Monthly Archives: July 2014

“The recovery is not yet ‘complete,’ Federal Reserve Chairwoman Janet Yellen suggested Tuesday, but the central bank plans to let interest rates rise anyway. We’ll soon learn just how solid this so-called recovery is.

Sadly, we don’t fully share her rosy outlook. Indeed, we think the Fed’s extraordinary interventions over the past 5-1/2 years have distorted markets and prices, and have held the economy back.”

“The Federal Reserve, the central bank of the US, is nearing the end of its ability to manipulate the US economy without producing consequences worse that those it set out to avoid in 2008. The Fed has no good exits from seven years of market manipulation. If it continues its current policy of reducing purchases of assets, the so-called ‘tapering,’ it risks throwing the U.S. into a recession. If it reverses course and pauses the taper and later increases asset purchases, it risks destroying confidence in the dollar among foreign creditors of the U.S. Both outcomes are potentially disastrous, but there are no good outcomes on the horizon. This is the result of manipulating markets to the point where they no longer function as markets providing useful price signals and guiding the efficient allocation of capital. Today markets are a mirage, created by the Federal Reserve, which is caught in a prison of its own device.”

“Gold is up by 9.2% so far this year. This surprised many market participants as most analysts predicted lower prices. Some investors took advantage of last year’s price correction to buy gold but investment demand has remained tepid. We consider that the current environment of high bond issuance, tight credit spreads and record low volatility continues to offer a prime opportunity for investors to add gold. In our view, gold can reduce overall portfolio risk and it is cheaper to implement than many volatility-based strategies.”