The War on Cash Just Went Nuclear

Another week goes by, and world markets continue to boom.

My philosophy is that prices don’t lie.

In a sea of ‘expert’ opinion, it’s the one indicator you can trust for what it is.

So right now, I’m bullish. And am investing accordingly.

I’m bullish shares, I’m bullish commodities, and I’m bullish global property.

Most of all, I’m bullish cryptocurrencies.

But this doesn’t mean I don’t know how ridiculous the global economic situation is at the moment.

And what I saw last week shows it’s only getting crazier.

It was something that shows you we’ve officially entered economic cloud cuckoo land.

A place where central banks rule, and money continues to grow on trees.

And it could make the cash in your pocket as worthless as a Zimbabwean Dollar over the next few years.

More on this soon…

First though, a qualification on my bullishness.

I know a crash will come eventually. Someday…

They always do.

But I also know you don’t make money by hanging around and waiting for it. It can take years or even decades for a bubble to build and then pop.

The market can stay irrational a lot longer than you can stay solvent,’ was Keynes’ famous refrain. It was true back in his day, and it’s true now.

As an investor, you have to invest in the world as it is. While keeping an escape hatch ready for when worst comes to worse.

I know it can be hard, though…

When you look at the current economic state of the world right now, there’s plenty of crash contenders floating around.

In fact, whenever I look too deeply into the economic statistics, I shudder.

There’s just so many crazy things going on right now…

Welcome to the upside down

Consider the fact that China is now the bastion of globalised trade, while the US is looking inward, threatening trade wars.

Or the fact that multi-generational unemployment looks likely to be the fate of millions of Spanish, Italian and Greek youth as the European Union experiment slowly crumbles.

At home in Australia, you can see the disconnect between property price rises and wage rises. One’s flying along at a decent clip while the other stagnates at the slowest pace in 20 years.

And I think you know which is which…

I know plenty of people who look at all this and think, ‘I’ll sit tight and just keep it all in the bank.’

A seemingly safe option to preserve capital.

Well, not as safe as you might think. Even capital may not be protected!

Just last week we had the extraordinary situation of a €500 million, three-year, BBB rated bond issued with a negative yield of -0.026%.

Veolia [PARIS:VIE] was the company raising the funds. Funds which investors were literally paying them to take!

Now Veolia are a fairly large company. A water, waste and energy management company with 163,000 employees worldwide.

Their revenue last year was €24 billion. m

But still, we’re talking about investors paying a commercial company to take their money!

Am I the only one that thinks this is bonkers?

And I repeat, this is to a company. Not even a bank or sovereign state.

This was the first negative yield issued at the BBB level. And according to the company’s press release, the offer was oversubscribed.

It seems like we’re in the ‘madness of crowds’ territory.

And it’s a worrying sign of things to come.

It shows there’s big demand from investors who are looking for safe places to park cash. Even if it costs them some of their capital.

The fact that in this instance they have chosen a commercial business and not a bank as the place for their capital shows that some investors are happy to trust real businesses to hold onto their cash for them. Rather than parking it in bank accounts.

This is twilight zone stuff… 

Topsy-turvy economics

When you piece it all together, it makes no sense.

Record setting markets.

Negative interest rates.

Huge and growing government debts.

Topsy-turvy global politics.

Growing global inequity.

It’s no wonder people are seeking out safe havens. But is ‘cash’ the place to do this?

Are negatively yielding bonds really ‘safe’?

I don’t know. But at face value, it seems like madness to me.

An already depreciating asset, further depreciated by a negative yield?

In fact, when you look at ‘cash’ as an asset class you can see it is looking progressively worse and worse.

The elites have stuffed up the global economy, and are printing money to cover it all up.

Check out the US national debt level:

US Gross National Debt Spikes $640 bn 8 Weeks (Oct 2011 - Oct 2017) 20-11-17

[Click to open new window]

Now economics 101 will tell you if you’re creating more of something, then the price of it (the value in this case) will go down.

That’s what’s happening with cash.

And no one really knows the consequence of this on the global economic situation.

Prepare your escape hatch

I get the nervousness out there from thoughtful investors.

But as long as the opportunities are out there, I remain bullish.

I think any investor who is worried about the global situation has to look at a well-constructed portfolio of gold, some short-term cash, stable property, infrastructure and utility stocks, and some cryptocurrency.

Yes, cryptocurrencies.

I’m putting them up as a component of an economically defensive portfolio.

Of course, they are risky. Even riskier if you don’t have a guide helping you.

But they’re also the only asset out there that acts as a hedge to the value destruction we’re seeing in cash. And consequently, a hedge to governments.

Cryptocurrencies are immune to central bank manipulation.

It’s no wonder central banks hate the concept. It strips them of their power.

But that’s the strength of cryptos.

And unlike the gold market, there’s upside in boom times as well, thanks to their technology edge.

So, before you write off cryptocurrencies completely, I encourage you to think about how you would handle a world where your dollars buy you less and less.

A world where your inflated assets are at the whim of central bank interest rates.

The next crash might bring down fiat currency as well as any asset that is benefiting from this asset price inflation (i.e. Australian property).

These falls could be drastic.

When the time comes…

For my part I still remain bullish. Like I said price action doesn’t lie. So, I’ll still be investing in good shares in rising trends.

And I’ll be investing in cryptocurrencies. I’ve never seen a better asset class for times like this.

But when it is time to go defensive, unlike shares, I’ll be holding onto my crypto assets.

They could one day be the last form of money standing.

Good Investing,

Ryan Dinse,
Editor, Money Morning


Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:


Money Morning Australia