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“Living with the Trilemma: Recent data from emerging and developed markets underscore the diverging outlook for these two economic hemispheres. While Emerging Markets (EM) have continued to show robust growth, data in many Developed Markets (DM) have disappointed, especially in Europe and Japan. Unsurprisingly, recent communication from the major central banks has been dovish, suggesting that an AAA (ample, abundant, augmenting) liquidity regime will remain in place for a considerable period of time. The Asia ex-Japan (AXJ) region, with its economic outperformance and ‘soft-pegs’ for some currencies, is the natural recipient of global capital flows that result from rising risk appetite and easy monetary conditions. As a response to the Great Recession, central banks the world over acted as one in slashing interest rates. Further down the road, however, the risk is that AXJ central banks might need to raise policy rates faster than others, which could attract even more capital and put upward pressure on their currencies – the Trilemma of a Sudden(ish) Start!”

                             Manoj Pradhan

FX Trading – Solid consensus still on the yellow metal and the buck
Over the weekend I had the opportunity to speak at an excellent conference in Vancouver, British Columbia—The World Outlook Conference. It was a great venue and there were many nice people who attended. Thank you to the excellent team at for inviting Black Swan and putting on yet another great conference.

Overall it was a valuable weekend. Besides having an opportunity to meet with some Black Swan Members and share our views, the presentations by the experts (which were very good for the most part) validated my view that dollar perma bears are alive and well and still loving gold.

I was thinking about the comments on gold and the dollar by the speakers at the conference while travelling back home yesterday. David Newman, Black Swan’s marketing guru, was with me on the trip. I asked David if he had heard anyone suggest there was any way gold might go down in price. He couldn’t remember anyone saying it is going down and staying down; a few of the gold analysts did suggest it may trade a bit lower for a short period, but ultimately it’s heading for the ozone layer—that is a done deal.

Net-net it was a solid gold perma bull and dollar perma bear analytical crowd; and the audience liked what they heard. I am going out on a limb here: but I think most of the guests were long gold.

So this is the conclusion from the experts if you are looking for some type of decision chart on whether or not to buy gold:

  • Stocks up – Buy gold
  • Stocks down – Buy gold
  • Interest rates up – Buy gold
  • Interest rates down – Buy gold
  • Inflation up – Buy gold (Deflation – “Can’t happen seems the consensus; but if it does, buy gold”)
  • China boom – Buy gold (China bust – “Can’t happen seems the consensus; but if it does, buy gold”)
  • Dollar down – Buy gold (Dollar up – “Can’t happen)
  • Economy weakens – Buy gold
  • Economy strengthens – Buy gold

Granted, there was a bit more nuance than that and a lot of excellent analysis, and maybe I’m embellishing just a tad for literary effect, but I think that fairly sums the consensus. I just tend to think there is some set of circumstances in the economic world that may cause gold to fall.

Of course yours truly, who may be dead wrong needless to say but said anyway, sees it another way:

1. The dollar has entered a multi-year bull market
2. China credit bubble will pop, and growth will fall, the only question is when
3. When China breaks we will witness severe global deflation
4. If interest rates go up (and we think they will near-term), gold will likely fall

I also laid out why it would be a very good thing for the global economy if the US dollar were to rise (those that say the dollar must fall for the US to improve have it ass-backward in my most humble opinion):

Four reasons why it makes sense for the US dollar to rise- the big macro theme is global rebalancing:

1. Helps US capital formation through foreign direct investment
2. Relieves pressure from the Eurozone economies
3. Spurs real economy through domestic capital spending and job growth
4. Helps relieve China bubble pressure and slows growing protectionist trend

Is there any surprise why I’m not invited to many places? Thank you Michael, Victor, Grant, and Nina for letting me in and all you do.