Over the weekend, Josh Brown directed me to this monthly commentary from the Eclectica fund, which had the very interesting chart, above. (Full Eclectica Fund April 2012 commentary is here).

The issue with the graphic above is that we have no real comparative history by which to judge this. It seems to be a modern question of first impression. As such, I have zero ability to evaluate whether it is a brilliantly insightful or a cranky critique of QE.

It certainly is a plausible explanatory of what the Fed’s QE is doing; I cannot tell if its a fair or accurate analysis of Fed / Government motivations for the dollar printing regime.

It is, at this moment in time, and unproven thesis.

That seems to be the biggest problem with most of the critiques of FOMC action. They are just that — unproven theories of cases of first impression. We are living in unprecedented times, and that means we have little in the way of frame of reference by which to evaluate these things.

All asset managers have a tendency to write towards their holdings. My guess would be that the holdings in the Eclectica fund are a reflection of the expectations of what is described above as coming to pass. This is where they expect the puck to be, and they are skating towards that.

We all do this to some degree. Our world view affects our holdings, and then those very same holdings begin slowly to affect our world view.

How are your portfolio holdings impacting the way you see the world?

Category: Federal Reserve, Investing, Philosophy, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “The New Economic Order?”

  1. SN says:

    This one is wrong, since the cycle of fed easing and fiscal tightening goes back to when a night with a hooker in Beijing was 10 USD equivalent.

  2. mathman says:

    i think you people already know how to do this stuff (“business”), but it was fascinating to me because i don’t think this way and it was eye-opening.


  3. denim says:

    “How are your portfolio holdings impacting the way you see the world?”
    A rhetorical question, no doubt. But let me share mine in cloaked fashion
    70% cash
    6.7% small pharma flu-cold
    6.3% gold royalties
    5.7% PV solar with a big oil daddy
    6.4% natgas engines
    4.5% small cap bear etf
    Thanks. It is an eye opener to answer that question.
    I, of course, advise no one to use this as a model portfolio…it closed at a loss Friday.

  4. Herman Frank says:

    I’ve come to learn that “you don’t have to have a fight!”; you can simply walk away and let “the wolf howl to the moon”. And so it is that the QE of the Fed is great for the belladonna’s at the banks, who make their shareholders believe that they are financial superstars by borrowing at .5% and lending at 15%. “Look Mom! I made money without making my hands dirty!” That is the US economy; the ECB lends a trillion Euro to the banks, and “WOW!” they can live another day by borrowing at 1% and buying up government bonds at 9+%. And they give the bonds to the ECB for another round of “the same”. Now there’s the BRICS, who simply say “that Dollar ain’t what it was worth, so whomever wants to buy some mineral resources has to cough up more”. At the same time the BRICS have an openly “centrally managed economy”, where you have state banks who can be squeezed or released at whatever moment the statistics dictate.
    Long story short: “there’s not one big merry-go-round wheel, but three distinct wheels turning. They’re touching, but if they’re at different speeds they simply disconnect for a while, or there’s some smoke and smell of burning rubber.”

  5. RC Exclusive says:

    A hockey reference….been watching some NHL playoffs?

  6. theexpertisin says:

    Nothing will stop China faster than eliminating their global cyber espionage and university “student” intelligence gathering programs within our universities.Unless it is already too late in the game to do so.

    China is playing to win the world without the mass destruction of war. They are executing their game plan quite well to date.

  7. mark says:

    BR wrote: I cannot tell if its a fair or accurate analysis of Fed / Government motivations for the dollar printing regime.

    Certainly the Fed has an expectation that one of the results of their actions would be a reduction of the value of the dollar relative to the currency of other countries in order to boost exports and reduce imports. In the year 2012 this obviously means primarily Chinese imports. Is that the Fed’s only motivation in using QE? Almost certainly not. It’s a normal knock-on effect of a country fighting a slump. Once the slump is over, one should expect a re-balancing. Is China manipulating its currency in order to prevent this from happening? Well Tim Geithner says they aren’t so I guess I have to re-learn all my econ 101.

    The only real problem with the chart is the implication that the policy is directed at China for political or strategic reasons.

  8. cognos says:

    This is total utter non-sense.

    There are no real links between the elements in the chain. Some are odd “US rejects globalization”? Since when?

    We want China to be wealthy (just like Japan)… we ALL gain together. At the same time, we wish they would have more open policies and improved rights. “Gaming FX” is just stupid. It creates giant imbalances that misallocate resources.

    If we wanted to, we could buy 20T in Chinese Yuan. Large countries owning others FX is just silly.

    China has a pretty good investment environment… and its people are still poor (1/16 US per capita income)… Why don’t they spend all that money on their people, research, education, roads, schools and toilets?

    That spending would cause full employment and stop the current massive deflation.

  9. [...] Does your worldview affect your portfolio or vice versa?  (Big Picture) [...]