Category: Money & Finance

ECB Looks Increasingly Desperate in Latest Move

Euro ECBThe financial markets are increasingly acting like spoiled kids. On Thursday, March 10, the European Central Bank announced new measures aimed at boosting inflation and economic activity. Markets rallied initially, but quickly declined after hints of not getting further negative rate cuts. The fact markets are not even fazed by promises of more free money shows the situation is getting dire.

So what new monetary stimulus measures did the ECB announce? First, an additional 20 billion euros of bond purchases per month, bringing the total monthly purchases up to 80 billion from the current 60 billion. Further, the program is expected to extend into 2017, which should push the ECB balance sheet to over 3 trillion euros.

Remember the Fed tried rounds of QE that reached a similar $80 billion per month, with the same intention of lowering interest rates and trying to spur spending, credit, and growth. It was a grand experiment, which has subsequently been shown to have little benefit and may even have sown the seeds for future problems.

Second, the ECB will expand its quantitative easy program to include high-rated corporate bonds. Yes, the ECB will be purchasing company bonds; in other words, loaning money directly to private corporations with freshly printed money.

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Is Reading the New Currency of Financial Freedom?

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“If you watched Warren Buffett with a time clock, I would say that half of all the time he spends is just sitting on his ass and reading.”

Charlie Munger, V.P. of Berkshire Hathaway

Reading has long been a part of my DNA. That can largely be attributed to habits passed down by my parents; my father was a voracious reader, and my mother was a middle school reading specialist for twenty-five years. Whether physical copy or Kindle, it’s not surprising that my most prized possession is a good stack of books in which to immerse myself.

Like you, I am on an ongoing quest for financial freedom. It’s here that books are an essential ‘food group’ in my  self-improvement and lifelong learning pursuits. Each day, I commit a minimum of two hours to autodidactic mode, poring over a great read.

This month’s theme here at Anthem Vault is Read Some Books. As we make the leap into March, consider making a pledge to #BeResponsible for your self-learning by grabbing a book and reading it today.

Given Anthem Vault’s focus on sound money as an essential element of financial freedom, I thought I’d personally recommend five books to help jump-start your reading pursuits. 

Basic Economics: A Common Sense Guide to the Economy by Thomas Sowell

This book offers a comprehensive look at how the global economy really works, as well as timely prescriptions for advancing our world order. Be prepared for lots of reading with this telephone book-size tome.

The Real Crash: How to Save Yourself and Your Country by Peter Schiff

Lots of shocking predictions in this book, albeit some a bit far-fetched. But I found it quite informative, particularly its perspectives on the future of  gold markets.

Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey

Seeking real-world suggestions for managing your financial affairs? Then this book is a must-read. And the money app EveryDollar  that accompanies it is a gem.

No Bunnies & Elephants with Negative Interest Rates

BunnyThe idea of negative interest rates has been given renewed attention with the Bank of Japan being the latest central bank to actually implement negative rates on some deposits. Recently, Bloomberg Business published a cute cartoon featuring Janet Yellen and bunnies to explain the theory of how negative interest rates are supposed to work. Unfortunately, this theory is fatally flawed and a more apt cartoon illustration would be Dr. Seuss’s The Cat in the Hat Comes Back.

The Theory
We covered negative interest rates a year ago when European bonds started trading at yields below 0%; so for a crash course or refresher on what negative interest rates are and how they work, check out our previous article first.

Bloomberg’s cartoon starts with the fact central bankers want negative interest rates to incentivize spending and borrowing and to deter people from hoarding money. People are not dumb, and if they are charged money on their savings in a bank, they will take it out and stick it under a mattress rather than pay for it to sit in a bank.

Central banks, the theory goes, should instead focus on the big players: the banks. Since they have so much money and need to keep some of it in electronic form with the Federal Reserve, they won’t be able to ‘stick it under a mattress’. If central banks charge them on the margin (in other words, a portion of deposits, but not necessarily all of their deposits), then it should incentivize the big banks to hand out more loans.

More loans will spur businesses to invest, grow and hire more people. In addition, negative rates will drive down the value of the dollar, making exports cheaper, which will also fuel growth. Sounds like cute bunnies and sunshine right? Not quite.

The Reality: The Cat in the Hat Comes Back
The foundational flaw to this entire approach is the Keynesian idea of jump-starting the economy by trying to increase aggregate demand: borrowing and spending is the ultimate goal for central bankers. But sustainable spending can only come after savings, production and wealth creation.

Return of the Skyscraper Curse?

Jeddah TowerInvestors are always looking for indications of an oncoming economic recession, whether it be electricity consumption, Super Bowl wins or even ladies hemlines. However, one indicator that seems to make some intuitive sense is the Skyscraper Index, also known as the Skyscraper Curse.

This theory states that the emergence of record-breaking skyscrapers presages economic recessions. If true, should we be worried that China recently capped the world’s second largest tower, while the world’s next record-breaker is currently rising near the Red Sea?

What Exactly is the Skyscraper Curse?
The Skyscraper Index began with research by property analyst Andrew Lawrence in 1999. He noticed that over the past 100 years in the U.S., record-breaking skyscraper construction correlated to economic recessions, panics and crises. He began his analysis with the Singer Building and Metropolitan Life building, completed in 1908 and 1909 respectively, which were concurrent with the panic of 1907.

How exactly do record-breaking skyscrapers coincide or even predict economic crises? Economist Mark Thornton extended this analysis in 2005, demonstrating that the link between the two is artificially low interest rates. Interest rates are suppressed or kept low due to monetary policies as well as fiscal policies designed to increase credit in an economy. This increase in credit is ‘artificial’ because it is not due to people saving more and consuming less in the present; rather it is effected through money-printing or legislation that distort credit markets.

Anthem Vault Customers: Free T-Shirt Friday!

Have you opened your Anthem Vault account? Have you been waiting to finally make your first gold and silver purchase? This Friday will be a great opportunity to make your move (even if it’s not your first!). All orders placed this Friday will earn a complimentary t-shirt from Anthem Vault!

Anthem Vault makes it so easy to begin saving in silver and gold, without the hassle of storing and selling the physical coins in your possession. You can place an order for as little as $25, select your choice of gold or silver, and liquidate your account directly into your bank account at any time.

Haven’t tried it yet? Friday will be an awesome day for it. Customer service will be standing by with any questions (1-855-428-2858)! After you make your purchase, whether it’s your first or your 20th, email us at support@anthemvault.com with your desired t-shirt size (we’ll do our best to accommodate) and mailing address to which you’d like the shirt delivered.

It pays to #BeResponsible! :)

Fed Holds, Japan Goes Negative

JapanResizeTwo big central bank decisions this past week sent the markets down one day and then blasted them higher at the end of the week. I am talking about the Federal Reserve and Bank of Japan announcements, of course. Although the market had different reactions, I believe both point to more central bank easing to come this year.

First, the Federal Reserve concluded its two-day meeting this past Wednesday, deciding to keep rates unchanged. In its statement, the Fed noted that recent data suggest labor markets are improving but economic growth has slowed, while inflation continues to run below their 2% target.

The rest of the statement was quite dovish, hinting at a more accommodative policy, especially noting that the committee is “closely monitoring global and financial developments.” This suggests the Fed is worried about the recent market turmoil and stock market declines in the U.S. and China. Somewhat surprisingly, the markets sold off a bit more than 1%, indicating traders either wanted even more accommodation or at least more clarity.

I previously noted that the Fed’s last rate increase was due to their concern about keeping credibility intact, rather than the Fed actually believing a recovery was under way. The latest move to stay put and not increase seems to confirm this. If economic conditions and data continue to deteriorate, we could easily see a move back to zero or even more quantitative easing.