Take it from “Dr. Doom”: own some physical gold and keep it out of the banking system.
Dr. Marc Faber, a legendary investor and the editor/publisher of the Gloom, Boom & Doom Report, is well known for his contrarian investing style.
In a recent Metal Masters interview with the Hard Assets Alliance, he noted that the biggest geopolitical risk for Americans today is not a conventional war but rather cyber-attacks that could take down the US power grid.
In such a scenario, gold would become an irreplaceable medium of exchange. But it’s not the only reason to own gold today.
Diversified Assets Outside the Banking System
Faber grew up in Switzerland right after World War II, a tough time that caused his family to distrust paper money and taught him the importance of precious metals as a safety net.
Faber remembers how his father talked about rich people as millionaires.
Top central bankers will gather in Wyoming for their annual policy summit at Jackson Hole next week; solar eclipse mania grips the US and the Royal Bank of Canada kicks off the earnings season for Canadian banks.
Here’s what to watch in the coming days.
Yellen at Jackson Hole
Federal Reserve chair Janet Yellen will join European Central Bank President Mario Draghi in Jackson Hole, Wyoming next week and investors will be parsing through every comments for clues to the monetary policies of the world’s two most powerful central banks.
Mrs Yellen will speak on the topic of financial stability at 8am local time (10am EST) on at the conference hosted by the Federal Reserve Bank of Kansas City on Friday, August 25.
Solar eclipse mania
It promises to be one of the most watched natural spectacles of all time. On the morning of Monday August 21, a band of darkness will race across American skies as the Moon glides smoothly and perfectly across the face of the Sun.
The Reserve Bank of India (RBI) stopped printing Rs 2000 notes about five months ago and is unlikely to print more in the current financial year, said people aware of the development. The central bank, however, has stepped up the printing of other denominations, including new Rs 200 notes, the people added on condition of anonymity.
About 3.7 billion Rs 2000 notes amounting to Rs 7.4 trillion have been printed, said one of the people cited above. That more than compensates for the 6.3 billion Rs 1000 notes that were withdrawn after Prime Minister Narendra Modi’s demonetisation move on 8 November 2016.
“Most of the printing that’s being done, about 90% is only Rs 500 notes. Nearly 14 billion pieces of new Rs 500 notes have been printed so far,” this person said.
That is also close to the 15.7 billion of old Rs 500 notes (amounting to Rs 7.85 trillion) withdrawn from circulation after 8 November.
RBI data shows that currency in circulation stood at Rs 15.22 trillion as on 14 July, eight months after demonetization. This is about 86% of the Rs 17.7 trillion that was in circulation on 4 November.
Separately, RBI’s printing press in Mysuru has also started printing the new Rs 200 notes, which are likely to come into circulation next month, according to a second person.
National Bank of Hungary meets Tuesday and is expected to keep policy steady. The bank has been loosening policy quarterly via unconventional measures, which it just did at its June meeting. Further easing is possible at the September meeting. CPI rose only 1.9% y/y in June, the lowest since December and below the 2-4% target range.
Malaysia reports June CPI Wednesday, which is expected to rise 3.8% y/y vs. 3.9% in May. Although the central bank does not have an explicit inflation target, falling price pressures should allow it to keep rates steady into 2018.
South Africa reports June CPI Wednesday, which is expected to rise 5.2% y/y vs. 5.4% in May. If so, this would be the lowest rate since November 2015 and would remain in the 3-6% target range. SARB then meets Thursday and is expected to keep rates steady at 7.0%. However, we think the weak economy will lead the bank to start an easing cycle in H2 2017. That leaves September 21 and November 23.
Poland reports June industrial and construction output, real retail sales, and PPI Wednesday. Consensus for y/y readings are 3.9%, 9.8%, 6.0%, and 2.1%, respectively. The economy remains robust, but price pressures are falling and so there is no urgency to hike rates. CPI rose only 1.5% y/y in June, the lowest since December and at the bottom of the 1.5-3.5% target range.
Taiwan reports June export orders Thursday. Exports and export orders have slowed a bit in recent months and so bears watching. The mainland economy appears to be holding up well, which should be reflected in Taiwan data.
Picking up where he left off last week, when Bill Gross told Bloomberg that U.S. markets are at their highest risk levels since before the 2008 financial crisis “because investors are paying a high price for the chances they’re taking”, in his latest monthly investment outlook, the Janus Henderson bond manager says that investors should be wary as low interest rates, aging populations and global warming which inhibit real economic growth and intensify headwinds facing financial markets:
Excessive debt/aging populations/trade-restrictive government policies and the increasing use of machines (robots) instead of people, create a counterforce to creative capitalism in the real economy, which worked quite well until the beginning of the 21st century. Investors in the real economy (not only large corporations but small businesses and startups) sense future headwinds that will thwart historic consumer demand and they therefore slow down investment.
Lamenting the onset of the new normal era, Gross says that “because of the secular headwinds facing global economies, currently labeled as the “New Normal” or “Secular Stagnation”, investors have resorted to “making money with money” as opposed to old-fashioned capitalism when money and profits were made with capital investment in the real economy”
Two weeks ago we asked a question: maybe behind all the rhetoric and constant (ab)use of sophisticated terms like “gamma”, “vega”, CTAs, risk-parity, vol-neutral, central bank vol-suppression, (inverse) VIX ETFs and so forth to explain why despite the surging political uncertainty in recent years, and especially since the US election…
… global equity volatility, both implied and realized, has tumbled to record lows, sliding below levels not even seen before the 2008 financial crisis, there was a far simpler reason for the plunge in vol: trading was slowly grinding to a halt.
That’s what Goldman Sachs found when looking at 13F filings in Q1, when it emerged that the gross portfolio turnover of hedge funds had retreated to a record low of just 28%. In other words, few if any of the “smart money” was actually trading in size.
In recent weeks it has been Japanese demand (and notable premia) that has driven the exponential rise in Bitcoin, but recently, as CoinTelegraph reports, it has been South Korea. Overenight saw Bitcoin prices explode once again, smashing through $2500, $2600, and $2700 for the first time…
As CoinTelegraph.com reports, South Korean Bitcoin traders are facing asking prices of $4,500 as the virtual currency’s price continues to surge.
Order books from domestic exchange Coinone list a current price of 4,254,000 won ($3805), with a 24-hour high of 5,025,000 ($4494).
MSCI will on June 20 announce whether it would finally include China’s domestic A-shares in its global indices.
The US index provider last June delayed for a third straight year the A-shares’ inclusion into its benchmark $1.5tn emerging markets stock index, citing regulation worries and accessibility for global investors.
Inclusion on the index would have been a major step forward for Beijing as it attempts to open up its financial markets and attract foreign capital.
Ahead of this year’s decision, China has embarked on a series of new actions aimed at addressing these concerns. Its banking regulator has launched a “regulatory windstorm” while the central bank has made the first move to ease capital controls, providing much needed liquidity to the offshore renminbi market.
Meanwhile, BlackRock has for the first time publicly backed the inclusion of onshore stocks in MSCI’s indices and Chinese officials have even criticised dividend-dodging companies, dubbed “iron cockerels”, and promised extra scrutiny.
With the Fed contemplating whether to hike again next month and start “normalizing ” its balance sheet before the end of 2017, the two other major central banks are facing far bigger problems.
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Two months after the BOJ quietly started tapering its QE program, when it also hinted it may purchase 18% less bonds than planned…
… Governor Haruhiko Kuroda admitted last week that the Bank of Japan’s bond holdings are currently growing at an annualized pace of only ¥60 trillion ($527 billion), 25% below the bottom-end of its policy range, and confirming that without making any formal announcement, the BOJ has quietly followed the ECB in aggressively tapering its bond buying program.
Philippine President Duterte named Nestor Espenilla as central bank governor
Nigerian President Buhari traveled to London for a follow-up to the initial medical visit earlier this year
Market expectations for 2018 inflation in Brazil rose for the first time in more than a year
Peru’s central bank unexpectedly started the easing cycle with a 25 bp cut to 4.0%
In the EM equity space as measured by MSCI, Brazil (+5.5%), Hungary (+4.3%), and Colombia (+4.3%) have outperformed this week, while Thailand (-0.9%), Poland (-0.7%), and the Philippines (-0.6%) have underperformed. To put this in better context, MSCI EM rose 2.5% this week while MSCI DM fell -0.2%.
In the EM local currency bond space, Poland (10-year yield -14 bp), Brazil (-12 bp), and Hungary (-10 bp) have outperformed this week, while Czech Republic (10-year yield +25 bp), Argentina (+21 bp), and Turkey (+17 bp) have underperformed. To put this in better context, the 10-year UST yield fell 1 bp to 2.34%.
In the EM FX space, RUB (+1.5% vs. USD), BRL (+1.4% vs. USD), and MXN (+1.2% vs. USD) have outperformed this week, while TRY (-0.7% vs. USD), PEN (-0.5% vs. USD), and ARS (-0.3% vs. USD) have underperformed.
Moon Jae-in was elected president of South Korea. We think the biggest potential change coming from the election is in North-South (and as a result, US-South Korea and China-South Korea) relations. President-elect Moon has said he will resume the “sunshine policy” of engagement with Pyongyang after 9 years of the hardline conservative approach, and will review the controversial THAAD missile shield.