Ned Goodman’s Letter to Shareholders

Found via csinvesting.

For those of you who have read the previous Annual Report messages of our company you will know that I have been concerned about a global currency war outbreak for some time. But in particular, my reference to James Rickards and his book, ”Currency Wars”, in last year’s review. Well today, one year later, we remain living in the biggest debt bubble in the history of the world and the evidence of currency wars is beginning to be very globally evident. The use of excessive monetary stimuli and artificial ultra low interest rates are creating the ultimate “bubble” in money itself. Central banks – while quietly increasing their gold holdings – are also creating the money bubble. We now are in the biggest debt bubble in history. Country leaders know that each time that they face deflationary forces they require offsetting inflationary forces (monetary stimulus of some form); and they are required to become even more aggressive. The necessary avoidance of the deflationary waves that the world is facing is causing the incubation of the coming wave of future inflation. Most conventional economists do not really accept the lack of “global demand pull” and the yet inflationary moves that will likely be felt.

As a confirmed skeptic about almost everything I accept the fact that I may not always have all of the necessary information. We skeptics may not know much but what we do know we seriously rely upon. We know for example, as Jim Grant once said: “markets can do anything they want and will”. Markets can also make opinions for its participants. The actual pricing for financial assets of all kinds, including real estate, does not occur in a vacuum, without the application of some well known investment analysis, technique and strategy and must operate within the world of the real economy which always resembles a hall of mirrors.” Facts affect perception and perception affects facts. If the attainment of equity capital can come essentially free, smart people will always help themselves to it. When capital is free or cheap, people tend to use too much of it, creating redundant investments which can lead to excess, easy to achieve productive capacity which leads to – as Grant said – “instantaneous levitation they present as revealed truth”.

There are always new eras, times when precedent does not apply because someone believes that it shouldn’t, while aberrations do appear in the financial markets and while they last they do feel good, but eventually they must pass the test of supply and demand. New eras tend to be eventually cut short by the very financial condition and behaviour that they create. The current era of yield and capital gains that are created by an understated inflation calculation along with zero interest rates, will soon come to an end.