Sunday, October 13, 2013

More From Ned Goodman

Who is Ned Goodman, you ask?  He is the individual I referenced in this post. 

Ned Goodman is the current President & CEO of Dundee and has been since he founded it in 1991…. As of the latest Dundee Management Information Circular, Ned Goodman owns 99% of the Common Shares and 5% of the Subordinate Voting Shares. The Common Shares are a super voting class that is entitled to 100 votes per share while the Subordinate Voting shares have the right to one vote per share. Goodman controls Dundee with 86% of all votes and 10% of the equity owned in the firm.

Dundee Corporation is a Canadian independent publicly traded asset management company listed on the Toronto Stock Exchange under the symbol "DC.A". Asset management activities are focused in the areas of the Corporation's core competencies and include resources, real estate and infrastructure, and more recently, the agricultural sector.

Enough on the background – this is sufficient to demonstrate that Ned Goodman is not some two-bit blogging mosquito.

In this annual report, Goodman favorably cites Milton Friedman (the good part), Jim Rickards, and (especially) Jim Grant.  All-in-all, not bad company.  He begins the report with a chart depicting the yield history of the ten-year treasury since 1962 – covering a period of Goodman’s professional career, and also covering the long bull market in bond performance.  Regarding this bull-market bond performance, he cites Don Coxe:

“If capitalism were in a hospital and this chart were at the end of its bed, visitors would be ordering flowers for the widow. The long term performance of the long Treasuries documents a record in economic history. Long-term non-callable, high quality bonds have, on a cumulative basis, outperformed US stocks over 31 years. Under free-market economic theory, that is supposedly impossible. The basic math of capitalism – it’s Law of Gravity – states that Risk Assets, such as stocks and real estate, over the long term, deliver higher returns than risk free assets.” However, thirteen years of cumulative zero returns is enough to induce financial triskaidekaphobia”. Is that why you decided to take an early retirement Don? We will miss your special remarks; stay well and keep in touch.

As to the future:

My current view is that the US Treasury bull market is over and the next “no-brainer” will be based on a long period of inflation and higher interest rates.

And one cause:

One thing is certain, we are living within a world that has too much debt overhang – the US, Europe and Japan – and it creates balance sheet recessions. The ongoing deleveraging that has been required, and continues so, means that things are not normal and there is not likely to be a normal cyclical recovery.  Deleveraging after a financial crisis like this, historically has lasted for 5 to 10 years and longer.

Mountains of debt will be an insurmountable obstacle to any country’s previously loved higher standards of living. The growing gap between what the government attests to and what it spends will always threaten its financial solvency. And this, today, is a global problem – not only one for the United States. The pending economic situation is all about debt, deficits, and inflation.

I will only add that the promises cannot be kept – with or without the current debt load.  Even if the developed world defaulted on all current debt (which I believe is likely, at least for central bank owned and foreign owned debt), the promises of pension and medical benefits are unsustainable – too many are on the receiving end of promises with too few on the delivering end.

Rising and unsustainable debts or deficits will potentially sooner or later lead to potentially catastrophic consequences. At the top of the list has usually been severe inflation in the future.

It seems to me that severe price inflation is inevitable, however I have grown to believe that the time between now and then might be rather great.  As demand slackens due to inefficiencies exaggerated by government involvement in the economy, prices will be dampened as an offset to price effects driven by monetary policies.  Of course, this only means a drag on the standard of living of the middle class – something that has been occurring for forty years – coincident with the period when gold was shown the door.

Goodman hints at this:

By all measures we should expect to live with global slower growth and likely for a very long time. In a recent paper, “Debt Overhangs: Past and Present”, authors and economists Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff suggest that the US economy might not recover completely until 2030.

Now, it is true, so far quantitative easing has not led to the inflationary outcome predicted by many of us bond bears in recent years, which is why the average G7 10-year government bond yield is still only 2.02%. This is clearly because of the continuing deleveraging process and the related monetary phenomenon of declining velocity.

This is reason why I suspect severe price inflation could be many years away.  And the elite will take slow or no growth for as long as the masses will stand for it.

He is not ashamed to admit being a member of the tin-foil-hat society:

Something else I learned a long time ago is that central bankers are not required to tell the truth. They work with “insider information” and the necessity to tell us lies if that is what is required to keep their countries economically stable. Their words are not to be trusted, just as Jim Grant warned us.

He is an advocate of owning hard assets; not least, gold:

Why gold? “The price of gold is the reciprocal of the world’s faith in the deeds and words of the likes of Ben Bernanke”. As the global Central bankers increase their supply of paper currency, we should all be losing faith in their promises and move to the historical form of money that just cannot be created out of thin air or by the push of an electronic button.

Let me warn my readers if you decide to read through the full length of this report you will continue to read that I am more bullish on the price of gold than ever and that I am expecting a future global inflationary scene.

Goodman recently spoke at the Toronto Resource Investment Conference on Sept. 12:

I have a lot to say and I will give you my biases, no problem there. I believe I’m a sensible man. And as a sensible man I’ve been told by my mother, actually, that even though you don’t know the hour or the place of your demise — you do know, that without a doubt, it’s going to come.

So as a sensible investor, I’m ready for the day that the U.S. Empire crumbles, and that’s a hint as to where I’m going…

That is surely a way to get everyone’s attention!

I was fortunate enough to have a private luncheon meeting with Warren Buffett and a few other people and the question came to Buffett: “What is going to happen when the Chinese want all their money back? And they’re going to ask to have their bonds cashed in?”

And Buffett let out this huge guffaw, drinking his cherry coke, and he said, “It’s never going to happen.” And the questioner asked, “What do you mean?” He said there’s no way that the Chinese, who are very, very smart people, are going to take a piece of paper that says so long as you hold this, we will pay you 3% interest in our dollars, in exchange for a piece of paper that tells them they should trust in God and get nothing. And that’s not what is happening. The Chinese are cashing in their bonds to other countries who are using it as currency.

I have held this view for some time, for example in a post from July 2010:

[The Chinese] are locking up resources around the world. These contracts are likely priced in dollars -- something the Chinese have plenty of and don't want to hold. At some point, China can declare the Yuan partially backed by gold -- even 15% - 25% would be sufficient. This strengthens the Yuan and makes it easier to buy those resources now priced in cheaper dollars.

Goodman continues, with his view regarding China and (potentially) gold:

When he visited the U.S. in 2011, the then-president of China, Hu Jintao, said the current international currency system is a product of the past.

So Hu Jintao went on and said that the global institutions had failed to fully reflect the changing status of developing countries and the world economy and finance. He went on to suggest that what China and most of the G20 [want] is a reliable, disciplined and apolitical unit of account for global trade.

In his annual report, as cited above, Goodman favorably notes statements by Jim Grant among other alternative thinkers.  He cites Grant in this speech as well:

And this from Jim Grant. We could have a monetary system whose exchange rate would be fixed, and business could be conducted on a global basis without even concern and guessing about what the politicians and policy mavens are going to do with the value of our money.

We know from Grant’s various comments that he views gold as serving this purpose.

In this speech, he introduces several politically incorrect characters.  Speaking on inflation – official vs. unofficial:

Now that is minor compared to what John Williams — Dr. Williams who writes Shadow Stats — says that the current rate of inflation in the U.S. is not 2%, as Mr. Bernanke tells us every day, but it’s more like 8–9%, and maybe even higher when you play around with it. So what you’re getting from the U.S. is a bunch of lies.

Goodman falls deeper into the hole:

Ayn Rand told us that as individuals we have innate mobility, and our highest duty is to flourish by realizing our potential — and we’ve got tremendous potential in this country and the people in this country. She also told us that we’re able to develop and/or join a culture that maybe is outside the norm, and create wealth in profoundly different ways.

Goodman takes on the full plunge:

More than five years have passed since the Great Recession. The so-called Great Recession of 2007 and 2008. And at least three years have passed since what the U.S. has been calling a recovery. And there is no recovery. There’s been a lot of back-patting stuff going on in Washington . . . but it’s all a farce. It’s illusion. It’s all illusions of someone playing with numbers. Von Mises talked about illusions, and I’ll talk about that in a minute.

The US illusions? Cities going bankrupt; pensions unfunded; roads crumbling; building collapsing; a full-on police state; an entire society without savings:

Seventy-six percent of Americans are living paycheque to paycheque. Fifty percent have less than a three-month cushion. Forty-six percent have less than $800 in savings. Twenty-two percent have less than $100 to their name. And 27% have no savings at all. And this is all happening while corporate earnings, of course, are going up.

Goodman isn’t done introducing the naysayers:

David Stockman wrote a book. He worked with Ronald Reagan and he wrote a book called The Great Deformation, and he said that his view was that we are at the shadow era, the Keynesian endgame of a failing, bankrupt, paralyzed state. The fact that so many voices of the establishment are at pains to shut him down provides me with the view that he might be right.

Where is Rothbard?  He will have to be confronted eventually.

Unfortunately, only the first portion of his speech is published, and the site that publishes it requires a subscription to read more than one article per week….  In any case, this portion concludes with the following speculation:

Will the U.S. dollar collapse? The pressure on the dollar will reflect not only the financial crisis inflicted on us and the U.S. in 2007 and 2008, and further to the president, but also includes the significant weakening of the U.S., a change to the negative on geopolitical status.

It is the geopolitical status that holds the key to the US dollar and therefore the collapse of empire; this is why I continue to look at events surrounding Syria as potentially the most significant visible turning point in the fall of empire.

(HT Ed Steer)

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