I was treated today to a presentation and Q&A with the highly respected CIO of Signature Global Advisors, Eric Bushell, who oversees about $28B assets. Often, when I attend this type of meeting, I depart with my head full of improved articulation and definition of both preexisting thoughts and new ideas. This is a great aid for my ability to communicate with friends and clients.
For instance I have sensed for the best part of a year that Gold's value ascendancy is highly related to a declining level of confidence in the currency of developed economies to store and hold value. Today I learned that there is in fact a new world order where the G20 is replacing the G7 in terms of economic might. Today, it is estimated that 37% of global capital market value is attributable to emerging economies and that by 2030 this will climb to 60%. Yes, a new world order is here. An arrangement where the developed West is loosing control.
When Lehman Bros. filed for bankruptcy in Sept., 2008, Chinese confidence in the then existing financial framework was destroyed and they are now aggressively advocating, and will eventually negotiate, a new framework along with a new reserve currency paradigm. We are likely to see countries like Brazil and India support this new framework since they want desperately to avoid the devastating boom and bust characteristics of our free flow of capital past.
Capital is migrating quickly to developing countries. Individuals, corporations and capital pool managers see little risk in borrowing at 1-3% interest rates and investing in developing countries where 10-20% returns are normal. This of course further exacerbates stagnating economies of the developed world and QE2 will further accelerate this flow.
QE2 (a press acronym for "quantitative easing round 2") is the label that has been placed on the expected new round of U.S. monetary stimulus designed to boost the U.S. economy. Since the Democrats are likely to loose their numerical theoretical control of the US congress, after the Nov. mid-term elections, physical (policy driven) stimulus will not likely be possible. Thus monetary policy (printing money) will be used to further help the cause. When the markets got wind of this possibility back in late July, they started to rise with commodities leading the way. Spot gold bullion has climbed to $1,375/oz from $1,162/oz, an increase thus far of over 18%!
I personally asked Eric Bushell what circumstances would gold investors need to see before they ran to cash? Without hesitation he said that if QE2 is put on hold or somehow fails to materialize, gold markets will fall back and in the longer term gold markets will decline when real interest rates turn positive. Simplicity is beautiful.
What this tells me is that this gold ride I've been on has potentially many more months to run.
Another side piece of information that puzzles me is that since August, this gold rally has not been driven by gold hoarders. SPDR bullion inventory tonnes have actually declined slightly...I can't figure that out. I've heard that Indian jewelry producers are traditionally big seasonal buyers of gold at this time of year but I would have expected gold trust investors to increase (not decrease) their holdings as the spot bullion price rose.
For instance I have sensed for the best part of a year that Gold's value ascendancy is highly related to a declining level of confidence in the currency of developed economies to store and hold value. Today I learned that there is in fact a new world order where the G20 is replacing the G7 in terms of economic might. Today, it is estimated that 37% of global capital market value is attributable to emerging economies and that by 2030 this will climb to 60%. Yes, a new world order is here. An arrangement where the developed West is loosing control.
When Lehman Bros. filed for bankruptcy in Sept., 2008, Chinese confidence in the then existing financial framework was destroyed and they are now aggressively advocating, and will eventually negotiate, a new framework along with a new reserve currency paradigm. We are likely to see countries like Brazil and India support this new framework since they want desperately to avoid the devastating boom and bust characteristics of our free flow of capital past.
Capital is migrating quickly to developing countries. Individuals, corporations and capital pool managers see little risk in borrowing at 1-3% interest rates and investing in developing countries where 10-20% returns are normal. This of course further exacerbates stagnating economies of the developed world and QE2 will further accelerate this flow.
QE2 (a press acronym for "quantitative easing round 2") is the label that has been placed on the expected new round of U.S. monetary stimulus designed to boost the U.S. economy. Since the Democrats are likely to loose their numerical theoretical control of the US congress, after the Nov. mid-term elections, physical (policy driven) stimulus will not likely be possible. Thus monetary policy (printing money) will be used to further help the cause. When the markets got wind of this possibility back in late July, they started to rise with commodities leading the way. Spot gold bullion has climbed to $1,375/oz from $1,162/oz, an increase thus far of over 18%!
I personally asked Eric Bushell what circumstances would gold investors need to see before they ran to cash? Without hesitation he said that if QE2 is put on hold or somehow fails to materialize, gold markets will fall back and in the longer term gold markets will decline when real interest rates turn positive. Simplicity is beautiful.
What this tells me is that this gold ride I've been on has potentially many more months to run.
Another side piece of information that puzzles me is that since August, this gold rally has not been driven by gold hoarders. SPDR bullion inventory tonnes have actually declined slightly...I can't figure that out. I've heard that Indian jewelry producers are traditionally big seasonal buyers of gold at this time of year but I would have expected gold trust investors to increase (not decrease) their holdings as the spot bullion price rose.
I don't think it is a done deal that the Democrats will loose their majority in the Senate, but for a while they have had 60 votes, enough to stop a filibuster if they are united. **That** is surely about to change.
ReplyDeleteAlthough a lot has already been accomplished this presidential term, voters are asking why the US seems unable to move a legislative agenda along with Democrats in control of all three branches of government.