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It’s a fascinating world – this world of centralized management of the world’s economy. A scant eight years ago, investors were shunning the particularly poorly managed countries of Portugal, Italy, Greece, and Spain, to which they ascribed the derisive acronym of PIGS. The result was incredibly high interest rates as investors fled these markets in droves. Seeing that centralized fiscal mismanagement had failed, central banks decided that centralized monetary mismanagement was in order. It worked. Rates tumbled, and then they tumbled more. They actually went into negative territory, a territory unimaginable a mere decade earlier. Low rates revived speculative spirits, sent stock, bond and real estate markets into the stratosphere, which in turn goosed the economies, and all of this led to no increase in the measured rate of inflation! All hail the central planners!

But, alas, their success was short-lived. Several hundred years ago, Richard Cantillon, using a river as an analog, suggested that inflation of the money stock winds its way through the system unevenly in terms of time and magnitude. In our words, it is migratory, as opposed to transitory. Historically, the inflationary symptoms first appear in financial assets, making asset owners happy. Then they migrate into things that negatively impact peoples’ cost of living. The price of necessities such as food, energy, and services eventually soar in price. In the current case, as the saying goes, these adverse inflationary symptoms came slowly and then suddenly. We agree with the consensus view that central banks are in a bind. Their current bolstering of interest rates appears to have landed us in recession but failure to have done so would have let inflation and speculation spiral out of control.

In any case, here we are, temporarily without the central banks’ backstop. The PIGS are in trouble again. We would suggest caution. But, more importantly, the acronym is wanting an update. The undisputed leader in fiscal and monetary mismanagement appears to be Japan, a country that has seen debt spiral to almost two-and-a-half times the size of its economy. Japan deserves to be front and center. Replacing the P with a J, PIGS becomes JIGS.

There are currently 9 countries with the dubious honor of having debt levels greater than 100%: Japan, Greece, Lebanon, the United States, Italy, Singapore, Cabo Verde, Portugal, and Canada. This is a level from which many believe that there is no return. We suggest updating our acronym with the proposed substitution of Singapore for Spain, a country that isn’t in the top ten. But wait, what country is that in fourth place and rising quickly? Certainly, that deserves a prominent place in our acronym of shame. It seems hard to argue against adding a U, and not letting Portugal off the hook, bringing back the P. Adding the UP to the end gives us JIG
’S UP.


After a four-decade long period when central bankers were increasingly idolized and revered, it appears that someone has pulled back the curtain and announced – the jig’s up! It appears that stocks and bonds have entered a bear market. The economy is stagnating, even as inflation plods ahead despite a massive correction in commodities. We have entered a new paradigm. What’s an investor to do?

For a road map as to what has worked during periods of rising interest rates, investors have to go back to the 1970s. During that period of rising rates, stocks and bonds (especially) were decimated and the only safe harbors were stores of value such as agricultural land, gold, energy, and other commodities. Resource-rich emerging markets also performed notably well.

We hear the understandable concern about the “threat” posed to commodities by rising interest rates and the “strong” dollar. Our rebuttal to these concerns is warranted. When a train gets passed at night by a faster moving train, passengers may feel like they are going backwards. Similarly, planets such as Mars are said to be retrograde (moving backwards), when they are in fact moving forward, during periods when they appear to be going backwards due to the Earth’s faster motion.

Likewise, fiat currencies tend to lose value over time. This has always been the case, especially during times of lax monetary policy (such as quantitative easing, i.e., QE). Since the Global Financial Crisis, the Federal Reserve has increased the money supply tenfold. It takes many times more dollars to buy houses, art, services, crypto, medicine, food, energy, etc. The dollar has dropped rapidly relative to almost anything that matters. Because the yen, Euro, Canadian dollar, Aussie dollar, won, yuan, and most EM currencies have lost purchasing power at an even faster rate, the dollar is said to be strong. It feels like it is going up only because the other currencies are going down at a faster rate of speed. We feel that this is a dangerous misperception. It seems as though debt levels will allow monetary inflation to return soon. Debt must be paid off through hard work and austerity (rare in democracies) or defaulted on, either outright or through devaluation. Democracies choose the latter.

Certainly, it seems that the jig’s up for the central bank-led four decades of lower interest rates and the “implied put option” against market losses. As such, it seems clear to us that sovereign bonds of the JIG’S UP countries should be avoided. This applies to most stocks as well. Stagflation is here. The TINA (there is no alternative) ellipsis is now better applied to hard assets and stores of value than to broader stock indices (as formerly applied). We recommend agricultural land, energy, metals (especially precious metals), and stocks domiciled in resource-rich economies. Emerging markets look particularly enticing. These all portend attractive returns. But, while the meme stock players may have their “diamond hands,” hard asset investors may need “nerves of steel.” Revisit charts from the 1970s. The gains are quick and pronounced. Don’t be shaken out at inopportune times.

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