Gold vs Bonds, Which Direction Should You Take for Safety?

Has your financial planner been trying to get you to invest in sovereign bonds from various countries?

The problem with many sovereign bonds today is that an enormous percentage of them come with negative yields, meaning that you pay the often troubled sovereign country for the privilege to use your money.

This is supposed to be a favorite safe place to park your hard earned cash. But is it really so safe to lend your money to troubled sovereign countries like Japan and the various countries of the European Union?

Consider why these bonds deliver negative yields in the first place. How did it come to pass that sovereign countries can require you to pay them to utilize your money?

Former Federal Reserve Chairman Alan Greenspan would have you to believe it is because of competition.

His thoughts on the matter: “Whenever you see strong currencies in a normal market, they’re spread against say Spain and Italy’s 10-year notes, it’s relatively stable through time. But as the rates overall go down, clearly at some point as the rates go down you’re going to pick up negative rates for the highest-quality currencies – like of course the Swiss franc – and I think that this is just a passing fancy.”

Greenspan can call it like he sees it, but does this justify you putting your hard earned investment dollars into vehicles in which you pay to participate?

The Real Reason So Much Sovereign Debt Pays Negative Yields

The numbers of negative debt yielding sovereign bonds that you see offered today are truly eye watering.

Two years ago almost none existed. In February of 2015, the entire amount of global debt with negative yields amounted to a “mere” $3.6 trillion. One year later by February of 2016 this amount had practically doubled to reach $7 trillion. Less than a month ago, it reached $11.7 trillion. Now it has achieved a staggering total of over $13 trillion per last week’s published calculations of Bank of America Merrill Lynch.

That now exceeds 50% of all government debt issued on the planet! If this is just a temporary new normal that Greenspan believes, then why is the trend of negative sovereign debt continuing to double in ever shorter time frames?

The answer is not one which will inspire confidence in you. The Bank of Japan and European Central Bank have been increasingly engaged in massive quantitative easing. In an effort to jump start failed Japanese and continental European economies back to growth, these central banks have been throwing everything including the kitchen sink at their economies.

These central banks are busily printing money (debasing their currencies) and using this money to buy up sovereign and even corporate debts now in an effort to prop up the markets. The governments then take these extra proceeds to use as spending money to try to boost production and GDP within their own sinking economies.

The byproduct of this activity to bolster sagging and even stagnant economies results in falling government sovereign bond yields. More printed up money demand for these securities leads to ever lower and lower yields.

So in the vast majority of cases, sub-zero sovereign bond yields do not represent higher quality, no-risk government bonds at all as Greenspan would have you to believe. Instead, they reveal the nations
that are struggling the most.

Think about it, and it makes perfect sense. Japan has been caught in a downward deflationary stagnation spiral for more than two decades now. They continue to throw money at their bond markets and banks in an effort to increase economic activity.

Yet after years of doing this, the economy has not at all improved. Do you really consider Japanese sovereign debt tied to an economy that has not materially grown in nearly twenty-five years to be safe haven debt?

Look at the EU and its national countries’ sovereign debt. This largest economic block in the world has not yet reached its former GDP and growth levels seen just before the financial crisis erupted in 2007/2008. This is more than five years after the crisis officially ended!

You might be able to make a case that sovereign bonds from countries such as Norway, Switzerland, and Sweden are more likely to be safe haven places to park your investment dollars. Yet if things are so rosy in these countries, why do they need to issue government debt at all?

The answer is that there is no such a thing as safe haven positive yielding sovereign government debt. Gold is your safe haven destination of choice.

No government can print or effectively manipulate gold. While it may not pay a yield, at least you do not have to pay anyone to keep your money invested in it.

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Turkey Critical to Watch for Upcoming Global Trouble

Turkey has become the centerpiece or neighbor of many of the crisis spots presently rocking the world.

It is at the heart of the developing world economy, a G20 member, an important component of NATO, a critical part in the war against ISIS, an irreplaceable partner in controlling the migration crisis into Europe, and a key player in the revived cold war with Russia.

It is safe to say that there could not be another single country in the world with more potential for kick starting a world wide economic meltdown than Turkey today.

The Failed Coup is Cause for Concern

There are a number of reasons why you should be concerned about destabilization in Turkey. First consider what just went down there. The failed military coup of a week ago did not get the media coverage it deserved.

This was no mere handful of disgruntled military officers and their battalions attempting to change the regime by force. The resulting crackdown has detained or arrested tens of thousands of individuals so far.

You have not seen the detentions limited to military personnel either. Civil servants, teachers, journalists, religious leaders, and other have all been targeted for sharing the sympathies of the coup plotters.

Turkey Is the Key on Many Critical Global Issues

The stability of Turkey is critical to the world for a number of reasons. You may not be aware of Turkey’s economic importance to the world economy and the global markets. The country represents the 17th largest economy on earth.

It is one of the leading developing market economies in the world. The nation is also one of only a handful of net exporters of food, a critical issue in a region that imports much of its food stocks.

Turkey is an important constituent of the G20. When the coup occurred, developing market currencies and stock markets all took significant hits.

A developing markets crisis sooner or later comes back to haunt the economies of the developed world and the stock markets and personal investments of people like you living in the G7 nations.

Turkey is also a critical member of NATO and a lynchpin in the campaign against ISIS in Syria and Iraq. They may not have any forces directly committed to the ongoing war against the mother of all terrorist organizations. They are letting the U.S.-led coalition utilize their massive air force base in Incirlik near the Syrian border.

Turkey is also the central player in determining how out of control the migration crisis to Europe becomes. Nearly all of the migrants utilizing the Greek Islands route into Central and Eastern Europe (over a million last year alone) start their migrant journeys in and cross through the territory of Turkey.

If they are unable or unwilling to cooperate in restricting the flow of these hapless souls trying to get into the European borders, then the European Union itself could be overwhelmed.

The EU project itself would be doomed if the over 2 million refugees currently living in Turkey decided en masse to make a go for Europe.

Probably the most serious consequence of this recent failed coup in Turkey revolves around the impact it has already had on Russian and Turkish relations. Somehow the plot has pushed Turkey deep into the affections and admiration of Russian President Vladimir Putin.

The two countries that only a year ago were hardly speaking have suddenly become seemingly the best of friends.

In the new cold war that has been brewing between Russia and the West since they invaded the territory of the Ukraine, Turkey’s cooperation is crucial.

The Stability of Turkey Impacts Your Financial Stability

For all of these reasons, you should keep a sharp eye on the conditions in Turkey.

Any one of these issues has the potential to threaten the stability of the entire world order, the global economy, and worldwide as well as U.S. financial markets like the ones in which you are invested presently.

If you have not invested some of your assets into safe haven gold yet, now is the time to move a portion of them into the time tested metal. Do not delay with so much on the line in increasingly unstable Turkey.

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  1. Markets are far more volatile now in the wake of Brexit. Britain has voted to leave the EU and other European countries may follow, sending world markets into turmoil. The U.S. Stock market dropped over 600 points or 3% on June 24th after this historic referendum on the implications this could have for American businesses and exports. Global markets saw similar declines. When the next crisis unfolds, the declines could be larger.
  2. The U.S. Government has its Eye on Retirement Accounts. In 2010 Portugal seized retirement account assets to help plug holes with government deficits and debt. Ireland and France did the same in 2011, as did Poland in 2013. The U.S. government has been watching. Since 2011, Treasury has taken money from government workers’ pension funds on four separate occasions to cover deficits in federal spending. Investing billionaire legend Jim Rogers believes that private accounts will be the next ones the government raids.
  3. Top 5 US Banks Now Larger Than Before the Crisis. You learned about the five largest banks in the U.S. and their systemic importance as the unfolding financial crisis threatened to collapse them. Legislators and regulators promised they would address this issue once the crisis was contained. Over five years after the crisis ended, the five biggest banks are even bigger and more critical to the system than before the crisis began. The government made the problem worse when it forced some of these so called “too big to fail” banks to absorb the failing ones. Any of these banking behemoths failing now would be absolutely catastrophic.
  4. Danger from Derivatives Threatens the Banks More Now than in 2007/2008. The derivatives that crashed the banks back in 2008 did not disappear as regulators promised. Today the derivatives exposure of the five biggest American banks is a whopping 45% greater than before the economic collapse of 2008. The derivative bubble is over $273 trillion now versus the $187 trillion of 2008.
  5. U.S. Interest Rates are Already at Abnormal Lows so the Fed has Little Room to Cut Rates. Even after raising interest rates once last year, the Federal funds rate is still in the range of ¼ to ½ percent. Consider that before the crisis erupted in August of 2007, the Federal funds interest rates sat at 5.25%! In the next crisis, the Fed will have less than half a percentage point total it can reduce rates to stimulate the economy.
  6. American Banks Are Not the Safest Place for Your Money. Global Finance magazine puts out a yearly list of the top 50 safest global banks. Only 5 of those are U.S. based. The top spot an American bank commands is only #39.
  7. The Fed Balance Sheet is Still Expanded from the Financial Crisis of 2008. The Fed still has nearly $1.8 trillion in mortgage backed securities on its balance sheet from the 2008 financial crisis. This is more than double the less than $1 trillion it held before the crisis began. When mortgage backed securities go bad again, the Federal Reserve has a lot less maneuverability to absorb bad assets than before.
  8. The FDIC Admits it Lacks Reserves to Cover Another Banking Crisis. The latest FDIC’s annual report shows that they will not have sufficient reserves to adequately insure the nation’s banking deposits for minimally another five years. This stunning revelation admits that they can only cover 1.01% of U.S. bank held deposits, or $1 out of every $100 of your bank account deposits.
  9. Long Term Unemployment Is Still Higher than Before the Great Recession. Unemployment was 4.4% in early 2007 before the last crisis began. While the unemployment rate has finally reached the 4.7% levels seen as the financial crisis began to ravage the U.S. economy, the long term unemployment remains high and the employment participation rate significantly lower more than five years after the previous crisis ended. Joblessness could be much higher in the wake of the coming crisis.
  10. American Businesses Failing at a Record Pace. In the beginning of 2016, the Gallup CEO Jim Clifton announced that American business failures are now greater than new business startups for the first time in over three decades. The dearth of medium and small businesses has huge implications for an economy long driven by free enterprise. Bigger businesses are not immune to the problems either. Even American economic heavy weights like Microsoft (reducing 18,000 jobs) and McDonald’s (shutting down 700 stores for the year) are suffering from this dismal trend.

Why Smart Investors are Adding Physical Gold to Their Retirement Accounts

  • Hedge against inflation AND deflation.10 Reasons the Next Crisis Will Be Worse
  • Limited supply. Increasing demand.
  • Safe haven in times of geopolitical, economical and financial turmoil.
  • Portfolio Diversification and Protection.
  • Store of value.
  • Hedge against the declining dollar and money printing policies.

In recent years, the investment community has increasingly looked to the principle of sector rotation as a way of understanding why some investments are better than others. In fact, the concept itself hedges the question; because it suggests that one kind of investment is better than another only during a specified period of time.

According to the Real Estate Research Corporation in Chicago, for instance, had you invested in real estate from 1987 through the third quarter of 2000, you would have yielded anywhere from 11% to 12.4%. On the other hand, had you bet on the stock market in 2012, using the Dow Jones Industrial Average (DJIA) as your gauge, you would have experienced a 10.24% return, including an average yield on dividends of 2.74%. And, God bless you had you managed to invest in the S&P during that same year! You would have wound up with a 13% return. Don’t feel bad if you missed that one. So did most hedge funds. According to a report from Goldman Sachs, only 8% of them beat the S&P.

Because gold is mined and not manufactured, it will continue to hold universal value over the long term.

Isn’t hindsight a wonderful thing? Just imagine what you could have achieved! And don’t kid yourself that ignoring entire stock market trends and paying attention to individual stocks would have necessarily made you a mint. Could you have predicted that the stock that gave the Dow its biggest steroid in 2012 would have been Home Depot, or the one that dragged it down the most would have been McDonald’s? Could you have guessed that Netflix would come back with a vengeance after alienating its customer base by splitting it into disc-only customers versus streaming customers?

These are perfect reasons for you to always own some gold. It’s the all-seasons component of the shrewd investor’s portfolio. As the World Gold Council succinctly puts it in its guide to investing in gold, there are four reasons for this:

  • Gold is a long-term store of value.
  • It is an asset of last resort.
  • It is highly liquid.
  • It is an asset diversifier.

With respect to the first reason, it’s clear that since gold is mined but not manufactured, it will continue to hold universal value over the long term. The stock market can go up and down, and the bottom of the real estate market can fall out, but physical gold will always hold its own throughout the world. Anyone who doubts that gold is highly liquid should consider that, when paper currency loses its value, gold will continue to maintain value. It is portable, and instantly recognizable as a means of payment.

Given these first three qualities, how can you not possibly feel confident that gold serves as an asset diversifier? Follow it’s price, of course. Be careful in your purchases, by all means. But, when all is said and done, don’t fail to include gold — physical gold — in your portfolio.

Gold going to $1,400:JPMorgan  

Gold prices are surging this year, and that has one of Wall Street’s largest banks flocking to the yellow metal and investing in gold.

“We’re recommending our clients to position for a new and very long bull market for gold,” JPMorgan Private Bank’s Solita Marcelli said Tuesday on CNBC’s “Futures Now.” After seeing three back-to-back years of losses, the precious metal has rallied 20 percent in 2016. And that’s just the start of the next leg higher, according to Marcelli. “$1,400 is very much in the cards this year.”

The firm’s global head of fixed income, currencies and commodities reasoned that, with so many negative interest rate policies around the world, gold will continue to be bought as an alternative currency. And, with expectations that investors will seek to hedge against the resulting volatility, Marcelli believes that gold will remain attractive in a world where bonds and U.S. rates may cease to be the main risk-off asset.

“Central Banks may consider diversifying their reserves [as they anticipate] negative rates on existing holdings,” said Marcelli, when discussing the commodity as safe-haven trade. “Gold is a great portfolio hedge in an environment where the world government bonds are yielding at historically low levels.”

While Marcelli admits the move will come slowly, she remains convinced that the commodity will continue to grind higher — with that key $1,400 level being the first line in the sand.

“Gold is looking more and more attractive every single day,” concluded Marcelli. “As a nonyielding asset, it has a minimal storage cost, so when you compare it to negative-yielding assets, it actually has a positive carry.”

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