Remember last fall when the market was scared shitless the end of QE meant that the Fed would immediately start raising rates? Market pundits were convinced that once the final QE bond purchase settled at the end of October, the Fed would begin their rate hiking campaign. The hedgies and other speculators were so worried about this prospect they took out a record large short position in CME 3 month Eurodollar contracts (a contract that is used to hedge short term US dollar interest rate risk and has nothing to do with the Euro currency).
The prospect of the Fed hiking rates last fall is now quite amusing, but it was a real worry six months ago. What is even more entertaining is how the specs have not only completely abandoned their monster short position, but they have now flipped to net long! This means they have gone from betting that short term rates would rise to now leaning towards them actually declining.
Although I think the Fed will be slow at raising rates, the market has gone from overly worried about rising rates to the other extreme. The market is too pessimistic about the possibility of global growth surprising to the upside in the coming quarters. Given the ED specs’ flip flopping to net long, there is the real possibility for some outsized moves in the short end of the curve if there is even the remote hint of a global upturn. The specs got the direction wrong big time last fall, and it looks like they might be caught just as flat footed this spring.
Sell your gold to buy apartments in London, Vancouver and NYC?
Yesterday the head of the world’s largest money managers commented on the demise of gold as a store of wealth.
“Historically gold was a great instrument for storing of wealth,” the chairman of BlackRock Inc. said at a conference in Singapore on Tuesday. “Gold has lost its luster and there’s other mechanisms in which you can store wealth that are inflation-adjusted.”
Over the centuries, bullion traditionally lured demand as a protection of wealth during crises, including conflicts and periods of inflation. Prices posted the first back-to-back annual drop last year since 2000 as investor holdings in exchange-traded products contracted, global equities rallied and the dollar climbed on prospects for higher U.S. interest rates. Since peaking in 2011, it’s dropped about 38 percent.
“The two greatest stores of wealth internationally today is contemporary art….. and I don’t mean that as a joke, I mean that as a serious asset class,” said Fink. “And two, the other store of wealth today is apartments in Manhattan, apartments in Vancouver, in London.”
“It’s become much more accessible for global families worldwide to store wealth outside their country,” said Fink. “And they don’t have to own gold.”
I don’t know about you, but I am not so keen on chasing some art bubble fad as a long term method of preserving wealth. Even smart guys like Jim Chanos who love to collect art think the current prices are nuts:
Aside from being a successful investor, Jim Chanos is also a big art collector. The founder of hedge fund Kynikos Associates adorns his walls with Gerhard Richter and other top contemporary artists and sits on the board of the Tate Americas Foundation.
But right now, Chanos sees a speculative bubble forming in the art market.”Anybody who buys art should be looking to hedge it right now,” he said Thursday on CNBC’s “Squawk Box.” “The contemporary market has gone bonkers.”
Art has become especially popular in the current wealth boom, as the global rich turn to art as a safer, less volatile store of wealth. Art has also become a refuge for the rich in China and Russia looking to stash their fortunes offshore. Prices for everything from $142 million Francis Bacon paintings to $58 million Jeff Koons balloon dogs are hitting all-time records.
“Art is a socially acceptable form of conspicuous consumption,” Chanos said.
Chanos said that the current art bubble is different from previous art booms because the big price gains are largely in living artists—so their paintings will keep coming onto the market.”In the ’80s, the Japanese were buying Impressionists. Then it was modern art in the 1990s. But in the last 10 years, it’s been contemporary. As I like to point out, these people are still alive producing art,” he said.
The high end art market bubble is yet another result of the terrible monetary and fiscal policies that have exacerbated the growing, and troubling inequality between the extremely rich and everyone else. As the very rich become even richer, they are looking for things to spend their money on.
It is no surprise that pieces such as Giacometti’s “Chartio” pictured above which was recently bought for $101 million by hedge fund manager Steve Cohen are being snatched up by individuals who have benefited the most from the massive financial asset bubble.
Larry Fink thinks that gold has lost its allure because billionaires are increasingly turning to art to protect their wealth. And he is probably right that at the margin this is hurting gold’s short term prospects. Yet I am going to stick with the metal that has managed to continue to be a store of value over thousands of years instead of buying some art piece that is increasing in value because some billionaires are looking for somewhere to spend their money.
As for Larry’s other alternative of high end apartments in NYC, London and Vancouver, I am a little more sympathetic towards this asset class. But the prices for these properties are approaching stupid levels, and it is tough to argue that there is any value going forward.
On the other hand, gold is down and out. It is suffering from terrible neglect as guys like Larry chase these newer fads. Call me old school, but I think that Larry is going to regret ever suggesting art and high end real estate as a serious alternative to gold.
Maybe I am wrong. Maybe gold is for another period. Maybe this is the point after thousands of years that gold loses its appeal as a store of value. But I can’t wrap my head around chasing these bubbly fads over owning my precious little yellow friend.
Precious metals bottoming?
It is easy to see why the likes of Larry Fink are recommending art and high end real estate – they are going up while gold is going down.
But I think that at the margin precious metals are starting to act better.
Yesterday silver broke down below support, and it was looking ugly. Previously this sort of action would have triggered more selling.
Yet the follow through selling never materialized. And since this break down, silver has smartly rallied back.
I know it is tough to argue that the action is raging bullish, but the selling is drying up. The precious metals seem to be in the process of forming a long term bottom. Now we just need to convince Larry and his cronies to peel off some art into this mania and buy a little gold…
Thanks for reading,
the Macro Tourist