Monday, December 28, 2009

Sometimes you can't save the world

There have been a number of diatribes in the blogosphere about why Bernanke shouldn’t be re-confirmed as Fed Chairman. Examples include Simon Johnson’s Should Bernanke be Reconfirmed? and comments from Cunning Realist such as Bernanke responds, Man of the Year and An Inadequate Answer.

Who bells the cat?
There was once a children’s story about the mice getting together and deciding that it would be great idea that the cat should wear a bell. The problem was, who bells the cat?

That’s the fantasy world that we live in now. I wrote back in July that there were few alternatives to Bernanke. If you get rid of him, who are the alternatives? The leading candidates at the time were Janet Yellen (an apologist for inflation) and Larry Summers (another disaster).

The corruption of Washington culture
In a perfect world, we would have a better replacement for Fed Chair, but we don’t. Dean Baker, co-director of the Center for Economic and Policy Research, wrote an article entitled Bernanke and the corruption of Washington culture where he railed on about how Bernanke actively encouraged and abetted the creation of the excesses that created the mess in the first place. He then concluded with:

How on earth can you do worse in your job as Fed chair then bring the economy to the brink of a total collapse? If this is success, what does failure look like?

But, in Washington no one is ever held accountable for their performance. The economic collapse is treated like a fluke of nature – a hurricane or an earthquake – not the result of enormous policy failures.

When Bernanke was first appointed to the Fed Chair, I told friends and colleagues that he was the Second Coming of Arthur Burns, the Fed Chair in the 1970's who had a head in the sand attitude about inflation. In fact, Burns was instrumental in the adoption of the core inflation (ex-food and energy) measure that is widely in use today. My investment conclusion at the time of the Bernanke appointment was to buy gold.

As individuals, sometimes we have to recognize that we can’t save the world and we can only save ourselves. My inner investor tells me to get long commodities but to be prepared for extreme volatility. My inner trader tells me that this will be a time of financial and economic instability and to rely on tactical timing models such as the Inflation-Deflation Timer.


Steve said...


I really enjoy the blog. keep up the good work. FYI, every time you put in a link for the inflation-deflation timer, the Oct. '09 report on peak oil comes up. Also, I was wondering if you could give a little more background on the inflation-deflation model. Are you using price as the sole input?

Cam Hui, CFA said...

Sorry, the link to the Inflation-Deflation Timer article has been fixed. Please see the article for details.


Unknown said...

I agree about gold, and think it will continue to outperform other asset classes over the next decade. And I think this is gonna lead to more m&a activity in the gold mining sector, like the takeover battle for Canplats described here:

Penmont trumped Goldcorp's offer for Canplats Resources for the 2nd time in less than a week. With all of the money printing the govt is doing, I think gold will continue to do well, which is gonna lead to more deals like this where the big gold miners acquire the smaller gold explorers

Unknown said...

Who the hell cares about your investment advice from years ago? The fact that you still push GOLD and don't advise to sell GOLD, when it's clearly in a bubble, tells me all I need to know about your investment advice.

Cam Hui, CFA said...


Please re-read my comments:

Long term position: My inner investor tells me to get long commodities but to be prepared for extreme volatility.

Tactical position: My inner trader tells me that this will be a time of financial and economic instability and to rely on tactical timing models such as the Inflation-Deflation Timer.

The Inflation-Deflation Timer is a disciplined process that will sell gold and other commodities when the price trend shows signs of turning down. For now, the signal is to stay long and give the inflation trade the benefit of the doubt.

Unknown said...

Gold is NOT a commodity. Gold is a completely useless metal. You might as well state that tulip bulbs are a commodity. Inflation- Deflation timing has nothing to do with Gold. What does have to do with Gold, is psychological warfare. Psychological warfare Chinezee imperialists are using as part of their economic warfare against the US imperialists. As far as the retail "investor" is concerned, there's only one outcome to all of this. A river of tears.

Patrick said...

My dad is a pernicious gold bear and claims it'll be under $200, which I think is crazy. The thing about being a secular gold bear (as opposed to intermediate term) is that you have to underestimate the stupidity of human beings. Yes, gold only has "value" because it's shiny and they're not making any more of it, but in this crazy species, that's enough to make it the best performing asset.

Unknown said...

Is that short for camedian? Because the comparison of Al Qaeda to George Washingtin is like comparing Chow un to General Tso. Stick with the stock market Cam.