How to find companies selling for less than cash

[Editor’s note: This letter was penned by Tim Staermose, Sovereign Man’s Chief Investment Strategist and editor of the 4th Pillar Investment Alert.]

If you know me personally, you know I have a lot of hair.

So when I go get a haircut, I always feel bad that the price is the same for me as for people who are almost bald… so I tip accordingly.

Recently when I went for a long-overdue haircut in Bali, I paid about US$1.50, plus a generous 50% tip of roughly 75 cents.

Ahead of me in line was an older European gentleman. He went for the works. Haircut, shave, and scalp massage. His total cost: about US$3.80.

It got me thinking about trading, investing and the relative value of things.

The same service at the barber in Europe, Australia, or North America would undoubtedly have cost 10 to 20 times as much.

So, this was clearly fantastic value – right?

Well, I would argue that it actually depends on your yardstick.

Here in Indonesia an average wage can be as little as $150 to $300 a month. So a $1.50 haircut represents about 0.5% to 1% of the average monthly wage.

In the US, the average monthly wage is about $3,900 according to the Department of Labor. 0.5% to 1% is $19.50 to $39.

That’s more or less what a haircut will cost you in the US, depending on where you live.

So as it turns out, in both the US and Indonesia, a haircut runs 0.5% to 1% of average monthly income.

So, while I’d argue that my haircut in Bali was very good value in ABSOLUTE terms, in RELATIVE terms it wasn’t a screaming bargain after all.

Fortunately (or deliberately arranged that way, actually), my income is earned entirely overseas, at “rich economy” rates.

So for me personally, the cost of living in Indonesia – including haircuts – is an absolute bargain.

That brings me back to investing: professional money managers often seek investments that offer good relative value.

A stock might be cheap relative to its competitors. Or it might be cheap relative to its historical trading range.

Or, it could be cheap relative to alternative investments like government bonds.

But who cares if a stock is ‘relatively’ cheap if everything you compare it to is expensive?

It’s not particularly good value to buy a stock that’s slightly less overpriced than its competitors.

That’s the problem with most mainstream investments nowadays; they’re only being viewed in relative terms.

In absolute terms, stocks in most major markets are incredibly overpriced.

Thankfully, as small individual investors, we can think for ourselves. In seeking independent forms of income, we can look across the world for the best bargains to find absolute value.

In particular, we want to buy shares in companies that are screaming bargains.

One of the most lucrative corner of the market for me has always been companies that are selling for less than their ‘net cash’ in the bank.

(Net cash refers to the company’s bank balance minus any debt.)

I have always found that if you can buy such a company and have a modest degree of patience, almost invariably you can make a very nice profit.

Sometimes this happens quickly.

This was the case with a company called Queste Communications (QUE on the Australian Securities Exchange) that I made a small fortune with back in 2003.

It was just after I’d bought my first house. So I only had about A$14,000 of savings left to my name. I put ALL of it into Queste.

It was a small technology company whose shares had crashed in the dot-com bust.

The crash was so deep that the company’s stock price was about 4 cents; yet the amount of cash it had per share amounted to 14 cents.

So by buying the shares, I was spending 4 cents to purchase 14 cents in cash.

Needless to say I bought as many as I could afford. Within a few months the stock price had more than tripled (and even then was selling below its cash backing).

In all, I got back A$51,723.21 on a A$14,000 investment. Not bad for a small-time investor, as I was back then.

These sorts of deals have been my focus for years and comprise the majority of our recommendations in the 4th Pillar Investment Alert.

Right now I’m finding the Australian market to be fertile hunting grounds.

My methodology is slow and deliberate; my research team and I pour over hundreds of companies’ quarterly reports; you can find these yourself on the ASX website.

It takes a lot of time, but after going through those reports, we uncover all the gems… well-managed companies that are selling for less than their bank balances.

There’s a LOT more analysis that goes in to the decision to find our top recommendations…

… but, broadly, this should give you a basic understanding of our approach and how you might be able to apply it to your own investments to find incredibly lucrative ABSOLUTE value.

PS-

This 4th Pillar investment strategy is a no-brainer, and the track record is fantastic. We’re having a special sale– take over 40% off the regular price.

This promotion ends tomorrow. Try out the 4th Pillar Risk Free.

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Former McDonalds CEO Warns Minimum Wage “Will Wipe Out 1000s Of Jobs”

While this should be no surprise to any rational non-establishment-teet-suckling economist, former McDonalds' CEO Ed Rensi exclaims, in a recent Forbes Op-Ed, that "a $15 minimum wage won’t spell the end of [fast-food brands]. However it will mean wiping out thousands of entry-level opportunities for people without many other options." The $15 minimum wage demand, which translates to $30,000 a year for a full-time employee, is built upon a fundamental misunderstanding of a restaurant business (and we add simple supply and demand fundamentals) – just "do the math" Rensi rants…

“They’re making millions while millions can’t pay their bills,” argue the union groups, suggesting there’s plenty of profit left over in corporate coffers to fund a massive pay increase at the bottom.

 

In truth, nearly 90% of McDonald’s locations are independently-owned by franchisees who aren’t making “millions” in profit. Rather, they keep roughly six cents of each sales dollar after paying for food, staff costs, rent and other expenses.

 

Let’s do the math: A typical franchisee sells about $2.6 million worth of burgers, fries, shakes and Happy Meals each year, leaving them with $156,000 in profit. If that franchisee has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirement eats up three-quarters of their profitability. (In reality, the costs will be much higher, as the company will have to fund raises further up the pay scale.) For some locations, a $15 minimum wage wipes out their entire profit.

 

Recouping those costs isn’t as simple as raising prices. If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases. (If you’re a McDonald’s regular, there’s a reason you gravitate towards an extra-value meal or the dollar menu.)  

 

Instead, franchisees can absorb the cost with a change that customers don’t mind: The substitution of a self-service computer kiosk for a a full-service employee.

Rensi concludes rather ominously…

I suspect that the labor organizers behind this campaign for a $15 minimum wage are less interested in helping employees, and more interested in helping themselves to dues money from their paycheck.

 

They’re unlikely to succeed in their goal of organizing the employees of McDonald’s franchisees, but they may well succeed in passing $15 into law in other sympathetic locales.

You’ll see their legacy every time you visit the Golden Arches, where “would you like fries with that” is a button on a computer screen rather than a phrase spoken by an employee in their first job.

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Germany Moves To Ban Refugees From Welfare; Politician Calls For “Islam Law” To Limit Influence

The initial refugee welcome in Germany is rapidly turning to rejection as the nation plan to ban EU migrants from most unemployment benefits for five years after arrival as a senior German politician has called for an "Islam law" that would limit the influence of foreign imams and prohibit the foreign financing of mosques in Germany.

As The FT reports, Germany is planning to ban EU migrants from most unemployment benefits for five years after their arrival in dramatic response to rightwing populist assaults on chancellor Angela Merkel’s liberal immigration policies.

The proposals, which are far tougher than had been expected even a few months ago, highlight the government’s concern over growing public anxiety about immigration and the related advance of the Alternative for Germany party, the most popular rightwing grouping since the second world war.

 

“I full and clearly support freedom of movement [of workers in the EU],” said labour minister Andrea Nahles, detailing the plans. “But freedom of access to social welfare is something else.”

 

It is a sign of how much the AfD is shaking German politics that the proposals come from Ms Nahles, a leftwing social democrat. The SPD is suffering even more than Ms Merkel’s CDU/CSU bloc in the face of the AfD’s advance. Opinion polls show it around 20 per cent, an all-time low.

 

The German debate on curbing EU migrants’ benefits echoes the intense arguments in the UK, as it prepares for its EU membership vote in June. Ms Merkel has previously promised to work with prime minister David Cameron in cutting welfare abuse.

And as if that was not 'welcoming' and 'integrative' enought, The Gatestone Institute's Soeren Kern reports a senior German politician has called for an "Islam law" that would limit the influence of foreign imams and prohibit the foreign financing of mosques in Germany.

  • "All imams need to be trained in Germany and share our core values. … It cannot be that we are importing different, partly extreme values ??from other countries. German must be the language of the mosques. Enlightened Europe must cultivate its own Islam." – Andreas Scheuer, the General Secretary of the Christian Social Union party (CSU).

  • The Turkish government has sent 970 clerics — most of whom do not speak German — to lead 900 mosques in Germany that are controlled by a branch of the Turkish government's Directorate for Religious Affairs. Turkish clerics in Germany are effectively Turkish civil servants who do the bidding of the Turkish government.

  • Erdogan has repeatedly warned Turkish immigrants not to assimilate into German society. During a trip to Berlin in November 2011, Erdogan declared: "Assimilation is a violation of human rights."

The proposal — modelled on the Islam Law promulgated in Austria in February 2015 — is aimed at staving off extremism and promoting Muslim integration by developing a moderate "European Islam."

The move comes amid revelations that the Turkish government is paying the salaries of nearly 1,000 conservative imams in Germany who are leading mosques across the country. In addition, Saudi Arabia recently pledged to finance the construction of 200 mosques in Germany to serve migrants there.

In an interview with the newspaper Die Welt, Andreas Scheuer, the General Secretary of the Christian Social Union (CSU), the Bavarian sister party to German Chancellor Angela Merkel's Christian Democrats (CDU), said that Berlin should restrict Turkish financing of mosques in Germany and begin training and certifying its own imams. Otherwise, he argued, Muslim integration will be difficult or impossible to achieve. He said:

"We need to become more critical in our dealings with political Islam, because it hinders Muslim integration in our country. We need an Islam Law. The financing of mosques or Islamic kindergartens from abroad, e.g. from Turkey or Saudi Arabia, should be banned. All imams need to be trained in Germany and share our core values.

 

"It cannot be that we are importing different, partly extreme values ??from other countries. German must be the language of the mosques. Enlightened Europe must cultivate its own Islam.

"We are still at the beginning of our efforts. We must start now. We cannot on the one hand enact an Integration Law and on the other side close our eyes to what is being preached in mosques and by whom."

Scheuer's comments come amid reports that the Turkish government has sent 970 clerics — most of whom do not speak German — to lead 900 mosques in Germany that are controlled by the Turkish-Islamic Union for Religious Affairs (DITIB), a branch of the Turkish government's Directorate for Religious Affairs, known in Turkish as Diyanet.

Successive German governments are responsible for this state of affairs. An essay in Der Tagesspiegel states: "Over past decades, the federal government has welcomed the fact that the Turkish religious authority exercises a great influence on German mosques. Turkey was considered a secular state, and their influence was viewed as a shield against religious extremism."

This was before Turkish President Recep Tayyip Erdogan embarked on a mission to turn the formerly secular nation an Islamic country.

According to Die Welt, Erdogan has increased the size, scope and power of the Diyanet, which now has a budget of 6.4 Turkish lira ($2.3 billion; €1.8 billion), which is more than the budgets of 12 Turkish government ministries, including the interior ministry and the foreign ministry. The Diyanet now has 120,000 employees, up from 72,000 in 2004.

The Turkish clerics in Germany are effectively Turkish civil servants who do the bidding of the Turkish government. Critics accuse Erdogan of using DITIB mosques to prevent Turkish migrants from integrating into German society.

German politician Cem Özdemir, co-chairman of the Green Party, said that DITIB is "nothing more than an extended arm of the Turkish state." He added: "Rather than being a legitimate religious organization, the Turkish government has turned DITIB into a political front organization of Erdogan's AKP party. Turkey must let go of the Muslims in Germany."

Erdogan has repeatedly warned Turkish immigrants not to assimilate into German society.

The Cologne Central Mosque, run by DITIB, is used as a key base in Germany for Turkey's intelligence agency, where they run a local "thug squad" to mete out "tough punishments" to Turkish dissidents in Germany. (Image source: © Raimond Spekking/CC BY-SA 4.0, via Wikimedia Commons)

During a trip to Berlin in November 2011, Erdogan declared: "Assimilation is a violation of human rights." In February 2011, Erdogan told a crowd of more than 10,000 Turkish immigrants in Düsseldorf: "We are against assimilation. No one should be able to rip us away from our culture and civilization." In February 2008, Erdogan told 16,000 Turkish immigrants in Cologne that "assimilation is a crime against humanity."

For his part, Saudi Arabia's King Salman recently announced a plan to finance the construction of 200 mosques in Germany to provide for the spiritual needs migrants and refugees who arrived there in 2015. The mosques would, presumably, adhere to Wahhabism, the official and dominant form of Sunni Islam in Saudi Arabia. Wahhabism is an austere form of Islam that insists on a literal interpretation of the Koran.

On April 11, Hans-Georg Maassen, the head of Germany's domestic intelligence agency (BfV), expressed alarm at the growing number of radical Arab-language mosques in Germany. "Many mosques are dominated by fundamentalists and are being monitored because of their Salafist orientation," Maassen said in an interview with Welt am Sonntag. He added that many of the mosques were being financed by donors in Saudi Arabia.

It remains uncertain, however, whether Merkel will back the "Islam Law," which is certain to antagonize Erdogan, who effectively controls the floodgates of Muslim mass migration to Europe. If Merkel were openly to support a ban on foreign financing of mosques in Germany, Erdogan likely would threaten to pull out of the EU-Turkey deal on migrants, a deal Merkel desperately needs to stanch the flow of mass migration to Germany. It is yet another indication of the tremendous leverage Erdogan has gained over Merkel and German policymaking.

Germany's coalition government has, however, reached a compromise deal on a new "Integration Law."

On April 14, Merkel announced the broad outlines of the law, which will spell out the rights and responsibilities of migrants in Germany. Under the law, the text of which will be finalized by May 24, asylum seekers must attend German language classes and integration training or have their benefits cut.

The government pledged to make it easier for asylum seekers to gain access to the German labor market by promising to create 100,000 new "working opportunities." The government will also suspend a law requiring employers to give preference to German or EU job applicants over asylum seekers.

In an effort to prevent the spread of migrant ghettoes in Germany, the new law, which is expected to enter into force this summer, will prohibit refugees from choosing where they live until they have secured asylum. Migrants who abandon state-assigned housing would face unspecified sanctions.

The new law also includes a counter-terrorism provision, which would allow German intelligence agencies to work more closely with their European, NATO and Israeli counterparts.

"We will have a German law on integration," Merkel said. "This is the first time in post-war Germany that this has happened. It is an important, qualitative step."

But critics say the proposed law does not go far enough because it does not threaten with deportation those migrants who refuse to integrate. In his interview with Die Welt, Scheuer insisted that Muslim immigrants must integrate or be deported:

"Anyone who fails to attend integration and language courses attests that they are not prepared to integrate and accept our values. Moreover, it is important that people who want to stay in Germany register with the Federal Employment Agency [Bundesagentur für Arbeit] and provide for their own livelihood. The message is clear: Those who are not integrated cannot stay here. We need to cease having romantic views of integration. Multiculturalism has failed. Those who are not integrated must count on deportation."

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Dow Dumps 400 Points From BoJ Shock As Gold Nears $1300

Gold first closed above $1300 on September 29th 2010, 67 months ago; and as investors’ faith in Central Banks falters – with The Dow down over 400 points (and Nikkei 225 down 1700 points!) from the scene of Kuroda’s Kamikaze decision, gold has soared up above $1299…

NKY and JPY are bearing the brunt for now… (the former under 16,000 and the latter with a 106 handle)

 

Gold is soaring…

 

And Stocks are plunging…

 

As it appears Oil algos ran out of shorts to squeeze…

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According To The NY Fed, US Has To Grow At 3.8% In Second Half To Hit The Fed’s GDP Forecast

Earlier today we reported that in its inaugural Q2 GDP nowcast, the Atlanta Fed expects 1.8% for Q2 GDP, a substantial rebound from the first official Q1 GDP print of only Q1. We also said that we expect this number (which is already 0.5% below the consensus estimate) will drop substantially in the coming weeks. Well, moment ago the New York Fed, which apparently has picked up the baton of the “most bearish regional Fed” released its own first Nowcast for Q2, in which it sees Q2 GDP growth of only 0.8%, or 1% below that of its fellow Fed.

This is why:

  • This week’s advance GDP release was 0.5% (0.54% when taken to two digits) which is close to the latest nowcast of 0.7% (0.72% to two digits) and consistent with the weakness predicted by the model since we started tracking the ýrst-quarter GDP growth in November 2015.
  • GDP growth prospects remain moderate for 2016:Q2, standing at 0.8%.
  • News from the past two weeks’ data releases, since the April 15 nowcast was released, had an overall negative effect on the nowcast for the second quarter.
  • Housing and manufacturing news had the largest negative impact on the nowcasts, while manufacturers’ inventories of durable goods provided a small but positive surprise.

Visually:

 

If the NY Fed is right, what does this mean in practical terms? Simple: assuming no revisions to Q1 GDP, and assuming Q2 GDP of 0.8%, then the US would have to grow at 3.8% to hit the Fed’s central tendency forecast of 2.2% GDP growth as per its latest forecast.

Good luck.

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Head Of Deutsche Bank “Integrity Committee” Fired Due To “Overzealousness”

Perhaps it is merely a coincidence but just weeks after Deutsche Bank became the first bank to admit to rigging the gold market (and agreeing to rat out fellow manipulators) yesterday afternoon the head of Deutsche Bank’s “integrity committee” announced he would resign two years before his time, which is a polite way of saying he was fired.

As the FT reports, Georg Thoma has been fired from Deutsche Bank’s supervisory board two years before his contract ends “after coming under fire from other board members in a battle over how to deal with the German bank’s past scandals.”

Thoma, a veteran Shearman and Sterling lawyer, was brought on to the board by chairman Paul Achleitner in 2013 and headed the integrity committee, whose remit includes overseeing the bank’s efforts to comply with legal and regulatory requirements. Alas, he failed as the bank’s record surge in litigation charges in recent years has amply demonstrated.

According to the FT, “Thoma’s approach left him at odds with some colleagues, and on Sunday, Alfred Herling, Deutsche’s vice-chairman, took the unusual step of publicly criticising his actions in Germany’s Frankfurter Allgemeine Sonntagszeitung. Mr Herling accused Mr Thoma of “overzealousness”, saying that he “goes too far when he demands ever wider investigations and more and more lawyers come marching up”, and adding that the costs were “no longer proportionate”.

As Bloomberg adds, the remarks divided observers, with Dieter Hein, an analyst at Fairesearch-Alphavalue, saying Thoma was probably just doing his job, while Michael Seufert, an analyst at Norddeutsche Landesbank, said the question of going too far in probing wrongdoing is legitimate.

In other words, the vice-chairman goes after an internal scapegoat, the person who is tasked with fixing what is clearly a broken organization (just check its stock price) because the bank is unable to stop rigging every market it participates in.

As a reminder, Deutsche Bank’s costs and provisions for fines and lawsuits have amounted to $14.3 billion since 2012 and have substantially cut into the company’s reserves at a time when regulators order banks to hold more capital, resulting in the company’s stock price recently hitting lows not seen since the financial crisis. On Thursday, DB said that it expects further “material” legal costs this year when reporting quarterly earnings

DB at least had some kind parting words: Achleitner said Thoma had given Deutsche “outstanding service” during his time on the board. “He has implemented processes of great importance and benefit to the bank. The supervisory board is determined to continue its work of investigating possible misconduct and to draw lessons for the future,” he said.

And yet the main lesson, namely that not to fire the person who is meant to fix a broken organization, was somehow missed.

Meanwhile, Henning Kagermann, the former head of German software group SAP who is also a board member at Deutsche, told the newspaper that “for all the diligence that we have exercised, it is important for us that Deutsche Bank finally . . . devotes all its energy to looking to the future”.

Yes please, look at the future, and ignore DB’s past which, among other unexplained incidents, includes the suicide of former senior executive William Broeksmit, who was found dead after hanging himself at his London home, as well as the suicide of the bank’s associate general counsel, 41 year old Calogero “Charlie” Gambino, who was found on the morning of Oct. 20, having also hung himself by the neck from a stairway banister.

One wonders if any of those deaths had something to do with what has emerged to be a culture of unprecedented corruption and, recently, outright crime.

Deutsche said in a statement that Mr Thoma would resign immediately from his role as chairman of the integrity committee and leave the supervisory board after a one-month notice period. The bank has begun the search for a permanent successor. We are confident a former Goldman Sachs employee will be delighted to fill Thoma’s shoes.

The shocking termination comes comes just three weeks before Deutsche’s annual shareholder meeting on May 19, at which the bank’s supervisory board is likely to come under scrutiny, and even more dirty laundery may be set to emerge, especially since as the FT adds, “one small shareholder has requested a special audit of whether members of Deutsche’s supervisory board or management board breached their obligations in how they dealt with some of the bank’s legal entanglements.

The motion requests that the audit ascertain whether there were management failings in relation to a number of investigations, including the Libor scandal. Among other things, it requests an investigation into whether Deutsche had to pay heavier fines because members of its management or supervisory board obstructed, misled, or failed to co-operate sufficiently with authorities.

Considering the tsunami of legal settlements unveiled by Deutsche Bank in recent months – not to mention its shocking eagerness to put its gold manipulation history quickly in the past – we are confident the motion will be promptly denied.

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Goldman Sachs Stopped Out Of “Short Gold” Recommendation

With the Yen and Yuan surging, it appears money is greatly rotating out of US dollars and into an 'alternative' currency as Gold soars over $1290.

 

As Gold is bid after the BoJ Shock…

 

More problematically for Goldman Sachs' Jeff Currie is his "Short Gold" recommendation just got stopped out

 

Goldman went short gold on 2/15 at around $1205…

We also maintain our bearish view on gold that has rallied along with the other commodities. Our short gold recommendation (which we opened with a 17% upside, in line with our $1000/toz 12-m forecast) is currently at a c.5% loss, with a stop loss at 7%.

 

This gold rally was driven by a lack of conviction in divergence in US growth as a weak US dollar has been highly correlated with a higher gold price.

 

We believe this realignment view of weak global growth is not supported by the US data, which will likely reinforce higher US yields, a stronger US dollar and the return of divergence, particularly should strong US consumer growth dissolve market fears regarding US growth. This in turn will likely put downward pressure on gold prices towards our near-term target of $1100/toz

That just ended… as the 7% loss stopped them out…

 

Leaving Goldman clients pensive…

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Atlanta Fed Unveils First Q2 GDP Forecast, Sees 1.8% Growth, 0.5% Below Wall Street Consensus

After being just fractionally above the official Q1 GDP print which yesterday came in at 0.5%, moments ago the Atlanta Fed unveiled its first Q2 GDP estimate which it sees at 1.8%, roughly 0.5% below the sellside average estimate of 2.3%, and just in line with the lowest forecast.

From the Fed:

Latest forecast: 1.8 percent — April 29, 2016

 

The first GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 1.8 percent on April 29. The final model nowcast for first-quarter real GDP growth was 0.6 percent, 0.1 percentage points above the advance estimate of 0.5 percent released on Thursday by the U.S. Bureau of Economic Analysis.

 

The next GDPNow update is Monday, May 2. Please see the “Release Dates” tab below for a full list of upcoming releases.

 

Considering the ongoing retrenchment among US consumer spending, which once again missed expectations and pushed the savings rate to match 3 year highs, we expect this number to be once again revised lower in the coming weeks.

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Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards

Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards

James Rickards, economic and monetary expert, joined Bloomberg’s Francine Lacqua on Tuesday to discuss the gold “chart of the decade”, his new book “The New Case for Gold,” why gold is money and why gold is going to $10,000/oz in the coming years.

gold chart
Gold in USD – 10 Years (GoldCore)

Francine generously acknowledged how Rickards was “bullish on gold for quiet some time and actually you have been proven right … it is the chart of the decade”. She said that this “has to do with inflation expectations, it has to do with currency but it is really at the end of the day just a haven so people pile into it – as much as they do yen …”

GOLD IS MONEY
Jim responded that

“Gold is a form of money and not an investment. As money it competes with other kinds of money — the dollar, euro, yen etc.. They’re like horses going around a racetrack – place your bets but you have a subjective preference for money. 

As investors are losing confidence in central banks … that’s what’s been going on and been clearly revealed. Central bankers have told me that they don’t know what they’re doing and they sort of make it up as they go along. They experiment.

President Evans of the Chicago Fed has said this and others have said it privately.

I spoke to Ben Bernanke and he described that everything he’s done was an experiment — meaning you don’t know what the outcome is.

So in that world where investors are losing confidence in central banks, gold does well.

Right now there are tens of trillions of dollars of sovereign debt with negative yields to maturity – bunds and JGBs..

Gold has zero yield.

Zero is higher than a negative 50 bps so gold is now the high yield asset in this environment.”

STOCKS HIGHER ON “FULL DOVE”
Regarding stocks, Rickards had this to say:

“Both gold and stocks are going up, and the reason stocks are going up is because Janet Yellen is going “full dove”. There’s nothing the stock market doesn’t like about free money. Plus negative interest rates might be on the table for next year.

That’s sort of bullish for stocks but it’s also bullish for gold.

Sometimes gold and stocks go up together and sometimes they don’t. There’s no long term correlation, but right now in a world of easy money and negative yields it’s good for both stocks and gold.”

GOLD AT $10K/oz
When asked for his price target for gold, Rickards says

“I have a technical level for gold, it is $10,000 U.S. per ounce. That amount gets bigger over time because it’s a ratio of physical gold to printed money. The amount of physical gold doesn’t go up very much, but printed money goes up a lot, so the dollar target goes up more over time because of all the money printing.

$10,000 U.S. per ounce is the implied non-deflationary price for gold. If you have to go back to a gold standard, or anything like it to restore confidence, that is the number you must have to avoid deflation.

So $10,000 per ounce is mathematically derived and is not a guess.”

INTEREST RATES and US ECONOMY
Rickards is asked what happens if Yellen tries to normalise rates and says

“If Janet Yellen begins to normalize then it would probably throw the U.S. into a recession. A 25 basis points hike in December threw the U.S. stock market into a 10% correction in the next two months.

The U.S. is hanging by a thread. It looks like first quarter GDP is going to come in at well below 1% according to the Atlanta Fed Tracker.

What’s the difference between -1% and 1%? Technically not much. One may be a technical recession and one is not, but growth is extremely weak. You don’t raise interest rates in a recession. You’re supposed to ease in a recession.

International spill over as well as the U.S. economy being fundamentally weak is the reason to not raise rates.

The time to raise rates was 2011 and that’s long gone. But two wrongs don’t make a right.”

SHANGHAI ACCORD and ‘SUPER MARIO’
“The Phillips Curve seems to have broken down — if it ever existed. The bigger play is the “Shanghai Accord” which came out of the G20 meeting in Shanghai, China in February 2016.

It’s like a secret Plaza Accord between the U.S. Fed, the Bank of England, the Peoples Bank of China, the European Central Bank and the Bank of Japan.

The evidence for a new secretive plaza accord is overwhelming. See here is the deal – China needs to ease. But the last two times China eased, August 2015 and December/January 2016, the U.S. stock market fell out of bed.

So how do you ease China without destroying the U.S. stock market?

So the answer is keep the dollar/yuan cross rate unchanged. Then ease in the U.S. dollar so that China goes along for the ride. At the same time tighten Japan and Europe, so you get a stronger yen and a stronger euro.

China is a larger trading partner for Japan and Europe than the U.S. is, so it’s a backdoor easing for China. Cross rates unchanged but China gets to ease.”

Lacqua wonders if Mario Draghi in the ECB would agree to that and Rickards concludes by saying that ‘Super Mario’ “is his favourite central banker”.

Watch the full interview here


Week’s Market Updates
Property Bubble In Ireland Developing Again

Silver Bullion “Momentum Building” As “Supply Trouble Brewing”

Cyber Fraud At SWIFT – $81 Million Stolen From Central Bank

Gold In London Vaults Beneath Bank of England Worth $248 Billion – BBC

Silver Prices Up 6% This Week and 25% YTD; Gold Up 1% This Week

Gold News and Commentary
Silver “will likely continue to be the surprise outperformer in 2016” said GoldCore (Reuters)
“Tempter tantrum in global markets today is quite worrisome” said GoldCore (Marketwatch)
Gold climbs after Fed, BOJ stand pat on policy (Reuters)
Gold powers higher as BOJ’s surprise inaction hurts the dollar (Mineweb)
Russia’s VTB aims to supply up to 100 tonnes of gold to China per year (Reuters)

Gross Warns Financial System Likely To Implode – (Bloomberg Video)
JP Morgan Sees Draghi as Buyer of Last Resort for Equities (Bloomberg)
Venezuela Doesn’t Have Enough Money to Pay for Its Money (Bloomberg)
America’s earnings recession just got worse (CNN)
Germany’s Merkel warns of risks to banks from low interest rates (Reuters)
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The Fed Just Found Its Next Excuse Not To Hike Rates

As June looms, The Fed – having dropped ‘some’ of its global event risk language in the latest statement – is now desperate for an excuse to not hike rates (or face a total loss of credibility). Judging by Fed’s Kaplan, they just found it…

  • *KAPLAN SAYS FED WILL WATCH U.K. POLLS ON BREXIT CLOSELY IN JUNE

Which is a problem as ‘Brexit’ just moved into the lead among YouGov polls.

 

 

Either Brexit or market turmoil or a terrible jobs number…

  • *KAPLAN SAYS IF ECONOMY IMPROVES IN NEXT MONTHS, WILL BACK HIKE

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