On Gold and Why is Animal Protein Risky?

From: aditya rana
Date: Sat, Apr 20, 2013 at 2:31 PM
Subject: On Gold and Why is Animal Protein Risky?

Hi!,

The dramatic, and unprecedented, fall in gold prices over the last few weeks calls into question whether the 12 year bull market in gold has ended, ushering in a bear market in gold. Investing in gold typically elicits extreme responses from the gold “bugs” who view it as a hedge against a collapse of the modern monetary system and hyperinflation, while the gold bears view it as a barbarous relic which has no place in an investment portfolio. It is therefore helpful to look at more balanced views on gold from some savvy investors like Chris Wood (Chief Strategist at CLSA and author of Greed & Fear), Dylan Grice (ex-Soc Gen strategist and currently a hedge fund manager) and David Kotok (CEO of Cumberland Advisors):

Chris Wood:

– The fun and games this week has been in the gold market. As discussed here last month the risk of a break of the key technical level of US$1,520/oz has now eventuated. Rather than viewing this as confirmation of the end of the gold bull market, investors should see this as a massive buying opportunity while also being aware, based on the technicals, that gold could trade down to the US$1,200/oz level.

-As might be expected, the gold bugs are alleging an attack on gold by the establishment to break the 12-year long bull run in bullion. The bear case makes sense for those who believe the American economy is “normalising” and that Bernanke will be ending QE and resuming monetary tightening earlier than the market currently expects. Greed & Fear does not believe in such “normalisation”, nor should investors.

– Greed & Fear will admit to a certain surprise that gold has broken down over the past week rather than a month or two ago when the US data was better. For if hopes of normalisation in America have been driving the trade, gold should now be less vulnerable as the trend in American data has clearly deteriorated in recent weeks; be it employment data, retail sales or the ISM series.

-It is also bizarre that gold should have cracked after the Bank of Japan has just committed to a far greater monetary base expansion, relative to the size of the Japanese economy, than any manoeuvre so far attempted by Bernanke. Thus, the BoJ plans to double the monetary base from Y138tn or 29% of GDP at the end of 2012 to Y270tn or about 54% of GDP by the end of 2014. By contrast, the US monetary base has expanded from US$840bn or 6% of GDP in mid-2008 to US$2.9tn or 19% of GDP in March.

-Meanwhile, investors should also keep an eye on the extent of liquidation in gold. The most important area to watch here is the gold ETFs, given the recent popularity of investors in this supposedly “user friendly” vehicle. Thus, total gold holdings by ETFs tracked by Bloomberg surged from 0.5m oz in 2004 to a peak of 84.6m oz on 20 December 2012 and have since fallen by 8.6m oz or 10.2% to 76m oz, with most of the decline seen in the past two months.

Dylan Grice:

-Each boom has large corrections, and these are often violent. In the gold market, there was a break in the mid-seventies, when the price fell more than 40% (see chart below). It was painful, and many people wrote off gold then- it felt like the end of the bull market – which was not true as it turned out to be a healthy correction. In 1987, share prices fell by 25% in one day, but that did not mean the end of the bull market. 1994 broke the bond market, and 1997 the Asian markets, but in both cases, markets eventually recovered.

-The collapse does not necessarily mean that the gold bull market is over. It could indeed be over, but I think not. And in view of the greater whole, such a collapse is not important, even if it has a violent and unpleasant course. There are good reasons to own gold. And to buy gold, there is now a reason which did not exist a week ago: It’s 30% cheaper.

– States and financial systems are deeply in debt, interest rates can not fall further, real interest rates are negative, we live in a world of financial repression. The best possible outcome would be a gentle rise in interest rates in the coming years. This would be accompanied by negative real interest rates, because that is the only way for governments to gradually reduce their debt burden. In this scenario, long-term interest rates remain extremely low and imply overvalued stocks and bonds. That’s not a bad environment for gold.

– I was never bullish for gold, because I assumed higher inflation is imminent. Inflation is a slow and a long-term problem. You will not see it suddenly. Those who acquired gold for the wrong reasons, are selling. Those who maintain it now belong to a more stable investor base.

-Gold was up for twelve years in a straight line, which is extremely unusual and a downsizing and a correction was overdue. While the largest price drop in the past thirty years is unusual, on the other hand, these unusual incidents occur quite often in financial markets. The gold market has now become healthier.

Kotok:

-Our view about gold as an investment is slightly different from that of a trader. Gold is a long-term investment. We think it should constitute a small portion of a portfolio and be maintained on a continuing basis. It should be a relatively passive investment. Think of it as a type of insurance policy. So we would recommend gold acquisition, for those who are inclined to pursue it, on a very modest level, utilizing a dollar-cost averaging method. Buy a little gold and put it away. Forget the price. Come back again, buy a little more, add to your hoard, and forget the price. Look at gold as an insurance policy that you hope you never need to use. We do believe that abandoning gold completely and disparaging it as a barbarous relic is too extreme.

As I have reiterated in previous newsletters, gold should form a part (not more than 5-10%) of a well-diversified investment portfolio to protect against open-ended QE programmes undertaken by central banks around the world. Additionally, the cost of holding gold is negative in an environment of negative real interest rates and widespread financial repression. Therefore the recent extreme move in gold (see chart below) presents an attractive initial buying opportunity for those who have been looking to enter the market, while realising that further sharp moves on the downside cannot be ruled out as price movements in the near term are likely to be dictated by large speculative flows than real underlying demand.

With the global economy showing renewed signs of weakness – as illustrated by the Goldman Sachs’ business cycle Swirlogram (see chart below) which has slowed considerably driven by declining Consumer confidence, global PMIs, and Industrial metals – the expectations of a rollback in QE programs are likely to decrease which should be supportive for gold prices.

On why is animal protein risky?:

A new study by the world renowned heart research institute – the Cleveland Clinic – sheds some light on the mechanism by which excessive consumption of animal protein (through meat, dairy products and seafood) can lead to the clogging of arteries and heart disease:

Nature magazine : Sunday, April 7, 2013:

-Lean steak is low in fat and cholesterol and high in protein — qualities normally considered healthy. But eating a lot of it can still cause heart disease. Researchers have now laid the blame on bacteria in the human gut that convert a common nutrient found in meat into a compound that may speed up the build-up of plaques in the arteries.

-The results are published in Nature Medicinetoday. Co-author Stanley Hazen, head of cardiovascular medicine at the Cleveland Clinic in Ohio, says that the study could signal a new approach to diet and health. In some cases, an individual’s collection of intestinal microbes may be as important to their diet as anything on a nutrition label, he says. “Bacteria make a whole slew of molecules from food,” he says, “and those molecules can have a huge effect on our metabolic processes.”

-Consumption of red meat has been found to increase the risk of death from heart disease, even when controlling for levels of fat and cholesterol. To find out why, Hazen and his colleagues gave the nutrient l-carnitine — found in red meat and dairy products — to 77 volunteers, including 26 who were vegans or vegetarians. One committed vegan even agreed to eat a 200-gram sirloin steak.

-Tests showed that consuming l-carnitine increased blood levels of trimethylamine-N-oxide (TMAO), a compound that, evidence suggests, can alter the metabolism of cholesterol and slow the removal of cholesterol that accumulates on arteries’ walls.

-But even when they took l-carnitine supplements, vegans and vegetarians made far less TMAO than meat eaters. Fecal studies showed that meat eaters and non-meat eaters also had very different types of bacteria in their guts. Hazen says that a regular diet of meat probably encourages the growth of bacteria that can turn l-carnitine into TMAO.

-To further make the case, researchers checked the levels of l-carnitine in the blood of nearly 2,600 people who were having elective heart check-ups. By itself, the nutrient didn’t seem to make a difference. However, people who had high levels of both l-carnitine and TMAO were prime targets for heart disease, further evidence that it’s the bacterial alchemy — not the l-carnitine alone — that poses the real threat.

-Finally, the researchers found that feeding l-carnitine to mice doubled the animals’ risk of developing arterial plaques, but only when the mice had their usual gut bacteria. When the animals were treated with gut-clearing antibiotics, l-carnitine in the diet did not encourage plaques.

-Daniel Rader, director of preventive cardiovascular medicine at the University of Pennsylvania in Philadelphia, says that the study makes a “fairly compelling” case that intestinal bacteria feeding onl-carnitine increase the risk of heart disease.

-The finding should give pause not only to meat lovers, but also to people who take l-carnitine supplements, which are marketed with the promise that they promote energy, weight loss and athletic performance, says Hazen. “None of those claims have been proven,” he says. “I see no reason why anyone needs to take it.”

Here is to keeping the consumption of animal protein under check and hanging onto some gold!

Regards,

Aditya

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