Practical Holiday

"Do you know what this means? It means bankruptcy and scandal and prison. That's what it means!"
--George Bailey (It's a Wonderful Life)

Mr P checks in with some year end candor. He sees risk as high and increasing. Lopsided sentiment, rich valuations, and a deteriorating macro context (despite what mainstream financial media are reporting).

Unlike many, Mr P continues to doubt the Fed's capacity for endless money printing. He thinks the Fed will be reluctant to infinitely expand its balance sheet (which is what happens w/ the QE programs).

Meanwhile, folks have been slapping on the dollar carry trade in massive size thinking the Fed will in no doubt destroy the dollar. If this trade reverses, the movement to sell risky assets to buy back dollars could be harsh.

Essentially, Mr P thinks that further QE activity will move rates substantially higher (they're already on the move), which will discourage the Fed from further money printing. At that point, we face the 'funding crisis' that Fleck often discusses.

One of two things happen at that point. Either the Fed starts printing money and dropping it from helicopters, or central banks get out of the way and let market forces take over.

Mr P remains in the camp of the latter scenario which, if it occurs, is deflationary.

I'm pretty much camping on similar ground. Am carrying little upside risk into year end. Instead, lots of cash with small short equity and long Treasury positions. Plus, zero debt...

My primary hedge against the opposite (Big Inflation) scenario remains physical gold.

position in SH, TLT