Sustainable or not sustainable? That is the question

We are in Paris at the Paris FreedomFest, a gathering of free thinking individuals discussing issues on liberty. What stands out is the continual emphasis on how little we actually know, the emphasis on the fallibility of the affairs of the world. In this world there are those who believe they know, and how wants to mold the world in their supposed knowledge. Then there are those who take the humble approach that we probably don’t know that much, and that we should arrange our affairs accordingly. Unfortunately, in today’s political environment the doers have the advantage – the whole structure of democratic political society is rigged in their favour.
The political need to exercise control is accelerating. In the U.K. more law text has been passed in the last 10 years than in all of previous history. This shows an astounding belief in being right and being on top of things. Political control and whish for detailed legislation has reached a point of increasing acceleration, this is new. Our humble belief is that the political class no longer cares about principles, honesty and integrity. There is a level of resignation. It is a game. A game, period. And they just play the game. This is the natural end stage of the Keynesian focus on the short term. What else can increasingly short term thinking lead to, other than cynicism? How long before the end game? Not long, in our humble opinion.

As to the markets the big question is if the bounce, the reflation of the bubble can be sustained. There are people on both sides. Our belief is that regardless of sustainability, 1,2,3-5-20 years, this reflationary bounce is extremely fragile, and that any one event at any time can pop it – sending the markets downwards in a tailspin. But then again, the 1945-2007 bubble was always fake and fragile – but still went on for way way way longer than we thought possible in the first place.

What seems certain at this point is that most of the reflationary potential is already taken out. If you got into the market on March 5, then good for you (who can honestly say they did that anyway?). But, at this point, now? I would advice caution, extreme caution. Gold passed USD 1000 last week, and is still trading above as of this morning.

Still, if there is another inflationary bubble – there will be ways to play it.

– The US bond market is obviously in a bubble, interest rates are way to low. Shorting bonds will be a killer sooner or later.
– Banks will wobble for years to come, creating several shorting opportunities.

And then there is the game of getting in the water and surfing the wave itself. To incorporate and start lending money from the commercial banks. If you have the stomach for that, it might be possible to ride it again, but keep your eye on the shore at all times.

We prefer to stay on gold until we see where this is heading.

Paris, France
September 14. 2009
Hans Jørgen Lysglimt

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