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The No 1 Reason Cash And Bonds Will Be Trash

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Historically the base rate has always been above or at the rate of inflation. Decent central banking persisted.

We now live in a world in which the polar opposite is true. The central banks have yanked bank rates artificially too low and will not raise them anywhere near high enough.

http://www.moneyweek.com/~/media/MoneyWeek/indicators/UK-inflation/inflation.ashx?w=550&h=310&as=1

Should inflation rise further then sure we will see rate rises but they will always be behind where they should be. The powers that be will promise that they are tackling inflation by upping rates and joe public will think this is true until the next rise in inflation.

It will be a vicious circle of fake promises of tackling the problem whilst maintaining negative interest rates well into the future.

The public will continue to be tricked and lied to whilst the government pillage savers wealth. They believe this is the only option of recapitalising the banks as they wont go down the route of letting them go bust.

So in the saving or investing world there are very few options left.

Cash and bonds face the GUARANTEED loss of say 20-50% of one's capital over the next decade. If we only have a negative interest rate of say 2-5% as currently persists between what a savings account pays in interest and the REAL (higher than CPI or RPI) rate of inflation, then over 5 to 10 years these asset classes will lose big time.

If as is likely, inflation rises higher than the rate at which the bank raises rates then cash and bonds will be virtually destroyed. Compound a 5% negative interest rate loss over the next decade and its a major loss.

This is a particularly criminal position for the nation to take as savings are the route to long term investment for a nation.

But it is what it is. So I cant see any option but to invest in equities or commodities. As Faber said recently; emperical history shows that gold only ever falls when interest rates become real.

We would need the UK base rate at north of 5% for interest rates to become real again.

Anyone believe we are likely to see these sorts of real interest rates anytime soon????

Edited by ringledman

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But it is what it is. So I cant see any option but to invest in equities or commodities. As Faber said recently; emperical history shows that gold only ever falls when interest rates become real.

The trouble is, the "clever" money went to gold in 2007 and now it's price already factors in the inflation to come.

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You confuse base rates with real, borrower or saver interest rates. The risk adjusted ones. And the problem with Mark Faber is his reputation for impeccably correct logic but poor timing. So now he would see low interest rates in the UK but fail to see real rates rising.

Historically the base rate has always been above or at the rate of inflation. Decent central banking persisted.

We now live in a world in which the polar opposite is true. The central banks have yanked bank rates artificially too low and will not raise them anywhere near high enough.

http://www.moneyweek.com/~/media/MoneyWeek/indicators/UK-inflation/inflation.ashx?w=550&h=310&as=1

Should inflation rise further then sure we will see rate rises but they will always be behind where they should be. The powers that be will promise that they are tackling inflation by upping rates and joe public will think this is true until the next rise in inflation.

It will be a vicious circle of fake promises of tackling the problem whilst maintaining negative interest rates well into the future.

The public will continue to be tricked and lied to whilst the government pillage savers wealth. They believe this is the only option of recapitalising the banks as they wont go down the route of letting them go bust.

So in the saving or investing world there are very few options left.

Cash and bonds face the GUARANTEED loss of say 20-50% of one's capital over the next decade. If we only have a negative interest rate of say 2-5% as currently persists between what a savings account pays in interest and the REAL (higher than CPI or RPI) rate of inflation, then over 5 to 10 years these asset classes will lose big time.

If as is likely, inflation rises higher than the rate at which the bank raises rates then cash and bonds will be virtually destroyed. Compound a 5% negative interest rate loss over the next decade and its a major loss.

This is a particularly criminal position for the nation to take as savings are the route to long term investment for a nation.

But it is what it is. So I cant see any option but to invest in equities or commodities. As Faber said recently; emperical history shows that gold only ever falls when interest rates become real.

We would need the UK base rate at north of 5% for interest rates to become real again.

Anyone believe we are likely to see these sorts of real interest rates anytime soon????

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The trouble is, the "clever" money went to gold in 2007 and now it's price already factors in the inflation to come.

Ah, but when will the clever money get out of gold? They do say that the time to get out of something is when your shoeshine boy tells you to get in to it...

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Never a truer word said. I have experience of a black cab driver of telling me to get into gold a couple of weeks ago. More worrying would be central bank holdings and other supply

Ah, but when will the clever money get out of gold? They do say that the time to get out of something is when your shoeshine boy tells you to get in to it...

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Real interest rates have to stay low for the bankers' to win, but I have no confidence the Japanese route can be followed.

Evidence: Tunisia, Cairo ... then Pakistan and China. It's all a gamble while that develops.

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You confuse base rates with real, borrower or saver interest rates. The risk adjusted ones. And the problem with Mark Faber is his reputation for impeccably correct logic but poor timing. So now he would see low interest rates in the UK but fail to see real rates rising.

No I don't. I should have mentioned the real borrowing rate but this is a function of the central bank rate in the main. It will track the base rate predominantly.

So with the REAL inflation rate at around 5-6% in the UK today ( a good 2%-3% above the BLS CPI and RPI) then we need a real central bank interest rate and thus corresponding retail banking rates as high just to break even year on year.

Throw in the 20% or 40% tax that the government further takes off these savings and its a poor choice of investment for anything but an emergency 3-6 month salary stash.

There is no way that the retail banks will ever match inflation over the next decade. With the rising imported inflation from the East and rising demand for comodities that are in a SECULAR bull market, the next decade will wipe out a lot of cash and bond holders wealth I fear.

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Never a truer word said. I have experience of a black cab driver of telling me to get into gold a couple of weeks ago. More worrying would be central bank holdings and other supply

How much are you selling?

How about some silver?

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Do you think that cabbie has any gold? No, me neither.

I'm the only person I know who has any bullion, and I live in London and know plenty who work in the City.

The sheeple still think that property and shares are sure fire ways to make your fortune. 'had an email from an ex-colleague the other day telling me that there is no way house prices will fall (all the usual crap about small island, demand from potless immigrants etc.), and that he's waiting for a dip before getting back into equities (despite being out of the market since the credit crunch started!!).

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Faber called Bernanke a liar today live on CNBC and said the real inflation rate in the US is nearer to 8% than the official 1.2%. Vid here: http://www.cnbc.com/id/41385143

The small time usurists chasing crap yields offered by the professional money-for-nothing wallahs willl continue to be eaten alive until they find themselves in a queue for free soup.

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You are right about the compound negative real interest rate destroying cash and bonds over the coming years.

Equities and commodities offer some protection against this, but I believe that they have limited upside potential due to their nature. For example, oil, wheat, soya etc. doubling in price from here will not be sustainable for any real duration. Likewise, shares can only climb so far before the P/E ratios start to get ridiculous and the market is over bought. Saying that, these shares and commodities will no doubt be a better place for your money than cash and bonds as far as wealth preservation and the chance to make a couple of quid go, if you can take the volatility.

This is part of the reason I am such a fan of the monetary commodities/currencies, gold and silver. Whereas the other commodities are practical materials for every day use and therefore ultimately constrained in price by the ability of the world's population to pay for them, gold and silver, while having industrial uses (and some limited constraints like other commodities) are primarily monetary in nature.

Gold/Silver tripling in price from here (for example) does not constrain you or I from buying food, fuel or any of life's true essentials, well not in of itself. However, it could be indicative of the constraints placed on you or I buying food or fuel with cash (as it could well be losing its purchasing power in this scenario). So, I believe as means of safeguarding wealth and multiplying it, they will prove a better bet than shares and commodities due to the fact a rise in the price of these metals will largely only impact non-essential purchases (wedding rings etc.) for the average citizen.

Partly because of the above and partly because there is no currency alternative, as the effects of compound negative interest rates increase and as pension funds and investment funds see the negative effects on their capital from negative bond yields, I believe we will start to see more capital flight from bonds and cash towards monetary metals. The potential downside to cash, as accumulated wealth transfers from these huge money markets to the relatively small metals markets, is virtually infinite (a currency can go to zero if people lose complete faith in it and it falls out of circulation as a result). On the other hand the potential upside to this scenario (if we end up with a complete lack of faith in the dollar for example) for monetary metals, while not infinite, is potentially as large as a large part of the wealth currently held in cash/bonds. By this I mean we could see a transfer of purchasing power from cash to metal equal to the accumulated paper wealth of the world. This would leave those left holding paper broke and those holding gold/silver many times richer.

Of course, this is in the event of a complete collapse of the world's reserve currency and the assumption that there will be a return a monetary system based on hard currency (gold/silver) that persisted for Millennia before 1971 in some form or other.

In the event of dollar collapse, are there other feasible alternatives?

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Do you think that cabbie has any gold? No, me neither.

I'm the only person I know who has any bullion, and I live in London and know plenty who work in the City.

The sheeple still think that property and shares are sure fire ways to make your fortune. 'had an email from an ex-colleague the other day telling me that there is no way house prices will fall (all the usual crap about small island, demand from potless immigrants etc.), and that he's waiting for a dip before getting back into equities (despite being out of the market since the credit crunch started!!).

Very true, gold/silver are nowhere near overbought territory, they are virtually a contrarian bet in typical investment and public circles as far as I can tell.

I mean, are there ads on TV offering to sell us the stuff? Are personal financial and investment managers telling us to load up on gold? Are the financial papers pushing it?

No.

Edited by General Congreve

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If I could be bothered, I'd post the charts showing the first sentence to be nonsense but I can't be bothered. Go and suck on your hard depreciating assets.. :lol:

No I don't. I should have mentioned the real borrowing rate but this is a function of the central bank rate in the main. It will track the base rate predominantly.

So with the REAL inflation rate at around 5-6% in the UK today ( a good 2%-3% above the BLS CPI and RPI) then we need a real central bank interest rate and thus corresponding retail banking rates as high just to break even year on year.

Throw in the 20% or 40% tax that the government further takes off these savings and its a poor choice of investment for anything but an emergency 3-6 month salary stash.

There is no way that the retail banks will ever match inflation over the next decade. With the rising imported inflation from the East and rising demand for comodities that are in a SECULAR bull market, the next decade will wipe out a lot of cash and bond holders wealth I fear.

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If dollar goes down against the pound you are fighting an fx battle in owning au and ag as they are denominated in dollars. Not that it has put me off having 25% of my str fund in ag 25% in au and 50% split between the banks in cash.

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If dollar goes down against the pound you are fighting an fx battle in owning au and ag as they are denominated in dollars. Not that it has put me off having 25% of my str fund in ag 25% in au and 50% split between the banks in cash.

just more buying opps. and if the dollar weakens the prices of things denominated in it rise. see commodities.

anyone who thinks that western paper money is going to increase in value against real things longer term should go to see the doctor.

Edited by Constable

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The trouble is, the "clever" money went to gold in 2007 and now it's price already factors in the inflation to come.

Shhhhh. Or you will turn this into another gold thread.

GOLD 02/03/2011 04:58 1328.20 -6.80

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Cash and bonds face the GUARANTEED loss of say 20-50% of one's capital over the next decade. If we only have a negative interest rate of say 2-5% as currently persists between what a savings account pays in interest and the REAL (higher than CPI or RPI) rate of inflation, then over 5 to 10 years these asset classes will lose big time.

If you put your cash in a bank earning close to zero...with no strategy then yes you are probably right....However for example....coventry BS 4.75% @ 5yrs, sure that will probably still be be a negative return, but nothing like the decimation of cash you infer...and if you are holding cash (mine currently fixed @4% no exit pen) and linking it to property prices, then it makes sense to hold cash until the property bubble has deflated, however long it takes and irrispective of its devaluation to other assets/commodoties/metals......

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They do say that the time to get out of something is when your shoeshine boy tells you to get in to it...

Spoke to my shoeshine boy the other day. Told me he'd sent some of his gold chains off to "Cash for Gold".

"Buy gold gov'ner? Why I'll be blowed, that don't make no sense, nor never, do it?"

(He's getting on a bit TBH. Has to keep working cos his pension isn't enough to live on.)

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So no deflation :(

I thought the qe was done to stem the evil of public debt but the greatest ever expansion of credit took place in private debt. Once we get some sort of de-leveraging in private debt won't we see deflationary pressures?

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So no deflation :(

I thought the qe was done to stem the evil of public debt but the greatest ever expansion of credit took place in private debt. Once we get some sort of de-leveraging in private debt won't we see deflationary pressures?

No deflation with Negative interest rates, QE and global deficits.

Bernanke stands ready to flood the world with Dollars to prevent any deleveraging. Negative interest rates make cash unatractive. QE keeps the cost of debt manageable but with printed money.

None of these policies were in use during the panic so investors panicked. Now they are in use the world has changed.

There is no need to deleverage private debt as its burden is falling in real terms as we speak and as long as they can QE its cost of servicing remains far lower than it should be.

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So no deflation :(

I thought the qe was done to stem the evil of public debt but the greatest ever expansion of credit took place in private debt. Once we get some sort of de-leveraging in private debt won't we see deflationary pressures?

It doesn't matter how much deflationary pressure there is - the authorities will simply 'print' however much money they feel they need to support the banks and fund government spending as recent history bears out.

We are seeing the effects of previous money printing wearing off in the UK at the moment, hence we will get some more. Last time the excuse was 'fighting deflation' :lol: , who knows what the next excuse will be but it will be done.

The only way you'd see real across the board deflation allowed to progress would be if it was in the interests of the banks and their elite cronies (the usual boom-bust cycle that is used to transfer assets into the hands of the people at the top) and could be controlled by them. However, the credit bubble of the last decade was so extreme that I believe there is no way to deflate it in a controlled manner so the name of the game is print money and use it to buy as much as possible before the existing currency system collapses.

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Very true, gold/silver are nowhere near overbought territory, they are virtually a contrarian bet in typical investment and public circles as far as I can tell.

I mean, are there ads on TV offering to sell us the stuff? Are personal financial and investment managers telling us to load up on gold? Are the financial papers pushing it?

No.

Love the signature!

When did you start eating gold? ;)

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So no deflation :(

I thought the qe was done to stem the evil of public debt but the greatest ever expansion of credit took place in private debt. Once we get some sort of de-leveraging in private debt won't we see deflationary pressures?

I know what you mean. I was expecting with all those mortgage repayments that M4 would shrink violently. The wall of money hitting the banks each month in repayments and effectively being destroyed must be colossal. How ever M4 only shrank by 100 million last month this seems a piddly amount of money compared to the 200 billion QE.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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