Before I address this articles principal topic, I thought you might like to know how the vaunted “hedge funds” are doing this year. You know, the “geniuses” that know more about markets than anyone. As I demonstrated a year ago, they have at best been inept; i.e., in the black largely because the Fed and PPT support the equities they are mandated to invest in. For years, hedge funds have dramatically underperformed the market – scrambling from stock to stock, amidst the lowest average holding periods ever; generating enormous fees, commissions, and taxes for investors. And how have they done this year; in perhaps the easiest hedge fund environment ever? Through October, the average hedge fund – after the comical 2% management fees and 20% of profits they deduct – is returning a whopping 6%, compared to more than 25% for the S&P 500. And this, despite deploying record levels of both margin debt and leverage; which generally speaking, magnify positive returns. Thus, the next time you see headlines noting what “star” fund managers are buying and selling – typically, momentum stocks, irrespective of fundamentals – I suggest you ignore them.
Now that that’s off my chest, let’s return to far more important issues for the average person; namely, the “cashless nightmare” cited above. In Friday’s “Cashless Society,” I wrote of the inevitable, draconian imposition of “cashless” currencies by governments seeking to track all financial transactions. Such a decree would likely backfire in spectacular fashion, causing the emergence of thriving Precious Metal black markets; as we are currently witnessing in India, for example. Moreover, virtual currency technology would likely gain heightened traction; although be warned, Bitcoins, Litecoins, and other such “assets” have no more intrinsic value than dollars, euros, or Yen. Of course, such decree wouldn’t occur in a vacuum; but instead, in response to real, calamitous declines in fiat currencies. And when it does, if you haven’t already protected yourself, it will be too late.
Last week, the ultimate Washington/Wall Street insider, Larry Summers, gave a speech advocating Negative Interest Rate Policy, or NIRP – coincident with several ECB governors disseminating similar “trial balloons.” We’ve already seen negative rates in several countries over the past two years; and as I wrote last year, are likely to see them again, as the final stages of the global fiat Ponzi scheme play out. Negative rates are the ultimate incarnation of a broken financial system; and thus, when its “leaders” speaking of them in terms of potential policy, it’s easy to see just how close we are to the end. And thus, when I read this article this weekend, from none other than former Assistant Treasury Secretary Paul Craig Roberts (in the Reagan Administration), I was sufficiently unsettled to put pen to paper.
Roberts noted how the Washington/Wall Street complex is as powerful as ever – as evidenced by Tim Geithner leaving the Treasury to join Warburg Pincus; and furthermore, that Summer’s speech was emblematic of the unstoppable trend toward NIRP. No one benefits from negative rates but the bankers; while for the rest of society, it represents a tyrannical tax – on of all things, saving. And thus, when the government imposes not only a “cashless society,” but negative interest rates, it will represent nothing less than outright theft. Trying to convince the masses that such actions encourage spending is insulting at best; as with so few having savings to start with, and so many dependent on entitlements, even the world’s best propaganda won’t do the trick.
At the Miles Franklin Blog, our job is to point out such trends in time for you to do your own due diligence; and in this case, we couldn’t be more vehement. With global “QE” expanding as parabolic ally as the debt loads they create, as global economies respond to zero-bound interest rates with economic stagnation and inflation, it won’t be long before more draconian, “unconventional” monetary tools are unveiled. Trust me, when you hear myriad Central bankers using that term, they aren’t doing so in vein!
The lethal combination of a cashless society and negative interest rates is a financial nightmare heading toward us at light speed. Heck, just keeping rates this low may just do the trick, as banks are already speaking of the need to “pass along costs” of the Fed’s Zero Interest Rate Policy (i.e., ZIRP) to depositors. It’s not a matter of if, but when such “backdoor bail-ins” occurs; and when they do arrive, the rush to REAL MONEY – from inevitably hyper-inflating fiat currencies – will be a sight to behold.