Post by jcagney on Apr 21, 2016 15:52:48 GMT -5
www.caseyresearch.com/articles/why-doug-casey-invested-1-million-in-this-niche-gold-market
Negative interest rates are “upending the world”…
So said The Wall Street Journal in a major front-page story last week. More than $8 trillion worth of government bonds now pay negative interest rates, according to the article. In other words, more than a quarter of the world’s government bonds now pay less than zero.
Dispatch readers know negative rates flip capitalism on its head. Normally, you earn interest on money you lend out or hold in a savings account. In today’s bizarre negative interest rate world, lenders often pay borrowers.
Negative rates are a perversion of savings. They have no place in capitalist society. Yet, thanks to idiot politicians and central bankers, they’re spreading like a plague through the financial system.
• Just two years ago, negative rates were unheard of…
Today, they’re increasingly common.
Europe has had negative rates since 2014. Japan introduced them in January. Denmark, Switzerland, and Sweden also have negative rates.
• Governments claim negative rates will “stimulate” the economy…
The theory is, if you charge people to save, they’ll save less money and spend more. They’ll buy more televisions, homes, and stocks. This is supposed to make the economy grow.
This is a dangerous myth. Casey Research founder Doug Casey says these policies actually destroy economies.
It’s part of the Keynesian view, in which spending and consumption drive the economy. This isn’t just wrong, it’s the exact opposite of what’s true. It’s production and saving that drive an economy. You have to save to build capital, and capital is necessary for…everything. What these people are doing is destructive of civilization itself.
• For months, we’ve been saying that negative rates would have serious consequences...
Now even the mainstream media is questioning negative rates…
Over the weekend, Barron’s published an article titled, “Ultralow Interest Rates Pose Long-Term Challenge.” The author said zero and negative rates have forced investors to buy risky assets.
Last month, Financial Times published an article with the headline, “Negative Interest Rates are a High-Risk Experiment.”
• Larry Fink thinks zero and negative interest rates are the “biggest crisis” in the world…
Fink is the founder of BlackRock (BLK), which manages $4.5 trillion, more than any other company on the planet.
Most people think giant banks like Goldman Sachs, JP Morgan, and Bank of America are the most powerful financial institutions in the world. But BlackRock actually controls more money than any of them. This makes Fink one of the most powerful people on the planet.
Two weeks ago, Fink wrote a letter to his shareholders explaining how zero and negative rates have backfired. In short, he said these policies haven’t encouraged more spending…but they have made it much harder for folks to retire.
When central banks cut rates, it pushes down yields on bonds and other interest-paying assets. Consider 10-year Treasuries, which many retirees own for “safe” yield. In 2007, they paid 4.6%. Today, they pay just 1.7%.
• On Thursday, Fink told CNBC “our clients are in pain”…
Fink said his clients are “very worried how they are going to meet their liabilities.” Over 70% of BlackRock’s clients are retirement and insurance plans.
Negative interest rates are punishing savers while encouraging extreme risk-taking. To have any shot at earning a decent return, folks need to own riskier assets like stocks.
Fink thinks this has created a very dangerous situation.
[T]he extended period of low interest rates has contributed to inflation in asset prices. Investors are being forced to trade liquidity for yield by taking on more risk and investing in less liquid asset classes — a potentially dangerous combination for retirement savers.
• Seven-plus years of low interest rates have blown a huge bubble in U.S. stocks…
Regular readers know the Federal Reserve has held its key interest rate near zero since 2008. This radical policy was supposed to help the economy. But the U.S. economy is growing at its slowest pace since World War II.
In many ways, the average American is now worse off. The real median U.S. household income has dropped from $57,795 in 2008 to $55,218. Meanwhile, the S&P 500 more than tripled in value since 2009. It’s trading near its all-time high.
• Doug Casey thinks we’re on the verge of a major financial crisis…
Here’s Doug.
[R]eckless policies have produced not just billions, but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will in many ways dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.
• We urge you to own physical gold…
Gold has held its value for centuries because it’s durable, transportable, easily divisible, and consistent around the world. And, unlike paper currency, it has intrinsic value. Governments can’t create it out of thin air.
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Rare chance to share a scotch with Doug (only 100 tickets)…
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What Bill Bonner Discovered in Vancouver Will Shock You
For years, Bill Bonner’s invested mostly in gold and real estate. But after a private meeting on a boat in Vancouver, he’s about to put seven-figures in an unexpected place. Details here.
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• Doug thinks the price of gold could more than triple in the next few years…
He expects gold stocks to go even higher.
As you may know, gold stocks are leveraged to the price of gold. It only takes a small rise in the price of gold for gold stocks to skyrocket. The 17% jump in gold prices this year has already caused the Market Vectors Gold Miners ETF (GDX), which tracks large gold stocks, to surge 62%.
During the 2000-2003 gold rally, the average gold stock gained 602%. The best gold stocks jumped more than 10x.
Doug expects even better returns during the next gold bull market. He thinks the best gold stocks could soar 10x, 20x, or higher in the coming years. These kinds of gains might sound impossible, but experienced gold stock investors know they happen.
• Doug says this is one of the best buying opportunities he’s seen in decades…
He recently invested $1 million of his own money into gold stocks. It’s one of the biggest investments Doug’s ever made.
Doug made this huge bet because he’s convinced gold is headed for the moon. If you agree, gold stocks are the best way to speculate on higher gold prices.
That said, gold stocks aren’t for everyone. They are incredibly volatile. They can rise or fall 10% or more in a day. If you can’t stomach that kind of volatility, stick with physical gold. It could easily triple over the next few years.
But if you’d like to learn more about the profit potential in gold stocks right now, watch this short video. This free presentation explains how to make huge returns in the coming gold stock “mania.” But you’ll need to act quickly…we’re taking this video down in 48 hours.
Click here to watch our free video on the coming gold stock mania.
Chart of the Day
Negative interest rates aren’t working…
Today’s chart shows where negative rates are most prevalent. The bars show the total value of negative rate government bonds in various countries.
You can see that Japan has the most negative rate bonds. According to The Wall Street Journal, more than 70% of Japan’s government bonds have negative rates.
The Bank of Japan (BOJ) introduced negative rates in January in an effort to jumpstart the country’s economy. Japan’s economy hasn’t grown in two decades. Its government is desperate enough to try anything.
So far, the experiment is a huge flop.
As we recently explained, folks in Japan are not spending more money. They’re hoarding cash at home. That’s because negative rates “tax” money in your bank account, but they can’t tax cash sitting in a safe or under your mattress.
On Thursday, The Wall Street Journal explained other ways negative rates are failing. (Emphasis ours)
“Every day is like being Alice in Wonderland,” said Tomohisa Fujiki, head of interest-rate strategy at BNP Paribas Securities Japan. “Interest-rate levels are having little effect on credit demand, the market function is declining. You can’t expect everything to go according to plan.”
This should sound familiar to regular readers. For months, we’ve been saying that easy money policies have warped the global economy. We now live in an “Alice in Wonderland” economy where stocks and bonds have lost touch with the “real” economy.
The Wall Street Journal continued.
“There is no guarantee that lowering interest rates encourages corporate capital expenditures or expedites the shift of household financial assets from savings to investment,” said Nobuyuki Hirano, president of Mitsubishi UFJ FinancialGroupInc., Japan’s biggest bank, on Thursday, adding the negative-interest policy had caused households and businesses to rein in spending amid growing uncertainty over the future.
Negative rates have backfired in Japan. But that doesn’t mean Japan’s government will end this experiment. Just last week, the BOJ said it “will not hesitate to take additional easing measures in terms of…quantity, quality and the interest rate if it is judged necessary.”
Regards,
Justin Spittler
Delray Beach, Florida
April 18, 2016