The Era of High Yields is Over; Welcome to the 'Speculate or Starve' Era
"However, no two people see the external world in exactly the same way. To every separate person a thing is what he thinks it is –in other words, not a thing, but a think." ~ Penelope Fitzgerald
The masses made no noise when central bankers started to flood the system with hot money and are still quiet, so why will the banks stop? There are trillions of dollars that the big players will make and still stand to make before this game is over. We are in the race to the bottom and once a race starts you cannot stop it. So expect the negative rate experiment to be continued and this will continue until the masses revolt. The story below will be heard more often in the months and years to come. Individuals are being forced to speculate in their quest for sustainable yields.
Cathy Berger, a 55-year-old who lives in Nassau County, N.Y., and works as development director at the Queens Chamber of Commerce, said that in the years before the financial crisis she used to invest a large portion of her savings in certificates of deposit, earning an annual rate of as much as 8%.She moved a portion of her savings into high-dividend stocks after rates fell, but lately, those stocks have been under pressure amid turbulence across the financial markets.
"It’s so volatile," said Ms. Berger. "Trying to reap any kind of income from your money, from your assets, is almost impossible now." Full Story
Negative rates are already pushing Managers of Pension funds into a tight corner; soon there will be no way to go. Pension funds typically invest in bonds, but bonds are paying such miserly rates that you cannot call it investing anymore. You have to call it charity. At some point these pension funds will be forced to speculate; to some degree, this is already coming to pass. The article below highlights the conundrum most pension fund managers face.
To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research. Full Story
We are just at the beginning stage of this new trend that we have decided to label as "The speculate or starve Phase". Imagine the amount of money these funds could bring to the markets in the years to come; it will be like 1-2 QE’s combined.
This market is going to trade at levels that seem dangerously insane even to the most ardent of bulls. We said this in 2014, 2015 and we have said this several times in 2016. Pin this somewhere and look at it one day, you will have some great stories to tell your grandkids when you recall this crazy phase many moons from now.
The Goal of central bankers is to force, not coax, the majority of savers to do something they never thought they would ever do; for a person that saves, the word speculate is a dirty word, but one day these savers will be forced to embrace this term that is alien to them. It is hard to imagine that now, but when they do, central bankers will have proven that an individual's perception can be altered at will by just changing the angle of observance.
At no point in history have the Top players utilised the principles of Mass psychology so aggressively against the masses as they have done since 2010. They are looking to alter individuals perceptions completely and sadly, they are doing an incredible job. The more we look around, the more we see their techniques working. Thus understand this, no matter what any country states, the end Goal, for now, is to devalue the currency.
It is not all gloom and doom; this mess will pave the way for something better In the future, but before that chaos insists on having its day in the sun. When over 62% of Americans do not have $1000 in a savings account or over 30% would have a hard time coming up with an extra $400 to cover emergency expenses you know that the outlook is far from rosy.
Markets are no longer tied to real economic growth. Today economic growth or lack of it is irrelevant as cheap money powers the markets, and there is a plentiful supply of that for those who least need it; the rich and the powerful have access to endless lines of credit that they can tap and turn into even larger sums. However, the day is drawing closer where bankers will allow the small guy to have access to some of these funds. No bull market has ended without mass participation and for the masses to jump in you need to make them feel like they have money to spend.
If you examine the situation from this angle, you can see that there are many avenues left for the Fed to tap and to push this market into super bubble territory. In such an environment, it would be prudent to own some Gold and Silver bullion.
"The difference between a mountain and a molehill is your perspective." ~ Al Neuharth