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Austrian School Of Economics

Capital markets are inefficient from time to time. This holds true for whole asset classes as well as for individual stocks. Government market interventions will increase and magnify these misalignments.

On the one hand, we focus our analytical efforts on better understanding the effects of government action on economic activity and the financial markets. This analysis is based on the framework the Austrian School of Economics because this framework can best explain and forecast the impact of government interventions on individual companies and sectors. Because we are long-term oriented, we look for companies that are capable of surviving even a full-blown currency crisis or currency reform.

On the other hand, we search for price misalignments in stock markets. Of particular interest for us are companies with the ability to compound earnings at high rates of returns during times of inflation. As value investors we do not engage in any kind of market timing. We constantly compare the market price of certain stocks with their intrinsic value. We buy stocks only if there is a sufficient margin of safety between its market price and its intrinsic value. In that sense, we take advantage of stock price gyrations. However, value investing is the foundation of our investment activity.

Polleit & Riechert Investment Management LLP stands for the integration of both pillars: the Austrian School of Economics and value investing.

Austrian School Of Economics

The Austrian School of Economics is a comprehensive economic school of thought, which studies economics from the viewpoint of purposeful action of individual actors. It originated around the end of the 19thcentury in Vienna, Austria. The insights of the “Austrians” stand in sharp contrast to today’s mainstream economics. Interestingly, the ”Austrians” foresaw the current crisis whereas mainstream economists have not.

The methodology of the “Austrians” provides a theoretically sound explanation of the root cause of the current financial and economic crisis. Furthermore, the Austrian methodology allows one to identify economic regularities and deriving robust structural forecasts, especially as a result of government market interventionism.

Value Investing

A value investor invests his money only if (1) he can come up with a reliable estimate of the true economic value of a company and (2) there is a sufficient discount between the company’s intrinsic value and the current market price (which is called the margin of safety). Value investors therefore take advantage of situations in which assets are mispriced in the market place.

The founding father of value investing is Benjamin Graham (1894 – 1976). He primarily concentrated on investing in undervalued assets. Warren E. Buffet developed Graham’s strategy further, investing in those companies that (1) enjoy a sustainable competitive advantage (market entry barriers) and (2) are in a position to compound their profits at high returns on capital.

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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Financial Repression describes an economic policy in which capital controls and regulations are implemented by governments and central banks, the aim of which is to reduce public debt burdens through the distortion of financial market pricing.
"When things get bad enough, governments will do anything." – Jim Rickards

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HOW IT HAPPENS

"People ask if we'll have a 'bail-in' in the United States .. Given ATM limits, foreign wire limits and Federal Reserve exit fees on bond funds, I'd say it's already here." - Jim Rickards

1- Negative Real Rates
2- Disruption of Price Discovery
3- Mispricing of Risk
4- Sustained Financial Distortions
5- Restrictive Financial Choices
6-Confiscation of Wealth Through Inflation
Financial Repression always means a combination of measures that lead to a notable narrowing of the investment universe for investors. Money is thus channeled into specific directions to create a ‘home bias.
TOOLS USED

The next bailout will be the U.S. government. They will seize all pension funds and 401Ks to absorb the debt. They are realizing that as the war cycle turns up, less and less foreigners will buy U.S. debt ... The solution – forced loans." - Martin Armstrong

1- Monetary Policy
2- Distortions - Statistics, Reporting
3- Fiscal Policy - Budget Deficits
4- Moral Suasion - Political Pressures
5- Taxation - ROE, ROI
6-Regulators - Financial Requirements & Enforcement
7- Stealth Credit Spreads
8- Capital Account & Financial Excahnge Controls
PILLARS OF FINANCIAL REPRESSION

"We’re going to take your pension plan and give you government bonds so that you have a guaranteed return .. That’s how they’ll rationalize taking our money. They know where all the pension plans are because we have to report it, so they’re easily accessible by governments. They know where they are, what they are, and they’ll be able to snatch them away. Who knows what they’ll do, but they’ll certainly find some way to take our money when things get worse, they always have." – Jim Rogers

1- Strict investment regulations (Solvency II, Basel III)
2- Negative real interest rates g
3- Interest rate ceilings s
4- Open credit dirigisme
5- Nationalizations
6-Regulation of cross-border capital movementst
7- Prohibition of unwanted trading practices such as naked short selling
8- Compulsory loans
9- Prohibition of certain investment assets (e.g. gold)
10- Special taxes (e.g. securities taxes, financial transaction taxes, wealth taxes, higher value added tax on silver, import duties on gold etc.)
11- Direct interventions, such as government intervention in pension funds (Portugal, Ireland, France, Hungary) and subsequent redeployment of investments in favor of government bonds.
12-Growing discrepancy between financing costs of private sector participants versus governments.

13- Haircuts on deposits (e.g. Cyprus)

OUR COMMENTARY

"This manipulation of the yield on government debt is the answer for the government, and socially, it is so much more acceptable than the alternatives. Whatever you think of the history of hyperinflation, austerity, default and deflation, they are socially incredibly disruptive, incredibly socially dangerous, and many of those market-driven events have led to warfare or massive domestic social unrest. I think in the grand scheme of things when the government sits down and decides which avenue to pursue, this avenue of repression .. will always be more socially acceptable than the market-driven events of austerity, hyperinflation, deflation, devaluation." - Russell Napier, CLSA

 

 

From the U.S. standpoint, it’s now a case of 'inflate or die,' and much of the world knows this. Thus if the U.S. decides not to default on its massive debts, it will have to resort to hyperinflation. If this happens, the U.S. will single-handedly tear the world monetary system apart. What worries me is that governments will do whatever they have to in order to remain in power. This can result in confiscation of the assets of U.S. citizens .. America's massive debts will ultimately upset the world’s monetary system." - Richard Russell

 

The term ‘Financial Repression’ was first employed by McKinnon and Shaw in 1973 and has been rediscovered in the course of the current crisis by Reinhart and Sbrancia in their paper “The Liquidation of Government Debt.”

Federal Reserve Must Print Money To Keep Interest Rates Low - Cliff Küle 05 June 2021

Financial Repression To Accelerate With Increased Desperation - KWN 24 March 2021

Monetary Policy Under Financial Repression: China's Long-Term Outlook Financial Sense 20 Dec 2021