Incrementum Advisory Board Meeting of 31 July 2019

At the end of July the Advisory Board of the Incrementum Fund held its quarterly meeting (a full transcript is available for download at the end of this post). The board was joined by special guest Simon Mikhailovich, a financial market veteran who inter alia co-founded the Toqueville Bullion Reserve. The title of the transcript and this post was inspired by his remarks.


Special guest Simon Mikhailovich


We believe he is definitely on to something. By now most of our readers are probably well aware of terms such as “the everything bubble”, used to describe the post-GFC world in which asset prices have been driven to absurd levels on the back of the most massive central bank interventions of the post-war era. Simon argues that the complacency of market participants in a way represents a bubble  in its own right – and the implications of what is happening in the world today are widely underestimated.  Here is a quote:


“I just wanted to mention those two things first, but the main thing I wanted to talk about is complacency. I speak to quite a few institutional investors and what I see is that complacency in financial markets is pervasive. I also think that since imbalances in the financial markets have so far not been allowed to “clear,” we instead see the pressures being released in other arenas, such as political, geopolitical, and social. In the end, if the financial markets don’t “clear” the imbalances that have been taking place, then they are likely to clear in other areas. For example, I think the outcome of the 2016 election was a result of the pressures of inequality building up; it was a result of the skewed distribution of the spoils of the asset price inflation. Similarly, we see rising populism and nationalism in Europe; for example, there might be a hard Brexit in the UK, which few could have imagined being a possibility.”


We would describe this as the effects of a deteriorating social mood. The burgeoning trade war – which has in the meantime moved beyond the US and China, as evidenced by the growing trade spat between Japan and South Korea – is a symptom of this underlying malaise as well. It is astonishing that the US stock market has held up as well as it has in this environment, but it should be noted that this is not the case with other stock markets in the world. What’s more, the broad market as represented by the NYSE Index (NYA) has actually peaked in early 2018 (we have previously discussed the signs pointing to the growing risk of a sharp correction).

It is actually quite strange: there are a great many risks and it is not really a big secret what they consist of. And yet, at the same time the attitude of investors seems to be one of nonchalance. It has become accepted conventional wisdom that no matter what happens, central banks will be both willing and able to “fix” things with the printing press (or rather, its electronic equivalent). To be sure, we don’t doubt they are willing. The main question is whether they will be able. Experience suggests otherwise.

To quote Simon on the issue again:


“The reason I am recounting all these risk factors is because I see that there is a high level of complacency among investors with regards to these risks. It’s like there is a bubble in complacency. Investors know about all these problems, but they don’t seem to care that much. The institutional investors I talk to are not paid to think about these risks, they are paid to produce short term outperformance, or at least performance close to their benchmark.”


Not surprisingly,  Simon believes that gold is an excellent hedge against all these risks that offers an asymmetrical payout. We would point out to this that since gold prices bottomed in late 2015, the gold price has held up quite well even in time periods in which the macro-fundamental drivers were net bearish. We have always suspected that the main reason for this was that some people had begun to purchase gold as an insurance policy; and perhaps more importantly, the reservation demand of current gold holders was probably growing (i.e., they became increasingly unwilling to sell).

Having said that, gold prices continue to be well aligned with important fundamental drivers – as the following chart illustrates:


The gold price vs. the inverted 5-year TIPS yield (a proxy for real interest rates). Gold seems to be leading real interest rates, but the main point is that these trends remain strongly aligned.


Jim Rickards also took part in the discussion and inter alia mentioned a risk that is not getting much attention these days, but probably should: namely the rapid growth in US government debt. Given the extent to which it has grown in an economic expansion and in the absence of a major war, one wonders what will happen once the expansion ends. It is certainly a good bet that debt growth will accelerate even further. While it is unknowable at what point the markets will finally become concerned about it, such a threshold presumably does exist.


US government debt-GDP ratio – despite a growing economy, it remains above 100. Not too long ago this would have been unthinkable.


Here is a download link to the transcript – enjoy!

Incrementum Advisory Board Discussion, 31 July 2019 [PDF]


Charts by St. Louis Fed




Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Federal Reserve is a Barbarous Relic
      The Sky is Falling   “We believe monetary policy is in a good place.” – Federal Reserve Chairman Jerome Powell, October 30, 2019.   The man from the good place. "As I was going up the stair, I met a man who wasn't there. He wasn't there again today, Oh how I wish he'd go away!" [PT]   Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian...
  • Incrementum 2019 Gold Chart Book
      The Most Comprehensive Collection of Gold Charts Our friends at Incrementum have just published their newest Gold Chart Book, a complement to the annual “In Gold We Trust” report. A download link to the chart book is provided below.   As of late 2019 an ounce of gold will get you 115 liters of beer at the Munich October Fest – a 7-year high. Cheers!   The Incrementum Gold Chart Book is easily the most comprehensive collection of charts related to or relevant...
  • The Golden Autumn Season – One of the Most Reliable Seasonal Patterns Begins
      The Strongest Seasonal Stock Market Trend Readers may already have guessed: when the vibrant colors of the autumn leaves are revealed in all their splendor, the strongest seasonal period of the year begins in the stock market – namely the year-end rally.   Will Santa wake up this year? Last year he was clearly missing in action – but that is actually the exception, not the rule [PT]   Stocks typically rise in this time period. However, there are questions, such...
  • Riding the Type 3 Mega Market Melt Up Train
      Beta-driven Fantasy The decade long bull market run, aside from making everyone ridiculously rich, has opened up a new array of competencies. The proliferation of ETFs, for instance, has precipitated a heyday for the ETF Analyst. So, too, blind faith in data has prompted the rise of Psychic Quants... who see the future by modeling the past.   Gandalf, quant of Middle-Earth, dispensing sage advice. [PT]   For the big financial outfits, optimizing systematic –...
  • Maybe the West Should Adopt Iran’s Nuclear Weapons Policy
      The Rise of Total War Prior to the modern age, when war was engaged in, combatants, for the most part, acted by a code of conduct which attempted to minimize civilian deaths and the destruction of non-participants’ property. With the onset of the democratic age and the idea of “total war” such modes of conduct have tragically fallen by the wayside, the consequence of which has made warfare far more bloody and destructive.   Iranian Seiji-2 missile. Of course, we...
  • Bitcoin Moonshot - Precious Metals Supply and Demand
      Bitcoin Gets Juiced The prices of gold and silver were up $19 and $0.48 respectively last week. But that’s not where the massive inpouring of groceries went.   When Friday began (Arizona time), Bitcoin’s purchasing power was under 75 grocery units (assuming a grocery unit is $100). By evening, speculators added 25 more grocery units to the same unit of bitcoin.   Bitcoin, daily – shortly after breaking below an obvious lateral support level, Bitcoin did an...
  • Targeting nGDP Targeting – Precious Metals Supply and Demand
      Everybody Has a Plan Not too long ago, we wrote about the so called Modern Monetary so called Theory (MMT). It is not modern, and it is not a theory. We called it a cargo cult. You’d think that everyone would know that donning fake headphones made of coconut shells, and waving tiki torches will not summon airplanes loaded with cargo. At least the people who believe in this have the excuse of being illiterate.   A few images documenting cargo cults on the island of...
  • Maurice Jackson Interviews Brien Lundin and Jayant Bhandari
      Two Interesting Recent P&P Interviews Our friend Maurice Jackson of Proven and Probable has recently conducted two interviews which we believe will be of interest to our readers. The first interview  is with Brien Lundin, the president of Jefferson Financial, host of the famed New Orleans Investment Conference and publisher & editor of the Gold Newsletter – an investment newsletter that has been around for almost five decades, which actually makes it the longest-running...
  • Volatility Galore - Precious Metals Supply and Demand
      Fun and Regret Ex Nihilo The price of gold dropped last week, but not calamitously. From $1514 to $1459, or -$55. The price of silver dropped. Calamitously. From $18.08 to $16.75, or -$1.33. -3.6% vs -7.4%. Once again, silver proves to be volatile relative to gold.   Silver jumped off a cliff again last week – the chart formation nevertheless continues to look corrective. [PT]   In standard vernacular, the metals lost purchasing power this week. Purchasing power can...
  • Is the Fed Secretly Bailing Out a Major Bank?
      Prettifying Toxic Waste The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?   The yield-chasing hamster wheel... [PT]   Thus, smart fellows go after it; pursuing financial innovation with unyielding devotion.  The underlying...

Support Acting Man

Austrian Theory and Investment


The Review Insider


Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


Mish Talk

Buy Silver Now!
Buy Gold Now!