Monday, 28th January 2019
Don’t rule out a tax on ALL your bank deposits….
Here at Money Truths it is our belief that stocks are headed down….
For sure, there will be ups and downs along the way. Bear markets, corrections and even crashes are not perpendicular in nature….
But the general direction of travel will be toward lower stock values – significantly lower stock values – over time….
Of course, this is just our best guess. And we are always prepared – indeed, we expect – to be proved wrong….
Right now, legions stand against us on the field of play. Legions that believe now is the right time to buy….
- A stampede of bulls….
The FT’s Ken Fisher was on the case last week. The headline of his column read thus….
‘Forget the investment losses of 2018, stocks will rebound….’
Fisher is bullish. ‘Don’t let the past blind you,’ he says. ‘2019 will be great….’
Fisher is founder and executive chairman of Fisher Investments. Maybe his viewpoint is entirely objective….
Or maybe what he ‘believes’ is bound-up with what he hopes might happen on a commercial basis….
Who knows? But Fisher is not alone….
‘Ignore all the Brexit hysteria and buy UK stocks….’
That was the headline of a Merryn Somerset Webb column on the Moneyweek website last week….
She said this: ‘…. too much misery may now be embedded in the price of UK assets and in sterling…. Now is the time to look again at possibly mispriced UK opportunities….’
Tellworth Investment’s Seb Jory is another pundit confident of gains ahead. He recently said this:
‘Long-term investors and asset allocators should therefore be licking their lips. UK equities ostensibly present the sort of value opportunity that managers have been demanding for most of this cycle….’
We bring you these decidedly upbeat market assessments to act as counter to our own viewpoint – in a spirit of fair play….
Make of them what you will. They made us laugh….
Of course, nothing is impossible in markets distorted by a decade of the loosest monetary policy in the history of human civilization….
Record-low ‘emergency’ interest rates and unfettered government money printing succeeded in ensuring that markets were awash with a tidal wave of cash and demand for ten whole years….
Sluggish or stagnant economic growth didn’t stop global stock markets recording record-high after record-high during a golden period for stock market investors….
Can the markets – still not too far off those record highs – perform magic once again and go higher still in the event of another global economic slowdown?
We might not have to wait too long to find out….
Last week’s data says that very slowdown is unfolding right now in front of our very eyes….
- Falling demand….
The latest quarterly trends survey from the Confederation of British Industry showed the outlook for the UK manufacturing sector was the worst this month since the Brexit vote….
The CBI’s monthly gauge of industrial orders fell to -1 this month from +8 in December….
The signs are that demand for manufactured goods is dropping-off fast and the economy is slowing down….
It’s not just in Britain either….
In the US, the Institute for Supply Management’s New Orders Index just hit a 28-month low….
And South Korean exports – bell-weather data for the health of the global economy – just fell off a cliff….
Exports dropped 14.6% year-on-year in the first 20 days of 2019….
There’s a good bit of negativity about too – much of it emanating from the type of folk that social media websites would refer to as ‘influencers’….
Euro Pacific Capital CEO Peter Schiff was on TV last week telling viewers that economic collapse is on the way and that gold will trade at over $5000….
At the World Economic Forum in Davos, Greg Jensen, co-chief investment officer of Bridgewater Associates, was saying this….
‘Right now, our expectation is that while people have certainly diminished their growth expectations…. we don’t think they’ve done it enough, and that earnings expectations, particularly in the US, are too high and that generally the Fed and other policymakers are still expecting stronger growth than we see. So basically, what we expect to play out is weaker growth….’
That’s a long-winded way of saying that things are not as good as we’re being told….
Barclays Chief, Jes Staley, was doing the rounds last week too – saying that it is ‘more than likely’ there will be another financial crisis….
Meanwhile, the Institute of International Finance reports that global debt is just shy of a record high – weighing in at a whopping $244.2 trillion (£191.8 trillion), compared to $235.1 trillion 12 months ago….
- No tools with which to stimulate….
Of course, we hesitate to say that we are looking forward to what happens in the event of a global downturn or a full-blown crisis….
But there is entertainment to be enjoyed in every scenario. And we will enjoy watching on as central bankers and politicians try to kick-start flagging economies with no tools of stimulation at their disposal….
It will be like watching a man trying to hammer nails with his bare fists….
The US began its ‘normalization’ of interest rates back in 2015. But here and in Europe, interest rates remain at ultra-low levels when viewed from an historical perspective….
In normal (or anything like normal) circumstances, in the event of an economic downturn interest rates are the go-to option central government or central bank planners use to stimulate economic activity….
They lower the base rate, reduce the cost of borrowing and businesses take advantage to get new capital on the cheap and invest – and activity is duly stimulated….
But with interest rates having been at emergency levels for a decade – and still at only 0.75% after two hikes, there is very little – if any – wiggle room for the Bank of England to make use of….
It is debatable whether a 0.75% drop to zero would be enough to do the trick and sufficiently stimulate the economy back to rude health….
Which raises once again the specter of negative interest rates….
- Precedents have been set….
A negative interest rate means the central bank (and perhaps private banks) will charge negative interest….
Instead of receiving money on deposits, depositors would pay to keep their money with the bank….
The intention would be to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe….
It might sound like something out of a dystopian novel. But make no mistake – it could happen. It already has happened….
In the early 1970s, the Swiss government ran a de facto negative interest rate regime….
In 2016 the Bank of Japan introduced a negative interest rate of -0.1% – which meant that commercial banks were charged by the central bank for some deposits….
In 2009 and 2010 Sweden used negative interest rates to stem hot money flows into their economies….
In 2012, Denmark did exactly the same thing….
Precedents have been set. And with so little room for maneuver, negative interest rates might well come to represent the Bank of England’s only option in the event of severe downturn in the UK economy….
- The Alice in Wonderland scenario….
And it might not just be commercial banks who are affected….
It is a programme that could be rolled-out into the consumer banking sector where negative interest rates would represent a tax on your bank deposits….
We hope this Alice in Wonderland scenario does not come to pass….
If it does, it will no doubt be presented to the British people as the ‘only way’ to save the country’s broken economy. And we suspect most Britons would consent to it on that basis….
Not that your consent will be sought-out or required. Negative interest rates will simply be imposed. There will be no referendum. No discussion. No choice. And no escape….
That’s how it looks from here….
All the best,