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Agcapita September 2012 - Bull Market in Unintended Consequences Continues
Agcapita September 2012 - Bull Market in Unintended Consequences Continues
Agcapita September 2012 - Bull Market in Unintended Consequences Continues
Agcapita September 2012 - Bull Market in Unintended Consequences Continues
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Agcapita September 2012 - Bull Market in Unintended Consequences Continues

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The central bankers of the two key western economies have pulled out all the monetary stops in recent weeks. Our mandarins of money assure us that this time their efforts will be sufficient - that …

The central bankers of the two key western economies have pulled out all the monetary stops in recent weeks. Our mandarins of money assure us that this time their efforts will be sufficient - that this “unlimited” expansion in central bank balance sheets/ money-supply will provide the raw material for a rebirth of real growth in the west.

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  • 1. Agcapita UpdateSeptember 20, 2012
  • 2. Agcapita UpdateTHE BULL MARKET IN UNINTENDEDCONSEQUENCES CONTINUES - STAGFLATIONThe central bankers of the two key westerneconomies have pulled out all the monetary stops inrecent weeks. Our mandarins of money assure usthat this time their efforts will be sufficient - that this“unlimited” expansion in central bank balance sheets/money-supply will provide the raw material for arebirth of real growth in the west.I would disagree - the western economies currentlyhave in place the raw materials for stagflation: – Aging populations; – Large unfunded public liabilities; – High total debt-to-GDP levels; – Low savings rates; – Overhang of unliquidated mal-investments; – Growing state sectors; and – Large fiscal deficits.The monetary authorities are simply adding more ofthe critical ingredient - devaluing currencies. All of theissues above have been well documented over thelast few years and yet strangely stagflation does notseem to be on the market’s radar - a Google trendssearch for “stagflation” reveals what seems to be acertain complacency on the issue.I think we will begin to see a change in marketperceptions - and more importantly investmentpositioning - as the consequences of the unwaveringcommitment of the central bankers of the worlds twolargest economies, the US and the EU, to unlimitedmoney printing become apparent. Risk assets of allkinds, of course, have been showing considerable lifeas of late, but over time I would expect the hard asset 1
  • 3. Agcapita Update (continued) GOOGLE TRENDS SEARCH FOR “STAGFLATION”Search Volume index C B D F A E0 2004 2005 2006 2007 2008 2009 2010 2011 2012News reference volume0sub-category to be the winner and financial assets, the liquidation of decades of mal-investment, byparticularly sovereign debt, to be the loser. subsidizing speculation and consumption to the detriment of production (and so on) central bankersNow matter how much Chairman Bernanke would will not create a recovery. Unless these problems arelike to believe to the contrary, currency debasements addressed they are creating a volatile, inflationarydo not generate economic recoveries. To indulge environment with poor real growth dynamics - i.e.in what has become a trite observation, if it were so the ideal raw materials for stagflation in the west.Zimbabwe would be a prosperous country. Likewise, Stagflation combined with volatility presents theto keep the money supply growing aggressively in average person with a very difficult investmentthe stagnant economies of the west will not produce environment, one where even simple capitalthe desired outcome of real growth and increasing preservation becomes a challenge.employment. Of course - the banking system bonus machine mightBy insisting on printing over the systemic solvency be saved and in the end perhaps that’s all that reallyissues in the financial sector, by actively preventing matters. 2
  • 4. DISCLAIMER: The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Agcapita Partners LP (“AGCAPITA”) and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither AGCAPITA nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to AGCAPITA and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting AGCAPITA or its relevant affiliate directly.#205, 120 Country Hills Landing NW Tel: +1.403.608.1256 www.agcapita.comCalgary, AB T3K 5P3 Fax: +1.403.648.2776Canada

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