See Important Disclosures at the end of this report.
February 2013Locked & Loaded
February marks QBAMCO’s sixth anniversary and we are grateful for the interest our views havegenerated. In the coming months we will be assessing the platform on which we offer investmentservices and our policy of distributing our views externally. Your thoughts are welcomed. This pieceaddresses the following issues:
Currency War – Theory & Practice:
We argue one should not necessarily mistake rotating currencydevaluations presently for the threat of a belligerent global currency war. Monetary authorities arelikely to continue managing the timing and magnitude of discrete, coordinated relative currencyweakness so that the appearance of a stable global monetary system remains intact.
Cause for Concern:
While we do not expect a breakdown in global monetary oversight, we do expectfiat currency debasement to continue to mask the driver of real economic malaise and contraction –global bank de-levering; and we do expect this process to lead to a popular loss of confidence in today’smajor currencies as savings instruments – perhaps beginning in the global capital markets in 2013.
Lambs to Slaughter:
We do not expect an overt crash in global stock, bond and real estate markets, orone that would last very long. They are already crashing in
and there is a well-structuredmechanism in place to support
. Any future flight of public sponsorship would be metwith central bank credit support working through bank intermediaries. For those not part of the supportmechanism, however, the monetary
does not necessarily argue in favor of investing broadlyin implicitly levered financial markets.
The 1998 Committee to Save the World & Centralize Global Economic Control (and their LegacyBeards):
We think the smart play is to bet with these guys and the power of their institutions.
The pain of holding an inflationary bias over the last six years has beenintense, and the pain has only increased exponentially over the last two years. The good news is that webelieve for the first time there are important macroeconomic events signaling a fundamental shift in theglobal monetary system is finally approaching.
We expect discussion of Fed, ECB and BOE inflationand/or nominal GDP targeting to become louder and more frequent in 2013, and we expect markets tobegin adjusting asset prices accordingly
The Pain Trade:
All the Sturm and Drang in the financial press about a revival of the US housing marketis bologna. We provide a short idea.
On February 1, a large multinational bank published a report that called the end of the bullmarket in gold, claiming; “the 2011 high will prove to have been the peak for the USD gold price in thiscycle.” While no one knows the future and the dollar price of gold may rise or fall, we are quite certaingold’s future path will have nothing to do with the arguments included in this report. Sadly, it was a casestudy in false identities leading to wayward causations and, in our view, a diametrically wrongconclusion.
The True Lesson of JMK:
The most important takeaway from John Maynard Keynes many views is thatsometimes change for change’s sake is necessary to jumpstart popular confidence.