From this morning’s Financial Times:
“It is quite easy for one to introduce QE policy, as it
is little more than printing money. When QE is in place, there may be
all sorts of players managing to stay afloat in this big ocean. Yet it
is difficult to predict now what may come out of it when QE is withdrawn.”
– Li Keqiang, China’s premier as quoted in this morning’s Financial
Times
Sticking with the oceanic theme, here is a similar
sentiment from Warren Buffet:
“Only when the tide goes out do you discover
who’s been swimming naked.”
And another sea-faring allusion from the International
Monetary Fund (as described in today’s Financial Times):
“The Federal Reserve’s first interest rate hike risks
triggering a jolt to bond markets that could surpass the turmoil the central
bank inadvertently set off in 2013, the International Monetary Fund has
said. José Viñals, the director of the IMF’s monetary and capital
markets department, warned of a ‘super taper tantrum’ and spiking yields as
the US central bank gets nearer to lifting rates from near-zero levels. ‘This
is going to take place in uncharted territory,’ he told the Financial
Times in an interview.”
Then we have warnings from a couple of well-known
commentators on the potential for a liquidity crisis in the bond market.
Jamie Dimon (JPMorgan CEO):
“The banking system is far safer than it has been in the
past, but we need to be mindful of the consequences of the myriad new
regulations and current monetary policy on the money markets and liquidity in
the marketplace—particularly if we enter a highly stressed environment.”
Larry Summers (former Secretary of the Treasury):
“I thought regulatory authorities made a mistake when
they looked at each institution, and said, ‘You’ll be safer if you withdraw
from the markets a bit,’ and then forget that if all institutions withdraw
from the markets a bit, the markets would be less liquid. The markets
themselves would be less safe. That would, in the end, hurt all
institutions. I think there is a real issue there. Frankly, a lot of the
effort that’s going into macro prudential should be into making sure we have
liquidity.”
There have been a number of other prominent figures
registering similar sentiments in the public venue. Irving Fischer,
though, the Fed’s vice chairman, is seen swimming against the tide:
“Markets can’t depend on the Fed staying on hold forever,
says Fed Vice-Chair Stanley Fischer, speaking at an economic forum. Yes, the
first quarter was a weak one for the U.S. economy, he says, but a rebound in
Q2 is already underway.” [Seeking Alpha, 4/16/2015]
So, you might ask, what does all of this have to do with
the demand for gold in international markets?
I will take you back to the quote from Li Keqiang about
printing money. The financial markets are between a rock and a hard
spot. Print with abandon and eventually runaway inflation is
inevitable. Stop the printing presses and the markets and the economy
are pulled into a vortex of illiquidity (which translates to a downward price
spiral and all it portends for financial institutions). In either
eventuality, gold is the one asset that stands apart from the potential
maelstrom of counterparty risk and/or runaway inflation – an ark of sorts, a
weighty portfolio anchor and an asset in which China takes an abiding
interest.
As for Mr. Fischer, one wonders how fifteen days into the
second quarter he might be so certain of its outcome. Such boldness
might raise an eyebrow or two among Wall Street’s more seasoned travelers . .
. .
One last ocean-going reference – a note in cuneiform
recorded on an ancient tablet dug up somewhere in Mesopotamia:
Dear Noah,
We could have sworn you said the ark wasn’t leaving
till 5.
Sincerely,
The Unicorns
Talk about missing the boat. . . . . . .MK
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A little USAGOLD history. . . . Pictured are News & Views hard
copies from 1999 just before gold began its secular bull market. News & Views was Review & Outlook’s popular
predecessor at a time when gold-based publications were few and far between.
The “Big Breakout” headlined in the November, 1999 issue refers to a price
jump from $260 to $330 per ounce. Your editor sees a good many
similarities between that period and now.
