Category: Silver

2017 War on Cash

US dollars and troops2017 War on Cash

Overshadowed by colossal events such as Brexit, the U.S. election and the Dow nudging 20,000, investors may not have noticed an escalating war over the past year: the sinister War on Cash.

We have previously covered the ongoing “currency wars” of central banks that continually try to depreciate their currencies with lower interest rates and quantitative easing. But this goes even further because it is a war on actual, physical, paper cash.

Unprecedented Strikes Against Cash

2016 saw prominent academics and politicians shamelessly writing about the benefits of reducing or even outlawing cash. Former Secretary of the Treasury, Lawrence Summers, called for the U.S. to get rid of the $100 bill.

Former Chief Economist for the IMF and Harvard Professor, Ken Rogoff, published a book entitled The Curse of Cash, followed by numerous op-eds and endorsements by the New York Times and Financial Times endorsing a ban on cash. Australia is currently reviewing whether it will ban its $100 note.

India’s Prime Minister, Narenda Modi, announced without warning on November 8 that all 500 and 1,000 rupee notes would cease to be legal tender. Although claiming these were “high-denomination” notes, they actually equate to approximately US$7.50 and US$15 respectively, and they constitute 86% of the country’s cash currently in circulation!

Banning Cash: Rationale versus Reality

One of the biggest reasons cited for banning cash is to cut down on crime. While it is true that criminals prefer cash for the anonymity and the ease of transactions, there is no reason to believe enterprising criminals will stop their activity because transaction costs will be higher.

Criminals will easily substitute other forms of payment: lower denomination bills, other valuables like silver or gold bullion, diamonds, bitcoin, etc. Even Tide detergent has been found used as a common currency for drug trades.

The popular press surmised Tide was used by drug users because it could be stolen easily and traded for a quick fix. Yet this misses the point of why drug dealers would accept Tide as a currency at all.

The reason Tide became a currency was because it fit most of the properties of what makes a currency viable. It is recognizable (given the brand name), homogenous, easily divisible, and it has a (relatively) high value-to-weight ratio, making it portable. Bottom line: criminals are enterprising enough to surmount all kinds of obstacles inherent in illicit trade, so banning cash will not turn them into law-abiding citizens.

The next reason for banning cash is a little closer to the truth; to curb black and grey market transactions and collect all of the taxes the government is currently missing out on. India’s actions are squarely aimed at this because most Indians make virtually all daily business transactions in cash.

Further, the government will be receiving a report on any Indian citizen who deposits more than 250,000 rupees as a result of trying to rid themselves of the now illegal notes. The intention will then be to assess a tax and penalty on any of this money, if viewed by the government as unreported income.

While this may give a little boost to government coffers in the short-run, it is likely to backfire because the overall effect will be to tamp down economic activity in general, leading to even less wealth creation and less tax revenue.

The Real Reason for a Ban on Cash

The biggest reason for banning cash, especially in developed countries, is for governments to have the ability to enact even more extreme negative interest rates. Rogoff and others are actually quite transparent about this, recognizing that if banks charge an ever larger negative interest rate on deposits, savers have the option of withdrawing their money in cash and stuffing it under a mattress or in a vault, costing them less in relative terms than paying the bank to hold their money.

This highlights the ludicrous position in which central banks have put themselves, yet it is obviously the next logical step in their fallacious reasoning. To a central banker, if zero interest rates have not sufficiently spurred an economic boost with increased borrowing and spending, then the next step is to make interest rates negative, something we are already witnessing on a smaller scale.

But if minimally negative interest rates do not work, then their logic is to remove the next barrier to make interest rates even more negative. Thus the wrong intervention of the first action necessitates further interventions that distort the regular function of banks and interest rates even more.

Savers and Investors

The biggest surprise of the recent currency bans and proposals to ban currency in developed countries has been the lack of protest from citizens. Most people already use credit and debit cards for many transactions anyway and don’t seem to see the problem.Many coin bank of yellow and white metal. Cash closeup.

However, if negative interest rates are imposed on regular bank accounts, and savers have no way to withdraw their money, they will likely become more a lot more interested in what is really going on here. Fortunately, many alternatives exist to regular currency, and while governments may try to curb an exodus to these alternatives, it will likely be hard for them to do so, given the myriad of substitutes available.

For example, gold and silver will remain popular substitutes, as well as other alternative assets like other commodities and real estate; perhaps Tide detergent will even become more widespread as a common currency! Technology will also enable the ownership of these assets to be transferred and verified more readily.

In any case, investors and savers need to stay properly diversified and remain informed…..

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Time For Holiday Rebalancing

Ho Ho Ho or Ho-Hum?

Stock market investors are looking to have a rollicking Christmas this year, while holders of bonds and precious metals may feel like they are getting a lump of coal. Yet taking a closer look at what has developed in the markets since the U.S. Presidential election reveals that not all may be merry and bright. In short, it is time for rebalancing your portfolio.Work life balance concept

What’s driving the stock market

Since November 8, the S&P 500 is up nearly 6%, while the Dow has catapulted 8% and is looking to break 20,000 by year’s end, leading many to call this the Trump Rally.

The first thing to keep in mind is that the stock market typically rallies in an election year, and most new Presidents enjoy a “honeymoon rally” after the election, as chief economist David Rosenberg has noted. Markets hate uncertainty, so a close election that didn’t end in a tie and drag on for months gave the stock market a sigh of relief as the ambiguity ended.

Second, also as Rosenberg has ably pointed out, the S&P is largely being driven by two sectors the market perceives to benefit from the new administration: energy and financials. These two sectors are only 20% of the S&P 500 but they have accounted for nearly all of the gains; the other sectors have remained virtually flat.

Take a step back

There is nothing inherently wrong with this because sectors do go in and out of favor; but it is telling that this is not a broad-based rally. It also adds more political risk because market participants believe these sectors will benefit from deregulation. This probably could not happen due to the political games played in Washington, but even if it does occur, it will take a very long time to work through the political process.

Finally, the S&P 500 is now at the third most expensive valuation level ever, exceeded only by the dot-com bubble and a very brief point right before the Great Depression (as measured by the CAPE ratio). This is not a timing device or even a prediction that markets are set to crash, but it does mean that over the next 10 to 12 years, investors should expect low single-digit annual returns or worse on average.

The Fed is not the cause of bond yields rising

Many have attributed the spike in bond yields and interest rates to the anticipation, and the subsequent action, of the Federal Reserve raising interest rates. This is only partly true.

Remember that the Fed can only set interest rate targets on the rate that banks lend to one another. This certainly influences the attitudes of other bond buyers, but it is a relatively small market. And with the Fed out of the QE game for now, they are not directly intervening in the larger bond market.

What is a much larger force in the bond market is China, which has been furiously dumping U.S. Treasury Bonds. China has gotten rid of so many U.S. bonds that they have now given the title of largest holder of U.S. debt to Japan!

China is likely doing this to try to prop up their falling currency, the yuan, as they battle a credit crisis of their own. Although it hasn’t received a lot of mainstream press, things are getting so bad that China briefly suspended the bond futures market, and has been injecting emergency loans into the banking system.

China’s woes are an article for another day, but the bottom line is – watch out for China!

Low-priced gold and silver – exactly what you want right now

Gold and silver bugs are probably feeling more like the Grinch this season as they have watched gold tumble 11% and silver almost 13% since November 8. Yet this is exactly what you should expect and want.

Remember the purpose of precious metals in a portfolio; not to produce lots of juicy returns or return on capital, but to preserve capital. Indeed, year-to-date, gold is still up 7%.

So if precious metals are expected to hold value or even appreciate in times of inflation or when stocks fall, then they should conversely be expected to fall in times of dollar strength and stock market rallies.

This negative correlation to stocks is exactly what makes gold and silver so valuable and important as a stabilizer and insurance policy in a portfolio. It is also why we consistently recommend a 10% to 15% Hand writing the text: Where to Invest?allocation.

Rebalance your portfolio now

The slump in precious metals combined with the sharp rally in stocks at the end of the year signifies the perfect time for most individual investors to rebalance their portfolios.

Rebalancing to your target weightings automatically allocates money away from expensive assets (like stocks) to assets that are likely undervalued such as gold and silver. So this holiday, take cheer in knowing you can take some money off the table and sleep soundly at night with a well-balanced portfolio that is primed and ready for whatever 2017 may bring….

Inflation is the 24 Hour Tax on Everything

Wallet and stethoscopeInflation is the 24-Hour Tax on Everything

The Wall Street Journal recently reported that inflation, after “being given up for dead,” is coming back to life. While that may appear to be the case on the surface, inflation has been alive and well – hiding out beneath the official government statistics for years.

The WSJ is referring to the data released last Friday by the Bureau of Economic Analysis, known as Personal Consumption Expenditures (PCE), which measures the change in actual spending and prices and is the Federal Reserve’s preferred measure of inflation.

More specifically, the article was referring to Core PCE, which is PCE excluding food and energy, and is currently at a two year high of 1.7% on a year-over-year basis. The other measure of inflation is the Consumer Price Index (CPI), which has also been markedly higher, coming in at a 1.5% annual increase as of this past September.

Inflation is NOT a Good Thing

With inflation getting closer to the Fed’s 2% target, WSJ’s columnist Greg Ip casually comments that “This isn’t bad news. To the contrary, markets and central bankers alike will be relieved the world is no longer skirting a deflationary abyss.” But while central bankers might welcome this news, consumers will not.

Sustained inflation in consumer prices is never a positive for any economy, and is also not necessarily an indicator of a growing one. Prices may rise due to changes in supply and demand, and therefore help to reallocate resources and signal those changes; but an overall and sustained increase in prices is different.

If the price of an item rises for consumers, they will then stop buying it or switch to a cheaper item or cut back on another category in order to accommodate the household budget. Therefore, the only way for all prices to rise indefinitely and consistently is for new money to be constantly created and injected into the economy.

This of course is merely a tax on consumers because the new money and consistent increase in prices makes the consumer poorer. Contrary to popular economic theory today, there is no threat of a“deflationary abyss”. During the nearly 100 year history of the classical gold standard, prices gradually declined an average of 2% to 3% per year as technology and productivity increased, giving consumers the benefit of these advancements in the form of lower prices.

Inflation is Worse Than Reported

This week, Visual Capitalist made a stunning infographic using AEI’s Mark Perry’s (equally as interesting) inflation observations. Over the past 20 years, from 1996 to 2016, total inflation has been 55% as measured by the CPI.

However, digging into the Bureau of Labor’s data and then channeling down to the various items that make up the CPI basket of goods, you can see that inflation varies greatly from one type of good to the next.

For example, things that have increased more than the average 55% include tuition (up almost 200%), childcare (122%), medical (105%), food and beverage (64%) and housing (61%) – in other words, virtually all of the living essentials needed to survive or raise a family.

Counteracting this, items that fell in price included TV’s (96% decline!), toys (67% decline), and software and cell phone service (66% and 45% respectively). Clothing and furniture declined slightly, while new cars increased only slightly.

Obviously the dramatic decline in electronics, software and toy prices has brought wonderful benefits, but these are still largely discretionary items, and they take up a much smaller portion of most household budgets. The average family is therefore likely facing more than the average 55% increase in prices over the last 20 years.

Indeed, in his latest book, David Stockman has modified the CPI to put heavier and therefore more realistic weights on the four essential items of everyday life: food, energy, shelter and medical care. Using this measure, he finds the actual inflation rate over the past 29 years (when Greenspan became Fed Chairman) has been 3.1% per annum, rather than the official CPI rate of 1.7% per annum.

How to Protect Yourselfdates falling dollar

Unfortunately, inflation will continue to be a problem for any person living in a country whose money is a fiat currency that is being debased by their government – which includes nearly all modern economies today.

Thankfully, there is nothing stopping you from converting some of that fiat paper money directly into your own store of hard currency: physical gold and silver. During the past twenty years, while the official CPI increased 55%, gold has increased in value 235% and silver 282%.

Time to buy gold and silver, perhaps?

This Time, it IS Different

This Time it IS Different

It's Different

It IS Different

The four most dangerous words in the world of finance, often repeated, are “This time it’s different.” During both of the last two major booms and busts, a common belief was that the new internet age was different (2000) and later, that housing was also different (2008).

However, used to describe our current interest rate environment (particularly negative interest rates), the over-worked phrase actually does ring true.

Financial journalist and observer Jim Grant noted at a recent investment conference that research on interest rates shows that over the past 5,000 years of history, there has never been an instance of negative interest rates… until now.

The ever quick-witted Grant remarked, “If these are the first sub-zero interest rates in 5,000 years, is this not the worst economy since 3,000 B.C.?” Perhaps. Or maybe this is just the first time in history where we have central banks active in monetary policy, attempting to drive interest rates as low as possible.

Record Negative-Yield Debt

The current amount of debt sporting a negative yield continues to grow. In early 2016, there was over $5 trillion in negative yielding debt. This grew to nearly $12 trillion by the end of June, and it is now closer to $13.4 trillion!

Not only has more debt become negative in yield, but it is increasingly happening to longer term debt. Yields on 10-year government bonds have become negative for Germany, Switzerland and Japan.  

Remember that bond yields are an inverse to bond prices. As bond prices get bid up, their yields go down.

What makes this unique is that bonds are a relatively simple financial instrument. Bonds do not have the subjective valuation that applies to stocks, and this makes the math and the logic of bonds fairly straightforward.

A person can buy a stock from another person while thinking it still has the potential to go higher, given higher growth prospects for the company. The price is based on one person’s subjective valuation.

On the other hand, bonds are not as subjective. If you buy a bond at a certain price, with a certain coupon payment, then the yield is a mathematical certainty. It is the yield you will receive per year if you hold the bond to maturity, and if it pays the principal in full without defaulting.

What Bond Buyers are Saying

By stark contrast, today’s current bond buyers are purchasing a security where they know they will lose money if it is held to maturity. For example, if you buy a bond today with a negative 0.5% yield, and it has five years until maturity, then after five years, you will be paid back less than what you originally paid for the bond. Even with the coupon payments you received during the life of the bond, the total payout will be equivalent to getting a minus 0.5% return on your money.

Therefore, we must make one of two different assumptions about current buyers of negative yielding debt. One assumption is they could be anticipating the bonds will continue to go up in price and that they will then sell them for a profit. In other words, the negative yields will become even more negative, and they will sell the bonds before maturity.

Unfortunately, this requires the buyer to believe there will always be a ‘greater fool’ out there who is willing to accept a higher price than what the original buyer paid. It it not unlike those who bought houses before 2007 on the premise they would flip them to a higher bidder. Remember that with bonds, someone must be holding these financial instruments at all times.  

The second assumption is that buyers are perfectly fine accepting a negative yield, and are willing to ‘pay for the privilege’ of lending out their money. This goes against all basic laws of finance. It only makes sense insofar as these buyers have no other place to put their money, and are therefore choosing the lesser evil.

But this is a weak explanation, because they could put their money in cash and get at least a zero percent return. Also, this doesn’t seem to make sense for longer maturity debt, as it means these buyers think negative interest rates are here to stay for at least ten years or more.

Both of these scenarios point out how this time, it is very different, and we are living in a twisted financial world, a world only exists because of the manipulations and distortions of central banks.

It is always precarious to try to make predictions, but it seems that there will come a time in the not too distant future when people will look back at this period and say “What were people thinking?”Secure Your Wealth

Like a frog languishing in a slowly heating pot of water, investors have warmed up to the environment of negative interest rates, not realizing how absurd and dangerous the situation has become. But take time now to assess, and be well prepared for the inevitable.

In this zero/negative interest rate environment, it is stunning to consider that since 2000, the DJIA (Dow Jones Industrial Average) has increased in value 63% while silver has increased in value 289% and gold has increased 380%…. an annualized return of 23.75%!

Cash, anyone? Or gold!

#BeResponsible Giveaway: This Friday All Orders Will Include “Silver Sprinkles”

Cupcake pinkAny and all orders will receive a bonus this Friday as our fairy-warehouse mothers sprinkle some extra silver into every order! Don’t miss out on some bonus metal – it’s easy to earn! Just add promo code: SILVERSPRINKLES

Our 2016 theme – #BeResponsible – is empowering customers and readers everywhere to become financially responsible and successful. The month of January started with creating a winning budget for the year, and next month we will explore the benefits and strategies on building a Grade A network. Please join us and share what you’ve learned along the way to us at support@anthemvault.com or on our Facebook pages!

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Top 5 Must-Have Stocks For 2016

stock-market-3 Join the gym. Stop smoking. Cut out fast food. Be kinder. These are just a few phrases that will be uttered to ring in the New Year. If you’re like me, the resolutions may only last for a short while, but at least you tried, right? Unfortunately for us, change is difficult and it seldom happens that we find a resolution worth keeping. That’s where Anthem Vault’s own John Stuart comes in with his Responsible Resolutions, encouraging you, the reader, to save more money and to make wise investments.

In order to help you become a wise investor and increase profits as a consequence, here are my Top 5 Must-Have Stocks For 2016:

  1. Alibaba

If you don’t know much about this Chinese e-commerce juggernaut, Anthem Vault’s Michael Scott wrote a compelling piece about Alibaba and what he sees for them in the near future. Though 2015 started off slow, there was no greater market presence than Alibaba in the second half of the year. Since the beginning of October, we’ve seen stocks grow by 41% in that short period. Alibaba also happens to be the largest e-commerce site in the world with 1 in 5 Chinese consumers as active shoppers. Alibaba offers a widespread tech market, and with China’s tech-savvy young consumers, they look to increase website traffic and business significantly in 2016. It’s no secret that the buyer is back in control at Alibaba, and with CEO Jack Ma aiming to make the company a global force through the partnerships with tMall, Starbucks and Disney, Alibaba should be one of the top stocks on your watch list.