Tuesday, November 10, 2015

Some Tuesday reads


Here's a bit of stuff:


Gavyn Davies - ring the bell on the end of the deflation scare. The cold, uncaring data says that global industrial production is now rebounding, inflation rates in the advanced countries have stopped falling, inflation expectations in the markets have started to rise again, and goddammit will you all stop worrying about China.


New Deal Demoncrat - forecasting the 2016 economy. He goes into detail about the WLIs and his own LLIs, and links to a few earlier posts of his that are useful. As he notes, all of the long leading indicators but one are positive right now, so 2016 should be smooth sailing, so Whitey should quit piddling his frilly little pink panties.


John Quiggin - are recessions abnormal? Basically wonkish article for economics students. Put simply, classical economics does most definitely use an economy in equilibrium as its critical assumption, but in reality economic equilibrium never happens anywhere ever. Thus, classical economics is wrong.


Bron Suchecki - on Indian gold monetization. He reiterates a very important point that people seem to be ignoring:
As Jayant Bhandari observed in his Precious Metals Investment Symposium presentation, India is a negative-yielding economy, with nominal yields on property and stocks below the 10 year government bond (even cows return -6% assuming zero labour costs). In such an environment, a zero-yielding asset like gold is better than a negative yielding asset.

The Indian government’s gold monetisation schemes, however, are more about addressing the symptom rather than the disease, which is the lack of trust in “payback”. Jayant says that high levels of corruption, superstition and irrationality in India “discourages accumulation of financial and intellectual capital”. But dealing with that, I guess, is a lot harder than trying to hoodwink “its population to take a leap of faith on the trust front”.

Why do I say hoodwink? Firstly, as I discussed in this post, the lending of any physical gold deposited in the schemes will have a one-off impact on throttling Indian gold imports. Secondly, as discussed in this post, the other uses the Government of India says it will make of the gold and the way it will run its Sovereign Gold Bonds Scheme mean that the government is simply going naked short gold in Rupees, as they themselves acknowledge in this press release:

“the risk of increase in gold price that will be borne by the government” and they “will not be hedged and all risks associated with gold price and currency will be borne by GoI”.

With that sort of risky behaviour from their own government, who really is stoopid – those holding physical gold or those trusting the government schemes?
Or more imply, it takes a very stupid investor to accept a negative real yield from an EM country that is going naked long EM currency short gold. I mean, how many EM currencies have appreciated against gold? I mean, ever?

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