Insurance for Worthless Paper Money

Posted On Oct 3, 2016 By Dave Gonigam

  • Strange days: Insurance companies offer policies to protect fiat currency
  • The perils of stocks in October… plus, a number that belies the market’s “calm” this year
  • You are not free: Web company comes under the thumb of cosmetology regulators, while gun show visitors really do get their license plates logged
  • What the SDR is “backed” by… an American reader comes face to face with negative interest rates… The 5 accused of hemispheric privilege… and more!

Heh… Deutsche Bank is off the hook today. It’s a national holiday in Germany, so the Frankfurt Stock Exchange is closed.

Of course, the New York Stock Exchange is open, and Deutsche has shares trading there too. And they’re down nearly 2.5% as we write. The rumors about a settlement with the Justice Department for DB’s mortgage shenanigans a decade ago? They didn’t pan out.

Not helping matters: The bank “suffered a further blow to its image this weekend with a third IT outage in the space of a few months on Saturday,” according to Reuters, “denying some customers access to their money for a short time.”

We can imagine more than a few of those customers saw their entire financial life flashing before their eyes for a moment.

If you missed our note yesterday… Jim Rickards believes the trouble at DB is one of several wild cards that could propel gold sharply higher in the near term. For that reason, he’s closing the window on his “double gold” offer a little over 72 hours from now. If you haven’t checked it out until now, time is of the essence.

Meanwhile, the world of negative interest rates has fostered a strange new phenomenon — insurance policies for piles of physical cash.

“You’ve heard a lot about negative interest rates in the past year,” Jim reminds us. “That’s where you put your money in the bank and the bank pays you ‘negative’ interest by taking some of it away. You end up with less than when you started. Your hard-earned savings go up in smoke. This is already the norm in most of Europe, Ireland, Japan and elsewhere.”

And in Switzerland — where the central bank went negative early last year — asset managers and large companies are opting to keep large sums of cash outside the banks and in private vaults. We’re talking amounts north of $100 million.

Doing so entails a certain amount of risk, and the insurance industry is stepping forward with policies to protect that cash from theft or damage. According to Bloomberg, one outfit charges about 1,000 francs a year — about $1,028 at today’s exchange rate — to cover 1 million francs.

“This is the ‘cash in a box’ solution,” Jim tells us. “The insurance is not free, but it can be less than the negative interest rate the bank is deducting. It’s a crazy financial system, and unfortunately, it will get worse soon. Cash in a box is one solution. Gold may be an even better one.”

[Ed. note: If you’ve already followed Jim’s guidance and gold makes up 10% of your investment portfolio, you’re ready to take the next step — into the high-conviction gold stocks in Rickards’ Gold Speculator. And Jim’s doing something special to make it worth your while. Click here for a time-sensitive offer.]

Gold is in the red as we check our screens this morning… but so is nearly every other asset class.

The Midas metal is down about a third of a percent at $1,311. Likewise for the major U.S. stock indexes; the Dow rests at 18,240. Bonds are selling off too, pushing yields higher; the 10-year Treasury is up to 1.62%.

It being the first business day of the month, the Institute for Supply Management is out with its monthly manufacturing index. Numbers below 50 indicate a shrinking factory sector and numbers above 50 a growing one. The September reading clocks in way better than expected at 51.5 — up sharply from the previous month’s 49.4. Within the report, new orders are looking even stronger at 55.1.

It’s another sign the early-2016 manufacturing slump might be over for now. Or, at the very least, that August’s subpar number was a one-off…

Stocks survived September — typically the market’s worst month — but what about October?

“For whatever reason,” says our small-cap maven Louis Basenese, “the markets experience heightened volatility during the month of October. Especially during presidential election years.”

CNBC ran the numbers for each election cycle going back to the Bush-Clinton-Perot showdown in 1992. On average, the CBOE Volatility Index — the VIX — leaps 20%. The S&P 500 drops nearly 3%, and gold drops more than 4%.

“It remains to be seen whether or not above-average volatility materializes, of course,” Louis hastens to add. “But I’d rather prepare for the worst and hope for the best, regardless.” Louis is tightening stops on one of his True Alpha recommendations… and holding out for attractive new entry points on a couple of others.

Meanwhile, the relatively little movement in the major stock indexes this year is deceptive.

“Price swings in big market averages have been tiny,” says trend follower Michael Covel, “but nearly two-thirds of the individual stocks in the S&P are either up or down double digits since January.”

Meanwhile, Michael reminds us that over the long term, individual investors underperform the market averages — often by a lot. They buy when a bull run is nearly over and sell long after they should have bailed. “My guess is that by the time the dust settles on 2016, these contradictions will have resulted in one of the biggest chasms between S&P 500 performance and individual investor performance we’ve seen in a long time.

“Cutting yourself — and your feelings — out of the trading process is the only way to break the chain and survive the mixed messages of the stock market, the Fed, etc.” Not sure how to do it? Michael can show you the way…

Regulators gone wild, cosmetology edition: The operator of an Uber-for-salon services company is pleading his case today in Nashville, hoping he can stay in business.

Armand Lauzon launched his company Project Belle a year ago. He links people up with hairstylists and makeup artists who can come to their homes.

“The convenience is an obvious selling point for customers,” writes Eric Boehm at Reason, “but Lauzon says the cosmologists using his service benefit too. They can set their own schedules, don’t have to pay fees to rent space in a salon or spa and determine their own pricing (Project Belle takes 15% off the top, similar to how Airbnb operates).”

So far this year, more than 200 customers have booked more than 500 appointments. Lauzon’s been careful to play everything by the books: Only licensed cosmetologists have access to Project Belle. But because Project Belle itself isn’t licensed, Lauzon has been hauled before the Tennessee Board of Cosmetology and Barber Examiners.

Judging by the paperwork that’s been made public to date, Project Belle came onto the regulators’ radar thanks to a lone complaint from an outfit the sells skin care products in Nashville: “As a business owner with a brick-and-mortar shop adhering to all state law requirements, I find this type of competition highly disturbing,” it said.

Competition? How awful!

We’ll keep you apprised of how Lauzon fares with the board as the week goes on…

From the “You mean they went and did it?” department, we see the feds have indeed been logging the license plates of people visiting gun shows.

During our “Highwaymen in Uniform” episode early last year, we described how the Drug Enforcement Administration’s office in Phoenix drew up plans in 2008 to use automated license-plate readers to document comings and goings from public gun shows. The DEA said, however, it never executed those plans.

Which, as far as we know, is still true: Instead, we now learn it was Immigration and Customs Enforcement, working with local police in Southern California, that employed the scanning technology starting in 2010 — according to emails obtained by The Wall Street Journal.

The license plate numbers were then cross-checked with those of vehicles traversing the U.S.-Mexico border, supposedly to chase down illegal gun trafficking. Never mind that both activities can be perfectly legal, but now by merely performing both activities, “a person becomes inherently suspicious,” says the ACLU’s Jay Stanley.

And this from the same executive branch that brought us Operation Fast and Furious!

“Couldn’t agree more with your defense of Jim Rickards’ macro perspective,” a reader writes after Friday’s episode. “Unfortunately, it seems that some of our fellow readers’ myopia is preventing them from seeing the proverbial ‘handwriting on the wall.’

“As for me and my family, I greatly appreciate the ability to position myself to profit from the global macro changes that Jim’s analysis predicts. Keep up the good work.”

“Dave, I’ve always considered the IMF to be the creation of the world’s central banks, dependent on the member central banks for funding,” writes another, addressing the “world money” Jim writes about.

“In a major currency crisis, the central banks — including the ones with currency confidence issues — would be a part of the IMF’s funding backing SDRs. Does the IMF have other sources of credible funding?

“It seems a bit circular to me. Somewhat akin to the rating agencies awarding mortgage-backed securities with AAA ratings knowing they were filled with junk but expecting the number of securities to compensate.

“Thanks for the work you are doing. Even when I disagree, it’s helpful to be challenged.”

The 5: You nailed it. Jim made that very point on Twitter last night…

“Negative rates are already here,” writes an American reader. “Received a mailer from Chase Bank today offering me a $200 bonus if I open a Chase savings account with $15,000 of ‘new’ money.

“Now, for starters, in order for me to do that, it has to be an actual deposit, not simply a wire transfer. So that means I have to either write myself a check from one of my other banks or get a cashier’s check (that has a fee attached). I don’t dare withdraw cash from one and deposit in another, because then I have exceeded the magical $10,000 and triggered reporting requirements. Not once, but twice. Not sure that’s advisable.

“Sure would suck if the first teller called the local police to report a suspicious transaction and I was pulled over and subject to civil asset forfeiture before I could even make my deposit, pass ‘Go’ and hope to collect $200. I would probably need a ‘Get out of Jail Free’ card, as I would refuse to hand over my monopoly money without physical resistance.

“Anyway, on to the actual subject of negative rates: Correct me if I’m wrong, but in the real world, where the value of money is based on its purchasing power, wouldn’t a negative rate be any rate that is below the ‘official’ inflation rate? Never mind the real inflation rate.

“I mention this because after reading all of Chase’s fine print, I spot the annual APY. Yes the APY, not the APR. The APY is 0.01%. So they are offering a whopping 1 cent, or one penny, of interest per year for each $100 on deposit.

“Sure, a less alert person might think it’s a good deal because of the $200 bonus, but you only get to keep that if the account remains open and funded at $15,000 for six months. Well, that only equals about a 2.9% return over six months. Oh, sorry! I forgot to add in the 75 cents in interest earned as well.

“I don’t know about the rest of the world, but I can do a heck of a lot better than that in just any old boring consumer-staples stock.”

The 5: Which is making certain consumer-staples stocks riskier than they used to be, but that’s a story for another day…

“There is one recurring commentary that continues to disappoint me in a quality publication such as yours,” writes a reader with a variant on the old “I love The 5, but…”

“That is the continual use of seasons. You have readers all around the globe. This means that dating events to seasons is nonsensical. Gold started its rally last winter? Here in Australia, that would be June this year. Unless you meant June last year. Or did you mean the Northern Hemisphere winter?

“Come on, people, you are better than that, and your publication deserves better from you.”

The 5: We’ve been accused of many things over the course of our nine-plus-year existence. But this is surely the first time we’ve been condemned for exercising hemispheric privilege!

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Jim Rickards is so confident that gold’s next big move is right around the corner… he’s willing to put real gold on the line to prove it. Click here to discover how to claim DOUBLE your fair share.


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