Negative Interest rates and the ban on cash

[HawkHybrid]

http://uk.advfn.com/news/DJN/2016/article/70479797

 

more swiss 1000 francs notes held due to negative interest

rates.

 

HH

[Cointreau]

More safes being bought by Japanese citizens.

[Pipers]

Apparently it's cheaper for depositors in Switzerland to put their money in a gold  vault than in a bank and lots are!.

[Paul]

 

Some interesting analysis of the current war on cash and high end notes - the last few mins is interesting for us precious metal stackers

[ApisMellifera]

Was about to post that one too!

I really like Paul's (BelangP) insights.

I'm still working my way through his youtube archive and there is a wealth of info on there.

[Paul]

BelangP makes for interesting listening - quite insightful 

[whitesands1]

Brilliant @Paul What did they have in mind!?  Can't wait for the next episode.

In the UK I think there is a lot of cash hoarding too.  

[Paul]

Its not me  !!!! 

I'm just subscribed to to BelandP on youtube  

[whitesands1]

Clever financial engineering

1 minute ago, Paul said:

Its not me  !!!! 

I'm just subscribed to to BelandP on youtube  

Aye, didn't think it was at northern accent, LOL!!

[ApisMellifera]

lol... I know... BelangP (real?) name is also Paul.

[shemyaza]

A little nugget from the past, on Youtube. "Princes of the Yen".

[Oldun]

Hitler finds out about negative interest rates 

 

[Oldun]

BOJ Kiuchi warns negative rates could destabilize banking system

 

 

http://www.reuters.com/article/us-japan-economy-boj-idUSKCN0VY06A

[HighlandTiger]

Why use banks, when you can make 12% pa with your cash sitting in saving stream

 

Ok i know I'm going to be shot down by people talking about how it is not backed by the FSC scheme, but then most people on here don't hold much faith in that scheme anyway.

 

As for a cashless society, well that's a long long long way off. It will only work properly if the entire world goes cashless, and i know a large number of small third world countries where this will never happen, and a several very large countries on the far east and southern point of the Eurasian land mass,  that will find it impossible to implement. 

[HawkHybrid]

if negative rates are freely available, instead of issuing

bonds, greece could get a whopping loan in euros and

pay off all their debts. do this a few times and with the

power of compound negative interest they'll be sorted

 

HH

[4Nines7Hills]

On 25/02/2016 at 08:50, HighlandTiger said:

As for a cashless society, well that's a long long long way off. It will only work properly if the entire world goes cashless, and i know a large number of small third world countries where this will never happen, and a several very large countries on the far east and southern point of the Eurasian land mass,  that will find it impossible to implement. 

I could be wrong but im not convinced every country needs to go cashless, just the big player's.

What would be interesting is what the countries that use USD/GBP and others as their own if say USA goes cashless.

China has announced its working on an electronic currency like bitcoin.

[HawkHybrid]

http://www.bbc.co.uk/news/business-35809798

 

let's all hope that future typos save all our bank accounts from being

completely cleaned out.

 

HH

[vand]

Sweden is probably the best example of cashless economy right now, and it's no coincidence their central bank has taken rates negative.

It's happening slowly and insidiously everywhere. Capital controls will be introduced. 

I find Moneyweek seem to have their finger on the pulse on these things: http://moneyweek.com/money-morning-this-is-exactly-how-id-go-about-banning-cash/

I am getting out of fiat-denominated assets while it's still easy to do so. 

[Bumble]

It's not easy to get out of fiat-denominated assets. Does anyone have experience of using, say, gold-backed accounts that allow you to draw on funds using a conventional debit card? I know Peter Schiff's bank, Europac, offers this, and GoldMoney has the BitGold function that allows you to spend gold as bitcoin. I'm not sure what others are available. Options like these are outside the normal banking regulations, so you have none of the usual protections.

[vand]

I don't think that getting out of fiat is as complicated as people are making it out. 

Buy HARD assets, and reduce your exposure down on anything that exists only on a balance sheet (paper wealth).

If you can't touch it - if cannot quite literally be nailed down - it's not a hard asset.

 

No Equities

No Bonds

No ETFs

No derivatives

No currencies

The "value" of all of these can literally be reset to zero in the blink of an eye in the digital world. They can't sustain you, the only value they have is the perception that someone else thinks they are worth what the market price is. Everyone thought CDOs were worth something, until they all agreed that they weren't.

 

Do I take all my own advice? No of course not.. I have a pension, I have cash, and and other paper collateral. The pension in particular is something that I feel is worth still buying considering the tax relief and matched employer contributions.  But I only hold as much cash (notes, bank balance) as I feel I need to meet short term obligations. Convert everything else to hard assets.

Of course the world trades in fiat currency, so I only convert as much as I can to hard assets without it affecting my day to day life. I'm fairly confident that hard assets will still be worth something in 1,000 years time, and far less confident that pounds or dollars, at least as we know them, will be worth anything that far out. Why wait?

 

[KDave]

I am of a similar mind but disagree slightly on a couple of points.

Not all equities are equal and should not be on the list in my opinion. A basic example - shares in a company that owns plant and land and uses it to mine real stuff has real world value. If the stock market crashes then you are going to lose value measure in fiat, but your part ownership of the company remains the same as it ever was and many of these companies pay returns to their shareholders, measured as a percentage of earnings. The only way the value can revert to zero is if the company goes bust. If the currency fails the company will still be there, unless you think all companies are going to go bust at the same time in such an event of course (madmax time) but that is an extreme view and not my own.

I think of gold in the same way, if the price falls in fiat it does not matter, only what it is worth relative to everything else matters. Remember also that gold only has value because everyone agrees it does and unless lent out it can not provide any return.

Not all ETF's are equal. Some are backed by physical things have value - shares in an ETF that holds gold which limits its shares to how much gold it owns is almost as good as owning it yourself. The value can not go to zero unless the value of the asset held does. There is a great degree of trust involved in this however and I would prefer to own physical myself.

Agree with the rest of the list. 

I don't hold any debt instruments beyond what is for me an uncomfortably large amount of cash because of short term goals (house buying). I dislike cash for the same reasons you do and think of it as one of the riskiest assets I hold, right or wrongly. The rest is equally divided between equities and PM's which raises a few eyebrows but I get away with it because of my age. If I was older people would tell me I am taking far too much risk and should own some bonds. I pay into a pension but only as an insurance policy for the event that I am wrong and fiat rules for the rest of the century.

[BaldyBob]

1 hour ago, KDave said:

A basic example - shares in a company that owns plant and land and uses it to mine real stuff has real world value. If the stock market crashes then you are going to lose value measure in fiat, but your part ownership of the company remains the same as it ever was and many of these companies pay returns to their shareholders, measured as a percentage of earnings

Amen to that KDave. I only pick companies that have hard assets that produce or manufacture something, or provide a service which isn't going to disappear tomorrow.

A good company that has been paying dividends non stop for 10 years are usually worth a look. There are more than people think.

[vand]

WRT to shares.. I used to think similarly in my idealistic youth, but I'm a little more cynical these days, and especially at these prices.

Equities are precisely what it says on the tin - a claim on the value of the business less it's liabilities. The equity holder is the first to lose when things go south, and the last to be paid when the company eventually starts to make money. As we know, bondholders have the first claim on any company's assets. The company doesn't need to go bust for shareholder value to be wiped out - it just needs to go south far enough that debt is restructured in the dreaded Debt-for-Equity and all shareholders get shafted. 

In yesteryear it has been possible to buy companies selling at less than their net assets (Ben Graham's value stocks) where you were truly buying a business for nothing, but all markets evolve, and today, in this market, seeking out such companies is like searching for a needle in a haystack. 

The stock market used to be a genuine market where companies issued shares to raise capital to expand their business, and investors bought their shares in the expectation that management would expand the business and make some money. Now it is nothing to do with either of those functions. Nowaways 99.9% of buying and selling is done by algorithms based on recognised price patterns, and the holding time measured by seconds. Companies don't go to the stock market to raise capital now - they do that privately or by VC trust, and then launch it onto the stock market when it's fully priced. And then companies take advantage of cheap money to initiate share buybacks instead of investing it into plant and equipment, so shareprice goes up not through increased production and higher earnings per share, but companies buying their own stock, leading to everything being overpriced. Complete casino-style bubble behaviour. 

With regard to commodities ETFs, I'm just hugely skeptical.., just because of what I hear about it from gold commentators about where it leases it's (supposed) gold stores from. and also, if it were that easy for an ETF to go to the physical market and buy the huge volumes of gold that claims to be moving in/out, just make me hugely suspicious. Do you think Fort Knox has all (or any) of the gold it claims? If not, why would you trust an ETF claiming the same thing? How do you know they're not just paper contracts? No shareholders in GLD will ever hold a single grain of gold through that mechanism. The GLD might be good to trade and maybe you can do so, make paper profits and convert those to real gold, but it is far from what many people associate it with (ie real physical). In fact, some commentators are saying that ETFs - paper contracts taken out on top of other paper contracts - could be the next sh1tstorm that brings the whole financial system down. 

With all that said, I do think there are times to buy equities in good companies, but right now I'd rather have my money very far away from the stock market.

[KDave]

Absolutely there are many companies involved in share buy backs thanks to the monetary environment and many are overvalued by historic standards again thanks to the low yield environment we find ourselves. Lots of people chasing the same thing. If you take the stock market as a whole and invested in a tracker for example, I would be with you - not a good idea for the long run. Its funny but I used to think similarly a couple of years ago - nothing was trust worthy I only wanted gold and silver until it all came crashing down! Once I had a decent amount I started to think - what happens if I am wrong? That is when I started looking at stocks for diversification and to get some yield from some of my money as a bonus. I suppose you could say my perception of risk has changed. 

Beyond the generalisations there are still good companies that are paying down debt and are run for the benefit of the share holders, increasing dividends with earnings for example. The best ones are those where management is invested and so has a stake in its success of failure. The premium for such companies is higher than it has been in the past of course and there is a good possibility to see even cheaper valuations. In the mean time I am happy generating a return and reinvesting it into more precious metals and stocks. If the opportunity to buy cheaper shares in quality companies presents itself I will do so, fingers crossed it is sooner rather than later.

One last point on ETF's - I have only found a few good ones I must admit but they do exist. Blackrock has a few of them where for each share issued requires physical metal to be bought. They recently suspended the issue of there gold ETF being unable to find any additional physical gold for example. I am only invested in SPLT and SPDM at the moment as buying physical platinum group metals is too costly and these are my chosen alternative. There is a greater degree of trust to this as you say but I am comfortable taking the risk. It will all collapse one day, but I have no idea when and anything could happen between now and then that I am not comfortable putting all my eggs in one basket.

I have come to like the phrase 'Diversification is key' even if I don't follow it all the time. I just can't bring myself to buy bonds!

[Bumble]

This is all good stuff, but it doesn't solve the problem of how to hold liquid assets, particularly currency. Good quality stocks are fine; some commodity ETFs are fine (I think the Sprott physical ones are OK - at least they are subject to independent audit and Mr Sprott has an honest face); some bonds are OK if they are good quality. But I'm sufficiently nervous about the rest that it leaves me with more cash than I'm comfortable with. I like the liquidity of cash: it has high optionality. Jim Rickards recommends holding cash because it is like having a call option on every other asset class. But cash at bank is a return-free risk; cash under the mattress is a risk and the economists want to ban it; Bitcoin is a huge unknown - it doesn't have enough history to know how it will behave in a crisis.

I'm sure all of us on this forum like the tangibility of precious metals, but I can't pay my bills and taxes with them. Is a gold-backed account the answer?