Saturday, November 10, 2012

Neils Jensen: Investment Outlook (November 2012)

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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