Porphyrios
“One who deceives will always find those who allow themselves to be deceived.” - Niccolo Machiavelli
Looking at more inflationary pressure building up, with slowly rising oil prices, in conjunction with continuing “shipping issues” with the addition of the disaster in the Baltimore harbor incident, when it comes to selecting our title analogy we reminded ourselves of the story of “Porphyrios”, yet another “Double entendre”. “Porphyrios” was a large whale that harassed and sank ships in the waters near Constantinople in the sixth century. “Porphyrios” was active during 50 years and caused great concern for Byzantine seafarers until Emperor Jusitinian I (527-565) decided to deal with it. “Porphyrios” eventually met its end when it beached itself near the mouth of the Black Sea and was attacked and cut into pieces by a mob of locals. It is believed that the name of the whale alluded to the color of “royalty”, imperial purple that is as a sign of great awe for the whale. The term “whale” is frequently used to qualify big money participants in the market. The Bank of Japan has often been qualified as the “Tokyo Whale” since it became a major participant and holder in the Japanese government bond (JGB) market but it has also become an ETF whale as well. As such in 2017 we asked ourselves, how long can the rally in equities could continue given Central Banks such as the Bank of Japan, the SNB and others have been in the "investment business". At the time we though that the sky's the limit but when looking at more and more central banks being in “negative equity”, and the ongoing move in gold, we are starting indeed to get somewhat some Weimar vibes because sure QE doesn’t matter but the asset side of the balance sheet certainly does, but, we ramble again…
In this conversation we would like to continue to look at the recent price action in industrial metals (copper comes to mind) following a strong rally seen in some parts of “soft” commodities (such as Cocoa and Sugar) and what the unfolding rally in precious metals means. As such, we would like to discuss this “Weimar” feeling of ours coming from the “negative equity” position of various central banks. One might argue that QE matters, but in Quasi Fiscal Deficit (situations) such as in the United States which we previously discussed in our musings, the asset side of the central bank balance sheet matters more.
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