We often get questions from readers about the criteria we use when considering positions in a market. Because of that, we decided to release our best insights in this article. The reason we mention 2017 is that market conditions tend to change over time, and so do our criteria. The investment tips in this article are up-to-date, […]
Europe’s economy is at a standstill. This summer was full of critical developments in the Eurozone: InJune, the European Central Bank (ECB) decided to move into the territory of negative real interestrates! The deposit rate, which already was at 0%, was cut to minus 0.10%. Additionally, its refinancingrate was cut from 0.25% to 0.15%, and its marginal lending facility dropped to 0.4%. This was one of apackage of measures the ECB said it was considering to combat disinflation in the Eurozone and givethe economy a push. Due to the continued dim outlook of the economy, the ECB further reduced thedeposit rate to minus 0.20% and the refinancing rate to 0.05% in early September. In Global Gold’s first Outlook Report, back in December 2012, we discussed measures of financialrepression in our financial markets. The first one we listed was that of negative real interest rates andwe expressed our concern of it continuing for some time. That the ECB resorts to this option comes asno surprise, the economy has been close to a standstill in the past two years and European debt levelsremain alarmingly high. What better way to reduce the cost of debt? And as a bonus, banks arecharged to pay the central banks for their deposits. Of course, these costs will shift to deposit holderswho, as we stressed before, will not only lose money in real terms, but potentially in nominal terms aswell. Asset-backed securities … again? To further encourage credit supply in the continent, the ECB also mentioned it will launch its targetedlonger-term refinancing operations (TLTROs), an enhanced and improved bank lending mechanism(excluding mortgage lending). Auctions are scheduled for September and December this year. Aninitial USD400 billion will be up for grabs! But the biggest revelation was that the ECB would start aUS-style bond-buying facility by purchasing asset-backed securities (ABS) from banks. ECB President Mario Draghi is daring banks to test the controversial ABS buying program. Recently, the ECB revealed that it settled for BlackRock Inc. to advise ondeveloping this ABS program. Asset-backed securities are financial instruments, whichessentially are a repackaging of loans whether mortgages, auto credit, credit card debt, receivablesamong others. These are then sold on to investors. Ideally, this securitization reduces credit riskbecause ABS are spread across several underlying loans (diversification). But lest we forget whathappened in 2008! Yes, BlackRock is no stranger to this field – it was one of four hired by the Fed tomanage the Federal Reserve program in the midst of the crisis back in 2008. Now, BlackRock hasmore than USD4 trillion assets under management and is one of the largest investors in European ABS.But the fact that it has come to this option indicates that the monetary system in Europe is inshambles! The names of this program change over time, but in essence the outcome isthe same: injecting more money into the system. No recovery in sight Europe and the world are holding on to the small recovery indicators, such as those released by theEuropean Commission expecting the EU’s real GDP to go up by 1.6% in 2014 and 2% in 2015. Is thiswhat we call a recovery? With these low figures along with close to zero inflation,Europe is in a battle for growth. 2Q2014 growth numbers were most certainly not reassuring:Germany, the largest EU economy, contracted by 0.2%, France was at a standstill, with smallexceptions such as Spain, the Netherlands and Portugal reporting meager growth of less than 1%. Thecrisis in Ukraine played a significant factor no doubt as it affected production and the real economy.Demand for German industrials, particularly to Russia, has dropped significantly – Germany isRussia’s biggest trading partner in Europe. The EU had imposed sanctions on Russia last June forsupporting separatists in Ukraine. And so the impact will still reflect in next quarter’s numbers. Butthe crisis is escalating with fears of possible Russian military intervention and Europe meeting todiscuss a new set of sanctions. These developments will not fare well for the European economy, andcertainly not for Germany, making the target growth of the year rather optimistic. Safeguarding property rights is key to protect your wealth The news flow has only supported my opinion that I explained earlier this summer: With the Westaccumulating more and more debt, along with real production and the real economy going nowhere,there is no reason for optimism. We don’t know how the future will look like and when the finalshutdown of the system will actually occur. But what can be said is that all the problems, which led tothe crisis in 2008, are still the same and haven’t been resolved. On the contrary, more money hasbeen printed out of thin air and trillions of dollars of new debt has been directed intoasset bubbles such as stocks and real estate. At the same time, it is obvious that thepaper assets system is being used to destroy civil liberties in most countries and as Prof.Dr. Stahel describes in his article, this money is also being used to finance foreign intervention andwars. This brings me to the important topic of international diversification. One should never put all eggs inone basket. Holding part of one’s wealth outside the jurisdiction one resides in and outside the bankingsystem is of paramount importance. In this regard, we are convinced that the jurisdiction of the“Confederation Helvetica”, or better known as Switzerland, offers the best protection in terms ofsafeguarding private property rights. We should never forget why Switzerland became a safe haven inthe first place. We have been and still are a little country with a small domestic market and no naturalresources. This was the starting point of a culture based on trading property rights and self-determination enjoying minimum government interference. Switzerland, contrary to most of theworld, has the understanding that the nation states are not ultimate “gods”, which the people have toserve or even sacrifice their lives for. The basis for such a concept, or better said, tradition has beenand still remains, mutual respect, deep belief in private property rights, self-responsibility, neutrality,or rather, anti-interventionist principles, hard work, and the adherence to mutually agreed uponcontracts. The Swiss confederation is the last remaining direct democracy based on the principles ofdecentralization. These values have been instilled over Switzerland’s 700-year history and remainpart of our cultural DNA today. Due to these values we are convinced that we will continue to seeSwitzerland as a leader in offering the best protection for private wealth. We can see the signs … the system is shutting down As we said, we find that there is no reason to believe that the uncertainties in our system have beenresolved. Instead, it is our understanding that we have more uncertainties today than afew years ago. This is also the reason why we believe that the global economy will notsee a positive development in the years ahead. Understanding the fallacies of our system isessential to finding a prudent investment strategy to protect one’s wealth. We have seen political andmilitary events directly affect the economy and its growth path – that is why we need to hold on tophysical gold outside the banking system as our “insurance policy”. What we believe and are sureof is that holding parts of one’s wealth in physical gold and silver, stored outside thebanking system, never made more sense. Monetary instruments are a convenientmeasure not to deal with the real problem, but rather to delay it. What we hear aboutrecovery is pure fiction, an illusion, and we can now confirm that the signs of our system’sfailure are drawing close. Written by Claudio Grass, Managing Director at Global Gold Switzerland. This article is an excerptfrom the latest Global Gold Outlook Report (full paper). Take a free subscription to receive similarupdates in the future via e-mail: www.globalgold.ch (original source)
The newest publication from Global Gold Switzerland “The Clean Slate” focuses on the theory and practice of economic cycles.
Where does money come from? Is its value constant or does it change?
Which investments are still safe? Is it smart to own cash?
I think there is no question there is a huge dislike against gold among the establishment because gold competes with paper money.
In this short but powerful interview, Marin Katusa from Casey Research shares three key insights.
Apart from the long term investment, one could also use a smaller amount of his assets to play the ups and downs.
Miles Franklin believes people should prepare for the worst case scenario when it comes to their financial assets
The authors Michael MacDonald and Christopher Whitestone have a fundamentals based view and put human behavior at the epicenter of the world.