For Neal, it was this conversion process that produced the bubble: “The South Sea Bubble should be viewed not simply as a wild mania or a massive swindle,” he concludes. “These played a role, but the driving force in the bubble was the technical problem of converting government war debts into easy-to-exchange, low-interest, long-term securities.”
Month: August 2019
Devil Take The Hindmost by Edward Chancellor (pg. 82)
In order to monopolise the speculative enthusiasm, Blunt persuaded his friends in the government to pass the “Bubble Act,” which made illegal the establishment of companies without parliamentary permission and prevented existing companies from carrying on activities not specified by their charters.
Devil Take The Hindmost by Edward Chancellor (pg. 72)
A recent historian of the South Sea Bubble sympathetically interprets the bubble companies as attempts to realise a vision of material and technological progress ahead of their time.
Currency Wars and Negative Yielding Debt
Things are accelerating.
The main topic of discussion for the past year was the US-China trade war. Now, it is all about central bankers.
Globally, to the best of my knowledge, all economies are slowing down, and some are actually contracting.
For the past 30 years or so, globalization and the elimination of trade barriers have been a positive impact on global economies, which feeds in to equity prices. The Trump-led trade war was a major paradigm shift.
Knowing that globalization increases connectivity between economies, one should intuitively be able to understand that economies today are not insulated from one another. If some dominoes begin to fall, then you are a fool to think the rest will not.
We find ourselves in the middle of a road map in which the order of directions is a bit vague, but the endgame could be consequential.
What we do know is the next major chapter in this story has just begun.
China, for the first time since 2008, let the yuan slide through 7 to 1 to the dollar. You have been hearing Trump demand that he wants a weaker dollar. The reason is that he wants to improve the competitiveness of the domestic exporter. Well, he is not the only leader with this thought.
When one country begins to weaken their currency, other countries cannot stand idly by. Global rate cutting has accelerated as other nations do not want to watch their exporters become uncompetitive.
Central bankers set policy rates, which then influence market rates. As central bankers continue to cut policy rates negative or closer to negative, then the aggregate amount of negative yielding debt will continue to rise.
This is very bullish for gold.
In short, the old argument was…
“What do you think about gold?”
“It does not pay a yield, so I do not like it.”
Well, in a world where the percent of alternatives to gold that do pay a yield is falling due to the fact that the amount of negative yielding debt is rising, then gold becomes increasingly interesting.
I want to note how fascinating it is that gold reached $1,400 around the same time that aggregate negative yielding debt reached $14 trillion, and $1,500 and $15 trillion, respectively. Let’s see if this correlation continues with such strength.
Around the world, many currencies are already falling against gold. The global currency war is creating a race to the bottom in rates. The dollar may temporarily bid as individuals jump from their pot to our frying pan, but eventually all fiat will substantially depreciate against gold. Please note that despite the dollar’s recent strength, gold has still managed to return about 15% in the past 2 months.
It is just a matter of time until gold is breaking all time highs in all fiat currencies.
