HOARDING CASH IS NEXT
Cash is King, when times are tough. Times are about to become much tougher, as the Eurozone economy is in flames, China’s credit growth has collapsed, Japan’s economy has been hit severely by a sales tax (both imports and exports have crashed!) and the U.S. economy experiences just anemic growth. This bleak global economic outlook (with China already exporting deflation, due to the RMB devaluation) as well as growing geo-political uncertainties are bound to increase the personal savings rate, as a percentage of disposable income, despite ultra-low interest rates. The U.S. savings rate has steadily climbed from 0.80% to 5.30% in the last decade, but before 1985 it was twice the current level. Corporate cash accumulation is likely to accelerate, as confidence in prospects for long-term investment projects has dimmed. Contrary to the expectations of most experts, U.S. Treasury and German Bund yields are now in a freefall, as a result. The Euro Overnight Index Average (EONIA), the benchmark for the Eurozone’s borrowing costs, has reached a record low ever, since the Euro had been created. Everything points to economic stagnation, just one shock away from official recession.
Animal spirits and fears of inflation are making way for defensiveness and conservatism. Fact is, that all markets have not reflected the true state of the economy for some time. As Central Banks intervened and complex algorithm trading systems took over, all markets have been cloaked in secrecy and resemble one large dark pool, where orders have been masked from the public market. Markets have become a con game. This will end badly. Markets may soon appear frozen, with little liquidity, where many sellers will find few buyers. This is another reason to expect, why cash hoarding will skyrocket.
The U.S. Treasury and German Bund markets are now experiencing a serious FLIGHT TO SAFETY. Is this because markets are indeed rigged? How do you ‘fleece’ the dumb tourists in a poker game? You get a few card sharks, who do their thing in order to make it look like a good game’s going on. Are the high frequency traders any different? Is it surprising, that markets are being abandoned by the ‘smart money? Right, the smart money is buying the HIGHEST QUALITY PAPER, before this ship goes down.
RICK SCHMULL
August 13th, 2014
WESTCLIFF-On-SEA, Essex, U.K.
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