An excellent report from WF this week.. the data in the US is mixed but the latest GDP forecasts improved.. (GDP always rises in a positive inflation environment as governments understate inflation and therefore over state GDP growth. The oldest trick in the book of course). Wonderfully WF picks up on the ‘financial repression’ strategy. Operation ‘twist’ seems to have done the reverse of what was intended with MBS rates rising not falling. This has some macro policy implications but is also very interesting in terms of the markets mis pricing of mortgage reit assets. The market has anticipated lower margins. The report picks up on Argentina’s recovery. A huge land mass and rich in commodity resources at a time when the world is short of commodities. Like Canada and Australia. Given such dynamics the most negligent political leaders in these countries can look wise.
Interestingly I spent some time yesterday with an Argentinean entrepreneur now living in Barcelona. He described the post 1991 breakdown of Buenos Aires. Crime doubled and trebled yoy. He described how the debasement of the current destroyed his society over the next decade and that even the most ignorant of taxi drivers could provide a lecturer on inflation and its destructive qualities on a society. During this period Argentinean people used the US dollar to retain their purchasing power. The USD debasement process had begun but it was not in full motion as it is now. The world offered several sound currencies at this time. Contrast this with today where almost every currency in the world offers negative interest rates or has an explicit debasement strategy. In such an environment when capital holders seek refuge from inflation they will have little alternative than stocks and precious metals. Clearly this is bullish for both asset classes.
Have a great weekend all.. Rich
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