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Negative Interest Rates Signal Escalation in War on Cash
Guy Christopher on Personal Responsibility and Avoiding Family Nightmares
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Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.
Coming up we'll hear an encore of one of the most important interviews we've had this year. MoneyMetals.com contributor Guy Christopher speaks about estate planning and making sure you don't leave your loved ones with a nightmare. Don't miss my interview with Guy Christopher coming up after this week's market update.
Bad news is usually good news - at least if you're a precious metals investor. Gold and silver prices are rallying this week on disappointing economic data. On Wednesday, weaker than expected reports on retail sales and producer prices sent the dollar down and precious metals up. Silver cleared the $16.00 level and has held onto it as the week has progressed.
As of this Friday morning recording, silver trades at $16.10 an ounce, good for a weekly gain of 1.4%. Silver prices are up better than 11% now so far this month. Gold, meanwhile, comes in at $1,181, up 2.0% on the week. Both metals are currently trading above their 200-day moving averages, often seen as a key benchmark from a technical standpoint.
Turning to the platinum group metals, platinum climbed above $1,000 an ounce on Thursday and currently trades at $1,009, up 2.5% this week. Palladium is down 1.8% on the week to trade at $699 an ounce as of this recording and it appears its string of five consecutive weekly gains will come to an end barring a late day reversal here on Friday.
Well, as I mentioned earlier, October has been a big month for the silver market. Prices have broken out to the upside. But in the physical bullion market, premiums attached to popular products such as American Eagles and pre-1965 coins are falling from extremely elevated levels. Premiums do still remain above normal, as supply tightness persists. However, the retail market is starting to normalize, or so it seems.
Yet nothing in markets is really normal these days. Not with the heavy interventions by central banks around the world aimed at preventing interest rates from rising to normal levels. Zero interest rate policy has been in force for several years now. The odds of that changing before year's end are growing ever more remote.
The market now seems firmly convinced that the Federal Reserve won't raise rates within the next three months. On Monday, the government held an auction for 3-month Treasury bills, and buyers bid yields down all the way to 0%. Previously, these T-bills had always sported at least some tiny fraction of a positive yield. But now, for the first time ever, they yield literally zero. Nothing!
That means in order for anyone to make capital gains on holding T-Bills, yields actually have to go negative. Apparently some speculators are betting that could happen. Strange as it sounds, negative rates are possible. In fact, negative rates have occurred this year in some sovereign and even corporate debt markets in Europe.
The Federal Reserve could engineer negative yields throughout the banking system in a desperate effort to encourage people to spend rather than save. Of course, that would make pulling cash out of bank accounts that charge interest on deposits and buying precious metals instead a total no-brainer. Even people who don't appreciate the fundamentals of gold and silver can appreciate the fact that they don't charge interest like banks and governments appear ready to do.
Speaking of fundamentals, what's bad news for the mining industry is good news for metals price outlook. And over the past year, the news on the mining front has been nearly catastrophic. Here's an excerpt from a recent presentation by Future Money Trends:
Future Money Trends Report: Devastation. An unmitigated disaster. The worst bear market in half a century. Petropavlovsk, a leading Russian gold miner once valued at more than $3 billion, was forced to tap shareholders for emergency funds after seeing its stock fall 99% over the past five years. BHP Billiton, the world's largest publicly traded mining stock, is cutting $4 billion next year from capital expenditures. Rio Tinto, the world's second largest public mining company, is cutting $1 billion dollars this year, and Glencore plans to cut over $800 million. China State Media recently reported that over the next three months 100,000 mining employees will be laid off from just one company. Home to the junior mining companies, the TSX Venture Exchange, is down 85% in nominal terms.
In recent weeks, share prices for the gold and silver miners have rallied. They can return to profitability as gold and silver spot prices rise. But it will be years before production is able to ramp back up to any significant degree. Looking ahead to 2016, diminished mining output could be the big story in the gold and silver markets.
Of course, the big story in the media day after day, week after week, will be play-by-play on election campaigns. Almost all of the coverage will be about personalities and strategy. Almost none of it will be about substance. That you can count on.
During Tuesday's Democrat presidential debate, Vermont socialist Bernie Sanders declared himself to be the anti-establishment candidate. Yet back in 2010 when Senator Sanders had an opportunity to help strike a blow against the banking establishment, he balked. He just plain refused to support Congressman Ron Paul's original bill to audit the Federal Reserve and instead offered up an amendment to water it down.
On the Republican side, a few of the candidates seem to genuinely want Federal Reserve transparency and monetary reform. Senator Rand Paul and Senator Ted Cruz have spoken about it. More recently, Ben Carson touted the advantages of returning to a gold standard, while front-runner Donald Trump accused Fed chair Janet Yellen of being beholden to the Obama administration. Mr. Trump said that Yellen was holding interest rates down to avert an Obama recession.
However, other than replacing Janet Yellen as Fed chair, it's not clear what sort of monetary reforms a President Trump would implement. He reportedly owns a few hundred thousand dollars' worth of gold bullion. So perhaps the candidate whose name is associated with gilded buildings would be amenable to returning to some type of gold standard for our currency. It’s a question that could be asked at the next GOP debate on October 28th, which will be presented by CNBC. Could be asked, should be asked – but don't count on it.
Well now, without further delay, let's get right to this week's exclusive interview.
Mike Gleason: It is my privilege to welcome in Guy Christopher, one of the featured columnists on our Money Metals.com website. Guy is an investigative journalist and published author, but he's also a former stock broker and veteran of the 101st Airborne, serving in the Vietnam War. All of this real world experience, combined with his communication skills, has helped him provide our readers and customers with some really great insights, which thousands of you have benefited from to date.
Guy, welcome back, it's been quite a while. It's a pleasure to speak with you again, how are you?
Guy Christopher: Mike, I'm doing fine. Thanks for the honor of having me on.
Mike Gleason: Well, I'm excited to have you on today because you just authored a fantastic piece for us this week titled, You Worked to Have It... Now Work to Keep It. In that, you described how many Americans, who may have been thoughtful and diligent when it comes to accumulating some wealth, are often totally neglectful when it comes to protecting it. Talk about that. What do you mean, and what is it that so many people often overlook?
Guy Christopher: Well, I think folks don't like to talk about, or think about, dying and so they don't pay a whole lot of attention to it. We have research from some pretty high powered research firms that show more than half of the United States citizens have no will or no legal trust, and really haven't made a great many plans for taking care of their estates. Which can be complicated as gold and silver. That's very often left at the bottom of the ladder when it comes time to explain things to family. You and I both know that very often family members don't have any idea what your interests in gold and silver really are. They don't understand it and that's too bad, but that's the way it is. When you're trying to pass on gold and silver inheritances to family members, or to friends, they may be sitting there staring at a great deal of wealth, and they're not sure how to handle it. I think it's one of those things that we all have to face, some of us do a little better job of it than others. I think it starts with going to an attorney, and sitting down and saying, "What do I need to protect my estate for my children or my ... and my family?"
Mike Gleason: Talking about precious metals specifically there. I can tell you from experience we often hear from heirs who just had a loved one pass, and they immediately just want to get rid of the gold and silver that grandpa, or grandma had there. They say, "What the heck are we going to do with this? Yeah, let's just get rid of it right away." So those conversations are often not happening between individuals and their heirs, and they don't even understand the importance of owning gold and silver, and they want to get rid of it like a hot potato. I'm sure you've seen that sort of thing.
Guy Christopher: I have seen it, Mike. The example you just provided is excellent. When folks, first of all, families very often don't agree with how to divvy up the remains of an estate unless there's a will, and unless there are written instructions and legal instructions. I have personally seen families who have had great difficulties individually with each other, trying to decide what to do with this valuable, or that asset, or that keep sake. Certainly something, which is unfortunately as mysterious as gold and silver can be to some people. Unfortunately, those things are often left with estate matters, and like you said, folks call and say, "Hey, what's this dollar amount?" They really don't know what they have in their hands, and they just want to turn it into cash and move on.
So that's unfortunate. I think that if you are a gold and silver owner, if you believe that you're acquiring real wealth through gold and silver, and that it is a great way to save, and a great insurance policy, then I think it's necessary, its incumbent upon you to try to explain to close family members, to close friends, what this is and why you have it, and what they should be thinking of doing with it. You don't want to put your business on the streets too much, we've written articles about that. You can do these instructions legally, in a will, or you can do them in a letter to your family… just explaining, “Look, I believe in this stuff, and I want you to believe in it too”. I think that it's just as necessary to have written instructions for gold and silver as it is to have for a real estate, or any other valuables you may own.
The reason you've got to that is because nobody else is going to do it for you. You and I both know there are a lot of folks out there who will take advantage of people who are suddenly given a handful of gold, or a bag full of silver. There are folks out there who can easily take advantage of your heirs, your grandchildren, your children, your wife, your husband, who don't really understand what it is you have and why you have it. So I think that just leaving some written instructions ... You're not really spreading your business around on the street that way. You're leaving written instructions with trusted people to say, "This is why I have this and this is why you should value it." I think folks really appreciate that. Losing a loved one, we've all been there. Losing a loved one is a terrible thing to go through. You have enough on your mind, really, between funeral arrangements and just the grieving process. You have enough on your mind without also worrying about, “Hey, what's this stuff worth in dollars?” First things first, you have your grieving to do, and then you also have business to take care of, and that's always the case. I think it's just helpful for your heirs, for your children, to have something that says, "This is why I had that and this why you should value it."
Mike Gleason: Now, I know many precious metals investors are hiding them somewhere in their home, which is a great idea as it may deter theft if you're unfortunate enough to have a break in. But it could also be problematic for your heirs after you pass. What advice to you have for people there? That's something else you do have to keep in mind.
Guy Christopher: Absolutely, it's a great idea to have your metals put away privately and secretly, but not so secretly that no one will ever find them. In the article we just published, we talk about the true story of a fellow. I knew the fellow, or know him, he's still living, who was very secretive about his belongings. He lived in a very big house, many, many rooms, long hallways. His two daughters were grown. His two daughters visited once in a while, but they didn't really hang out and explore the house that they grew up in. It was months and months and months before those children of his were able to come to grips with the fact that they didn't know where anything was. There may be a great deal of wealth on that property, that may never be found. It may not be found for 200 years. We just don't know, because there were no written instructions.
Those kinds of stories are repeated over, and over, and over. They're unfortunate. They are preventable, but still in all when folks don't take the time to think ahead, then they are really doing their loved ones a big disservice, because they haven't taken the time to say to themselves, "I need to write down some things," like the combination to the safe. I can't imagine a worse situation than knowing your dad, or your mom, or someone has a safe, and you have to go find a safe hacker to get it open because there's no combination written down anywhere, and nobody knows how to get into it. That's a problem that a grieving family shouldn't have to have. It's just one example of the kinds of things you can do now to ensure that you can take care of yourself, and if you're not around, you can take care of your family.
Mike Gleason: I know in the case of your acquaintance there, I'm sure there's probably some real piling up medical bills, based on his condition. So having access to those precious metals that his daughters can't find, I'm sure would be very helpful in covering some of those costs. Yeah, it's very important, of course, to leave instructions.
Now, we're are talking about people here that have already bought some precious metals. Those that haven't yet, what would you say to the person who is still hesitating to make his, or her, first purchase of precious metals? Prices are down, it seems like a good time to act, but some may be afraid prices will go even lower. What do you have to say to that person?
Guy Christopher: That's so true. I've noticed prices dropping, and I've also noticed the folks I know who are buying are the old timers who are committed to gold and silver, who believe in gold and silver, who understand gold and silver. Not so much the newcomers, the newbies, the folks who are just now looking around and saying, "What's that gold and silver stuff all about?" The buying has been primarily, at least as far as I know, by those folks who are already acquainted with it. The problem we have, and we've written about this before, and it's been written many times at Money Metals, not just by me. The problem we have is a matter of media and education. The government doesn't like you owning gold and silver. The government would prefer you have either cash or digital money, that gets us down the road into the weeds and war on cash, but it's very real.
The government would prefer that you just forget all about gold and silver, and they have been very masterful at brainwashing Americans into believing that gold and silver are not real money. You and I know that gold and silver are currencies. We know that they are representations of wealth. The government knows they are real money, and the government knows they are representations of real wealth, but the government would prefer you not know that. The government would prefer you have debt as your money, which is exactly what the treasury bond, exactly what a U.S ... one dollar, ten dollar, five dollar, fifty dollar bill is. It's a note, it's debt. It's not real wealth, it's just a representation of debt. And people have used this debt, they use these I.O.U's as real money. They begin to think of these I.O.U's as real wealth, and you and I know they're not.
So the real problem we have here is that the government has been quite successful, over the past seven or eight decades, ever since FDR's gold grab in the 1930's, the government has been very successful in drumming gold and silver out of the American psyche. The last phase of that was probably 1965, when the government stopped putting silver in American coins, and gave us the mystery metal that we use today. I don't know what's in a 25 cent piece, I think there's some copper, and some tin and maybe some zinc, I don't know. Then, in 1982 they stopped putting copper in pennies. The government has tried to get away from precious metals as wealth. They've done that so that the rest of us will think of debt as money, as wealth, as currency.
The reason that it's so hard to get new people involved is because they are, I hate to say the word again, but they are largely brainwashed into believing that real money is a digital message on a smart phone. That real money is an account statement from your bank. When, in fact, that's not real money, that's just a representation of debt. It's too bad that more people don't have the educated instincts to begin looking hard at what's going on. If you look around the world, last few days we've had China jump in with both feet in what Jim Rickards calls, the currency wars. We've had stock markets up and down 200, 300, points per day, up 300, 200, points per day down. A lot of turmoil there. We've had trade wars, which we hear about in the news all the time. Different nations are trying to get a hand up, a leg up, on other nations in trade wars. There is every evidence that the economic system around the world is unraveling. And as it unravels, debt is going to be exposed as a serious, serious flaw in global economic matters. And the antidote to that flaw is, of course, precious metals.
Mike Gleason: Yeah, you certainly can't be on an upward trajectory endlessly towards more and more debt without there being some sort of coming moment when it all comes crashing down. It's just inevitable. It's really just physics when you get down to it.
Guy Christopher: Well, you know Mike I saw in one internet report that the federal government has actually frozen the reporting of the national debt at around 18 trillion, for the last 150 days. I don't understand why folks aren't asking questions about that, and screaming to their representatives and their senators saying, "We would like to know why the government stopped reporting the national debt." $18 trillion is a lot, but that's not the real number now. We know that real number is much, much higher.
Mike Gleason: All of this does get back to education, as you hit on a moment ago, and it's definitely one of our missions here, which of course you play a big role in. In one of those topics we've covered extensively this year, you alluded to it earlier, is the war on cash. We've talk about it many times here on the podcast, and in a lot of our articles, which many of them you've been responsible for, of course. Now, you wrote a great piece a few months back and I wanted to have you comment on that a bit. In your article titled FDIC Plots a Bank Heist Involving Your Account you wrote:
Court cases have upheld for decades that putting your money in savings, a C.D, or other bank products, means you've become an unsecured creditor. Your deposit is actually an unsecured loan to the bank, with all the problems of counterparty risk. Instead of being presented with collateral, you get an I.O.U, that pays a penitence in interest, or in many cases, nothing.
A busted bank doesn't have to return your principle deposits, unlike when YOU are the borrower and THE BANK is the lender. The bank didn't tender you a lawyer-ed up promissory note, or offer you a lean on its assets. Legally speaking, you may as well have handed your money to a stranger in the alley.
Unsecured creditor, means just what it says. No security.
Talk about this, because many people may not even be aware that this is how it works.
Guy Christopher: Mike, again, that's just part in parcel of the lack of education and the extreme success the government, aided by its lapdog media, the government and the media have successfully erased the notion that we have to actually protect and fight for what we believe is right. Yes, when you put your money in the bank ... and I didn't know this when I was a young man, it took me a while to discover it. Most people don't know that when you put your money in the bank, it's the banks money at that point. Your money is listed as a debt from the bank to you. If the bank can't pay you back, then you lose, which is why we have FDIC insurance, for what it's worth. FDIC insurance came along because banks were going busted in the 1930's, thanks to the Great Depression.
As those banks went out of business, farms failed, businesses failed, families failed. The government said, “Well, let's throw some insurance on there.” Well, that FDIC insurance is largely worthless for two reasons. Number one, there's not enough to pay for the trillions of dollars that are in banking accounts, savings, C.D's, and what have you. And the other problem is that the FDIC can change the rules anytime it wants, as we wrote in that article. The FDIC can change, and probably will change, the rules anytime it wants to lower insurance rates or insurance limits, which are now supposedly $250,000 per account. They can change those rules anytime they want to make your deposits largely un-insurable, or worthless.
In Greece, we have some rumblings of capital controls, a war on cash. Banks closing, ATM's giving out just sixty euros per day, because the banks were going bust. Billions of euros were leaving Greece as the latest Greek bailout came through. And the opposite of the bailout is the bail in. The bail in is simply, if your money's in the bank, that's the money we'll take to save the bank. The thing to remember about bail ins, they are not designed to save you, your family, your way of life. They are designed to save the bank. The banks are what's important to governments, not you, not your life, not your way of life.
Mike Gleason: Well, it's all very troubling and sobering to think about some of that stuff, but that's where gold and silver can provide an alternative. We've said it before, but it really is true, it's a different form of cash. It's one that you hold in your hands. It's one that's free from counterparty risk, and it's definitely something that more and more people need to be thinking about as we get more and more uncertain here with the global economic environment and landscape. And also, of course, the geopolitical issues and currency wars that we're going to be facing here over the next decade. It's a dangerous world and we're glad that we have somebody like you on our team to help explain it all. It's great stuff, and I always appreciate your insights. I know our audience does as well, and I enjoy your writings, and look forward to speaking with you again down the road. Thanks very much Guy for your time.
Guy Christopher: Mike, I appreciate that, and let me say that I'm very proud of Money Metals for the educational efforts that you folks do. You folks have poured a lot of time, energy, and money into education, and I just wish more people would take advantage of it.
Mike Gleason: Well, you're certainly a big part of that, so thanks for your efforts and the role you play in that department.
Guy Christopher: Thank you, Mike. It's been a pleasure talking with you.
Mike Gleason: Well that will do it for this week, thanks again to Guy Christopher, Money Metals columnist. Check out his work at MoneyMetals.com.
And check back here next Friday for our next weekly market wrap podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend everybody.