The Absolute Return Letter
November 2012
The Era of Kakistocracy
by Neils Jensen, Absolute Return Partners
Kakistocracy (noun): Government by the
worst citizens. For reasons which can only be speculated upon, there is
no word for government by the best citizens.1
We are now five years into a crisis that just doesn’t want to go
away. Paraphrasing Charles Gave of GaveKal who wrote a supremely
succinct paper on this topic only last week2, policy makers continue to
tamper with interest rates, foreign exchange rates and asset prices in
general. They continue to permit deposit-taking banks to operate like
casinos. They issue new debt to pay for expenditures when we are already
drowning in debt. They just don’t seem to get it. Albert Einstein once
defined insanity as doing the same experiment over and over again,
expecting a different result. QE1. QE2. QE3… Need I say more?
Meanwhile, more and more investors appear convinced that all this
tinkering will end in inflation. Some even expect a lot of it. That is
what this month’s Absolute Return Letter is about. Are bonds a safe
investment at current levels? Could we possibly be in a bubble? In the
tug-of-war between inflationary and deflationary forces, will inflation
ultimately prevail? What could happen to bond prices if any of this
comes to fruition? (more)
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