Weekly Market Update by Retirement Lifestyle Advocates
declined again last week as we anticipated they might.
Here is an excerpt from last week’s “Portfolio Watch”:
decline from here to move stock prices closer to their longer-term moving
average of price would not be surprising.
On a daily
price chart, the decline in stocks stopped at the 50-day moving average, an
important long-term technical indicator.
The Dow to
Gold ratio fell below 18. As our
longer-term readers know, our ultimate forecast has this ratio falling to 2 or
1. That means a lot more upside for gold
and more downside for stocks.
view, the manner in which wealth is stored, preserved and grown is changing
are not paying attention to financial and economic developments remain unaware
of these changes. However, anyone who
chooses to be a serious observer of these developments can see that fiat
currencies are weakening, and alternate wealth management strategies are
quietly becoming more mainstream.
these changes is wildly evolving monetary policies.
bankers around the world set money policies and they’ve painted themselves into
the proverbial corner. They have few
country and the world are focused on the impeachment trial and the coronavirus,
wealth preservation and storage are changing before our very eyes.
financial crisis, central banks resorted to printing money after reducing
interest rates to zero failed to produce the desired result of another boom
fractional reserve banking system under which we operate, as money moves from
one bank to another money is created.
Here’s a quick example.
$100,000 in my bank. Under the current
reserving rules of 10%, my banker must reserve $10,000 and can loan out the other
$90,000. In other words, money is
created as money is loaned.
If money is
moving fast and the velocity of money is high, more money is created. The $90,000 that my banker loaned to a home
buyer was paid to the home seller who deposited the $90,000 in her bank. That banker reserved $9,000 and loaned out
By reducing interest rates, borrowing becomes more attractive, borrowing activity increases and more money is loaned into existence. After the financial crisis, due to the level of private-sector debt that existed, borrowing did not pick up despite interest rates of nearly 0%.
Federal Reserve embarked on a path of “quantitative easing” or money
printing. Since money was not being
loaned into existence because private sector debt levels were too high and
consumers weren’t borrowing money, the Federal Reserve decided to just print
you hear or read that the Fed is expanding its balance sheet, it simply means
the Fed is printing money.
money printing creates the illusion of prosperity. In many areas of the economy today, this
prosperity illusion exists. But, in
other parts of the world, new and even crazier monetary experiments are being
In much of the world, bonds now have negative yields. A negative-yielding bond gives you back less than you invested at maturity.
Negative Interest Rate Policy, or NIRP as it’s known by, is changing the
dynamics of wealth storage, preservation and growth. This from “Zero Hedge” (Source: https://www.zerohedge.com/markets/negative-rates-are-forcing-german-banks-hoard-cash) emphasis
In the era of
NIRP, "cashless societies" like Sweden are at a clear disadvantage.
When banks are charging wealthy customers additional fees for storing their
cash on deposit, the option to transition a chunk of one's fortune to cash
suddenly makes sense. And as Bloomberg reported Friday, this phenomenon hasn't been lost on German
Note: Bloomberg story here- https://www.bloomberg.com/news/articles/2020-01-31/german-banks-are-hoarding-so-many-euros-they-need-more-vaults)
To help them keep as little money in reserve accounts as
possible, banks in Germany are reportedly stuffing vaults with euro
banknotes in to keep them handy for customers (and avoid the additional NIRP
tax on deposits). Some banks have hoarded so much cash that they're running out
of room and are searching for more storage. This behavior has been going on for
years, practically since Draghi introduced negative rates almost six years ago.
But the trend has gotten so out of hand German
banks are running out of space to stash the notes.
The physical cash holdings of German banks
rose to a record 43.4 billion euros ($48 billion) in December, according
to Bundesbank data published on Friday. That’s almost triple
the amount at the end of May 2014, the month before the European
Central Bank started charging for deposits and raising the pressure on
Germany’s already beleaguered banks.
By the end of last year, German banks were
holding a record amount of physical cash.
Andreas Schultz, who runs a German
savings bank had this to say, “These days it’s better to keep
funds in cash rather than park them at the ECB.
That’s despite the
risk, insurance costs and logistical hassle involved. It’s a ludicrous
demonstration of the consequences of the ECB’s interest-rate policy."
Frank Schaeffler, a member of the
German Parliament commented, “This is just the beginning. If it continues, we’ll see a boom for vault
makers and security companies.”
In our view, negative interest rates could become a worldwide phenomenon. If it happens, consumers and banks alike will look for alternative ways to store and grow wealth, likely outside the banking system.
Former Federal Reserve Board Chair Alan Greenspan stated fairly recently that it was his view that US interest rates could go negative. In a CNBC interview, Mr. Greenspan said, “You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States.” (Source: https://www.cnbc.com/2019/09/04/alan-greenspan-says-its-only-a-matter-of-time-before-negative-rates-spread-to-the-us.html)
Demand for secure
storage and alternate assets is exploding in Europe. Markus Weiss, managing director at Degussa
Goldhandel which sells gold and offers clients space to store their valuables
said, “We’re seeing increased demand for our safe deposit boxes, frequently for
storing cash. That high demand has
lasted for months now and we’re continuously expanding our capacities.”
to the next monetary experiment, it’s quite possible that we will see
helicopter money in our view. While no
one knows for sure, the advent of helicopter money could likely be the last
money experiment before the reset.
money was once proposed by former Federal Reserve Chair, Ben Bernanke, earning
him the moniker “Helicopter Ben”.
money is money that is printed but rather than using the newly printed money to
buy assets from banks, it is distributed directly to the public. It could come in the form of a direct bank
account deposit or a tax credit.
Secretary, Steve Mnuchin recently stated that the administration is working on
tax cuts for the middle class. A CNN
article (Source: https://www.cnn.com/2020/01/23/politics/mnuchin-trump-tax-cuts-2020-election/index.html)
quoted Mr. Mnuchin, “ They'll be tax cuts for the middle class, and we'll also be
looking at other incentives to stimulate economic growth.”
money may indeed be on the way.
will mean the way wealth is stored will continue to evolve. When doing your planning for 2020, think
tangible for some of your assets.
This week’s RLA Radio program features best-selling author, Harry
Tubbergen, chats with Harry about his forecast for stocks.
show is now available at www.RetirementLifestyleAdvocates.com.
are many other valuable resources available on that site as well. We’d encourage you to visit the site and
check it out.
one has ever drowned in sweat.”