GREAT TRUTHS 

1. In my many years I have come to a conclusion that one useless man is a shame, two is a law firm, and three or more is a congress. — John Adams 

2. If you don’t read the newspaper you are uninformed, if you do read the newspaper you are misinformed. — Mark Twain 

3. Suppose you were an idiot. And suppose you were a member of Congress. But then I repeat myself. — Mark Twain 

4. I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. –Winston Churchill 

5. A government which robs Peter to pay Paul can always depend on the support of Paul. — George Bernard Shaw 

6. A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money. — G. Gordon Liddy 

7. Democracy must be something more than two wolves and a sheep voting on what to have for dinner. –James Bovard, Civil Libertarian (1994) 

8. Foreign aid might be defined as a transfer of money from poor people in rich countries to rich people in poor countries. — Douglas Case, Classmate of Bill Clinton at Georgetown University. 

9. Giving money and power to government is like giving whisky and car keys to teenage boys. — P.J. O’Rourke, Civil Libertarian 

10. Government is the great fiction, through which everybody endeavors to live at the expense of everybody else. — Frederic Bastiat, French economist(1801-1850) 

11. Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. –Ronald Reagan (1986) 

12. I don’t make jokes. I just watch the government and report the facts. — Will Rogers 

13. If you think health care is expensive now, wait until you see what it costs when it’s free! — P. J. O’Rourke 

14. In general, the art of government consists of taking as much money as possible from one party of the citizens to give to the other. –Voltaire (1764) 

15. Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you! — Pericles ( 430 B.C. and still true today! ) 

16. No man’s life, liberty, or property is safe while the legislature is in session. — Mark Twain (1866) 

17. Talk is cheap, except when Congress does it. — Anonymous 

18. The government is like a baby’s alimentary canal, with a happy appetite at one end and no responsibility at the other. — Ronald Reagan 

19. The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery. — Winston Churchill 

20. The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin. — Mark Twain 

21. The ultimate result of shielding men from the effects of folly is to fill the world with fools. — Herbert Spencer, English Philosopher (1820-1903) 

22. There is no distinctly Native American criminal class, save Congress. — Mark Twain 

23. What this country needs are more unemployed politicians –Edward Langley, Artist (1928-1995) 

24. A government big enough to give you everything you want, is strong enough to take everything you have. — Thomas Jefferson 

25. We hang the petty thieves and appoint the great ones to public office. — Aesop 

26. The problem with socialism is that eventually you run out of other people’s Money.—–Margret Thatcher 

27. “Any man who thinks he can be happy and prosperous by letting the government take care of him” 

Better take a closer look at the North American Indian.—–Henry Ford 

FIVE BEST SENTENCES 

1. You cannot legislate the poor into prosperity, by legislating the wealthy out of prosperity. 

2. What one person receives without working for, another person must work for without receiving. 

3. The government cannot give to anybody anything that the government does not first take from somebody else. 

4. You cannot multiply wealth by dividing it. 

5. When half of the people get the idea that they do not have to work, because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation! 

Can you think of a reason for not sharing this? 
Neither could I.

There is no better topic than gold to polarise an investment discussion. So the recent sharp drop in the metal’s price has pushed to fever pitch the debate between two camps with deeply held convictions: those who view gold as overvalued and lacking both income and capital appreciation attributes; and those who feel it is only a matter of time before others appreciate again gold’s unique role as an antidote for virtually any economic ill that could hit a diversified investment portfolio.

As interesting as this debate is, it understates the potential significance of what has taken place. The recent volatility speaks to a dynamic that has played out elsewhere and, more importantly, underpins the gradually widening phenomenon of western market-based systems that have been operating with artificial pricing for an unusually prolonged period.

The consensus gold narrative is a familiar one. In an increasingly fluid ecosystem, and a world in which a growing number of central banks have ballooned their balance sheets aggressively, investors rushed into gold as a means to hedge against identifiable risks (inflation), as well as to counter nervousness about big uncertainties (including previously unthinkable disruptions to economic systems).

Rising prices generated even higher prices, significantly disconnecting valuation from underlying fundamentals of physical demand and supply – that is until an otherwise insignificant bit of news pulled the rug from under the operating paradigm.

While lower inflationary expectations and surging equities played a role, the real catalyst for the dramatic price drop was a rumour that Cyprus could be forced to sell its holdings by its European partners. This involved a tiny amount of gold (valued at less than $1bn at the time), but it made investors suddenly pay attention to the possibility of significant supply hitting the markets from other European economies (particularly Italy with holdings of some $130bn).

This simple change was enough to bring the gold price down 15 per cent in less than a week. Since then, the metal has struggled to re-establish a firm footing, (it is currently trading at about $1,385 a troy ounce).
In corporate terms, think of the underlying dynamic as one of a powerful brand where valuation has become completely divorced from the intrinsic attributes of the product – thus rendering it vulnerable to any change in conventional wisdom (or what economists would characterise as a stable disequilibrium).

Over the past year, a similar dynamic has played out in Apple and Facebook shares.

After a steady increase to just over $700, Apple’s share price hit a dramatic air pocket. Its price collapsed to less than $400. Today, it trades at around $440. Why? Basically because, as powerful as it is, the brand’s “enchantment” (to use a term coined by author and former Apple employee Guy Kawasaki) ended up inducing investors (inadvertently) to disconnect valuation from the reality of the furious catch-up on the part of Apple’s competitors.

In the case of Facebook, it was widespread familiarity with the name, and the associated hype, that persuaded investors to oversubscribe to an IPO that valued the company at $38. The stock traded up briefly before dropping below $20 as a large number of professionals resisted the massive and blatant disconnect between valuation and fundamentals. Today it is trading around $26.

Of course, these are name specific examples; and, to the extent that insights can be generalised, they point to the fact that financial markets overshoot on both sides. Yet, today, I believe there is an additional insight from gold in a world where central banks, pursuing higher growth and greater job creation, have inserted a sizeable wedge between financial markets and economic fundamentals.

Firm and repeated central-bank commitment to asset purchases has done more than push a growing number of investors to add portfolio risk at evermore elevated prices. It has also repressed market volatility, lowered correlations and given the illusion of stability – all in the context of a complicated ecosystem characterised by unusual sovereign dynamics, changing regulations, considerable tail risks, widespread need for new growth and job models, and innovation that accentuates rather than contains worrying inequalities.

Essentially, today’s global economy is in the midst of its own stable disequilibrium; and markets have outpaced fundamentals on the expectation that western central banks, together with a more functional political system, will deliver higher growth. If this fails to materialise, investors will worry about a lot more than the intrinsic value of gold.