Just Follow the Money

The simplest advice is often the best.

All the Presidents Men — the movie based on the Watergate scandal — gave us a one-liner that’s now part of folklore.

In trying to peel back the layers of the scandal, the government insider, referred to as ‘Deep Throat’, told investigative reporter Bob Woodward to just ‘follow the money’.

The money trail — a $200,000 payment to the plotters of the burglary — led all the way back to the White House…forcing Nixon’s resignation.

During the recent US Presidential election campaign, Donald Trump used the same ‘just follow the money’ line when questioning the legitimacy of millions that flowed into the Clinton Foundation.

These amounts can be best categorised as ‘rats and mice’ when compared to the money trail we’re following in today’s Markets & Money.

The amount we’re in pursuit of is US$21.7 trillion…yes, with a ‘T’.

This extract is from a recent Bloomberg article…

According to Yardeni Research, the People’s Bank of China has $5.2 trillion in assets, the European Central Bank has $5.1 trillion, the Bank of Japan has $4.7 trillion, and the Fed comes in fourth with $4.5 trillion.

When you add in other central banks (in the UK, Canada, Australia, et al), it’s estimated the central banks of the world have combined assets of US$21.7 trillion.

Bloomberg notes:

The world’s central banks have created a sum of money that equates to, and will soon exceed, the economies of either the U.S. or China…an amount that is growing at $300 billion a month or $3.6 trillion over the next 12 months.

Give or take, gross domestic product in the US is around US$19 trillion.

In less than a decade, the central bankers have macerated the largest economy in the world…out of thin air.

To illustrate how this has been done, here’s a chart of the US Federal Reserve’s total asset base:

US Fed reserve asset base

Source: Federal Reserve Economic Data
[Click to enlarge]

Everything was pretty steady until September 2008. Then Lehman Brothers collapsed.

After that, the world changed. All bets were off.

Prudent management? Bah.

Let Wall Street’s risk-takers get their just desserts? Double bah.

The vertical rise in the Fed’s asset base is repeated in China, Europe, Japan and the UK.

There was no sweat or toil or ingenuity applied to create this new world.

All it took was a few keystrokes.

Nothing on this scale has ever been done before.

But the world does operate in a vacuum. That money has to go somewhere. 

The following headlines are the pointers to follow on our money trail:

‘Dow powers to new record high…’

Financial Times, 24 October 2017

‘Melbourne land values surge while Sydney tops $1000 a square metre’

Sydney Morning Herald, 24 October 2017

‘The 5,000-year history of interest rates shows just how historically low US rates still are right now’

Business Insider, 21 September 2017

‘BOJ [Bank of Japan] replaces foreign traders as biggest buyer of Japanese shares’

Nikkei Asian Review, 15 September 2017

‘What makes Snapchat worth $30-billion?’

The Globe and Mail, 7 March 2017

The two-part answer to the last headline is a) the printing presses of central bankers, and b) nothing a person of sound mind can possibly think of.

And finally, what would you pay for this work of art?

$1,000, $10,000 or $100,000?


Source: CNNMoney
[Click to enlarge]

If one of those is your estimate, then it’s best you keep your paddle firmly by your side at the art auction.

‘Basquiat tops Warhol after painting sells for $111 million’

CNNMoney, 19 May 2017

US$111 million ($140 million), in my humble opinion, is certifiable madness.

For a little reality check on what $140 million can buy you, this is from a local newspaper: ‘St Vincent’s [Toowoomba] will spend $30 million on six new operating theatres…

How can you pay US$111 million for paint and canvas?

Well, in an ocean of US$21.7 trillion, this amount is a mere drop.

These headlines of record-breaking markets, historically-low interest rates, the Bank of Japan being the buyer of first resort, and ridiculous prices being placed on assets of dubious value are some of the tell-tale signs on our money trail. There are many more that could be listed, but space does not permit.

The so-called wealth effect — make the wealthy wealthier and they’ll spend — has clearly not worked.

The unintended consequence of this ill-fated theory has been the ‘wealth divide’.

‘Research shows Aussie families suffering under rising living costs’

News.com.au, 28 October 2017

‘Inequality Is Biggest Danger for Global Growth, Warn Top Economists’

Bloomberg, 24 October 2017

Can you remember these headlines back in 2007?


Since September 2008, the 90/10 rule has applied.

10% of people have received 90% in the central banks’ newly-created economy.

The remaining 90% of people have scrambled for the other 10%.

We now know where the money trail has taken us to, but where to from here?

Can they keep printing money to enrich the few at the expense of the many, without causing widespread social unrest?

The Fed is looking at quantitative tightening — selling down assets — but can it take the air out the world’s largest asset bubble successfully?

In following the money, we find the wealth created in recent years has been nothing more than an illusion.

This illusion can only be maintained if ever more money is printed…making the world’s newest and largest economy for the privileged few even bigger.

When you start seeing the headlines of street riots across the developed world, you’ll know where this trail has taken us to…anarchy.

If you are interested in following this trail, and how to avoid the dangers along the way, then please go here.


Vern Gowdie,

Editor, The Gowdie Letter

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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