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LAWRIE WILLIAMS: Lewitt, Minsky, Williams and gold

I mentioned information overload in an earlier post looking at Incrementum’s latest 169-page long ‘In Gold We Trust’ publication on the gold market (See: Gold – Scenarios from $700 to $5,000).  I have to say that the two other reports which crossed my desk were not nearly as long, but both contained a plethora of interesting facts and figures.  They were Grant Williams’ latest ‘Things that Make you go Hmm…’ newsletter- at 46 pages still a long read - and Michael Lewitt’s newest ‘Credit Strategist’ publication – a relative minnow at only 13 pages.  Both are publications I always look forward to reading.

I can live with Lewitt’s to my mind ultra-right wing thought processes (I am a Brit to whom our Conservative Party is considered here in London  a right wing organisation, but to an American is probably somewhere way to the left even of the USA’s Democrats - maybe Bernie Sanders excepted) even if I don’t necessarily agree with all Lewitt’s political views.  Heaven knows what the U.S. will make of Jeremy Corbyn were he to become the UK’s next Prime Minister!  But Lewitt has, in my opinion, one of the most astute financial minds out there and most of what he comes up with in terms of financial analysis and recommendations I have no problem in agreeing with at all.

In the latest Credit Strategist (https://thecreditstrategist.com/ - requires subscription) for example, Lewitt takes issue with the incredibly low level of the VIX volatility index despite all the geopolitical and geo-economic uncertainties at home and abroad.  A low presumption of market volatility by the investment community lulls it into taking undue risks.  “Investors” he states “are not only shrugging off profound upheaval in American government and serious geopolitical risks but epic accumulations of debt and derivatives that are certain to rise out of the darkness and create havoc.”

He points out that this kind of financial complacency was all warned against by Professor Hyman Minsky in his “financial-instability hypothesis” back in the early 1980s.  Minsky effectively put forward the theory that long stretches of prosperity sow the seeds of the next crisis - or boom ultimately leads to bust!  Minsky’s theory was largely unheralded in his lifetime but was seized upon the world over by economists during the 2007/8/9 Great Financial Crisis - but again has largely fallen out of mainstream thinking again – until the next time!  And Lewitt feels ‘the next time’ is rapidly approaching and we are coming up to another ‘Minsky moment’.

So where does he place central bank policy?  Lewitt concludes that zero interest rates and quantitative easing have lured public and private sector borrowers into adding huge tranches of debt, bringing total borrowings to nearly $60 trillion in the United States and $250 trillion globally and  the respective economies can never generate sufficient income to service or repay all of this debt.  Instead, the central banks have colluded in what he describes as “a massive Ponzi scheme” just hanging on by a thread in supposition that this can be financed through anti-growth monetary and fiscal policies.”

Thus Lewitt paints a pretty dire picture of the direction of the global economy over an almost indefinite future, with no real way out.  Over time wealth will dissipate as fiat currencies lose value because they are actively being eroded by central banks because the only way that the world’s $250 trillion of debt can be repaid is through currency debauchment and inflation (effectively two sides of the same coin).

Lewitt does have positive things to say about holding gold however.  He concludes as follows: “Gold closed on June 2 at $1,281/oz., approaching its highs for the year, and silver at $17.54/oz. In thinking about how to invest in today’s world, readers must remember that stocks are overvalued, infinite duration assets denominated in deteriorating fiat currencies while bonds are grossly overvalued, finite duration assets denominated in deteriorating fiat currencies. What the market gives with one hand, currency debauchment takes away with the other. Soon, I fear, the market will stop giving as well. One of the best ways to protect yourself from the broken promises and confiscatory instincts of government is to buy gold and save yourself.”

The final few words are a continuing mantra of Lewitt’s Credit Strategist newsletters.  He has nothing but support for gold as a long term wealth protection asset.  We would concur!

Grant Williams’ Things that make you go hmm… (www.ttmygh.com) newsletter, in addition to republishing excerpts of articles looking at geopolitics and geo-economics from a number of prominent economists and thinkers, looks in its editorial commentary in detail at the policies of the Swiss National Bank, which he considers foolish in the extreme.  Despite being the nation’s central bank, tasked with ensuring price stability, while taking due account of economic developments, Williams finds it hugely anomalous that the SNB is helping prop up the U.S. stock market by being one of its biggest equity investors.  This is an interesting concept and Williams takes up 20 pages looking at what he considers this ‘craziness’ and points out that if there is a collapse in the U.S. equity markets, as many predict. The SNB will take a very heavy hit indeed which will be something of a shock to the highly conservative Swiss population which seems largely unaware of the SNB’s dealings.  What this would do to global currencies and the gold price is unsaid, but one can draw one’s own conclusions.  Like Lewitt, Williams is a long term believer in gold as a wealth protector against political and central bank stupidities, which seem currently to be prevalent the world over.

 

06 Jun 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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