The Institutional Risk Analyst

We received a number of comments on our discussion with David Kotok last week (“David Kotok: China, the Dollar and Bretton Woods 2.0”), but one of the most interesting observations came from veteran Bahamas-based gold fund manager Henry Smyth, who we interviewed last May (“Interview: Henry Smyth on the Return of Gold as Global Reserve Asset”):

The difference between the Western markets that settle predominantly in cash and Asian markets where physical delivery is the norm is fundamental. A growing number of global central banks are moving their physical gold out of the US because of the erratic behavior of Donald Trump. They fear expropriation of their gold by a future government in Washington.

What it says to me is every institutional portfolio has to think about holding some gold, if they want to protect themselves against extremes of default risk, some allocation permanently to gold. Now, should it be 3% or 4% or 5%? I don’t know. We can do what the europeans are doing and go 50% into non-dollar assets. In other words, we are in dollars. So, the only way to address US default risk is for us to own gold or something else. Because for us to own the CDS in dollars

TD was up about 6% over the past three months, the only name in our test group with a positive three-month market return, of note.

What does the upsurge in repo rates at the end of September suggest? None of the media who supposedly cover the Fed seem able to ask.

As a practical matter, no Fed chairman or governor can function without the support of the White House and the US Treasury.

Many homes in FL no longer have adequate home owners insurance much less federal flood insurance.

By the end of August, the bugs are gone but the fish are still biting, making for a perfect way to end the summer.

Next we present "Alien vs Predator" by comparing Goldman Sachs (NYSE:GS) with Morgan Stanley (NYSE:MS)

Bottom line: LOIS is screaming a message of warning. We know that members of the Fed are looking at this, but we wish there were more observations about it in their public statements. We don't expect the Fed to change its strategy. It is on a dual course of QT and rate hiking and will probably stay that course unless and until some shock occurs.