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The Bank of New York Mellon will begin paying negative interest rates on very large cash savings deposits, over $50 million, this week.
As an aside, we wonder why the Fed does not similarly reduce the interest they pay on bank reserve deposits with them to zero from the current .25 percent?
It should be noted that Bank of New York Mellon has a current dividend yield of 2.06%. Are those dividends taxable? Will depositors be able to claim a lost on the negative interest they pay to BNY Mellon?
Not a sign of deflation if you understand it, although I am sure some will tease that conclusion out of this. Negative real interest rates are the hallmark of quantitative easing, which are artificially low interest rates and the creation of non-organic money, printing paper if you will. It is just they are nominally positive on the longer end of the curve. When they go nominally negative on the short end for a sustained period, you know we are not in Kansas anymore, Toto.
This is a clear sign of a topsy turvy financial system, of dysfunctional markets, of predatory banking, distorted risks and returns, and a broken economy with negative real interest rates that are likely to become...more negative. The US can get by with this because of who they are, and what the dollar represents to world trade.
There is a major bear raid on gold today, capping the earlier flight to safety. I think this is more indicative of extremes at the short term in the trends of stocks, bonds and dollars. But the Non Farm Payrolls are tomorrow, and the market is watching them and the situation in Europe rather nervously.
Remember this story the next time someone says that the problem with gold bullion is that it pays no interest, and there are costs to store it.
If the Fed can create it, they can also confiscate it, and transfer it to their friends, creating winners and losers, and sometimes almost at will. And that is the problem with fiat money and the banking cartel that surrounds it.
WSJ
BNY Mellon to Charge for Some Deposits Above $50 Million
BY LIZ RAPPAPORT
Bank of New York Mellon Corp. is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets.
The biggest U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers that have vastly increased their deposit balances over the past month.
The bank cited the massive dollar deposits it has received over recent weeks, as investors and corporations retreat from financial markets amid Europe's debt crisis and the recent debate over U.S. government ...
Gold was romping today until it was smacked lower in the thinly traded late day market. Silver was up sharply.
I posted some thoughts intraday on gold and silver which you might wish to scroll down to review if you have not yet seen them.
I think silver, if it can break up through 50 and hold it, can run to 80 to 100 in a shorter period of time than most might imagine. However, if the equity markets fall out of bed, silver will get beaten and badly. So it is a volatile bet, higher reward with higher risk. And yet it has been one of my best long term trades.
There are troubles ahead. Dark times and great times are coming.
Gold is being bought by the developing world's central banks. This will continue to put a bid under it until the world's reserve currency issues are resolved. And don't hold your breath for that one, as the Anglo-American banking cartel are fighting and delaying the most widely desired solution, a broader basket of currencies including gold and silver, tooth and nail.
The Anglo-American banking cartel is hanging on to their positional strength with some vigor. They are supplying the world's banking system cheap dollars in the hopes of getting them further hooked, and dependent on the buck.
This is why I think M3 was discontinued, and why it is so hard to estimate now. Benny is flooding the world with eurodollars. And like domestic bank reserves, it really is not showing up in the more immediate money supply figures, but is being held off shore in vaults.
The Non Farm Payrolls number will give the US markets direction.
In response to the Asset Performance piece from earlier this week that showed Silver to be outperforming most other stores of wealth this year to date, despite the big correction off the parabolic high, someone asked me why "silver is underperforming gold recently."
So I looked at their relative performance AFTER the big spike higher and smackdown. By the way, I think that was utterly contrived to help the shorts get off the hook. I don't think it worked. They ran silver up, and then in conjunction with the CME margin increases smacked it down hard. This provides lots of opportunity for conventional wisdom to come in and shake up the bulls. A twenty percent decline is NOT necessarily a new bear market if it is a short term correction from a recent short term rally. A standard fibonacci retracement is on the order of 30 to 50 percent. But it sounds good.
The run up to a short term high, overbought and unsustainable condition was obvious, and a number of people remarked it was time to sell for the short term, including myself. And I did so with my trading positions.
A few like myself noted when we got back in after the smackdown with the usual cautions. That is the real art in trading, not just picking a place to sell in a bull market, but when to get back on.
I never touched my long term investment positions in silver, and this is my general stance towards this sort of thing. Don't try and trade it, because you may get out at a short term top, but then it becomes rather difficult to get back on that horse after the inevitable correction. I have a good friend who was the original silver bull. But he sold everything he had at $15. And he has never had the will to get back in again, becoming permanently negative on it, waiting for the price to drop down below $10. And he might be waiting a long time.
Here is the relative performance of gold and silver bullion for the last three months, two months, and one month.
So the obvious conclusion is that silver is not under performing gold recently, and that my friend was either suffering from some misinterpretation of the facts, or had read somewhere that silver was lagging gold and didn't bother to check out the data for himself.
"Nothing is so difficult as not deceiving ourselves."
Ludwig Wittgenstein
Perceptions can greatly influence our trade in the market. There are plenty of examples of this. When I was in a high growth company in the tech sector, we were acquired a large Fortune 500 corporation for stock, and as a consequence some of us were holding quite a few stock options and stock in their shares. I was suggesting to anyone who asked me to sell all their stocks inearly 2000 based on the shape of the tech bubble, showing them charts of the Nasdaq 100 which was then past its peak and starting its long decline, with an uncanny resemblance to an asset bubble.
I had an engineering friend who, when the price was 63 in the late summer, absolutely refused to sell his million dollars in stock until he got his price of 68, which he felt was the right price. It had been as high as 79 in the Spring, and he was mad that he did not sell then and 'lost money.' I was selling at every opportunity as my stock became free to trade. I was selling everything at that point and buying safe harbor investments. That proved to be judicious. But that was what the charts and the fundamentals said to do.
Well, he NEVER got that 68 price, and so he never sold, and he pretty much lost almost the entire one million dollars as the stock dropped all the way to 2 and then went bust. The harder it dropped, the more adamant he became that it should not be dropping, and had a litany of reasons why the price would rally and we would be sorry. And he was very persuasive, and liked to argue, and often got his way in arguments, mostly because people just didn't bother discussing it anymore.
My point is, the market does not care what you think, and does not listen to your impassioned rhetoric. The market will go where it will go, and will tell you what to do if you learn to listen to it.
I own both silver and gold; I see no need to limit myself and take sides in the pointless argument about 'which metal is better,' which is almost as dumb as sitting around waiting for Deflation Fairy to come and rescue your portfolio of paper money. They are different, and have different uses and places in a portfolio. It is like arguing which is better, a hammer or a pickax. Well, it depends on what you are intending to do.
Silver is much more volatile so I hold much less of it in proportion to the gold in my portfolio, based on my own investment objectives. Gold is the flour, currencies are the butter, and silver is the yeast and water. Together they make a nice mix.
Please note that this comparison of gold and silver does not include the market action today in which silver is up to 41.81 which is another big move.
And based on the market fundamentals I think the upside in silver could be extraordinary. Silver is highly volatile. And there is something odd going on in the silver market. Volatility cuts both ways.
The longer end of the US Treasury curve (20+) looked quite overextended, at least in the short term, in the first hour's trade this morning. How could I resist for at least a day or so trade?
I still do not like the equity market yet, and would view this as a technical support area, until it proves itself otherwise. And that is probably going to have to wait for the US Non Farm Payrolls.
I am not saying Treasuries are a long term short just yet. I would have to see some real appearance of inflation and higher rates before that would be the case, and so far nothing. There is also sound economic theory that allows for lower interest rates here, and for what could be a protracted period of time.
I have reduced all my short term positions, but as always hold all the long term positions, because this is my 'vacation.' Scraping, cleaning, taping, painting, rewiring and installing new outlets and lights. I do not mind this, preferring to do it myself with help from the boy. It is good to teach him how to do these things. And the jalousie porch is not so naturally efficient as to take care of itself.
The US has maladie monétaires, a money sickness, and it may spread to the rest of the world. Unless treated properly it is a sickness unto death. The problem as always is those who carry it and spread the infection, the perversion of public policy and economic thought. Western capitalism is slowly destroying itself. This is my diagnosis, and the outlook is not good.
Gold gained $40 to 1660 and silver was up $1.56 to 40.86 as traders fled out of US equities, selling the news of a faux debt deal, and the prospects of a slumping US economy.
Part of the trigger was the decline in consumer spending, but rest of it was a flight to safety, with money going out of stocks and riskier assets, and into gold, silver, the dollar and Treasury bonds.
I think the short term trend may have reached its nadir today, but we probably will not have any clear indication on this until the Non-Farm Payrolls number comes out on Friday. ADP Jobs tomorrow, but its a flaky indicator.
I expect that gold will undergo a consolidation and correction somewhere between now and 1700, and have indicated some rough parameters on the gold chart. It may not, if the crisis deepens. Silver will remain volatile. The silver futures market is an accident waiting to happen, and a scandal of major proportions, in the process of slowly unfolding.
As much as one can be, I was a little impressed that the NDX reached down to hit the support level I had drawn last Friday, some distance from where it had been. And the SP has also fallen to clear support.
These short term trends are now a bit extended, but the eyes will be on the economic data, especially the NonFarm Payrolls on Friday, and not the buffoonery in Washington with the Tea Party and the bought and paid for politicians.
There really is only one solution, and the prerequisite is political campaign reform. Partisanship is poison. But change cannot occur in times of influence peddling, bribery and corruption. So things must get worse before they get better.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.
Here is the chart of the results for various stores of wealth Year to Date. And a second chart shows the results for the past three years.
As a side note, I do not include currency investments. The Swiss franc has been a spectacular performer, but like the metals it pays little or no interest. The average person loses money in currency arbitrage based on my own observation. They tend to overleverage, and panic at sharp moves. I have been fortunate in it, remarkably so, for which I am grateful. But that appears to be an exception.
The 10 Year Treasury does not include interest obtained for the 1/2 year. TNX was around 3.8 percent in January, so we can tack on about 1.9 percent interest bringing the total return on the Ten Year Treasury to about 5.9 percent.
Notice the variance of risk, that is, the deviation of a return from a steady trendline. This is why trading in and out is only for the professionals, and why some investment returns may be more 'risky' than others.
The swings in silver are particularly notable in the three year chart. It is a 'riskier investment.' Gold has had the steadier and more reliable returns.
So, one obviously should consider their time frames and risk tolerance when crafting their portfolio.
But one can sometimes find a fundamental trend, and if proven valid, then hold fast to it no matter what, until that fundamental trend changes in its character. It is especially effective if one has some specialized knowledge in that area, and some natural affinity to follow it as a complement to their chosen profession or intellectual inclinations.
That is the way to the growth and the preservation of wealth. Charts are useful for testing and validating, a sort of a roadmap that sorts facts from fiction, and for the selection of entry and exit points.
But a trend based on well-reasoned fundamentals is the thing.
They'll print money until we run out of trees."
Jimmy Rogers
Gold was hit hard, then rallied, then hit into the end of day again, pretty much in the manner which I had expected it would be.
So what next? I think the metals will continue to be capped and under pressure, since the deficit deal, as bad as it might be, provides a rallying point based on fear of discovery for the paper mongers.
As shown in the Gold/US Debt chart over the weekend, the longer term trend is obvious and understandable. The denials of those who do not wish to see it will become increasingly bizarre as the fundamental trend progresses and the world monetary system evolves.
Change is occurring. And it does not matter whether you accept it or not. It is unfolding even as we speak.
A big swing in the stock markets today, as they opened much higher, and then plummeted on the ISM report, and more jitters about the deficit faux deal.
NonFarm Payrolls at the end of the week. See the comments intraday below.
As a reminder, in addition to the Debt Ceiling Fandango, the real economy continues to chug along.
The market was shocked a bit by the miss in the ISM number this morning.
There are a few more important numbers being reported this week that have the potential to influence the markets, especially the Non-Farm Payrolls.
The July Non-Farm Payrolls report is interesting because like January it is one of the few monthly reports in which the raw actual number is revised significantly higher using a seasonality factor. This provides a fair amount of leeway in reporting the headline number, which itself is likely to be revised a month or two later.
As a reminder, isolated numbers, rather than the running trend, tend to be an integral part of the Wall Street/Washington magic lantern of perception modification.
I always like to look at the forecast from Briefing.com in addition to the consensus of economist forecasts. They run hot and cold like all individuals including myself, but it is good input nonetheless.
