The markets continue to skid along and everyone continues to whistle past the stock graveyard, and now the bond graveyard.
The fact is, neither stocks nor bonds are a very good place to be right now. There’s too much risk and not enough reward. Everything is seemingly overbought.
Jared Dillian had an interesting piece in the 10th Man regarding the inherent risks in the bond market, the U.S. Treasuries market in particular. He followed that up with a piece talking about the risks of the stock market.
Remember, most of the S&P 500 have a lot of their cash in U.S. Treasuries. When the Federal Reserve raises rates, bond rates go up and prices go down. That also weakens the dollar against other currencies.
This wouldn’t be a big deal if the cash positions these companies have weren’t so massive. A cheap dollar is bullish for U.S. exports. But the U.S. doesn’t import as much as it used to, and we’ve been living in a strong dollar for a long time now.
This is the breaking of trend, not just a fluid transition to a whole new market dynamic.
And no one really talks about this.
This is why it’s crucial to get as much of your money as you can out of the stock and bond markets now.
But as tempting as sitting on cash is, you now have to worry about one more problem. Most countries, including the U.S. are clamping down on cash. In the U.S., the new Dodd-Frank market rules allow the U.S. to confiscate your cash to help bail out ‘too big to fail’ banks. In return, you get stock in the bank.
And cash is already being demonized in major financial publications like the Wall Street Journal for being behind all the illegal activities going on in the world. The author suggests taking $100 and $50 bills out of circulation. Maybe even $20s.
I thought they had already settled on bitcoin as the coin of the realm for terrorists, drug dealers and black marketeers? I guess now cash is evil because it can’t be tracked by the government and the government will not put up with this any longer. But the Wall Street Journal supporting such a move? That’s really scary.
In other countries it’s already worse.
The European Central Bank ordered that 500 euro bank notes cease circulation. Italy has banned all cash transactions for anything above 1000 euros. France has lowered the limit on cash transactions from 3000 euros to 1000 euros. In Germany, where almost all transactions are in cash, forces are trying to ban the 500 euro note altogether and limit cash transactions to less than 5000 euros.
The point is, cash is not the safe haven it used to be. And instead of stuffing it under your mattress, you would be much better off buying physical gold and silver or investment vehicles that are 100 percent backed by precious metals.
Many exchange traded precious metals funds are backed by derivatives, not real bullion. Make sure you know what you’re buying.
By taking your cash and putting into solid stores of value — hard assets — you can escape the potential threats to your cash that the banks and politicians are moving on as we speak.
— GS Early