such as BNP Paribas, Commerzbank of Credit Agricole.
We do not think that a default scenario is very likely for the government debt of any major industrial nation but we think it is extremely unlikely that the money that you will be repaid with will have even close to the same purchasing power that it had when the bond was issued.
The loss in purchasing power will be the involuntary contribution made by bond investors to finance the politician's pet spending projects - especially on their clientele and hangers-on.

Inflation Bonds not without problems

Investors looking for a safe haven for their funds and unwilling to take any risk related to investment in Equities are easily tempted to preserve the purchasing power of their savings by investing in inflation-indexed bonds.
These bonds promise to increase the value of the principal at maturity and the interest payments by an amount that is linked to an index that reflects the rise in a price index.
The problem is that the index is usually calculated by a government agency and the rules are set by the finance ministry in the country where the bonds are issued.
Governments in general have every incentive to produce a price index that shows that inflation is lower than it really is.
So it comes as no surprise that a recent study commissioned by the Daily Telegraph in the United Kingdom in Spring of 2008 has found that the Real Cost of Living Index is rising at 9.5 per cent while the official Retail Price Index is shown as rising at a rate of only 4.2 per cent.
This means that an investment in inflation bonds is - while being a sound concept in principle - potentially also a serious risk to the purchasing power of the investor and can only be seen as a partial solution to the preservation of capital in real terms.

The End of Inflation?

A number of economists have been deceived by the seemingly low rates of inflation that many countries have experienced during the past 10-15 years. But the hard fact is that thanks to the power of compound interest even a low annual rate inexorably builds up to a staggering loss of purchasing power over a longer time span. The US US Consumer Price Index for example has doubled during the past 23 years and the Dollar lost half its purchasing power as a consequence. And this does not take into account the fact that the data has been heavily massaged down for political reasons. The power of compound interest is such that even a low rate of inflation erodes the purchasing power of money at a frightening rate."