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Demurrage – a tale of gold, cash and mercenaries

Historically I’ve struggled with the concept of gold as an investment. Presumably if you bought gold for this purpose you would want to store it somewhere safe and insure it. However, investors in gold should account for the fact that there is a cost to sleeping well at night. Vaults and insurance don’t come for free, and that cost can be thought of as a negative yield or the demurrage of gold….

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Long US Treasury bonds are overvalued by 250 bps. Discuss.

As we started 2014 the US Treasury market was expecting 10 year yields to be at 4.13% in a decade’s time. This 10 year 10 year forward yield, derived from the yield curve, is a good measure of where the bond market believes yields get to if you “look through the cycle”, and disregard short term economic trends and noise. I wrote about it here and suggested that we were approaching the top of th…

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What is the probability of a U.S. recession in the next 12 months?

Knowing how poor the central banks have been at forecasting economic indicators, and having analysed the IMF’s wild forecasts, we think that it makes sense to take consensus views with a large grain of salt. However, there is a substantial body of empirical evidence that has emerged since the 1980s that suggests that the bond market is a pretty good predictor of real economic activity.

It has b…

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