I’m confused. If zero rates are so bad, why will it be bad if rates rise? Asked another way: If you paint yourself into a corner, how do you get out without stepping on the floor? Answer: Simple – you don’t. Zero rate ARE bad and it WILL hurt when they rise, but it doesn’t mean they shouldn’t.
I know you’re tempted to short treasuries. From 1.70 to 2.17 on the 10-year in no time at all. Who knows how much further it can go. Maybe we’ll even see 4% rates in our lifetime again. But don’t, and here’s why.
Everyone is absolutely certain they know what gold will do in times of inflation – obviously we’ll have a repeat of the 1970′s when gold gained in relative value terms, kept its purchasing power, and provided a hedge against inflation. With this backdrop, it is not surprising that the recent talk of deflation has hurt the yellow metal’s price. But is that warranted?
Here’s the dilemma – you see a house selling for a certain amount and realize that it doesn’t cost you much to finance it, because your carrying costs are low. Does that mean that you should buy it even if the price is absurdly high? More and more advisors, articles, and pundits are suggesting that you should, and I just can’t jump on that wagon. Here are just a few of the arguments I’m hearing:
From the FT.com:
The conspiracy channels continue to make a big deal about the backwardation of gold — which is a situation in which gold prices for today are higher than for tomorrow. The thinking is that this must indicate rampant demand for physical gold.
I often write about market valuation metrics, from CAPE to Q, and the conclusion is always the same: they’re all really bad to use as timing factors. On the other hand, for us long-term investors, these factors shouldn’t be ignored and can give us insight into a general bias, or at least give us insight into the risks we might choose to take.
When John Bogle speaks, I like to listen. His simple, straightforward approach makes sense to me and has proven itself over time. As most people already know, he’s a big proponent of using index funds (which I like), a big proponent of rebalancing (which I like), and a big proponent of long term investing rather than speculating (which I like). Where we disagree
Gold is down 9% – everyone knows that by now. There are rumors of big short sellers, rumors of weak levered hands, rumors of conspiracies, and rumors that are on the way. In the end, gold is down because there are big sellers out there and the buyers are not stepping in.
Pity the BoJ . . . it gets no respect. It does exactly what it says it’s going to do, and should have the credibility that goes along with that, and yet, for 25 years it has screamed from the rooftops about new easing measures, only to watch the yen strengthen. Well, things might finally be turning.
A few weeks ago, I mentioned that inflation has a way of creeping up on you, and specifically mentioned inflation witnessed in the devaluation of credit card points. That trend continues across every credit card I read about, often times by as much as 20% (meaning, it will now cost 20% more points for the same room, gadget, etc.).
So UBS broke down the world by sector and country, and started measuring/calculating. And then they put everything into big matrices such as this one:
As a New York City resident, this topic is near and dear to my heart. While there’s no mark to market, nor daily ticker, every NYC resident I know is acutely attuned to the ebbs and flows of the real estate, since it comprises the single largest expense for most New Yorkers, since we have some of the most convoluted tenant laws in the country, and since we have some of the most expensive real estate in the world.
Jamil Baz, Chief Investment Strategist at GLG posted an article in FT.com analyzing the equity risk premium under different scenarios.
I like buying distressed assets. I like finding THE deal. I like buying low, and cheap, and under-followed, and all of the stuff we talk about every day. Some people look for undervaluation in stocks. I know I do. Some people look for undervaluation in asset classes. I know I do. I think the main difference I see in the development of my conversations over the past decade has been a shift in my emphasis away from absolutes. I don’t know if something is cheap on an absolute basis. At best, I can identify asset classes that have underperformed, seem to be relatively cheap (relative to other assets), and seem to be worth taking a certain amount of risk (usually enough to make an impact on the upside, but not enough to crush my performance on the downside). Over time, I’ve also come to appreciate the power of global trends (e.g. increased regulatory trends, increased global money printing, demographics, etc.).