It’s been a few weeks since we’ve done  a Q&A so feel free to use the comments section to ask away about anything on your mind.  Anything goes….I’ll get back to you on Monday.  And don’t forget, if you ever have a question you can always use the “Ask Cullen” section.  I’ve answered almost 500 questions there so keep ‘em coming.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • leftcoast

    I’ve seen you comment in the past that when you were managing money you were a master hedger and still beat the S&P 500. I find so many times hedging techniques are expensive and while they may create a low volatility portfolio, they usually do little more than ruin your chances of outperforming.

    I was wondering if you could provide some resources that helped you learn that particular area of your craft.

  • http://neweconomicsynthesis.wordpress.com/ Britonomist

    What are your views on bank regulation? Do you support higher capital requirements? What about regulations designed to separate investment banking from retail banking?

  • Stephen

    Do you buy in to the notion that over the long-term, the price of gold is correlated to global money supply levels as measured by M2? Please see chart in link below and let me know what you think. If you do believe that there is some correlation, I think this topic would make for a great article and interesting debate.


  • http://neweconomicsynthesis.wordpress.com/ Britonomist

    I’d like to see a chart comparing differences or detrended measures of gold and m2, when you’re just comparing two time series with an upwards trend over time economists refer to that as a spurious regression, it doesn’t tell you much.

  • http://jerrykhachoyan.com TheArmoTrader

    Are free-floating currencies a modern-day thing? In this post (http://pragcap.com/all-fiat-money-systems-fail-right-wrong) you talk about how fixed exchange rate currencies & gold standards have always failed.

    How long have free-floating currencies been around for?

  • Jonathon McKitrick

    If the goverment runs a deficit in a given year, and part of that money spent is ‘created out of thin air’ as opposed to being (a) ‘borrowed’ in the form of bond sales to non-Fed entities or (b) raised via tax revenue, what is the most effective way to remove that excess money from the system to avoid future inflation?

  • Mikael Olsson

    Profits floating into ever-increasing cash piles that never get spent on the aggregate. The top 1% hoarding greenback like crazy old cat ladies hoard cats. The financial sector in general.

    Don’t worry, it’s ongoing. It’s doing so well that we have to keep creating new money at a 5-10% per year rate (via bloating house loans) to stave off recession.

  • Mikael Olsson

    Also, of course, in the case of USA, the trade deficit helps drain money from the system. $3tn from the start of the recession.

    Also the keynesian answer: Raise taxes and stockpile some govt reserves in preparation for the next downturn. (As if politicians would ever do that, hahaha :))

  • Mikael Olsson

    Talking about free-floating currencies really only makes sense after trade started going global. Metal based currency made sense as a response to global trade picking up in an attempt to have a universally recognized currency. But as history has shown, it has other problems. After the advent of international telephony, there was really little purpose for metal currency.

    If you mean fiat money there’s mention of it as far back as written history goes.

  • freemarketeer

    What sort of things did you do to trade earnings back in your past life?

  • Joyce

    Kyle Bass is once again predicting the demise of the Yen. Even with a basic understanding of MMR the fact that the Yen continues to go on its merry way tends to baffle me. Has anyone published an essay that clearly explains what keeps the Yen from crashing with such awful debt, demographics and now a trade deficit as well.

  • Tim

    Any chance you would consider running a Black Friday shopping special for your annual Orcam Research notes currently offered at $499/year?

    Thank you for the consideration!


  • Gary_UK

    US Govt gold holdings fell from 22,000 tonnes to 8,000 tonnes in the 50s and 60s, due to foreign governments exchanging their dollars for gold.

    During this same period the US had no trade deficit.

    Can you explain how the two are related, and why the USGovt felt it needed to waste money storing those remaining 8,000 tonnes?

  • Pierce Inverarity

    1) It’s MR, not MMR.

    2) The Japanese economy continues to be productive, therefore its currency is valuable as a safe haven for investors and a needed in order to procure goods and services from its people. The “debt” that the government has incurred is a financial asset denominated in JPY, that’s it. It’s a savings instrument for the JPY balance sheet.

  • ely

    What is your stance on social security? What’s the best balance to allowing people to invest for retirement on their own without letting it become so large that it over-financializes the U.S. What’s a good solution to balancing out demand leakages associated with IRAs/401ks? Thanks

  • Ted

    Any thoughts to how low the S&P can go? At what point would you find it attractive? It’s beginning to look like a good buying opportunity as fear over the fiscal cliff is weighing on the markets…

  • Mikael Olsson

    +1 wanting to see Cullen’s take on this!

  • Cowpoke

    How are comment’s monitored? How do you regulate what comments get posted, is there an approval process?

  • Garibian2

    I get your distinction between between investing on the primary and secondary market and the fine line between investing and speculating. So when I buy or sell a stock on the secondary market where does the money really come from? Is it really a zero sum game and am I just taking money out of Bferro or V11 ‘s pocket?):

  • dijssel5

    Hi Cullen,

    If the Dems and Reps can reach some deal about the fiscal cliff, do you foresee a face ripping rally like the one you predicted at the end of last year. Btw, that time you were right on target. Or do you think that worries about the profit cliff will dominate the general sentiment. Love your work!

  • Mikael Olsson

    Buying and selling on the secondary market is nearly always a zero sum game. When you buy, your money goes straight to whoever was holding the shares previously.

    The one exception is when a company is doing a non-directed emission of new shares. Then you are buying straight from the company and they are the ones getting the money. But that happens only rarely.

  • whatisgoingon

    This was a comedic jab at Japanese Bonds by zerohedge recently.

    I understand MR and your previous bond vigilantes blog post and understand that a country that issues its own currency can always make the holder of the bonds whole in nominal terms for the face value of the bond.

    That said, if these government bonds are “risk free” in nominal temrs then are these bonds assets exempt from a Minsky moment type scenario?

  • Greg

    As long as Japan can produce enough domestically, which can be sold domestically then they shouldnt have a Minsky moment with their bonds. If you become dependent on someone else to produce something you need then you have no guarantee that your form of payment will be accepted.

    Seems to me Japan would have more of a problem with this than the US does. We truly CAN produce virtually everything we need. Im not sure Japan can

  • http://www.orcamgroup.com Cullen Roche


    You’re starting to sound like a real MRist!

    Btw, get out there and do something this weekend! Only the losers like me are sitting in reading. :-)


  • Gary_UK

    And yet you’ve run a massive trade deficit since the 70s.
    Just lazy eh?

  • Bond Vigilante

    But the USD is the world’s reserve currency and that changes A LOT OF things.

  • Bond Vigilante

    In other words: As long as Japan continues to run a Current Account Surplus. But that surplus is currently turning into a deficit. Japan, here’s your Minsky moment coming.

  • whatisgoingon

    I noticed from the Koo’s recent presentation that US interest rates bottomed and began to rise after the pearl harbor attack in 40s.

    I suspect the reason for rates starting to rise then was the inflationary concerns from war deficit spending. I was going to ask how well the Fed could control rates if there was a war but I did notice that rates rose slightly after the gulf war and after 9/11 but continued their continued decline thereafter. And if rates rose because of inflation and war related employment growth that might be a acceptable outcome.

    That said, how concerned are you that the brilliant elected officials in Washington will choose to start a war to spur the economy because that is the only are they can agree to deficit spend?

  • whatisgoingon

    Last question. I often read the gold bug blogosphere (and now by some mainstream pndits) how we all need to be worried about how gold is moving from the west (US) to east (china). That is
    – China balance sheet is improving because gold does not have a counter party liability like treasuries have
    – This is evidence of wealth transfer from US to China. That is, China’s purchase of gold and diversifying from Treasuries is in some way the market’s way of reinstituting the gold window that Nixon closed by settling the large US trade deficit in gold.

    Can you please destroy this myth and let me know why I should not worry?

    Also why are these emerging central bankers acquiring gold?
    And why doesn’t the US government dump its useless gold reserves. Does holding the largest amount of gold reserves serve any purpose for the US?

  • Rich

    You often hear the story of how George Soros “broke the Bank of England”…but, since the UK is a sovereign currency issuer as well, how is such a thing possible ? Can you explain how you perceive this event ?

  • Cowpoke

    From your previous experience, Do you know if Large Firms on Wall Street have dedicated departments that solely focus on lobbying (influencing)K street (political)? I know they do as all companies, maybe I should rephrase it in a more simple term. What percentage (company resources) would you say a typical wall street investment firm spends on lobby group.


  • troll1

    Cullen: Wondere of wonders, I have a thought/question.
    I understamd how you feel about the “inflationistas”, but suppose I frame the issue in a different manner. With the FED’s easy money scenario and the resultant low interest rates, is it possible that we’re having inflation occurring that is masked? Has anyone compared inflation rates to FED interest rates over the years? What would be the ratios? It could produce an illuminating chart.
    Thanks for being there.

  • troll1

    Sorry ’bout the spelling, I can’t find my glasses.

  • Cowpoke

    OH, One more question..
    Since it’s open line and all… As far as Women go do you prefer Blondes, Brunettes OR Redheads (believe it or not there is a financial correlation)?

  • Cowpoke

    Brother, I feel your pain..

  • whatisgoingon

    And just to add a bit more context to this question – I read that Basel 3 moves gold from a Tier 3 asset to a Tier 1 asset (equivalent to say treasuries). As I understand it, part of the reason was that QE and central bank bond buying programs have decreased the previous available sources of Tier 1 capital (treasuries).

    The question, how do you reconcile between as I understand MR theory (gold is a commodity) and the actions and direction of what appears to be happening in the “real world”?

  • The Undergrad

    When I read Bass’ writing, I feel as if he is so close to getting ‘it’. It being how our economic machine operates. But yet he fails to connect all the dots in understanding the bigger picture, probably because his Austrian bias does not allow for it.

  • Rich

    HaHa…if I can throw in my 2-cents, if the financial correlation is which ones are most likely to spend all your money, then from my experience it’s evenly distributed.

  • micro2macro


    Can you possibly debate on radio or TV Kyle Bass on what Japan’s position is? You could issue a public challenge!

    It appears that Kyle is getting upset that his Japan play is not working out for him.

  • Bruce in New Orleans

    Hello Cullen et. al.,
    I have been seeing that MR and several of the ideas that have been espoused on Pragmatic Capitalism becoming more mainstream. This is interesting as there is now lots of talk about the balance sheet recession (see http://www.businessinsider.com/balance-sheet-recovery-2012-11) and how it’s ending will save the economy for 2013. What is your take on it?

    PS Thanks for giving us such a clear picture of the “reality of the economy! It really has reduced my fears over the past 3 years!!

  • http://www.chpc.biz Brian_Ripley

    From JKH http://monetaryrealism.com/recommended-readings/

    S = I + (S – I)

    JKH: “Private sector saving = investment, plus the change in private sector net financial assets.”

    AND (S – I) = (G – T) + (X – M)

    Cullen, why does (G – T) + (X – M) = the change in private sector net financial assets?

    What is it about the net Federal spending (G – T) (spending less taxes) plus the net Import Export balance (the Capital Account) (X – M) that is a “change” ?

    S = I + (a change from what to what to what ?)

    Thanks, BR

  • Mikael Olsson

    Funny. MY increased understanding of the economy is scaring me! (In a long-term global way.)

  • Happy Swede


    Very skeptical towards the whole idea of hoarding financial assets for pensions (and I work with this stuff). Serves no purpose on aggregate other than feeding wall street. Why not just pay people pensions proportional to how much they paid in taxes during their worklife straight from the gov (revenue for this not an issue as we know) and index to inflation or something like that.