Seen from my marketscope :

Pouvoir et Richesse : l'éternité du métal

Le Pouvoir et les richesses, à l'échelle de l'histoire passent toujours de ceux qui y ont titre à ceux qui y ont droit et le droit c'est le droit du plus fort. Mais la valeur de l'or n'est pas liée a la tradition c'est plus fondamental que cela
L'or fait partie des archétypes qui constituent l'esprit humain au sens de Carl Jung et des alchimistes. 

L'or est un symbole ancré dans la mémoire collective

L'éternité du métal ne réside pas dans sa matière mais dans son caractère symbolique ancré dans l'âme humaine il est éternel et universel dans l'esprit humain. L'or , le soleil, l'arbre , l'eau etc sont non pas des réalités concrètes mais des réalites symboliques qui peuplent et constituent le fond de la psyché partout et de tous les temps ! 

Bernanke et Geithner veulent ce qu’ils appellent « un dollar fort ». Mais dans leur pensée et dans leur conception, un dollar fort ce n’est pas comme on le croit un dollar cher. C’est un dollar qui impose sa loi, c’est un dollar que l’on force à accepter, un dollar que l’on continue de stocker. Bref, un dollar qui, négativement, faute d’alternative et à la faveur de la puissance militaire, continue de bénéficier de son rôle de monnaie impériale, de safe-haven. Ils veulent un dollar à la fois faible en prix mais en même temps roi.

Les gens, y compris les économistes ont du mal à considérer et à comprendre que les états souverains sont des agents économiques comme les autres; soumis aux mêmes lois de la valeur , de la rareté et de la comptabilité; simplement ils sont plus gros que les autres et se sont octroyé le droit de tricher.

Dans les temps anciens, les Banquiers prêtaient aux Rois, aux Souverains. Incapables de se modérer, les Souverains se su rendettaient et se mettaient en situation de défaut de paiement. C’est alors que les Banquiers faisaient pression sur le Roi, lui dictait sa politique fiscale. Placés sous tutelle, les Souverains pressuraient le peuple pour honorer les créances des Banquiers. Les Banques Centrales ont été créées pour aider les Banquiers à faire le plein de leur créances en ajoutant à l’impôt visible , l’inflation tax invisible. Quand la Banque Centrale octroie de l’argent à un Banquier, elle dilue l’argent qui se trouve dans les mains des citoyens. L’histoire de la Great Experiment de John Law, n’est rien d’autres que celle là, poussée à sa plus extrême limite, c’est le modèle de la Great experiment de Greenspan, puis Bernanke; la bulle de la Compagnie du Mississipi est l’ancêtre de toutes les bulles car elle a été soufflée volontairement, cyniquement.

Quelques réflexions supplémentaires :

1. La monnaie n’est pas contrairement à ce que l’on veut nous faire croire a store of value, une réserve de valeur, c’est un tenant leurre de réserve de valeur, a proxy store of value ce qui est très différent et ……beaucoup moins sûr !

Il y a encore des épargnants et investisseurs qui doutent de la valeur pratique de notre distinction entre l’or papier et le métal jaune. Ils disent cela n’arrive qu’aux autres : mon certificat d’or sera honoré. Ils ne se doutent pas que peut être leur banque n’a jamais eu d’or physique en contrepartie, en couverture de leur certificat d’or. Ils ne se doutent pas que peut être leur banque a utilisé cet or comme collatéral pour couvrir et garantir ses refinancements sur la marché de gros.

Ils ne se doutent pas que même si leur or est identifié, en cas de déconfiture de leur intermédiaire, peut être ils ne retrouveront jamais leur bien.

Nous vous conseillons la lecture du Barron’s du 17, on y apprend que les propriétaires de métaux précieux chez MF Global verront leurs avoirs amputés de 28%, le liquidateur ayant décidé de mettre en pool les actifs et de les repartir au prorata. Comme il n’y en pas assez pour tout le monde, le pool n’honorera les droits qu’à hauteur de 72%. Même si la propriété est individualisée, affectée.

Certains nous disent, mais chez soi dans un coffre, il y a le risque de se faire dévaliser, c’est vrai mais qui a dit qu’épargner, posséder un patrimoine était facile et de tout repos? Défendre son patrimoine est un vrai travail, difficile.

Un patrimoine a toujours une composante sociale, il y a toujours des risques ; sauf sur une ile déserte, mais là, il ne sert a rien. Nous ne cessons de le répéter, quand le monde entier s’appauvrit, comme c’est le cas maintenant, il ne faut pas espérer s’enrichir. Essayer de protéger ce que l’on a est déjà bien difficile.

L’emprunte financière (à l'instard de l'empreinte carbone) donne une idée de la nocivité de l'activité de production.

Dans les temps anciens, les Banquiers prêtaient aux Rois, aux Souverains. Incapables de se modérer, les Souverains se su rendettaient et se mettaient en situation de défaut de paiement. C’est alors que les Banquiers faisaient pression sur le Roi, lui dictait sa politique fiscale. Placés sous tutelle, les Souverains pressuraient le peuple pour honorer les créances des Banquiers. Les Banques Centrales ont été créées pour aider les Banquiers à faire le plein de leur créances en ajoutant à l’impôt visible , l’inflation tax invisible. 

Quand la Banque Centrale octroie de l’argent à un Banquier, elle dilue l’argent qui se trouve dans les mains des citoyens. L’histoire de la Great Experiment de John Law, n’est rien d’autres que celle là, poussée à sa plus extrême limite, c’est le modèle de la Great experiment de Greenspan, puis Bernanke; la bulle de la Compagnie du Mississipi est l’ancêtre de toutes les bulles car elle a été soufflée volontairement, cyniquement.

Nous reprenons le superbe article de Bruno Bertez sur la dislocation en cours du système monétaire, qui a de moins en moins de collatéraux de qualité pour le soutenir. Un écroulement que les autorités ne peuvent que ralentir en créant de la monnaie. L’or physique a vraisemblablement de beaux jours devant lui …

Le papier en général, tout papier, ne vaut que parce qu’une Autorité, une force, impose l’équivalence entre ce papier et autre chose. Il faut, pour cela soit réalisé que cette autorité en ait évidemment le désir et surtout les moyens ; les moyens, c’est l’argent pour le faire, un marché liquide pour le faire, etc. Tout papier, toute valeur papier, repose sur cet espoir qu’il ne sera pas déçu ; cet espoir que quelqu’un assurera l’équivalence.

La mode est à considérer que la valeur d’une action est la somme actualisée à l’infini des cash flows de l’entreprise. Les cours de bourse, surtout les cours bullaires, disent à ce jour ce papier vaut tant, cela fait tant de fois les résultats, tant de fois l’EBITDA.

Est-ce que les participants des marchés se rendent compte que c’est un pari ?

Un pari sur le fait que quelqu’un de puissant croit à cette équivalence et a des poches profondément infinies pour la faire respecter, pour l’imposer. Est-ce que les marchés se rendent compte que, sur le fond, l’existence de ce quelqu’un pour imposer la règle du jeu boursier est la seule chose importante?

Nous avons connu un temps où les titres de capital en France ne valaient quasi rien, personne ne s’intéressait à la Bourse, la politique ne se fait pas à la corbeille, disait-on ; à cette époque, il n’y avait personne pour assurer l’équivalence entre le flux des cash flows infini et le cours de bourse du jour.

C’est quand le Crédit Lyonnais et la Banque de France et la Caisse des Dépôts sont rentrés dans le marché, plus tard que l’équivalence a commencé à se construire. Une société gagne beaucoup d’argent ? Oui, et après, qu’est-ce que cela peut vous faire si vous ne le touchez pas. Si les OPA n’existent pas, si le Private Equity n’existe pas, si les Buy Backs d’actions n’existent pas, si la Banque Centrale n’est pas laxiste au point de donner des crédits quasi gratuits pour financer le respect de l’équivalence, la spéculation sur l’équivalence, la loterie mise en place par la financiarisation sur l’équivalence.

Le monde financier vit dans une authentique névrose qui lui fait confondre l’ombre des choses, les papiers, avec la réalité des choses, les corps.

C’est le résultat d’un système de pouvoirs, de croyances, de formules magiques toutes aussi ridicules et stupides les unes que les autres, comme les PER, l’actualisation, les mesures du risque, les rating, etc. etc. ; une névrose gigantesque qui est en train de s’effondrer car les pouvoirs qui sont derrière pour l’entretenir et la valider sont eux mêmes en train de s’effondrer. Tout ce qu’ils savent et peuvent faire, c’est créer de la base-monnaie, faire intervenir la FED, la BOE, la BOJ et bientôt la BCE pour ralentir l’effondrement, repousser les échéances. Les peuples et les marchés se laissent prendre, ils confondent le pouvoir de retarder les échéances avec celui de résoudre les problèmes.

Autre remarque que nous livrons à votre réflexion. On a l’habitude, dans le monde névrotique de la finance, de rapporter la dette des gouvernements au PIB. Avez-vous essayé de soutenir le cours d’un emprunt avec un morceau de PIB ? Avez-vous essayé d’échanger les dettes de la Grèce contre un morceau de son PIB ? Non, évidemment, car le réel c’est ceci, on ne peut échanger la dette grecque sur un marché que contre une seule chose, du cash, de la base-monnaie. Et c’est cela le grand secret de la pression pour faire entrer en lice la BCE, la mise à disposition de base-monnaie pour honorer la quasi monnaie hyper, hyper pléthorique émise depuis plus de 20 ans. 

La crise est une crise du système, une crise des équivalents, une crise de fissure de la névrose instillée par la grande Experiment financière. Ce n’est pas une crise des choses en elles-mêmes. Et les gouvernements et banques centrales qui sont comme dans les asiles de fous, plus fous que les fous, ne savent rien faire d’autre face à cette délitation des équivalences que… créer de la monnaie !

Sur le marché de la dette des gouvernements, avant, dans le temps déjà ancien de 2010, on cotait un prix sur le marché. On disait le 10 ans italien vaut tant et quand on voulait vendre, quelqu’un en face assurait l’équivalence sur la base de cette valeur constatée sur le marché.

Le quelqu’un en face, c’était une banque, Unicredit, BNP, etc. A partir du moment où le système bancaire a été impaired, abîmé, dysfonctionnel, plus personne n’a assuré l’équivalence et le papier des gouvernements s’est traité à sa valeur, que j’appelle sa valeur sociale, financière, économique instantanée et non plus à sa valeur que j’appelle «d’autorité ».

La valeur d’autorité est celle qui résulte du bon fonctionnement du système, du bon respect des contrats etc. La valeur sociale est tout a fait différente, c’est la valeur qui s’établit, seule simplement par la confrontation de l’offre et de la demande de gens qui ne se connaissent pas, n’ont aucun autre intérêt que leur intérêt égoïste; Le prix constaté dans ce cas ne découle que d’un rapport direct, non médiatisé, c’est à dire sans intermédiaire entre les utilisateurs.

Il y a d’un côté des choses dont la valeur repose sur le bon fonctionnement d’un système complexe et, de l’autre, des choses dont la valeur ne dépend que d’elles-mêmes et des valeurs sociales que l’on y attache.

A votre avis, de quel côté doit-on ranger le métal jaune ?

Sa valeur dépend-t-elle du bon jeu des Pouvoirs ou au contraire du jeu des forces sociales individuelles, non biaisées, influencées seulement par leur égoïsme, leur recherche de liberté et de sécurité ?

Acheter de l’or métal, comme nous l’écrivons, c’est faire exactement le contraire de l’achat d’or papier, c’est anticiper, parier sur la dislocation, même pas complète, du système des équivalences. C’est anticiper le retour de l’usage de la force dans les relations internationales, la prise de conscience par les peuples du fait que la monnaie est non pas actuellement un instrument de liberté, mais un instrument d’exploitation, de spoliation aussi efficace que la fameuse exploitation de Marx. Dans nos systèmes, l’exploitation par la monnaie, le crédit, l’imposition et les trucages de fausses valeurs ont remplacé l’exploitation du travail par le capital. L’extraction de la plus-value, du surproduit par la finance et les gouvernements a remplacé l’exploitation marxiste.

C’est la même chose en matière financière. La dérégulation qui a permis la financiarisation, butait sur la possibilité face à l’excès de monnaie et de quasi monnaie de voter contre les papiers en achetant des vrais valeurs réelles, c’est-à-dire sur la possibilité de voter blanc, de ne choisir ni entre les actions les obligations, etc. C’est pour cela que les penseurs ont imaginé la création des assets réels, papiers, avec des commodities papiers, de l’or papier, du pétrole papier. 

Le trait de génie a été de créer ces papiers afin de maintenir l’argent dans le système et de pouvoir le bio-dégrader, le détruire, quand le besoin s’en faisait sentir. Ces génies n’avaient pas prévu que le système bancaire et son shadow tomberaient dans le piège et mettraient les doigts dans la confiture, c’est à dire qu’au lieu de ne jamais stocker de papier, au lieu de le disséminer, il s’exposerait lui aussi à sa dépréciation/dévalorisation !

Buy The Dips, Sell The Rips : 

This Will Be The Most Volatile Year For Gold

Beware of those who, like Dennis Gartman, are nervous nellies and bend in the wind, month by month, depending upon the fashion of the moment. The long term trend of upwards movement in the gold price is intact, reflecting ever cheapening currencies, loss of purchasing power, out of control government deficits. Those who trade in and out of the precious metals arena have to have impeccable timing to be successful, I am a believer in the long term trend.

The gold bull market will end when politicians adopt fiscal responsibility and the Fed stops printing money…. which means never! In the past we have had economic cycles in commodities related to the value of the dollar. Unfortunately for us, the game is serious now as money printing may not be an option now, but an ongoing requirement. How will US pay debt service on $16 trillion of debt when interest rates are 12%? By printing more money! Believing in the dollar will only see you lose much of your accumulated wealth through inflation. One would be wise to put one’s wealth into something of value now, before our inflationary episode takes off!

Although the yellow metal has been on a spectacular 11-year bull run, recent strength in the economy–or at least the rising likelihood that the Fed will not be as loose in its creation of liquidity–has some investors thinking gold’s heyday is over. Throughout gold’s decade-long rise, price action over the short-term has gone both ways. 

Gold's Decade-Long Bull Run Is Still Alive ! 

Over the last couple of years, gold’s precipitous, and continued, rise fueled causal theories, with some investors attributing it to U.S. dollar weakness, others to a safe haven trade in the face of widespread market turmoil, an inflation hedge, or whatever they could correlate a chart with.  The yellow metal, though, appears as a Humean experiment in causality, marrying no single trend.

Gold has fallen nearly 9% since late February, trading at $1,628.5 an ounce on Thursday in New York.  Gold went on a rollercoaster ride over the last 12 months, rising to an all-time high above $1,900 last spring, then tanking about 18% to December, then rising a further 15.5% to this February.

According to Gartman, gold’s latest price action confirms the trend line has clearly been broken, indicating we’ve been in a bear market for 12 months, since it peaked.  In Thursday’s Gartman Letter, “in retrospect it does appear that gold has not been in a bull market but has indeed been in a bear market” since August 2011, when it peaked above $1,900. “Since then,” he added “each new interim low has been lower and each new interim high has followed. How, we ask, had we missed that fact!”

The world has been experiencing the largest liquidity boom, as the central banks’ seven-month easing binge continues. Over this time, ISI counted 127 different stimulative policies, such as printing money, lowering interest rates and other easing measures, taken by governments around the world. The policy shifts helped carry the equity market a long way from the low on March 9, 2009. At the time, we noted in a special Investor Alert that there were significant government policy changes that signaled the market had hit rock bottom. According to USA Today, from the 2009 bottom through the end of the first quarter, the S&P 500 Index increased more than 100 percent. No wonder U.S. equity investors are singing.

However, the side effect of the abundance of printing by the central banks in the U.S., Europe, Japan and England has bloated balance sheets amounting to nearly $9 trillion. This is double the amount that it was three and a half years ago, says Ian McAvity in his recent Deliberations on World Markets, as the printing presses have pumped our monetary system full of liquidity. This is merely “kicking the can down the road,” as central banks will have to deal with the overhang later.

This has historically been a strong positive catalyst for gold. An analyst at the Economics and Finance Fanatic blog put together a visual that illustrates just how strong of a catalyst the nonstop printing of money is. The chart compares the U.S. adjusted monetary base since 1990 with the “surging” price of gold. As you can see below, the amount of money in the U.S. system climbed to extraordinary heights since 2008, with gold following the same path.

The economic challenges of the U.S. and eurozone “promise to be a prolonged one with sluggish economic growth,” says the blog, and easy monetary policies will likely be the remedy for awhile. I believe this provides a strong case that any pullback in the gold price appears to be a buying opportunity. Ian says, “Tax uncertainty, festering toxic debt that’s out there but out of sight and impossible debt service ability looming? I’ll stick with gold and sleep better at night.”

Investors might sleep better at night with an allocation to gold in the face of continued negative real interest rates. The chart below shows how gold has historically climbed when interest rates fell below zero percent, with a strong correlation from 1977-84, and again recently when rates turned negative in early 2008.

What would have to change to make me turn bearish? I believe the following three actions would need to be taken:

1. Real interest rates would have to increase 2 percent above the CPI in the U.S. and Europe

2. GDP per capita in Chindia would need to fall, negatively affecting the Love Trade

3. Substantial fiscal cuts would need to be made in entitlement programs in the U.S. and Europe

I believe there is a low probability of these events occurring any time soon. In this environment, gold should thrive.

Fed unwinding will definitely deal a deadly blow to gold bulls, so the real question investors should be asking is: are we out of the woods yet?

If the gradual pace of economic improvement in the U.S. and the relative calm of European markets persists, then the global economy might be close to the edge of those woods.  No QE3 and higher interest rates before late-2014 would cause further damage to gold, as it would signal an improving economic environment where capital should once again channel into productive, and thus riskier, assets. 

Bernanke has remained cautious, noting downside risks still abound, while ECB chief Mario Draghi was blunter on Wednesday saying risks are definitely skewed to the downside.  Housing markets in the U.S. remain depressed and labor markets, while healthier, are still relatively weak.

With the Bernanke Fed guiding markets over the last couple of years, it should come as no surprise that gold prices are very sensitive to monetary policy.  Record low interest rates amid a weak global economy pushed nervous investors out of both risk assets and the safety of Treasuries.  A weak U.S. dollar, along with massive liquidity injections via QE, helped investors look to gold for it has always been: a store of value.

At this stage gold is set to continue being erratic in the immediate-term, relying on the economic expectations.  And the improving economic outlook does face substantial threats, though, particularly the European sovereign debt crisis (which promises to flare up again), which could stoke recessionary fears.  Add inflation, and you could see the yellow metal rally rise through the ashes like the phoenix.  At the end of the day, it all boils down to the true strength of the economic recovery.  Stay tuned !

Perm nanocoatings for St. Petersburg bridges

Perm’s Plackart, an innovative nanocoating asset of Russia’s largest nanotech company, Rusnano, has developed a project aimed at treating St. Petersburg’s numerous historic bridges with a new metalized anti-rust coating. The company says with this material the bridges will be much easier to operate over the next 15-20 years, saving the city up to 75% of current maintenance costs. 

By May the firm’s St. Petersburg branch office wants to draft a project concept. If the city approves, the company says it will start by revamping the famous Dvortsovy (Palace) Bridge next to the Winter Palace, a drawbridge first built in the late 19th century and still containing original parts in its movable section. Plackart believes with the innovative coating the city wouldn’t have to buy new parts and could avoid a major pricey overhaul. 

The project cost per bridge has yet to be determined. It will hinge on how many parts require repair. According to the firm, nanocoating one square meter of surface costs up to $50. To cut corners St. Petersburg could reject the nano and get Plackart to treat the bridges with an ordinary overlay—but that is assumed to compromise the lasting quality of work. 

The bridges of an architectural gem 

One of Europe’s most fascinating cities and an architectural pearl that UNESCO has put on its World Cultural Heritage list, St. Petersburg has more than 30 sizable historic bridges (not to mention many more petite ones) thrown across the Neva and its beautiful tributaries, such as the Fontanka, the Moika or the Griboyedov Canal. Most of them were built in the 18th-19th centuries, and some, like the illustrious Anichkov Bridge across the Fontanka, date back to the times of Empress Catherine the Great. 

The 260-meter-long Dvortsovy Bridge Plackart wants to revamp first has been given three face-lifts over the past century, but many metal parts are excessively worn out. 

Tapping regions 

Unlike many other nanocoating companies that find work with regional governments unprofitable, Plackart has reportedly partnered in bridge repair projects with municipal administrations in Omsk, Kurgan, Adler and Sochi, and some other Russian cities. 

Its expertise is not entirely new to St. Petersburg, either; the firm says it has helped local Vodokanal to overhaul its water supply system. An authority in charge of the city’s bridge system has no experience using nanotechnology in anti-rust bridge maintenance but “is interested” in the idea. 

Plackart hopes the authority will okay the project as the city is looking for good value for its money. For 2012, more than $33m has been allocated for an overhaul of St. Petersburg roads and bridges, of which about a million dollars will cover anti-corrosion measures. 

The developer 

Plackart is a $135m project launched two years ago with the sole focus of developing surface protection technologies, both conventional and nano-based, and offering innovative coating services. The start-up was co-financed by Russia’s Rusnano and another government-controlled company in charge of nuclear energy programs, Rosatom. 

RUSNANO was established in March 2011 as an open joint-stock company through reorganization of state corporation Russian Corporation of Nanotechnologies. RUSNANO's mission is to develop the Russian nanotechnology industry through co-investment in nanotechnology projects with substantial economic potential or social benefit. The Government of the Russian Federation owns 100 percent of the shares in RUSNANO.

As of early March Russian state technology firm Rusnano is teaming up with a VC venture fund in a deal to invest around $760 million in a number of U.S. healthcare technology companies, establish a manufacturing facility in Russia and bring new drugs to the Russian market. As part of the deal, Rusnano and life sciences technologies investor Domain Associates are planning to co-invest in about 20 US-based healthcare technology companies . Rusnano will invest up to $330 million while Domain's venture capital funds and other investors will invest a like amount, the companies said.The remainder of the money will be used to establish a pharmaceutical and medical device manufacturing facility in Russia. At this facility, products will be manufactured that have been created by the companies the pair invest in.

Plackart is shooting for a significant increase in sales by 2015 to about $220m and is tapping international markets in the hope of exporting at least 10-15% of its products.

The Coming Crisis in Chinese Private Equity: Too Few Deals Will Achieve IPO Exit

The amount of capital going into private equity in China continues to surge, with over US$30 billion in new capital raised in 2011. The number of private equity deals in China is also growing quickly.

More money in, however, does not necessarily mean more money will come out through IPOs or other exits. In fact, on the exit side of the ledger, there is no real growth, but instead probably a slight decline, as the number of domestic IPOs in China stays constant and offshore IPOs (most notably in Hong Kong and USA) is trending down. M&A activity, the other main source of exit for PE investors, remains weak in China.

This poses the most important challenge to the long-term prospects for the private equity industry in China. The more capital that floods in, the larger the backlog grows of deals waiting for exit. No one has yet focused on this issue. But, it is going to become a key fact of life, and ultimately a big impediment, to the continued expansion of capital raised for investing in China.

There is probably now over US$50 billion in capital invested in Chinese private companies, with at least another US$50 billion in capital raised but not yet committed. That is enough to finance investment in around 6,500 Chinese companies, since average investment size remains around US$15mn.

At the moment, only about 250 Chinese private companies go public each year domestically. The reason is that the Chinese securities regulator, the CSRC, keeps tight control on the supply of new issues. Their goal is to keep the supply at a level that will not impact overall stock market valuations.

Getting CSRC approval for an IPO is becoming more and more like the camel passing through the eye of a needle. Thousands of companies are waiting for approval, and thousands more will likely join the queue each year by submitting IPO applications to the CSRC.

In theory, it is possible that the CSRC could increase the number of IPOs of private companies. But, there is no sign of that happening, especially with the stock markets now trading significantly below their all-time highs. The CSRC's primary role is to assure the stability of China's capital markets, not to provide a transparent and efficient mechanism for qualified firms to raise money from the stock market.

Coinciding now with the growing backlog of companies waiting for domestic IPOs, offshore stock markets are becoming less and less hospitable for Chinese companies. In Hong Kong, it's generally only bigger Chinese companies, with offshore shareholder structure and annual net profits of at least US$20 million, that are most welcome.

In the US, most Chinese companies now have no possibility to go public. There is little to no investor interest. As the Wall Street Journal aptly puts it, "Investors have lost billions of dollars over the last year on Chinese reverse mergers, after some of the companies were accused of accounting fraud and exaggerating the quality and size of their assets. Shares of other Chinese companies that went public in the United States through the conventional initial public stock offering process have also been punished out of fear that the problem could be more widespread."

Other minor stock markets still actively beckon Chinese companies to list there, including Korea, Singapore, Australia. Their problem is very low IPO price-earnings valuations, often in single digits, as low as one-tenth the level in China. As a result, IPOs in these markets are the choice for Chinese companies that truly have no other option. That creates a negative selection bias. Bad Chinese companies go where good companies dare not tread.

For the time being, LPs still seem willing to pour money into funds investing in China, ignoring or downplaying the issue of how and when investments made with their money will become liquid. PE firms certainly are aware of this issue. They structure their investment deals in China with a put clause that lets them exit, in most cases, by selling their shares back to the company after a certain number of years, at a guaranteed annual IRR, usually 15-25 percent. That's fine, but if, as seems likely, more and more Chinese investments exit through this route, because the statistical likelihood of an IPO continues to decline, it will drag down PE firms' overall investment performance.

Until recently, the best-performing PE firms active in China could achieve annual IRRs of over 50 percent. Such returns have made it easy for the top firms like CDH, SAIF, New Horizon, and Hony to raise money. But, it may prove impossible for these firms to do as well with new money as they did with the old.

These good firms generally have the highest success rates in getting their deals approved for domestic IPO. That will likely continue. But, with so many more deals being done, both by these good firms as well as the hundreds of other newly-established Renminbi firms, the percentage of IPO exits for even the best PE firms seems certain to decline.

Partners at PE firms often expect exits through M&A to increase significantly. After all, this is now the main exit route for PE and VC deals done in the US and Europe.

But, there are significant obstacles to taking the M&A exit route in China, from a shortage of domestic buyers with cash or shares to use as currency, to regulatory issues, and above all the fact many of the best private companies in China are founded, run and majority-owned by a single highly-talented entrepreneur. If he or she sells out in M&A deal, the new owners will have a very hard time doing as well as the old owners did. So, even where there are willing sellers, the number of interested buyers in an M&A deal will always be few.

Measured by new capital raised and investment results achieved, China's private equity industry has grown a position of global leadership in less than a decade. There is still no shortage of great companies eager for capital, and willing to sell shares at prices highly appealing to PE investors.

However, unless something is done to increase significantly the number of PE exits every year, the PE industry in China must eventually contract. That will have very broad consequences not just for Chinese entrepreneurs eager for expansion capital and liquidity for their shares, but also for hundreds of millions of Chinese, Americans and Europeans whose pension funds have money now invested in Chinese PE. Their retirements will be a little less comfortable if, as seems likely, a diminishing number of the investments made in Chinese companies have a big IPO payday.

On Gold, A Cracked Dam, And The Fed's Small Thumb

 We have replaced fundamental growth with the illusion of growth brought on by constantly increasing the monetary supply, aka, inflation. But like any good Ponzi scheme, even this one has a limit and investors briefly approached it in 2008.  When it looked like our global banking system was going to collapse, investors started dumping everything in site, essentially a de facto rejection of dollar based assets.  Alas, this terrible 'fiat' system is finally coming to its' inevitable end.  

Real growth vs. the illusion of growth
Understand the below video Understanding Fiat and you will understand what I mean when I say that the United States of America (and the rest of the world for that matter) has not fundamentally grown much at all over the last 40 years. 

We have instead replaced fundamental growth with the illusion of growth brought on by constantly increasing the monetary supply, aka, inflation.

Usually, when a good or service is dramatically increased, it's price will fall.  Too many cars manufactured?  Prices will fall.  Too many new houses?  Prices will fall.  You get the idea.  Good ol' laws of supply and demand. 

But laws, especially economic ones, can be broken or at least bent for extended periods of time.  Too many dollars produced?  Rates should rise.  But that didn't happen.  Quite the opposite.

Despite the dramatic increase in the amount of dollars circulating since 1971, interest rates in the US have fallen.  Exactly the opposite of what the laws of supply and demand tell us should have happened.  How was this possible?

It's good to be king
The dollar is the world's reserve currency.  This means that the rest of the world buys and pays for things in dollars rather than their own local currencies.  This situation, brought to us by the winning of World War II and dominating the Bretton Woods Conference, created a convenient and almost constant demand for dollars. 

This constant demand for dollars has somewhat offset the constant creation of new ones.  Not entirely, of course, we have experienced periods of great inflation like 1973-1980, for example.  But the point is, our inflation has generally been much lower than anyone would have expected because the rest of the world has continually lined up to buy more dollars.

This has led to one of the greatest periods of sustained asset price appreciation in human history.  The period of time from 1980 to today is often-times referred to as the 30-year bull market for bonds which is another way of saying that rates have been falling for about 30 years now.

With rates falling for 30 years, every asset which is priced off of interest rates, which is basically everything, has gone up in price.  Bond math 101 says that as rates fall, asset prices rise.  Rates rise, asset prices fall.  Easy peezy.

But like any good Ponzi scheme, even this one has a limit and investors briefly approached it in 2008.  When it looked like our global banking system was going to collapse, investors started dumping everything in site, essentially a de facto rejection of dollar based assets. 

Houston, we have a problem.

The dam has cracked and the Fed has a small thumb
And what happened when the world stopped demanding as many dollars in 2008, aka deflation?  Why Benny Bernanke and the Inkjets at the Fed picked up the ball and started buying US credit (dollars) using... wait for it, wait for it... dollars they created out of thin air.  Lovely.

But the world is slowly waking up from it's 40-year slumber.  The money printing is starting to create inflation which is ravaging countries all over the world.  Interest rates are starting to rise and as mentioned above, asset prices are starting to fall.  With the owners of these assets sometimes having borrowed heavily to buy them on the assumption that they will always go up in price, even a small drop in price spells death.

Fiat currency, legal tender laws, fractional reserve banking and reserve currency status are a legal license for those that control the currency to steal from those that do not.

Alas, this terrible system is finally coming to its' inevitable end.  And good riddance at that.

The death of fiat money will be the best thing to happen to human freedom and liberty in over 100 years. 

However, you must realize that the deflation associated with the collapse of the dollar-based fiat monetary system will wipe out decades worth of false asset price growth in a very short time.  Think days or months.

Gravity is a real bitch
Bonds, stocks (particularly banks and leveraged companies), commercial real estate, residential real estate, auto prices, factories, etc., will be obliterated.  All of this is priced off of the "risk free rate" - the Fed manipulated Treasury rate - and all of these assets will collapse in price once the dollar is finally rejected as the world's currency, rates start to rise and the global monetary system enters the Great Reset, aka the Death of the 30 year bond bubble.

How far could these assets fall?  No one knows but think about this, in 2008 stocks fell over 50% from current levels while the existing corrupt system survived.  Where would it have fallen without the Fed pumping trillions into the banks that they could then pump right back into the market?

Real estate has fallen over 30% nationally with the government continuing to print, buy and lend to anyone with a pulse to prop the market up.  Where would housing price in the absence of taxpayer funded FNMA/GNMA/FHLMC easy credit, mortgage tax deductions and new home buyer credits?  I'm not sure but I certainly think we are going to find out in the near future.

How low can you go?
When the dollar loses its' primacy, it's not a stretch at all to imagine stocks falling much, much farther than their 2009 lows.  Any stock with too much leverage could suddenly find itself bid-less.  Think S&P 500 between below 500. 

Think commercial and residential real estate falling another 50-75%.  Imagine the vast majority of real estate transactions being done for cash, no mortgage financing.  What is the cash price for real estate today?  Who knows, but certainly a far cry from today's.

Was your grandfather lazy?  Mine wasn't.

Bonds will be wiped out.  Institutional investors could avoid bonds altogether for years as rates continue to leak higher.  The PIMCO's of the world are scrambling to put equity units together to catch their panicked clients exiting bonds.  

Think these downside scenarios are crazy?  Think about this: the fiat money binge dates back officially to 1971 when Tricky Dick removed the final vestiges of the gold standard.  In 1971, the S&P was at about 110, today it's around 1,400 or growth of well over 10x.  The median US real estate price in 1971 was about $26,000. Today that same number is about $155,000 or growth over 5x.

Now ask yourself this, as a country are we really 5-10x more productive than our grandparents?  Because productivity - doing things faster, smarter, cheaper and better - is the only way to generate real, fundamental growth.  Otherwise we're just creating credit and pretending like it's growth.

Now perhaps we are a bit more productive than our grandparents - computers, the Internet, global communications, more efficient vehicles, etc... - but 5-10x???  No chance.  I had the privilege of knowing my grandfather quite well and believe me, I am definitely not 5-10x more productive than he was (truthfully, it's probably the reverse).

What is the silver (or perhaps golden) lining you ask?

Countries will still trade with one another simply because the survival of their people (the seat of power for any government, even the Chinese) depends on it.  With the dollar being trashed and every other fiat currency with it, which is all of them, countries will turn to trade with the one currency that cannot be debased and has thousands of years of history backing its primacy. 

Gold.  Gold, bitchez.
Gold will be the surviving currency that will rise dramatically in value until a new global currency regime can be established and agreed upon.  Most likely years.  Bretton Woods was a relatively quick process, but remember, the US won the war so we made the rules with very little debate.  Things certainly won't work that way next time.

So while the coming deflation via rising rates will ravage the value of dollar-based assets (the aforementioned bonds, stocks, commercial real estate, residential real estate, auto prices, factories, etc...) gold will at a minimum hold your purchasing power and could very will rise many times from current levels. 

Then, in the heat of the deflation, when everyone you know is selling everything they own to simply stay afloat, you buy.  Sell your gold and buy.  With both hands.  Aggressively.  Greedily.  And if a bank will extend you credit based on your gold holdings, take it and buy with leverage.  You will be creating generational wealth.

Good luck and think long and hard about what you own and what's happening around us.