Conflicting Headlines In The War on Cash

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…’

— Charles Dickens, A Tale of Two Cities

OK, I’ll be honest. As much as I enjoy reading, it’s been a long time since I read A Tale of Two Cities. I believe it was year 12 in high school actually. So that makes it, um, a very long time ago.

In truth I only remember the broader parts of the plotline. But I’ll never forget the opening sentence, which I’ve quoted above. Even if you haven’t read the book, I’ll wager you’re familiar with that line.

But this isn’t a book club. And I didn’t throw the quote up top to discuss Dickens’ mastery of the written word with you. The quote came to me as I was running through this week’s headlines. Two particular pairs of headlines, actually.

The first, from last Wednesday’s Australian Financial Review, reads ‘Miners fly as investors bet resources rout over’. The article goes on to say,

Australian investors are growing more confident that the worst may be over for the resources sector after a rally in iron ore and profit results from BHP Billiton eased fears of further pain… Its [BHP’s] shares rallied 2.6 per cent or 45¢ to $17.63.’

There are two important points to make here. The first is the word ‘bet’ in the headline. Betting is fine at the casino, not so much in the investment world. The second is that, once this type of news hits the mainstream, odds are pretty good the gains have already been made.

As witnessed by the following headline, from last Thursday’s Business Day, ‘BHP Billiton has its worst day since 2008 as ASX plummets’ (yes, that’s just one day after the above article was printed):

A savage reversal in the recent commodities rally hit Australian shares hard on Wednesday despite some solid earnings results, as investors punished the big four banks and BHP endured its worst day since 2008 with a massive 8.2 per cent fall.

So much for ‘miners fly’.

As of writing, BHP shares are trading for $15.95 apiece. Of course, that might all change again by this afternoon, only to reverse once more by mid-week. There’s that pesky word again — volatility.

While we’re still on the subject of contrasting headlines, I’ve got one more pair for you.

Virtual dollars

‘Digital dollars on our horizon, says RBA’.

‘Hackers targeting banks, says Dell’.

Both the above headlines appeared in Business Day last week.

Hackers be damned. The future of money, apparently, is virtual. And there are good reasons for that. At least there are for governments, anyway. You see, physical cash is becoming a nuisance for our exalted leaders. It’s far easier for Big Brother to track every cent you make, and spend (or foolishly save), when every one of those cents is digital.

Not to mention that imposing negative interest rates on savers won’t work properly, so long as we can get our hands on physical cash. Why stick your money in the bank for a -2% annual loss…err…return if you can rent a safety deposit box for far less?

Now before you write in, I know that savers aren’t being charged to deposit their cash…yet. But central banks in Sweden, Denmark, Switzerland, the Eurozone, and Japan have all pushed their key lending rates into negative territory. And there’s every reason to expect Australia and the US will eventually follow suit.

And recent analysis from JP Morgan showed that there are now over US$7 trillion worth of bonds across the globe trading on a negative interest rate.

That’s astounding. And it’s why the war on cash is already underway. And why proposals have been made to take larger denomination bills out of circulation. You’ve probably already been subjected to the first waves of propaganda.

Cash is dirty; why would you want your waiter or children handling dirty bills?

Cash fuels the black market trade for drugs, weapons, sex trafficking, and other nefarious activities.

Cash is cumbersome, antiquated, and leaves you vulnerable to thieves.

These are just a few recent examples. Rest assured, there will be more. Now that technology has finally presented governments with a viable alternative to physical cash, it’s game on. And make no mistake. If we give up on cash for the ease and safety of digital currencies, cash is gone for good. And with it the last vestiges of your financial privacy and freedom.

Speaking of cash

We have a large — and growing — number of paid investment advisories at Port Phillip Publishing. 17 in fact, the last I checked. And all of our editors and analysts recommend you keep a portion of your wealth in cash. But only our resident wealth preservation expert recommends you keep it all in cash.

Vern Gowdie is the champion of the low risk, high reward investment strategy. And in today’s markets he simply doesn’t believe those opportunities exist. They’ll return, of course, but not until the markets well and truly crash from their lofty heights.

Below is an excerpt that Vern wrote to his subscribers last week. He’s not talking about a specific correction here. Rather Vern’s alluding to a spate of pending market corrections that will falsely lure unwary investors back into the market. But the recent instance of BHP is a good case in point. He notes:

While most will see a substantial correction as an opportunity, I suspect it’ll be the first of a number of “suckers” rallies.

The crash of 1929 did not completely exhaust itself until mid-1932…nearly three years later.

Secular Bear Markets, by their nature, have to grind investor spirits into the ground. Quick rebounds do not achieve that psychological outcome.

Central banks are running out of stimulus ammo. Policymakers have exhausted QE and negative interest rates to death…without any permanent recovery in sight.

Japan’s recent move towards negative rates gave a temporary boost to its market…but that was as far as it went.

The prospect of central banks mobilising some form of “helicopter money”, or “People’s QE”, to inject capital directly into the economy is very real.

The artificial nature behind this strategy won’t result in any lasting boost to confidence. It’ll be just another dose in a long list of sugar hits.

The absence of debt (in the massive quantities needed to keep the system afloat) leads to deflation. That is exactly what you are seeing right now.

What Vern calls the ‘Long Bust’ has begun.

Vern explains what this means in his book, The End of Australia. More importantly, the second part of his book shows you what you can do now to protect yourself from the fallout.

More than 16,000 people have ordered and read The End of Australia since it launched in September last year. And the reviews we’ve received to date have been nothing short of brilliant.

You can find out more here.


Bernd Struben

Bernd Struben is a contribution Editor of Markets & Money. He holds a degree in Economics and is a published novelist. Bernd’s career spans multiple countries on four continents. With his diverse background, he brings unique business insight and a libertarian twist to his columns and analysis in Markets & Money.

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