I joined Erin Ade today on Boom/Bust to talk about some macro events. The video can be found here, but here’s a brief rundown. Oh, also, I’ll be joining a Boom/Bust roundtable discussion tomorrow to debate the merits of gold – Peter Schiff will be on the panel so that should be fun….
- I briefly discussed why I wrote my book, Pragmatic Capitalism and how one of my main goals was to bridge the fields of finance and economics to hopefully provide a superior understanding of how both fields are much more closely intertwined than we often think.
- Why endogenous money is so hard – in part, it’s because money is something that is a construct of the human mind. That is, the whole financial system is not necessarily tangible or real in the sense that goods and services are. So the idea that we have created this whole system out of thin air is not only difficult to comprehend because it’s complex, but it is also somewhat hard to believe in because, ultimately, that’s what our system is built on – trust.
- Why the low inflation environment is a sign that future returns are likely to be much lower than many people expect.
- Why investors are going to have to come to grips with the likelihood of lower future returns.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
These are Schiff usual talking points with responses designed to fluster him:
– Never say inflation is low, rather say price inflation is tame despite the expansion in the money supply [that will annoy him]
– When he responds that the reported cpi inflation is low, but inflation in this phony Fed inflated economy is showing up in assets bubbles like the stock market. Point out that profits have risen since the crisis and perhaps the market is slightly over valued but even under a gold standard in 1929 that a bigger assets bubbles formed.
– When he says CPI is “phony” be sure to point how TV and technology prices have fallen whereas the cost of gas has risen but on balance inflation is tame. And further how PPI, foreign countries CPI and BIT project match CPI.
– When he points out that the dollar lost 90% of its purchasing power be sure to mention that growth in real wages have far surpassed the losses due to inflation. That is, as a % of the real wages real prices have fallen dramatically and wage earners are better off today
– When he says the dollar is going to collapse be sure to point out since QE3 that the dollar is up and gold is down from its highs
– When he says gold is a better store of value then dollar. Well I sort of agree but there are other stores of value. And over the past two years the dollar has done better.
– When he says the burden of inflation is born by savers. Well, I sort of agree with him, but gold may not be the best choice because even with positive inflation the last few years gold has fallen.
– When he says the gold is money give him your why don’t your clients don’t pay him in gold response?
Also can you duct tape him before the interview and then shout over him as he squirms and muffles inflation.
“future returns are likely to be much lower than many people expect.”
What does that even mean? Do you believe historical returns of around 6%-8% are too high, or do you think many people expect the stock market boom over the past 5 years to continue? What kind of a timeline are you referring to when you say “future returns.”
Commonly cited nominal returns like 8-10% or 10-12% are probably high. Think about it – the entire bond section of the global financial asset portfolio is guaranteed to generate low returns going forward. Likewise, there are fewer equities outstanding and so the aggregate return to investors HAS to be lower in the future than it has been in the past….6-8% will be pretty amazing for most people.
Golden. I’ll have to study some notes before the interview tomorrow….
On October 25, 2012 Peter Schiff said that the price of gold, which was then around $1700 per ounce, would rise to $5,000 per ounce within the following two years.
Must be time to buy gold! It’s $1211 and only 1 month to go.
Of course there is that terrible hyperinflation that QE created. Apparently it’s there, but only a true sage like Schiff can see it.
and tomorrow’s interview, from Schiff’s side, will be an exact replay of the one you mention above, and every one since… only incrementally more anger each time
Whatever you do, don’t end up like Mike Norman. That poor guy got crucified after his Schiff debate…..by the looks of his recent videos he may have picked up a drug habit as a result…..either that or he’s going through a serious Miami Vice phase.
I can’t see how a discussion with Schiff could ever be a constructive effort.
I think it is much more constructive to get Erin’s cell phone #.
See if Eddie Harrison has it.
you said that share holders benefit from share buy backs because of the increased earnings per share but that is incorrect – the reason being that they hold less shares so the return is the same.
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