Nobel laureate in economics says Bitcoin’s true value is zero, gold is a ‘terrible’ inflation hedge – Eugene Fama

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https://www.youtube.com/watch?v=/xSiwlUTcoXs

Bit­coin and gold are bad long-term invest­ments, said Eugene Fama, 2013 Nobel lau­re­ate in eco­nom­ics and Pro­fes­sor of Finance at the Uni­ver­si­ty of Chicago.

“This is a case where the mar­ket hasn’t fig­ured out [Bit­coin] has no val­ue,” he said. “At the moment, I guess even the crooks don’t trans­act and hold it. They’ll prob­a­bly trans­act in it, then give it up quick­ly for some­thing else because it’s just too risky.”

When it comes to gold, Fama stat­ed that it has a “high­ly volatile price” and is a “ter­ri­ble hedge against infla­tion because its price is too vari­able rel­a­tive to the price of goods and services.”

Fama, who won the Nobel Prize in 2013 for his work on asset pric­ing, port­fo­lio the­o­ry, and the effi­cient mar­ket hypoth­e­sis, spoke with David Lin, Anchor and Pro­duc­er at Kit­co News.


Infla­tion and the U.S. Dollar

U.S. head­line infla­tion was 8.5 per­cent in June, its sec­ond-high­est lev­el in 40 years. Fama said that infla­tion wor­ries him “a lot.”

To tack­le infla­tion, “in the old days, [The Fed] would con­tract its sup­plies of reserves,” said Fama. “But now it thinks it can do it by rais­ing the inter­est rate on reserves, mak­ing peo­ple less will­ing to hold oth­er assets or do any­thing else… But the ques­tion is, how high is that inter­est rate?”

Fama stat­ed that even if the Fed were to raise inter­est rates to high lev­els, “we don’t know if it would work at all” to fix infla­tion, since “this regime nev­er exist­ed before.”

He added that if he were Fed Chair­man Jerome Pow­ell, he would “get anoth­er job.”


Effi­cient Markets?

The effi­cient mar­ket hypoth­e­sis (EMH) is close­ly asso­ci­at­ed with Fama, who won the Nobel Prize part­ly for his work in this area. The EMH claims that it is not pos­si­ble, on aver­age, to beat the mar­ket, since all avail­able infor­ma­tion has already been priced in.

“The main impli­ca­tion [EMH] has for investors is that it’s impos­si­ble to beat the mar­ket,” said Fama. “So, basi­cal­ly, pas­sive invest­ing is the way to go.”

He added a caveat that “mar­kets are not effi­cient as far as insid­ers are con­cerned,” point­ing out that insid­er trad­ing can weak­en the EMH.

When it comes to the impli­ca­tions of EMH for man­aged funds, Fama stat­ed, “when you look at active man­agers, every­body claims to have spe­cial infor­ma­tion, and most of them don’t.”

As for tech­ni­cal analy­sis, he said “I don’t want to be insult­ing, [but] basi­cal­ly I think that’s a hope­less activity.”


To find out Fama’s thoughts on the great­est risk to the glob­al econ­o­my, watch the video above


Fol­low David Lin on Twit­ter: @davidlin_TV


Fol­low Kit­co News on Twit­ter: @KitcoNewsNOW



Dis­claimer: The views expressed in this arti­cle are those of the author and may not reflect those of Kit­co Met­als Inc. The author has made every effort to ensure accu­ra­cy of infor­ma­tion pro­vid­ed; how­ev­er, nei­ther Kit­co Met­als Inc. nor the author can guar­an­tee such accu­ra­cy. This arti­cle is strict­ly for infor­ma­tion­al pur­pos­es only. It is not a solic­i­ta­tion to make any exchange in com­modi­ties, secu­ri­ties or oth­er finan­cial instru­ments. Kit­co Met­als Inc. and the author of this arti­cle do not accept cul­pa­bil­i­ty for loss­es and/ or dam­ages aris­ing from the use of this publication. 



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