Nobel guru fears it may be impossible to stop deflation

A quick word from Lindau, where half the world’s Nobel economists are gathered on a beautiful island with cobbled streets on Lake Constance, looking out across the Alps. It is a Wittlesbach jewel. Christopher Sims – a monetary expert, who now thinks money indicators have been rendered “essentially obsolete” by modern finance – says it may be impossible to reverse deflation in the Western economies by any normal means, in which case we are in trouble.

He argues that the public (including investors) are convinced that there will have to be some sort of payback for all the debts accumulated during the great era of leverage and excess. They have “internalised” the prospect of future tax rises and spending that will make them feel poorer. Some 60pc of people in the US say they doubt there will be any government benefits for them when they retire, and 60pc of those already retired think their benefits will be reduced,” he said. This has powerful implications. Many of these people are retrenching pre-emptively, en masse, in most of the mature industrial economies. They are discounting a “future stream of primary surpluses”.

By the same token businesses are putting off investment and hoarding cash in anticipation of a hit to come. We may be deluding ourselves in thinking that companies will soon be confident enough to let rip with a fresh burst of spending and investment. They may just sit on their money for year after year.

If this is broadly true, it means that any use of fiscal stimulus will be neutralised by the countervailing actions of taxpayers, and may even be a net negative. Deficits become “deflationary”, contrary to standard textbook theory or populist assumptions, and threaten a self-fulfilling effect that becomes almost impossible to stop over time.

Prof Sims, who won the Nobel Prize in 2011 for studying “cause and effect in the macroeconomy”, says monetary policy cannot do the trick either once interest rates have dropped to zero. He dismisses the monetary effects of quantitative easing as trivial. At best, he says, QE is a bluff intended to show resolve and change psychology.

We may be caught in a trap. Demographics lie at the root of this malaise. The collective mind knows that the pension/welfare structure is untenable. The implicit promises made can never be upheld in societies with ballooning numbers of pensioners, depending on a static or shrinking work force. This will catch China too before long.

via Nobel guru fears it may be nigh impossible to stop deflation – Telegraph Blogs.

Is the Dollar King Once More?

It sure looks like it is. It all comes down to interest rate differentials in my view. The US, out of the big three, the Euro Zone and Japan, is the only economy where we are even talking about higher interest rates. The other two are not there yet as growth is stagnant at best in those economies. Please do not misunderstand what I am saying here – I am not saying that interest rates here are going to rise anytime soon. I am saying however that if and when rates finally do begin to rise, traders are convinced that they will do so FIRST here in the US.

Today’s Construction data reminded currency traders of that fact.

Yesterday I mentioned that stubborn band of overhead chart resistance that has served to keep the Dollar’s upward progress in check. Today it finally blew right through that! 



The ramifications for the commodity complex in general are all too well known by anyone who has been watching the markets over the last few years. Higher Dollar tends to equal Lower Commodity prices overall

We are seeing that in the Goldman Sachs Commodity Index which continues to get pummeled lower. It just missed setting a fresh TWO YEAR LOW in today’s session especially with crude oil being obliterated. Crude has not been at these levels this year since the third week of January!

I think it bears repeating – were it not for geopolitical tensions in Ukraine, it is highly doubtful gold would be able to withstand this outside pressure. Gold needs an environment in which REAL rates are either flat or negative as there is very little opportunity cost to hold the metal under such circumstances. However, in an environment in which interest rates are likely to rise, and rise at a clip that will keep them above any incipient rate of inflation, gold is going to experience obstacles to a rise in its price level. Investors/traders are not going to lock up precious capital in an asset that throws off no yield and one that many do not see as necessary given the current lack of inflationary pressures.

Gold bulls will need to be cautious therefore and alert to any signs that geopolitical tensions surrounding Ukraine might be lessening. So far we are not seeing any drastic outflows from the GLD, ( not that its current levels of holdings are anything to be the least bit excited about ) but if we do begin to see such an occurrence, it will not augur well for a stronger gold price moving forward.

Based on the current data that we have, gold demand has been dropping off somewhat from last year’s torrid pace. If investors begin to more largely embrace the higher interest rate scenario, that is not going to help it.

via Trader Dan’s Market Views: Is the Dollar King Once More?.

What makes Warren Buffett a great investor? Intelligence or Discipline?

excerpt from Warren Buffett’s 2011 interview in India. A member of the audience asks: “As we all know, you are an extremely intelligent person. At the same time, you are very disciplined with your investing approach. What makes Warren Buffett a great investor? Is it the intelligence or the discipline?”

Here is Warren’s response.

Warren: The good news I can tell you is that to be a great investor you don’t have to have a terrific IQ.

If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing. What you do need is the right temperament. You need to be able to detach yourself from the views of others or the opinions of others.

You need to be able to look at the facts about a business, about an industry, and evaluate a business unaffected by what other people think. That is very difficult for most people.

Most people have, sometimes, a herd mentality which can, under certain circumstances, develop into delusional behavior. You saw that in the Internet craze and so on. I’m sure everybody in this room has the intelligence to do extremely well in investments.

Moderator: They’re all 160 IQs.

Warren: They don’t need it. I’m disappointed they haven’t sold off some already. The 160s won’t beat the 130s at all necessarily. They may, but they do not have a big edge. The ones that have the edge are the ones who really have the temperament to look at a business, look at an industry and not care what the person next to them thinks about it, not care what they read about it in the newspaper, not care what they hear about it on the television, not listen to people who say, “This is going to happen,” or, “That’s going to happen.”

You have to come to your own conclusions, and you have to do it based on facts that are available. If you don’t have enough facts to reach a conclusion, you forget it. You go on to the next one. You have to also have the willingness to walk away from things that other people think are very simple.

A lot of people don’t have that. I don’t know why it is. I’ve been asked a lot of times whether that was something that you’re born with or something you learn. I’m not sure I know the answer. Temperament’s important.

Moderator: That’s very good advice, to be detached from all the noise. You shouldn’t go with the herd.

Warren: If you don’t know the answer yourself don’t expect somebody else to tell you. If you don’t know the answer yourself and somebody else says they know the answer, don’t let that fact push you into coming to a conclusion about something that you don’t know enough to come to a conclusion on.

via What makes Warren Buffett a great investor? Is it the intelligence or the discipline? | Farnam Street.

Gundlach: US 10-year yields to 2.2%

Famed bond fund manager Jeff Gundlach on Friday warned yields on U.S. 10-year Treasurys could fall sharply, with momentum driving the market.

Gundlach said in a “Power Lunch” interview it will be interesting to see if the 10-year yield gets below 2.35 percent.

“If that’s the case I do think we’re going to 2.20,” he said.

Gundlach said U.S. Treasurys yields are being dragged down by moves in the European bond market.

DoubleLine Capital CEO Jeffrey Gundlach speaks at the Bloomberg Markets 50 Summit in New York.

Jin Lee | Bloomberg | Getty Images
DoubleLine Capital CEO Jeffrey Gundlach speaks at the Bloomberg Markets 50 Summit in New York.

“At this point it’s a momentum trade,” he said. “For now, people are looking for safety and obviously the Treasury bond market looks relatively attractive versus other bond markets.”

As for the Federal Reserve conference in Jackson Hole, Wyoming, next week, he expects it to be “benign.”

“The action of the bond market is not suggesting interest rate increases at all and so the Fed usually follows the long end of the bond market,” he said.

Gundlach thinks the Fed’s zero interest rate policy will be with us longer than most think

via DoubleLine’s Gundlach: Could see US 10-year yields go to 2.2%.

Spotting Cancer in a Vial of Blood

Now imagine you could see these mutations—see cancer itself—in a vial of blood. Nearly every type of cancer sheds DNA into the bloodstream, and Vogelstein’s laboratory at Johns ­Hopkins has developed a technique, called a “liquid biopsy,” that can find the telltale genetic material.

The technology is made possible by instruments that speedily sequence DNA in a blood sample so researchers can spot tumor DNA even when it’s present in trace amounts. The ­Hopkins scientists, working alongside doctors who treat patients in Baltimore’s largest oncology center, have now studied blood from more than a thousand people. They say liquid biopsies can find cancer long before symptoms of the disease arise.

For the first time, Hopkins researchers say, they are within reach of a general screening tool that could be used to scan broadly—perhaps at an annual physical—for molecular traces of cancer in people with no symptoms.

via Bert Vogelstein’s Liquid Biopsy Blood Test for DNA Could Stop Cancer | MIT Technology Review.

8 Indicators for Gold

Please keep in mind that these indicators below can change quickly. So what you read about today can change in the weeks ahead to cause me to reconsider my thinking. But overall it has been a slow grind down for gold buyers. The bottom will be here soon enough. My indicators have to tell me to call it before I can be 100% bullish in the present. What it really comes down to for me is the same battle of inflation vs. deflation and as a result, a bullish dollar. Which of these do you see with these 8 indicators?

1. Demand from Gold Buyers Down

2. Stock Market at New Highs

3. VIX Volatility Index Not Showing a Lot of Fear

4. Europe Fighting Deflation

5. Dollar Bullish

6. Velocity of Money Still Pushing On a String – Deflation

7. Commodity Prices Heading Lower

8. 10 Year Treasury Still Below 3% – Safety in Treasuries?

Read this post for elaboration of each point:  8 Indicators That Tell Us Where Gold Might Go Next | Seeking Alpha.