Capital Flows and Asset Markets

Being the reserve currency has enormous benefits. And in the entirety of financial history, the US is the first and only fiat reserve currency. Sterling, and any other reserve currencies derived their value from the ability to maintain their value to gold. With the two World Wars, the US came to be seen as the government most able to honour its commitments, and saw huge inflows of gold, but in the...

One thing I struggle with is the market’s view of Chinese policy. The almost universal view of the world is that the Chinese communist party is exerting more and more influence over the economy, and that this makes China almost uninvestible. If you believe that China is turning communist, then it’s only a matter of time before the landlords are rounded up and shot, and the Chinese army starts inva...

One of the factors that was identified as a cause of the Japanese bubble economy was the intercompany dealings of Japanese conglomerates - keiretsu (系列). Broadly speaking, they were groups of companies, often centred around banks, that helped each other out, and often had cross shareholdings in each other. Korean chaebol (재벌) are very similar. Keiretsu banks often lent to other keiretsu member...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com The key trade of GLD/TLT continues to recover from the sell off seen in later 2023. And key lead indicator on treasuries, 30 year JGBs, still points to higher treasury yields. But elsewhere in markets, liquidity still reigns supreme.

Many days I still feel like a young man, with much to learn. But then other times, when I muse on the changes that I have seen and lived through, I realise I am more likely the adult in the room. One thing I love about the UK is that its politics is so open and competitive, but also winner takes all. If you capture the House of Commons, you can pretty much do whatever you want (see Boris Johnson)....

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com For a number of reasons, I was reminded of 1999. One of my tells for a bear market is when advertising on the Tube in London starts going out of date. It means marketing budgets are being cut. And in late February, I can still plenty of Christmas ads at tube stations. But even more than that has been the stark cont...

Back in the early 2000s, Berkshire Hathaway had a large stake in Chinese oil major, Petrochina. Selling out of the position in 2007, they made 7 times there money in a relatively short period of time. As so often, he was selling when he could at pretty close to the top. The oil price has been rangebound ever since. My impression of the time that Buffett was a excellent commodity investor. When I h...

Free market capitalism is a relatively new phenomenon. Many call the period before World War I as a period of free market capitalism, but that was the era of British Empire, where intra-empire trade could hardly be called free. The post World War II period was the era of Cold War and saw large swathes of the world run on Communist lines, and even in the West policy had a positively socialist bent....

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com Japan has and remains fascinating. For years economists and hedge funds always assumed the yen would collapse, and JGBs were a short. This was based on the history of every other country that had run large fiscal deficits and a central bank that kept interest rates very low. My original thoughts on this was that “f...

It is fairly widely known that a weak USD dollar tends to be good for commodities and for emerging markets in general. I always thought the transfer mechanism was two pronged. One, US dollar debts become much easier to service, improving credit conditions. And secondly, a weak dollar encourages capital flows out of the US and into carry trades, which also improves capital flows. South Korea has al...

Japan is an unusual country. For decades it defied economic analysis. As Simon Kuznets said, there are four types of countries: developed, undeveloped, Japan and Argentina. And when I started working in finance, Japan was also given special treatment. The Japanese macroeconomic numbers of a large fiscal deficit combined with low interest rates should mean the Yen collapses, and inflation should be...

When I first started thinking about a pro-labour world, I tried to imagine how exactly that would look. My thoughts were that wages would rise, and unemployment would stay low. Interest rates would be higher than expected, and long dated bonds would do poorly. I expected financial assets to underperform real assets and commodities. I also expected to see real assets surge if central banks, and par...

One of the reasons for an “independent” central bank was the idea that they would not juice up the economy or the stock market to the benefit of incumbent politicians. The reason for this was from the 1970s, when Nixon put huge pressure on the Federal Reserve to make sure the economy was firing. Under the first Trump administration between various other tweets on tariffs and wall building, Preside...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I have pushing the idea of long Gold/short treasuries to capture a shift to “pro-labour” policies. Like a lot of investment ideas, it is easier to promote this idea as I am looking at the end game of the pro-labour period from 1945 to 1980, which also saw gold massively outperform treasuries. Basically I am saying...

In January I spent two weeks in Australia - catching up with friends and family. As has become the norm, everywhere seems to be very busy, and no signs of a slowdown anywhere. But among this general bullishness, it was noticeable that friends trying to get jobs in finance were really struggling to find a job. I have only really looked for job in finance twice. First, as someone who was hired as a...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com GENERAL THOUGHTS When I started thinking about a pro-labour shift in politics, I tried to focus on areas where markets would be surprised. There are many, but in essence growth tends to surprise to the upside, demand is good, but financial assets are weaker than expected. I expected cash and commodities to perform...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com Before substack, and even before the internet, fund managers have always liked to read newsletters. Perhaps the two most famous of these old school newsletter writers were Dennis Gartman and Fred Hickey. Gartman wrote the Gartman Letter, and Fred Hickey writes the High Tech Strategist. I never subscribed to the Gar...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com The pro-labour model is based on the idea that governments are moving away from pro-business policies to pro-labour polices. This is driven by an electorate that is increasingly disillusioned by pro-capital policies and voting for populist politicians and ideas. At its simplest, its means that demand is very strong...

For obvious reasons, I have been thinking about whether fund mangers should come out of retirement.   First of all, to answer this question we really need some context.  There are loads of fund managers out there.  The vast majority are closer to product managers than what I would call fund managers.  Their objectives tend to be quite explicit - and the decisions they can take are relatively limit...

Australia, the “Brazil” of cricket, is a fascinating nation. It was not too long ago when Australia was a number one short across the macro hedge fund world.  Australia was, and remains, a significant commodity exporter. A reliance on China economically, while relying on the US militarily always seemed a political paradox that needed to be resolved. The resolution phase of this paradox has begun,...

Simon Kuznets is quoted as saying there are four types of economies in the world. Developed, undeveloped, Japan and Argentina. In essence, he is saying that rich nations tend to have predictable economic growth, as do poor nations. But Japan and Argentina fit neither of these models. Like Kuznets, I often puzzled over Japanese economic growth. How can I nation that I so admire not have seen wage g...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com This is the second post on what I would call investment strategy documents for my idea of a fund. It outlines the business case for what I am thinking of doing. Back when I started in finance in 2000, asset management was a backwater. The area that everyone wanted to be in was investment banking and trading. Hedge...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com A few months ago I floated the idea of launching a fund. I have had discussions with potential investors and with potential firms to host the fund. Typically I have been talking to institutions that I have had previous dealings with, so have not bothered to produce a strategy document as there has been no need. Rec...

Capitalism, as Churchill once said, is the worst possible system except for all the others. The profit motive constant pushes capitalists to get costs as low as possible to drive profit growth, at least in theory. Unprofitable markets cause competition to leave the industry, and profitable markets attract competition, at least in theory. Capitalism should drive deflation. The Great Depression is s...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com In hindsight, I was plainly too keen to add to the core trade of GLD/TLT at the beginning of the month. The correction at that point had only moved to 50 DMA. December has seen it reverse further back to the 200 DMA. The problem has been on the TLT side of the trade. Bonds everywhere have rallied at expectations of...