Incrementum Advisory Board Discussion of 23 Oct 2019

In late October the Advisory Board of the Incrementum Fund held its quarterly meeting (a transcript is available for download at the end of this post). This time the board was joined by special guest Dan Oliver, the manager of Myrmikan Capital and president of the Committee for Monetary Research & Education. Myrmikan inter alia publishes excellent and quite original research on gold which we hereby highly recommend.

Dan Oliver of Myrmikan Capital

A few weeks before the Advisory Board meeting, the repo market quake had struck and the Fed had already formulated and announced its response. Obviously this was one of the topics that came up for discussion. The Fed has now become a major counterparty in the repo market and provides the liquidity primary dealers need to fund their inventory. Concurrently it is rolling back a significant portion of the previous “QT” effort via a new QE program – although we are not supposed to call it that.

Whatever the asset purchases are called, they have precisely the same effect on bank reserves and the money supply as previous QE programs and money supply growth is accelerating accordingly. Since the Fed’s new interventions increase financial market liquidity, they indirectly affect the stock market as well (there is a reason why the market seemed utterly impervious to news of declining earnings growth and weakening economic data recently).

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A chart showing the weekly level of the Fed’s outstanding repurchase agreements. This is quite a sizable operation (especially compared to the previous level of zero).

Dan Oliver also had quite a few interesting comments on gold to share with us. Consider for example the following fascinating chart – it shows something not too many people are aware of (at least we haven’t seen it mentioned anywhere else):

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The history of commodity prices relative to the US dollar and gold since the late 18th century. In the long term, gold is becoming ever more valuable relative to other commodities – the same can evidently not be said of the dollar.

The rising real price of gold essentially reflects the fact that the supply of gold has increased at a slower pace than economic productivity. Combine sound money with a progressing economy, and this is the outcome – the purchasing power of the sound money will increase over time. As the chart also indicates, this long term trend is frequently interrupted – and these interruptions tend to coincide with major credit and asset bubbles.

Gold may be officially demonetized – but the market certainly seems to know it is money and is treating it as such.

For more from Dan Oliver, Jim Rickards and the rest of our regular participants, click the link below to download the transcript – enjoy!

Incrementum Advisory Board Meeting 23 Oct. 2019, Transcript (PDF)

Charts by St. Louis Fed, Myrmikan Capital