Merk Investments
Commentary
What’s Next for the Dollar, Gold, Stocks & Bonds?
The quip, “if you aren’t confused, you aren’t paying attention” needs to be replaced: “with the Fed confused, you better pay attention.” You may want to buckle up. Let me explain.
Commentary
Trump Put to Lower Dollar
Has President Trump introduced a Trump Put by lashing out about rising interest rates and calling for a weaker dollar? The market reacted swiftly - and rationally - albeit not the way Trump had intended. Let me explain.
Commentary
How I Own My Gold
Those who own gold often argue how to best own it. I encourage anyone holding gold to assess the pros and cons of different choices of gold ownership to make an educated rather than emotional decision.
Commentary
Productivity: A Question of Focus, Health, Politics & Money
Last week, I asked, “What would make 2018 more productive for you? Please email me the first thing that comes to your mind.” Before I summarize the responses, a big thank you to the 800+ people who sent me personalized responses. Someone pointed out that asking the question itself already helped because it motivated her to review her plans and targets.
Commentary
Merk 2018 Outlook
With the stock market and Bitcoin reaching all-time highs, what can possibly go wrong? In offering my thoughts on 2018, I see my role in reminding investors to stress test their portfolios. Is your portfolio built of straw, sticks or brick?
Commentary
Tax Reform: Implications for Gold
Last week, I got several calls asking me how U.S. tax reform will impact the price of gold. If you can answer this question, you might be able to answer how tax reform will impact other assets. Let me explain.
Commentary
What's next for the Dollar, Stocks, Bonds & Gold?
The Fed’s “balance sheet reduction” may have profound implications for the dollar, gold, stocks and bonds. We’ll provide an outlook.
Commentary
What Could Possibly Go Wrong?
This time is different. Stocks will always go up. And pigs can fly. Given that pigs are highly intelligent, don’t bet against them. That said, investors might want to take at least the first two statements with a grain of salt.
Commentary
Tweetonomics: Implications of @realDonaldTrump
Faced with a Tweeter-in-chief, how are investors to navigate what’s ahead? Is there a strategy behind President Trump’s outbursts; and if so, how shall investors position themselves to protect their portfolios or profit from it?
Commentary
What's Next for Gold?
After an initial surge in the hours after Donald Trump’s election, the price of gold has been under pressure. To gauge what’s ahead for the yellow metal, we dissect the forces that may be at play.
Commentary
The End of Dollar Dominance?
The end of U.S. dollar dominance may be unfolding in front of our eyes. No, we don't think China's ascent is the key threat; instead, key to understanding the U.S. dollar may be to understand the money market fund you might hold.
Commentary
Failure of Inflation Targeting?!
It ain't working. Eight years after the outbreak of the financial crisis, central bank chiefs suggest they have saved the world, but have they?
Commentary
The Case for Absolute Return
Talk about diversification comes cheap. Actually diversifying one's portfolio is far more difficult.
Commentary
The Good, Bad & Ugly
Are we better off with "QE", the ultra-accommodative monetary policy pursued by major central banks around the world? Is it "mission accomplished" or are we facing a "ticking time bomb"? Are extreme characterizations even warranted to describe the unconventional monetary policy of recent years, and what are implications for investors?
Commentary
Gold More Productive Than Cash?!
Is gold, often scoffed at as being an unproductive asset, more productive than cash? If so, what does it mean for asset allocation?
Commentary
Outlook: Peak Dollar?
Is the dollar's seemingly relentless rise in recent years coming to an end? What are the implications not only for the greenback, but other currencies and markets around the world?
Commentary
Gold Now?
Gold never changes; it's the world around it that does. Why is it that we see a renewed interest in gold now? And more importantly, should investors buy this precious metal?
Commentary
Clueless Fed?!
"The Fed doesn't have a clue!" - I allege that not only because the Fed appears to admit as much (more on that in a bit), but also because my own analysis leads to no other conclusion. With Fed communication in what we believe is disarray, we expect the market to continue to cascade lower - think what happened in 2000. What are investors to do, and when will we reach bottom?
Commentary
Gold to Beat Stocks?
"Stocks beat gold in the long run!" is a 'rallying cry' to buy stocks we have heard lately that gets me riled up. It’s upsetting to me for two reasons: first, an out of context comparison, in my opinion, misguides investors. It might be the wrong assertion in the short to medium term.
Commentary
Stay the Course! Which One?
Each time I hear someone suggest investors should ‘stay the course’ as markets tank, I fear such well-intentioned advice fails to adequately capture the predicament investors are in. Worse, the ‘stay the course’ mantra may set many investors up for failure.
Commentary
Stop the Fed?!
We are concerned the Fed causes both economic and political stability to deteriorate. And, no, this is not about discouraging the Fed to hike rates. This analysis is about pointing out that the road to hell may be paved with the best of intentions. For the economy to prosper, we need a re-thinking not just at the Fed, but also with some Fed critics. Let me elaborate...
Commentary
What's next for Gold?
Will gold zoom higher with Greece on the brink of default? Or will it crash as the Fed pursues an “exit?” Why has gold not rallied with the recent retreat of the dollar? To understand where gold may be heading, keep in mind that this shiny metal isn’t changing; it’s the world around it that is. We contemplate why investors may want to hold gold as part of their portfolio.
Commentary
What's Next for the Dollar and Currencies?
In anticipation of higher U.S. rates and lower rates elsewhere, the greenback had enjoyed a dramatic rally. Has the tide turned, or is the dollar merely taking a breather? We believe there are threats and opportunities hidden underneath recent market action. Below is a closer look in an effort to allow investors to better understand the dynamics that might be unfolding.
Commentary
Is Japan Zimbabwe?
Is Japan Zimbabwe? How preposterous: Japan is an advanced economy that cannot possibly suffer the same fate as Zimbabwe. Right? Or could Japan get hyperinflation? Below I explain why Japan, and with it investors’ portfolios, might be at risk.
Commentary
Is Gold Risk Free?
I’ve long argued that there may not be any safe asset anymore and that investors may want to take a diversified approach to something as mundane as cash. But what about gold? When I mentioned in a recent interview that not even gold is ‘risk free,’ it raised some eyebrows in the gold community. Let me elaborate.
Commentary
Repression Investing: Got Gold?
Gone are the ZIRP days – the ‘Zero Interest Rate Policy’ is being replaced by negative interest rates in various countries. ZIRP is a form of financial repression, where savers earn less than the inflation rate to discourage saving. Pundits suggest the U.S. has chosen a different course, as ‘liftoff’ may soon take U.S. rates higher. We’ll try to separate reality from fiction, discussing investment implications for the U.S. dollar and gold.
Commentary
Investor implications of QE by the ECB
Is European Central Bank (ECB) head Draghi?s determination to purchase government bonds turning Europe into a banana republic? What are the implications not only for the euro and U.S. dollar, but gold, stocks and bonds? Our analysis shows that conventional wisdom may be proven wrong in more than one way.
Commentary
Is Your Portfolio Ready for 2015? #crash
Is the recent bout in volatility yet another ?buy-the-dip? opportunity or a sign of worse to come? Investors struggle to both keeping up with the markets while protecting themselves against a severe correction. By taking a step back, investors might be able to see the forest for the trees to gauge whether their portfolio is ready for what lies ahead.
Commentary
What's Next for the Dollar and Gold?
Who would have predicted oil prices in the sixty-dollar range a year ago? Something is not right about these markets. Our take: dont get burned when markets add fuel to the fire. Heres what to watch out for as we head into 2015; ignore at your own peril.
Commentary
Switzerland: Vote Yes on Gold Initiative
On November 30th, the Swiss are voting whether to amend their countrys constitution on an initiative entitled Save our Swiss Gold. The Swiss gold initiative appears widely misunderstood, both inside and outside of Switzerland. We discuss implications for gold, the Swiss franc and Switzerland as a whole.
Commentary
Japan's Kaput?!
Japans economy is down but not yet out. The worlds third largest economy wont go quietly. Both these statements are merely my opinion, but if you believe theres a risk that Im right, you may want to pay attention to what the implications may be.
Commentary
Greenspan: Price of Gold Will Rise
Any doubts about why I own gold as an investment were dispelled last Saturday when I met the maestro himself: former Fed Chair Alan Greenspan. Its not because Greenspan said he thinks the price of gold will rise I dont need his investment advice; its that he shed light on how the Fed works in ways no other former Fed Chair has ever dared to articulate. All investors should pay attention to this. Let me explain.
Commentary
Scottish Independence Vote: Investor Implications
Is your portfolios fate dependent on Scotlands? Why is it that when a place known for haggis, kilts and bagpipes indicates it might want to be independent, the markets pay attention?
Commentary
What's Next for the Dollar and Gold?
One reason markets tend to get a little nervous in September is that its time for investors to ponder about their asset allocation for the remainder of the year and beyond. With the markets at or near record highs and the US dollar on a roll, what could possibly go wrong? Lets look at whats next for the dollar, gold, and currencies.
Commentary
What's Your Exit?
Are you prepared for an Exit? If the Fed pursues an exit from ultra low interest rate policy, are you be prepared for an exit from the stock market should things turn South? We discuss how investors prepare, noting the most common mistakes investors make along the way.
Commentary
Global Policy Divergence - Really??
If you own dollars, the euro or gold, you might want to pay attention to this one.
Commentary
Fed Exit a Blue Pill?
While we are busy arguing whether the Feds exit will consist of rising rates, reverse repos or the trimming of its massive portfolio, the Fed may well be fooling all of us. Investors must have been swallowing lots of blue pills not to see the illusion hiding in plain sight.
Commentary
Instability is the New Normal?
Once upon a time, there were safe havens in this world, places where investors could hide when the going got rough. If you believe this fairy tale world will persist, pinch yourself. In our assessment, not only are there no safe havens left, but instability may be the new normal. Is your portfolio ready?
Commentary
Outlook on the US Dollar, Currencies & Markets: Look Out Below!
The FIFA World Cup and market predictions have in common that we are tempted to create a world of make-believe when it comes to predicting outcomes. While others ponder about the meaning of a round ball, well focus on the implications of a make-believe world comprised of ever-higher asset prices. Our caution: look out below!
Commentary
Is Your Portfolio a House of Cards?
Politics and financial markets may both be resting on an increasingly unstable house of cards. The S&P 500 continues to hit new all time highs, while central banks try to enforce low volatility and financial stability and politicians demagogue in their quest for higher office.
The one thing politicians throughout the world have in common is that they rarely ever blame themselves. They tend to diffuse responsibility or place blame on groups such as political opponents, the wealthy, or foreigners.
Commentary
Has the Dollar Lost its Safe Haven Status?
The greenback isn?t what it used to be. At least for now, when there?s a ?flight? to U.S. Treasuries; historically a sign of ?safe haven? demand; the U.S. dollar has not only not benefited but has increasingly been on the losing end. Is this a temporary sign of special circumstances or has the dollar lost its safe haven appeal? There may be profound implications for investor?s portfolios seeking downside protection.
Commentary
Whatever It Takes 2.0?
If you are convincingly irrational the market may expect extreme measures and front run your bluff. It?s in this spirit that ECB President Draghi is threatening the market with another bazooka. We discuss implications for investors.
Commentary
Foolish Investment Ideas
With April Fools? Day behind us, it?s time to get serious about investing. Don?t be fooled by this week?s non-farm payroll report; nor by the assertion that the U.S. may have the cleanest of the dirty shirts. And certainly don?t be fooled into thinking the market has your interests in mind?
Commentary
Foolish Investment Ideas
With April Fools? Day behind us, it?s time to get serious about investing. Don?t be fooled by this week?s non-farm payroll report; nor by the assertion that the U.S. may have the cleanest of the dirty shirts. And certainly don?t be fooled into thinking the market has your interests in mind?
Commentary
Fishing for Gold?
If interest rates are supposed to be on the rise, why has the price of gold gone up so much this year? Is it merely because it is bouncing back after a sharp decline in 2013? We have a closer look at the link between gold and interest rates to gauge how investors may want to approach the bait provided by the Fed.
Commentary
The Dollar's Long Term Decline
The cleanest of the dirty shirts doesn?t necessarily preserve your purchasing power. Sure, the U.S. dollar has beaten the Russian Ruble and some others of late, but when it comes to real competition, the U.S. dollar has taken a back seat. The U.S. dollar?s long-term decline may be firmly in place and investors may want to buckle up to get ready for the ride.
Commentary
How to Profit from the Yellen Fed
Janet Yellen might have the most powerful job in the world, as the Federal Reserve (Fed) she now chairs controls what may be the world?s most powerful printing press. We take a closer look at what her reign might mean for investors? portfolios.
Commentary
Fed Responsible for EM Crisis?
From the bully pulpits in Sao Paulo to the blogosphere in cyberspace, the Fed is blamed for the turmoil in Emerging Markets (EM). Thats a bit like blaming McDonalds for obesity. Blaming others wont fix the problems in EM economies, it wont fix investors portfolios and it is an unlikely way to lose weight. Investors and policy makers need to wake up and realize that they are in charge of their own destiny. Let us explain.
Commentary
Merk 2014 Dollar, Currency & Gold Outlook
Rarely has the future been so clear. Really?? A lot of money has been lost jumping on the bandwagon. Lets do a common sense check on the greenback to gauge where risks might be lurking and where there might be profit opportunities for investors.
Commentary
Is the Fed Increasingly Monetizing Government Debt?
Fed Chair Bernanke vehemently denies Fed "monetizes the debt," but our research shows the Fed may be increasingly doing so. We explain why and what the implications may be for the dollar, gold and currencies.
Commentary
Why I Sell the Dollar: From Dollar Strength to Dollar Weakness
To those that say the U.S. has the cleanest of the dirty shirts, we would like to point out that it hasnt helped the greenback, as evidenced by the euro outperforming the dollar both so far this year, as well as last year. Yes, we have a mess in the Eurozone that wont be resolved anytime soon. But we also have a mess in the U.S., Japan, and many other places around the globe.
Commentary
Bernanke vs. Yellen: A Spooky Outlook?
Fed Chair nominee Janet Yellen will take over where her predecessor Ben Bernanke leaves off. Not just operationally, but also philosophically. To understand where the Fed and the U.S. dollar may be heading, we take a closer look at where Bernanke and Yellen are coming from.
Commentary
Fixing Economy As Easy As 1-2-3
With the economy stuck in first gear, a couple of common sense steps that wouldnt cost taxpayers an arm and a leg could help the economy shift into a higher gear.
Commentary
Yellen to the Rescue?
While Democrats and Republicans fight with water pistols, the President may be readying a bazooka by nominating Janet Yellen to succeed Ben Bernanke as Fed Chair. You may want to hold on to your wallet; let me explain.
Commentary
The Most Predictable Economic Crisis?
Forget about a government shutdown. The quibbling over concessions to keep the government funded distracts from what might be the most predictable economic crisis. We have problems that may affect everything from the value of the U.S. dollar to investors savings, but also to national security.
Commentary
Beyond the Fiscal Cliff: the Dollar At Risk?
Looking beyond the fiscal cliff, we are afraid the greenback may be at risk no matter who wins the election. We examine the risk to the U.S. dollar in the context of the likely policies pursued under either an Obama or Romney administration.
Commentary
Bernanke Put: Beware of Easy Money
Central bankers around the world may be providing a backstop to the financial markets in much the same way Greenspan did during the "Goldilocks" years, but when the short-term euphoria wears off, will the negative repercussions be even more severe?
Commentary
Fed to Debase Dollar?
Is the Fed's goal to debase the U.S. dollar? The Federal Reserve's announcement of a third round of quantitative easing (QE3) might have been the worst kept secret, yet the dollar plunged upon the announcement. Is Bernanke intentionally debasing the dollar?
Commentary
Euro: Looks Like a Duck, Quacks Like a Duck
If it looks like a duck, quacks like a duck, it just might be a duck. We are talking about the euro: it now looks like a currency, acts like a currency, it might as well be yet another currency.
Commentary
Gold at ECB: Accident or Strategy?
When the euro was launched, the European Central Bank (ECB) held approximately 15% of its assets in gold. That ratio has remained reasonably stable, giving rise to a variety of chatter, including suggestions that it may displace the U.S. dollar. We pursue the question on whether the ECB's gold holdings are an accident or strategy.
Commentary
Spain's Molasses Jeopardizing Eurozone?
Spanish 10-year government bond yields are trading near 7.5% as Spain's central government is expected to bail out its regions and in return may ask for a bailout itself. Guarantees don't make a system safer, quite the opposite: everything is safe until the guarantor itself is deemed unsafe.
Commentary
Gold to Outshine Dollar?
As the price of gold has gone up fivefold over the past 10 years, why would one buy it at todays prices? For the same reason an investor would buy any other asset: if one believed it would be a good investment now, that is if one believed it may appreciate in value and add portfolio diversification benefits. A key reason to hold gold today might be to prepare for the crisis tomorrow.
Commentary
United States of Europe has Arrived!
A fiscal union, a banking union, a United States of Europe has arrived! Dont believe it? Just like many newborns, this one has its shares of wrinkles, but what you see is what you get. We discuss a tough love approach to move forward in Europe, as well as implications for currencies.
Commentary
Growth Versus Austerity: A U.S. Dollar Perspective
Austerity versus Growth? Which economic model is sustainable? If it werent for those pesky bond vigilantes, it may be only politics. Lets not get too excited that either path will work. Lets look at the implications for investors with a focus on the U.S. dollar.
Commentary
Saving the Euro
The management of the Eurozone debt crisis is dysfunctional. In our assessment, to save the Euro, policy makers must focus on competitiveness, common sense and communication. If policy makers strived to achieve just one of these principles, the Euro might outshine the U.S. dollar.
Commentary
Merk Commentary: ECB Meeting - No Horse Trading, No Additional Money Printing (for now)
Draghi stuck to his guns in today's press conference of the European Central Bank (ECB). Keeping the main refinancing rate unchanged, he discarded various proposals on how the ECB could bail out peripheral governments.
Commentary
U.S. Dollar and Euro - Review and Outlook
The 12-month period ended March 31, 2012 (the Period) could be described as one of contrasting halves. News emanating from Europe dominated market gyrations for the majority of the Period. During the second half of the Period, the market appeared to ascribe a more optimistic assessment to the European situation and the global economy. Regarding the U.S. dollar, we consider the more dovish FOMC voting member composition to be a negative for the currency, as it will likely lead to more expansionary policies relative to global central bank counterparts
Commentary
Eurozone Election Hangover
The euro is recovering after a dire Monday morning; keep in mind, though, that much of Asia had a holiday and missed digesting the disappointing U.S. unemployment report; liquidity is low, as London is closed for a holiday. Medium term, however, our bigger concern is that big money, such as the Norwegian sovereign wealth fund, is taking a step back from the Eurozone. As such, the odds of more liquidity provisions from the ECB have increased. We believe the euro will underperform other European currencies; note, though, that the world, including the U.S., will remain awash in money.
Commentary
ECB Warns Easy Money No Solution
Austerity is the easy part, structural reform is the tough part. With regard to monetary policy, Draghi was notably light. He shed cold water on the notion of re-activating the peripheral bond purchase program. He also dampened expectations of a rate cut by emphasizing balanced inflation risks, as well as a gradual economic recovery, albeit with downside risks. He suggested the European banking sector is improving, not only visible in reduced intra-bank refinancing (repo) rates, but also apparent in an increase of the deposit base in peripheral Eurozone countries.
Commentary
Bernanke: Be Humble!
To Bernanke, being humble means to keep strong monetary policy support to avoid deflation. This humbleness creates a lot of debt whether that be out of thin air on the Feds balance sheet, or across the economy as consumers, businesses and the government alike are enticed to borrow evermore money. What we consider monetary largess, as well as fiscal unsustainability, may ultimately lead to deterioration of the US purchasing power. We have encouraged investors to take a diversified approach to cash. A basket of hard currencies or gold might serve to mitigate the risks of a declining dollar.
Commentary
Currency Wars: Gambling With Other Peoples Money
If running out of your own money wasnt bad enough, policy makers are increasingly spending other peoples money to bail their country out. At the upcoming G-20 meeting, finance ministers from around the world will contemplate an increase to the resources of the International Monetary Fund (IMF). At stake for politicians is whether they can continue to do what they know best to play politics. In contrast, at stake for investors may be whether currencies will retain their function as a store of value.
Commentary
Fed - Actions Speak Louder Than Words
The Fed has a credibility problem: having assured investors that rates will remain low for an extended period, it may only take one or two FOMC members to turn more optimistic about the economic outlook to cause the markets to more aggressively price-in tighter monetary policy. Conversely, Bernanke has made it clear that he is most concerned about a recovery in the housing market and that low interest rates throughout the yield curve are desirable. Operation Twist is specifically aimed to achieve that, lowering long-term rates and flattening the yield curve.
Commentary
Bernanke's Problem with the Gold Standard
In his new lecture series, Federal Reserve (Fed) Chairman Ben Bernanke is going out of his way to discuss the "problems with the gold standard." To a central banker, the gold standard may be considered "competition," as their power would likely be greatly diminished if the U.S. were on a gold standard. The Fed, Bernanke argues, is the answer to the problems of the gold standard. We respectfully disagree. We disagree because the Fed ought to look at a different problem.
Commentary
Falling Treasuries: A Currency Perspective
What are the implications for the U.S. dollar and investors portfolios if bond prices continue to fall, as they have of late? Within that context, should investors care whether the U.S. retains its status as a reserve currency? Should it effect the way investors think about their own cash reserves?
Commentary
Currency Funds - Special Case International Bond Funds
Investors may want to reduce their exposure to interest and credit risk in their international fixed income investments. One way to accomplish this may be to invest in international fixed income funds that have a commitment to the short end of the yield curve and to high credit quality securities. Currency funds may be considered special cases of international bond funds, as many typically invest in international fixed income securities of short duration to gain currency exposure. As such, currency funds tend to focus on currency risk while seeking to mitigate interest and credit risk.
Commentary
Chinese Dragon To Unshackle Renminbi?
Chinese consumer spending is likely to have been under-reported for some time; we dont think a housing bust in China will stifle consumer spending as much as some fear. Importantly, Chinese consumer spending may rise like an avalanche in years to come. China is right to prepare its economy for this rise, amongst others, by unshackling the renminbi. A currency serves as a natural valve for domestic policies, helping to tame inflationary pressures. Currencies of the more developed Asian neighbors may also benefit in the process.
Commentary
U.S. Dollar & Currencies: Review and Outlook
In 2012, policy makers around the world may be driven by the realization that the theme of 2011 was not a Euro-specific crisis, but simply another stage in a global financial crisis. Central bankers may ramp up their printing presses in an effort to limit contagion concerns. As such, the currency markets may be the purest way to take a view on the mania of policy makers. Market movements may continue to be largely driven by political rhetoric. We dont believe this trend will abate over the foreseeable future, especially given the likely leadership changes throughout several G-7 nations.
Commentary
Guide to Save the Euro
Can the euro be saved? Is it possible to stem the flight of money from the periphery into the core? With a botched German auction in mind, investors are now wondering whether its possible to prevent a flight out of all things euro? We examine the dual challenges of fiscal sustainability and bank solvency in this analysis, with the not-so-modest title Guide to Save the Euro.
Commentary
Greece: High Flying Drachma
The worst-case scenario for Greece, should it be unable to secure further bailouts, might be that it would have to live within its means. Presently, spending only the money coming in is considered unbearably brutal. If Greece could only leave the euro, it could install its own printing press, inflating its sorrows away. Any economist will object: its complicated. But it isnt: Greece could introduce a high-flying New Drachma, quite literally.
Commentary
Euro Bailouts - The Good, The Bad & The Ugly
The markets appear euphoric about the ability for European policy makers to deliver on new promises. Low market expectations were met. We, too, have a positive takeaway, but only because of one detail of the grand plan; actually, lets call it a grand sketch, as many details are still unknown. When the current euphoria is over, the bond market will have little mercy with those ducking from their responsibilities. Long live the euro! Talking about leadership: Has anyone noticed that the Federal Reserve might be paving the way for QE3?
Commentary
Occupy Wall Street: A Threat to the Dollar?
Both T.Partiers and Occupyrs say this is all crazy and must stop-albeit they have different prescriptions. However rather than stopping policy makers are ever more engaged. The best of intentions are creating an avalanche of unintended consequences. Voting with their feet to get their voices heard, the Twitter revolution wont stop with the Arab spring but sweep across America in its own incarnation.The issues are complex, the answers appear so easy; we dont want to belittle the movements, but see a trend that fosters politicians capable of distilling their political message into a tweet.
Commentary
U.S. Dollar and Euro - Review and Outlook
With so many global dynamics playing out, and the worlds financial markets fixated on the political process (or lack thereof) in the Eurozone, driving market sentiment around the world, it may be a good time to take a deep breath, take a look back at where weve come from, and assess the likely implications going forward. Specifically, what are the implications for the U.S. dollar and currencies globally? With continued expansionary monetary policy here in the States, and lack of such policies elsewhere, the divergence in monetary policy is likely to further erode the U.S. dollar.
Commentary
The Euro is Dead. Long Live the Euro
To ensure the European sovereign debt crisis doesnt go to waste, the markets have kept policy makers and bankers on their toes. The naysayers of a European turnaround have become so overwhelming that it is stunning Europe hasnt submerged into the Atlantic Ocean yet. It appears that German Chancellor Angela Merkel, is about to turn the tide. A month ago, we turned cautious on the euro. However, in a world where policy makers are throwing billions and trillions at the problems, market fundamentals can quickly change. And so it is that our assessment of the outcome for the euro has changed.
Commentary
Liquidity Crisis? A Currency Perspective
In 2008, the global financial system faced a potential meltdown when funding seized up for investment banks, ultimately leading to the failure of Lehmann Brothers. Three years on, we have got plenty of problems, but as we shall argue - investors may want to differentiate between a financial meltdown and insolvency. While complaining about policy makers and bankers may generate animated water cooler discussions, lets take their human (and fallible) nature as a given, and discuss implications for investors. In this context, we assess the U.S. dollar, currencies and equities.
Commentary
Merk sells Euro to buy Australian Dollar
Given that many know Merk Investments as "euro bulls", arguing that the euro can thrive despite all the turmoil in the Eurozone, we wanted to share with our investors and the public that in our hard currency strategy, currently with over $700 million in assets, we sold over U.S. $90 million worth of euros late Thursday to re-allocate to the Australian dollar. This re-allocation was an acceleration of a recent trend to deploy euro holdings elsewhere. The strategy is now underweight in euros. Our move was motivated by recent European Central Bank (ECB) and U.S. Federal Reserve communication.
Commentary
Much Ado About Debt: Dollar vs. Euro
A key reason for recent market turmoil may be the long overdue untangling of important debt-driven interdependencies between the U.S. and Europe. Not only has the Feds ultra-low monetary policy taken away any incentive to engage in meaningful reform in the U.S., but the easy money also spilled far beyond U.S. shores, providing European banks with hundreds of billions of reasons not to shore up their capital bases. With volatility riding high, investors appear to be chasing emotions rather than facts.
Commentary
Budget Battles Ahead
Why did we go to the budget brink? Democrats assert, correctly, that Tea Party Republicans held the country hostage over the debt ceiling. However, as I noted in my previous commentary, it might be equally argued that President Obama was holding the country hostage over his demand that taxes be increased as part of the deal. Republicans and Democrats have competing views and each party is willing to go to the brink if it believes that it can prevail by bringing popular support to bear.
Commentary
Don't Shoot the Messenger
With large-scale bond purchases announced, the ECB is moving closer to how the Fed operates in a crisis. In 2008, then NY Fed President Geithner conferred with Treasury Secretary Paulson whether to "foam" the markets. That referred to massive liquidity injection by buying Treasuries. Now the ECB may buy bonds of the largest European bond market, the Italian. The ECB has indicated it would sterilize any purchases. Let's not forget that some of the market tension comes from U.S. money market funds having dumped commercial paper issued by European banks after a lot of scrutiny.
Commentary
Debt Ceiling - What Now?
It appears that the federal government is at the brink of default. The Republicans and Democrats have laid out irreconcilable positions on taxes. President Obama has said that he will not sign a bill that does not have some increases in tax rates on upper-income taxpayers. Republicans have said that they will not accept legislation that provides for such increases. In the negotiations, there has apparently been some progress in identifying spending cuts both sides can accept, but not on taxes. In the past, our leaders have found a way to compromise some way or other. Not this time.
Commentary
Making the U.S. Dollar Safer: Return ON Your Money
Todays debate may be focused on whether the debt ceiling will be raised, but its tomorrows debate that really concerns us. Last week, Standard & Poors made it clear that raising the debt ceiling would be one thing, but in order to withhold a downgrade to the U.S. credit rating, the U.S. must show that it is not maxed out. In other words, show that it would be able to manage another crisis, or a potential war. What would be the implications of a credit downgrade? And what policies would need to be engaged in, in order to avert a downgrade and strengthen the U.S. dollar over the long-term?
Commentary
Bernanke: Money for Nothing and Dollars For Free
Bernanke firmly embraces the U.S. dollar as a monetary policy tool; in our analysis, he has worked on weakening the dollar in both word and action. In the past, Bernanke has testified that going off the gold standard has helped the U.S. recover faster from the Great Depression than other countries that held on to the gold standard for longer. Bernanke has argued that a weak dollar is not inflationary (we disagree) The action of buying government securities by a central bank causes such securities to be intentionally overvalued; rational investors may look overseas for less manipulated returns
Commentary
Making the U.S. Dollar Safer: Return OF Your Money
Money market funds try to keep a stable net asset value by employing what is called amortized cost accounting: the market value is ignored, assuming the issuer of the debt will pay in full. The justification for this practice is that money market funds invest in highly rated securities of extremely short duration. That may be correct, but in case of a systemic shock and a flight from money market funds, there is a risk that money market funds would need to liquidate holdings at a loss; additionally, an outright default cannot be ruled out in light of the Lehman Brothers experience.
Commentary
Politics of Default: Roadmap to Debunk the Dollar
We were one of few who defended the euro when many pundits predicted parity to the U.S. dollar in the spring of 2010, when Greece?s issues first came to the fore. Since then, Old Europe?s currency has had a dramatic comeback, although not without significant jitters along the way. A roadmap is playing out that may lead the euro to debunk the dollar. Not convinced? Let?s look at what is and what isn?t working on both sides of the Atlantic, and how dynamics may play out. If one thing has been working in Europe, it?s the ?dialogue? between the bond market and policy makers.
Commentary
Euro: Safer than the U.S. Dollar?
Which one is safer: the euro or the U.S. dollar? Before jumping to a conclusion one way or the other, let?s look at different sides of the respective coins. We have been warning for years that there may be no such thing anymore as a safe asset and investors may want to take a diversified approach to something as mundane as cash. We believe Greece has rather serious issues, but concerned investors may want to take a closer look at their dollar holdings for potential ?contagion? risks.
Commentary
U.S. Investors Overexposed to U.S. Dollar Risk?
The U.S. dollar has experienced significant weakness over recent years. And there is a risk the U.S. dollar will experience ongoing deterioration for an extended period of time. U.S. investors may want to take this possibility into consideration when assessing the U.S. dollar risk inherent in their investment portfolios. Our analysis into the aggregate financial asset holdings of the U.S. personal sector finds that the vast majority of investor?s financial assets are denominated in U.S. dollars and as a result, significant U.S. dollar risk exposure is evident.
Commentary
Bernanke - It's Complicated!
Get ready for more money to be printed ? this time not to subsidize but to stem against the credit destruction caused by the Fed itself. Tuesday evening at the International Monetary Conference in Atlanta, J.P. Morgan CEO Jamie Dimon gave a list of changes that have already incurred, including: No more Special Investment Vehicles (SIVs). No more sub-prime, no more ?Alt-A? mortgages. No more CDOs. Higher underwriting standards. On top of these changes, the Fed now wants to introduce 300 new regulations. Has anyone at the Fed studied what impact these regulations will have on credit?
Commentary
Debt Ceiling Jeopardizes Dollar?s Reserve Status
While borrowing costs for the U.S. government have not yet risen, irreparable harm may have already been done to the U.S. dollar and its status as a reserve currency. Ironically, it?s not a plunging, but a rallying bond market that is a symptom of the problem. Most observers believe that a) the Treasury has a big bag of tricks to continue servicing the debt; and b) politicians will play a game of chicken, but eventually do what they always do: agree to spend more money. We don?t know how the bond market will react; but we do know that policy makers are playing with fire.
Commentary
The Dollar: It?s Payback Time!
It?s payback time for Ben Bernanke. In some ways, this should neither surprise, nor scare anyone. Unfortunately, it might do both. In any open market, information is absorbed into asset prices, including exchange rates. Indeed, exchange rates may be the best pricing source to assess the impact of the relentless involvement of policy makers? ?print and spend? mentality in the markets. When trillions are spent, markets are likely to move. However, an unintended consequence has been that a broad range of assets are now moving more and more in tandem, giving investors fewer options to diversify.
Commentary
U.S. Dollar ? Review and Outlook
We believe that continued U.S. dollar weakness may be a consequence of the diverging monetary approaches central banks are taking around the globe. While many international central banks have been on a tightening path, raising rates (i.e. Australia, Brazil, Canada, China, India, Norway, Sweden, to name a few), the U.S. Federal Reserve has been conspicuous in its continued easing monetary policy stance. Indeed, while other central banks have been shrinking the size of their balance sheets, the U.S. Fed?s balance sheet continues to expand on the back of ongoing quantitative easing policies.
Commentary
ECB Takes Away Punch Bowl
Today, the European Central Bank raised its main refinancing rate by 0.25% to 1.25%. ECB President Trichet has long argued that its monetary policy is independent of the "extraordinary measures" put in place to support the financial system. However, it was only earlier this year that the market took Trichet's suggestions that he may raise rates seriously, even as the sovereign debt crisis remains unresolved. The role of a central bank is to take away the punch bowl when necessary, to pursue its mandate, not to be a cheerleader.
Commentary
Does a Weak Dollar Cause Inflation?
Should investors be concerned that a weaker U.S. dollar causes inflation? The price at the gas pump should be a stark reminder that a weaker dollar may contribute to higher prices. Yet, economists tell us that food and energy inflation does not count. Why do economists have such a baffling sense of logic? Are economists really aliens in disguise, locked up in ivory towers? Let?s shed some light on the logic and why it may not merely be strange, but wrong.
Commentary
U.S. Government: Evermore Reliant on Foreign Investors
Despite the Fed recently surpassing China as the largest owner of U.S. government debt, the U.S. remains heavily reliant on foreigners to fund the government?s ongoing fiscal largess. Geithner?s Treasury Department has firmly focused new issues at the mid to longer end of the yield curve. Despite the Treasury taking advantage of the ultra-low interest rate and funding environment, there are substantial refinancing issues over the near term; moreover, many of these maturing issues are foreign owned.
Commentary
Fed and ECB - A World Apart
The U.S. Federal Reserve and the European Central Bank are divided by a common goal: price stability. Fed Chairman Bernanke has made it clear in his recent testimony and speeches that the Fed would react should food and commodity inflation lead to an increase in core inflation. The Fed is ready to R E A C T. We are not aware of any central bank that is proud of reacting, but rather acting preemptively to mitigate inflationary concerns; a central bank may often be forced to react, but to do so by design puts the cynical view that central bankers are too far behind the curve into a new light.
Commentary
Disasters Rocking U.S. Dollar?
From earthquakes in New Zealand to revolutions in the Middle East, natural and man-made disasters are rocking the world. We are all too often made to believe that in times of crisis there?s a flight to the U.S. dollar. However, the U.S. dollar has instead had a rocky ride of its own thus allowing the crisis-ridden Eurozone to shine. What?s going on? Is there no crisis, or has the U.S. dollar lost its appeal as a safe haven?
Commentary
Politics of Inflation
In arguing food inflation is not the Federal Reserve?s (Fed?s) fault, Fed Chairman Bernanke points the finger at everyone but him. Just as with a lot of Bernanke?s policies, his argument may hold in an academic setting, but the real world is a bit more complicated.
Commentary
Reagan for President...of China!
China needs to re-balance its economy to tame inflationary pressures. To achieve this, portfolio manager Axel Merk provocatively suggests Ronald Reagan needs to become the president of China. This analysis discusses the Chinese renminbi.
Commentary
Merk Commentary: Budget Battles Ahead
Along with other investors, I have many worries, but at the top of my list is the budget battle that will be fought in Washington, every state capital and most capitals of high-income countries abroad.
Commentary
2011: Year of the Yellow Brick Road
As far as gold is concerned, the continued concerns over sovereign solvency - not the eurozone in particular, but globally, combined with the U.S drive to achieve growth at any cost, make the yellow metal worth considering. What's in your vault? Is your yellow brick road made of dreams or gold? Just because policy makers are dreaming, doesn't mean investors need to.
