James Tyler’s recent comments about the negative Swiss interbank rates reminded me of a discussion I had with a private-client lawyer in London yesterday.
She told me of how wealthy clients are being told they have nowhere to run with assets: property is hideously expensive; stocks are risky; many commodities are seriously overbought (gold at $1,750 an ounce); sovereign debt from Western governments is full of default risk and local currency emerging market debt is no longer great value.
A sign of how desperate some are for any “real assets” of value: every day I get press releases about wine funds, gold, antiques, and timber. (Actually, timber is probably not a bad idea if you want steady, low volatility growth, and timber comes with nice tax breaks in the UK). But for the mainstream investor, there are hardly any places to run.
On the Swiss front, the rise in the value of the Swiss franc (up roughly 30 per cent) in the past two years has hammered the earnings of banks such as UBS, Credit Suisse, Julius Baer and EFG.
No wonder the gnomes of Zurich are getting restless.
And no matter where you hide it governments are eventually going to have to seize it, just remember the better hidden, the easier for your agent to steal it.
There is one option, but it means making money, but not off money: to become a merchant. Liquidate most, if not all, or your financial assets and buy the means of production.
It can be hard, but it is hands on. You do take control. I understand Mr. Baxendale just liquidated his company, but I bet he gets back in somewhere, elsewhere.
We need a wave of debt-free, flexible, innovative disruptive new businesses to replace those tottering or trapped, or both. Joint venture with some some young thing who is breaking the rules and going forward.
The alternative is to watch your roll shrink, slowly surely, and then… poof! it is counterintuitive, but in battle the rule is when you are about to be overrun, get out of the foxhole. Your chances are much better.
Mr Spiers,
I could not agree more.
Back to work for my capital for sure as you describe.
The problem is for the older people who do not have that choice and they will surely have their life blood sucked out on them via inflation / debt default.
Unfortunately for the rest of us, the best bet for the very rich is to make common cause with the politicians.
“Nowhere to run” means that there is something very seriously wrong with money itself.
Time for all of us to write to our MPs and demand an early return to an international gold standard. For Americans, it means supporting Ron Paul.
I wish people would!
Keep up the good work Steven. It is good to see that there is at least one person in parliament who understands economics and money. What is lamentable is that there are 649, including the Chancellor, who do not!
Would there be enough gold left after Gordon Brown’s great sell off to support a gold based currency or would we have to buy in more at a high price to make it work?
I think that fixing the currency base is probably an eaiser policy to sell. The Emperor’s new clothes need a catwalk show!
You are absolutely right to talk about the clamour for real assets. I’ve heard this argument before from investment advisors: that everything is expensive. But the price of anything is quoted in relation to a numeraire – in most cases this being whatever is the reference currency.
Saying that everything is expensive is in effect saying that currencies are cheap. That is hard to believe given the recklessness of central bankers the world over – including latterly, one of the least reckless ones, the Swiss National Bank.
Returns on short term US government debt have been negative in real terms for some time, and I read recently that the real return on 10 year debt is now also negative.
Several years ago the Australian government was running a budget surplus, but nevertheless found itself pestered by banks trying to lend it money. I got the latter information from Bill Mitchell’s site: “Billyblog”. The world’s creditors are getting desperate. Why any government worries about being “in debt” when they pay negative real rates of interest on the debt, I’m not sure.