Jason Cozens, Glint’s founder and CEO, reflects on the important things in life…
The pandemic has brought many things into focus, especially the things we need most. It has made me think about food. Not just snacking, but nutritional stuff. Where does it come from? How is it made? How much effort? What’s its value?
The first thing I did when the pandemic started was to build some sustainable home-grown food production, such as tomato plants, and a raised vegetable bed. Heath Robinson-style I used whatever I could get my hands on. And it worked! I harvested the first fruits of my labour yesterday – some lettuce.
It was so perfect, so beautiful, it didn’t even need cleaning. I appreciated its value like never before. It took a bit of hard work and careful tending, but boy it was worth it. It tastes great, like the lettuce I remember as a child.
What do you need to do, to feed a family of four? The first thing, if you are a novice like me, is to do your research:
My local pub has turned itself into an outdoor market, selling locally produced things. I’ve got a bit of a sweet tooth and always liked a bit of cake. At first, I was shocked that a few slices of cake cost £10, but then I thought: how much would I sell my home-made cakes for? Suddenly £10 didn’t seem that expensive at all.
The cost of food is going to go up, partly because supply chains have been disrupted; and it will go up even more as the value of our money is eroded due to global currency debasement.
The new lens, through which we now view the world, doesn’t just make us look afresh at our food. We all are now, (or should be), re-assessing the nature of everything around us. It’s making people like you and me look again at the nature of money: where does it come from, how is its nature defined, how does it work?
As the world borrows gigantic amounts of money, people are turning to real gold (not paper money), as a reliable and incorruptible store of wealth. That’s why Glint’s time has arrived – because it enables you to own, some actual, solid gold and use it as money.
Everyone seems to be fleeing for the exit right now. At a time of global fear, gold is proving its mettle as part of your portfolio. When the world is losing perspective, it is time to inject some – and one obvious point is that gold is a safe haven during these difficult, globally nervous times.
The spread of the coronavirus – Covid-19 – now seems to be much faster outside China than within its country of origin. The head of the World Health Organization (WHO), Tedros Adhanom Ghebreyesus, says almost eight times as many cases have been reported outside China as inside in the previous 24 hours, adding the risk of coronavirus spreading at a global level was now very high.
Certainly we seem to be just a few steps away from a global pandemic not so much of Covid-19 but of Covid-19-inspired fear. With the number of cases now exceeding 90,000 and more than 3,000 deaths – a mortality rate of more than 3% – that fear seems justified. But set that against data for common-or-garden seasonal influenza, which, according to the Montreal-based Centre for Research on Globalization, accounts for five million ‘severe’ cases worldwide and 650,000 deaths annually and Covid-19 anxieties seem overplayed, at least for now.
Nevertheless global stock markets lost some $6 trillion in the week ending 28 February (but have since rallied), and the gold price swiftly sped to a seven-year high of $1,689/ounce. It has since eased to $1,643/ounce, the decline explained by some as caused by a large seller of gold selling to cover margin calls in other tumbling investments. Gold has gained 6% in US dollar terms and 8% in Sterling this year. It would be comforting to say that the spread of Covid-19 is a clear buying ‘signal’ for gold and to some extent that is true. When all other assets seem to be in meltdown, gold traditionally is regarded as a safe haven. Certainly the head of global commodities research for Goldman Sachs, Jeff Currie believes that “while so much about the current environment remains unclear, there’s one thing that isn’t: gold, which – unlike people and our economies – is immune to the virus.”
Gold’s ‘immunity’ to the virus is thanks in part to it being beyond any centralised control. The global macroeconomic outlook has certainly darkened considerably, but with interest rates either negative or close to zero, there is little policymakers can do to provide counter-balancing stimulus. Biggest news is that the US Federal Reserve cut its benchmark interest rate by a half-percentage point in an effort to support the economy in the face of the spreading coronavirus. It was the biggest rate cut since 2009 and sent a strong signal that it will not hesitate to do what it can to contain the economic repercussions of Covid-19. The Bank of England’s outgoing governor Mark Carney told the UK Parliament’s Treasury Committee this week that Covid-19 will cause an “economic shock that could prove large but will ultimately be temporary” yet will not be as bad as the 2008 financial crisis. He added: “The Bank will take all necessary steps to support the UK economy and financial system”. So far, Australia and Malaysia have cut interest rates because of the coronavirus outbreak. The OECD has said a prolonged outbreak of Covid-19 could halve the forecast global growth rate from almost 3% to 1.5% this year. Hong Kong’s government has taken the highly unusual (and certainly inflationary) step of introducing ‘helicopter money’ by pledging to give by mid-2020 HK$10,000 in cash to every permanent resident aged 18 and above. This will cost Hong Kong the equivalent of $10 billion. Paul Chan, Hong Kong’s finance minister, expects a budget deficit of $139.1bn for 2020-2021, accounting for 4.8% of gross domestic product, which would be the largest deficit on record. Macau is to give residents shopping vouchers and Singapore is to give residents up to $300 in a one-off payment. Making money cheaper, which is what interest rate cuts do, do nothing to combat the virus but the hope of policymakers is that they will provide a stimulus to keep economic activity going.
Yet the supply/demand macroeconomic shocks that trail in the wake of Covid-19 include a probable dent in the demand for gold jewellery, certainly in China. According to Zhang Yongtao, CEO of the China Gold Association, “people are not in the mood to shop for jewellery. Stores and shopping malls are closed because of the virus. The sales of gold jewellery and bars will drop substantially this year.”
So while in general Covid-19 so far seems only moderately lethal, it has nevertheless prompted a knee-jerk selling of most assets and a shift into gold. It is an ill wind that does no-one any good and disease and death are never cause for celebration, but it needs to be accepted that gold in these uncertain times is proving its merit.
Yet Glint Pay does not advocate obtaining and using its Mastercard on the basis of what will inevitably prove a temporary (although perhaps longer-than-expected) globally disruptive event. You have the Glint Pay Mastercard for the long-term because gold is real money. In our view, the ‘helicopter money’ in Hong Kong is a straw in the wind – the cheapening of paper money which this act signifies is alarming. Giving away paper money generates more demand in an economy without creating more supply and threatens to stoke inflation; and if that ‘virus’ spreads it will indeed be momentous for gold.
Question: Why does 12 December feel like Christmas day?
Answer: Because both seemed like they will never arrive – and then they come in a rush.
12 December may not be, to quote President Roosevelt on 7 December 1941, “a date that will live in infamy”, but for the UK’s 46 million general election voters it certainly feels like that. The politicians of all parties in this election have promised the earth. Sometimes it feels like they have been promising to deliver heaven-on-earth.
The turmoil is financial as well as political. This election result will certainly produce a lot of confusion for currencies, as forex traders try to figure out the implications for the UK’s economy.
Currency traders will be at their desks before dawn on 12 December for a 24-hour slog. They will be glued to their multi-screens, trying to track the Pound Sterling’s moves against the Euro, the US Dollar, and other paper currencies. Their aim is to make money for big corporations, fund managers, private banks and others, who could win or lose a fortune on how the election goes – and how the Pound performs.
Their task has got more difficult thanks to social media. According to one, Jordan Rochester, “It used to be quite simple, you’d look at your Bloomberg and there’d be a headline up there saying Mark Carney said this or UK data says that. Now you refresh Twitter and it turns out there’s been some poll you didn’t expect to see.”
If this is a complex nightmare for big players, what’s it like for individuals trying to protect their savings? The currency moves will be fairly dramatic, no matter what. Christmas gifts could turn out to be cheaper if you paid for them in Euros – or they might cost you more.
Let’s imagine the Conservative Party wins a majority. Expectations of this are strong, and the Pound has risen against the US Dollar by more than 2% in the last two weeks, precisely on those expectations. The Pound will strengthen if they win a strong majority.
If on the other hand Labour wins a majority, currency traders expect the Pound to fall against the US Dollar.
No-one expects the Liberal-Democrats to win a majority but the vote might produce a hung Parliament – in which case the Lib-Dems could become a significant potential coalition partner.
This election is, objectively, another referendum on whether the UK should leave the European Union. That further complicates the outlook, for if the Conservatives win by just a small majority then the Brexit debate might drag on well into 2020.
The electioneering by all parties has verged on the hysterical. Whatever the result, don’t expect an old-fashioned gentlemanly shaking of hands and an acceptance that the best team won. The kind of rancorousness that has plagued the campaign will continue. Forex traders will need to sit at their desks long into nights to come.
Where is gold in this mix? Currency traders don’t look at gold. They ignore it. If you want to dip out of the frenzy and put your savings into real money; if you want to protect yourself against the ups and downs of currency movements, then try Glint. Not only can you buy things on your Glint card using Pounds, Euros and US Dollars. You can also buy Gold – and sit out the hairy ride ahead.
You may have missed the news that Poland repatriated 100 tonnes of gold recently – 8,000 good delivery bars, each weighing 12.5 kilos; it bought the gold in the first half of 2019 and shifted the last batch in the autumn to Poland’s central bank, Narodowy Bank Polski (NBP). The NBP now has 228.6 tonnes of gold. There’s likely to be more to come.
Poland’s gold buying follows that of China, Hungary, Russia, and other national central banks in the last couple of years. Even Serbia bought nine tonnes in October; it intends increasing its total gold reserves to 30 tonnes by the end of 2019, and to 50 tonnes in years to come.
The chart above – produced by the economist and gold analyst Matthew Turner – shows the amount of central bank gold buying in the past three years. There’s been a net addition of 550 tonnes to central bank gold reserves so far this year alone, outstripping purchases in 2017 and 2018. The purchases by national central banks are obviously one factor that has helped push the US dollar-denominated gold price up by more than 17% so far this year.
Central bankers have fallen in love with gold again. The two-decade long divorce has turned out to be merely a trial separation. But why did central bankers, those ultra-cautious individuals fall out with gold in the first place?
More than 20 years ago the world seemed a more rational, friendly environment. History was ‘dead’, we learned. The Cold War was over; China was still a secondary power; the USA had a popular if morally flawed President (some things don’t change); and the European Union appeared to be united. Duped into a more relaxed frame of mind, central bankers appeared to have forgotten economic history. ‘Surely gold is a relic?’ they rhetorically asked themselves.
They then pursued a hasty programme of ad hoc selling of gold. On 24 October 1997, the Swiss Finance Ministry and the Swiss National Bank published a joint report which, inter alia, recommended that Switzerland sell 1,400 tonnes from its 2,590 tonnes of gold reserves. The news from Switzerland rocked the gold market – for decades Switzerland had almost been synonymous with holding lots of gold as a reserve asset. Argentina, Australia, Belgium, Canada, and the Netherlands sold almost 2,000 tonnes in the decade of the 1990s. It seemed that the final blow to gold’s status as the central bankers’ reserve asset par excellence came in May 1999, when the UK’s Treasury announced it intended selling 401 tonnes (at an average price of $275/ounce) out of the Bank of England’s total 715 tonne reserve. Yet thanks in part to the relentless buying of gold by central banks in recent years, the gold price has sharply risen, by more than 400% since the dog days of 1999. This policy reversal has largely gone unacknowledged by the bankers themselves, almost as if they are embarrassed at their former hasty selling.
For example, the Dutch National Bank (DNB) sold 1,100 tonnes of its gold reserves between 1992 and 2008, yet on the DNB’s website today there’s no reference to those sales. Instead there’s a ringing endorsement of gold’s status as a reserve asset: “…central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank – it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”
The DNB currently has 600 tonnes of gold, worth (very approximately) $21.6 billion. I wonder if Klaas Knot, President of the DNB since 2011, ever looks back with regret? After all, if the DNB had held onto those 1,100 tonnes that would be an extra $40 billion or so in the kitty.
It should go without saying that the past is no guide to the future, and the gold price is as vulnerable to sentiment as any other asset. “Nobody really understands gold prices and I don’t pretend to understand them either,” said Ben Bernanke in 2013, when he was Chairman of the US Federal Reserve. He might have added: “And no-one really understands the thinking of central bankers.” Mind you, when all the world’s central banks looked as though they were gold sellers, the USA wisely held onto its 8,133.5 tonnes of gold reserves.
“It’s difficult enough even in normal times to get people to think about the unthinkable.” That’s according to William White, formerly of the Bank for International Settlements, ex-chairman of an OECD committee on economics and development, and one of the few economists who spotted the early warning signs of the 2008 Great Recession. A year ago he came out with another warning, the gist of which is that we are still living in abnormal times. His thoughtful worries can be watched here.
White is alarmed about the many instabilities of the global financial system, none of which, he argues, have been corrected since the 2008 crash. Not the least of those, he asserts, is the astonishing level of indebtedness today. We are experiencing that unusual phenomenon, a debt super-cycle, in which debt is not a problem as long as it is sustainable. Which is a bit like saying a balloon can carry on being inflated until it pops.
The chairman of the US Federal Reserve, Jerome Powell, does not share White’s nervousness however. On 14 November Powell told the US House of Representatives “if you look at today’s economy, there’s nothing that’s really booming now that would want to bust…it’s a pretty sustainable picture.” It’s Powell’s job to reassure markets, but his sanguine remarks cry out for a context.
Let’s personalise this for a moment. Even if you are debt-free your ‘share’ of the total global debt of $250 trillion (according to the Institute of International Finance), is about £23,000 for every man, woman, and child according to this alarming story from Bloomberg. Global debt rose by a remarkable $7.5 trillion in the first half of 2019.
The overwhelming majority of this debt has been run up by governments trying their best to get their stagnant national economies working again, by essentially printing money and hoping these crisp new notes feed into the real economy. But, as many have said, hope is not a strategy.
So you may feel as though your personal debt level is low – or even non-existent. But that won’t save you from the financial chaos that may result from the eventual unwinding of this debt. “Ominously,” said the Investor’s Chronicle in January this year, “the last debt super-cycle ended with World War II.”
Let’s hope however that the demise of the current super-cycle follows previous patterns: debt expansion is followed by bubble conditions for asset and equity prices; that’s followed by peak borrowing; and then step four is depression, with Gross Domestic Product (GDP) falling by 3% or more – which is what happened during the 2008 Great Recession.
But instead of central banks using the 2008 experience to encourage debt reduction, they have overseen 10 years of debt expansion. We have been living through what might be termed the great ‘Cake-And-Eat-It’ era, a period in which central banks have been printing money (Quantitative Easing) and sliding into negative interest rates, encouraging everyone to think that economic downturns are a thing of the past. Yet it is a patent absurdity that creditors are now paying for the privilege of lending money to governments.
We are not alone in thinking that many markets could be reaching exhaustion. Companies that essentially lack substance, such as Uber or WeWork, both of which no doubt provide a great service, have vastly inflated valuations yet have been loss-making for years. Or take Beyond Meat, which went public in early May this year and at its peak was valued at $15 billion, yet its 3rd quarter 2019 results showed gross net income was just $4.1 million.
If you incline more to the Jerome Powell view of things, then relax and hope that this massive debt bubble is sustainable – which it is, until it pops. But if you are more likely to think William White might have a point, then consider buying some gold on your Glint card. It seems to me that Kevin Duffy, co-founder of the US-based firm Bearing Asset Management, got it right when he said in a recent interview that “faith in central banking is at the heart of this bubble”. He added, significantly, that “precious metals are the inverse of faith in central banks.”
“The economy is not understandable and controllable, it is not a machine…you can’t understand where you are going until you understand where you have been.” The imbalances of 2007 and 2008 resulted in massive fiscal expansion, designed to encourage consumption, was very “inventive” says White. The global debt to gross domestic production ratio has gone from 192% to 230% by November 2017. “We have let this go on for such a long period of time – the debt trap big economic problems many big political problems too.
In this uncertain world it’s good to have some certainties.
One certainty is that under its new President-elect, Ursula von der Leyen of Germany, the European Union (EU) is more determined than ever to get greater integration of its members. Von der Leyen was a little-known figure, even in Germany, and was plucked from the ether to take charge of the lives of more than 513 million people.
But she had the great advantage being the longest-serving member of Chancellor Angela Merkel’s cabinet, spending the last six of her 14 years in government as Germany’s defence minister, and is thus, from the viewpoint of the most powerful member state of the EU, a reliable pair of hands. The EU is going to merrily carry on sailing in the direction it chose more than 60 years ago. If the EU was a person it would be looking to its pension.
You can of course be elderly but perhaps avoid dementia if you exercise, stay alert, and keep abreast of developments. If you slump in an armchair and only listen to stuff that suited you decades ago, you’re going to wither. Is the EU going to wither or flourish? The betting has to be on the former right now.
Rose Ladson – as von der Leyen was peculiarly known in London in the 1970s when she studied at the London School of Economics – announced the EU’s new Commissioners on Tuesday this week. In her choice (here’s the list of new commissioners) there are no surprises; the names could have been pinched from her predecessor’s playlist. This is understandable perhaps, as von der Leyen has form when it comes to plagiarism. She studied medicine at the Hanover Medical School in 1987; after she was accused of plagiarism, an investigation in 2016 judged that von der Leyen had indeed plagiarised large amounts of the thesis she submitted for her doctorate, but it did not revoke her degree.
All the new Commissioners could be described thus: “Virtually unknown to the wider public, she is adored by EU integrationists, having worked for former European Commission President Romano Prodi, led France’s European Movement and founded the federalist Spinelli Group in 2010.” That’s Politico’s brief guide to Sylvie Goulard, “the ultimate EU insider” according to Politico. Goulard gets the job of leading the bloc’s decisions on industrial policy, defence and the single market.
Phil Hogan, an Irish politician and a very strong critic of the UK’s decision to leave the EU, has been given the Trade portfolio, which will be a sensitive post in the next few years. He attacked the current UK Prime Minister as being “unelected”, although no-one elected Hogan to become a Commissioner either. Commissioners are not elected but selected, in a process that almost defines opacity. Not so much a democratic deficit, more a black hole.
The EU’s 28 member states – including the UK for the time being – are all governed by the European Commission, which initiates organisation-wide legislation. It is indisputable that the EU has come a long way from what it used to be, but the 1958 Treaty of Rome, which established the EEC, forerunner of the EU, certainly agreed to lay the foundations of an “ever closer union” among member states. That’s the grand ambition.
It is an ambition that is not shared by more than half of the UK’s citizens however, and the jury is out for around half of the EU’s citizens from other countries, according to one of the most authoritative and independent research organisations. The Pew Research Center published in March this year a lengthy survey of opinions from EU citizens which found that, as it put it, “Europeans Credit EU With Promoting Peace and Prosperity, but Say Brussels Is Out of Touch With Its Citizens”.
So what does it matter if the EU is “out of touch” with its citizenry? What’s that got to do with gold? Quite a lot, actually.
The EU’s economic future desperately needs some new thinking. Larry Elliott, the economics editor of The Guardian, put it well when he wrote in March this year that “the assumption was that the single currency [the euro] would make the single market work more efficiently and so generate faster growth. It hasn’t happened.” When it comes to producing economic growth the EU is not just elderly but sclerotic, flat out of ideas.
The same day that von der Leyen announced her new Commissioners, Citigroup coincidentally prophesied that gold could hit $2,000 an ounce within the next two years, in a world of abysmal economic growth, low-to-negative interest rates, and growing demand for gold by central banks. With the tired ‘talent’ now in charge of policymaking wherever you look, gold will easily go higher than Citigroup’s guess. Batten down the hatches; get your Glint card and stash some gold for yourself.
That’s a daft question, surely? Money is the stuff we carry around in our wallets, purses, handbags and so on – it’s the green/blue/red banknotes, maybe the coins, we use to pay for things. Even the small bits of plastic we use instead eventually refer back to actual money, don’t they? Everyone knows what money is.
Except they don’t.
A fascinating read in a recent issue of The New Yorker pointed out that money is an invention; all of us who believe that money has value are deluded, or at least naïve. John Lanchester writes there that the “instruments of trade and finance are inventions, in the same way that creations of art and discoveries of science are inventions – products of the human imagination. Paper money, backed by the authority of the state, was an astonishing innovation, one that reshaped the world.”
That “authority of the state” is interesting. States never like having their authority challenged, and control over money – or at least, the factitious version of it most of us use – is one of the main ways in which states demonstrate their authority. When paper money goes haywire (think Germany in the 1920s or Argentina more or less any time in the 20th century) then the state is very soon in deep trouble.
The creation of cards to use for payments is much older than we might imagine, although it feels more recent; not until 1993 did half of all UK adults hold a debit card. Cash is certainly on the way out almost everywhere – the Bank of England (BoE) has a helpful online page which tells us that 96% of all money in the UK is held electronically and only 4% in physical form. Sweden has almost eliminated cash entirely.
The BoE however is practising a deception, in its own interest, or the interest of its de facto boss, the British state. The same BoE page states that “money…helps you to store value…if you were given an ice cream worth £2, you could enjoy it right now…but if you were given £2 instead, you could spend it any time you like.” Reflect on that statement for a moment. “It helps you to store value” sounds good. After all, everyone wants to preserve what wealth they have. But think about what happens to those two pounds over time. Their relative value over the past 50 years has shrunk enormously. To buy that same ice cream in 1969 would indeed have cost £2; but today it would cost you anything between £28.73 and £84.86, depending what kind of measurement you apply.
So the idea that ‘money’ – paper and coins issued by the central bank – is a long-term “store of value” is frankly absurd. Maybe if you consider a week, a month, or even a year, to be long enough to hold onto your £2, then it might be true that ‘money’ is indeed a store of some value. It all depends on where you are, at which point you are in of the endless economic cycle. “Store of value”, when it comes to central bank controlled currencies – money as we all assume it to be – is a very elastic concept. No doubt Germany’s Reichsbank, with the full “authority of the state” thought in 1914 that the Marks that it issued were a great “store of value”, but by 1923 you would have needed 6,000 billion marks to buy a single kilo of butter. In the decade 1914-24 Germany’s prices went up a trillion-fold.
Let’s consider another measurement. Another item which is often spoken of as a “store of value”. Gold.
How has gold fared since 1969? Rather better than the pound in your pocket. Fifty years ago, when the USA was still just about on the gold standard, the gold price was around £16/oz; since then it has steadily climbed to £1,265/oz. Sure, there have been some dips – but it has never retreated all the way back down to £16/oz. Not only has gold been a store of value; in the past 50 years it has been an almost unrivalled source of wealth creation. What else has improved by more than 7,800% in the past 50 years?
You would imagine that the Government (of any stripe) or perhaps the BoE might be a a trifle shame-faced at this shocking decay in the national currency – the pound sterling. Not a bit of it. In fact, as is generally known, the BoE (and just about all nations’ central banks) officially seeks an inflation rate of 2% a year. Your money – the currency you own – is not a store of value, but a store of declining value. And intentionally so.
Back to the BoE website. Towards the end of the section we have already quoted from is a statement that is actually true – “carrying precious metals around is a considerable physical burden.” No question about that; carrying a bag of gold coins would weary the fittest person after a while. Which is one reason why we have invented the Glint Mastercard, so you can own physically allocated (meaning it’s yours and no-one else can touch it) gold, in comfort. This is a plastic card which is completely inflation-proof, thanks to the fact that it enables you to possess gold, conveniently. So don’t be naïve about money – it is yellow, cold to the touch, and hard. Very pretty: but definitely not paper.
Since 1971, when the gold standard finally died, killed off by the US government, the value of the dollar has fallen almost 4% per year. You need more than $6 today to buy the same item or amount of stuff that you purchased back then.
Is it conceivable that President Trump might try to turn back the clock, and return to the gold standard? He has chosen Judy Shelton as his nomination for the board of the US Federal Reserve, America’s central bank. Shelton is a true believer in the gold standard. She has published a book describing her thoughts on fixing the dollar and benchmarking its value to gold. She believes that the Fed has becomes unnecessarily involved in trade polices rather than sticking to its role of regulating the monetary system.
Returning to the gold standard would set global markets on edge as well as probably sending the gold price stratospherically higher. It would be an explosion in the world’s financial markets; no-one can predict the consequences. Shelton believes the gold standard helped the United States to prosper for several hundred years. In today’s world, this thought is deeply unconventional – but Shelton believes that gold is a steady commodity, a long-term store of value, and will help to stabilise the US dollar.
Currently across the globe, many countries link their currencies to the likes of the US dollar or the Euro. This means that they have little or no control over their own local currency and are at the risk of the monetary decisions made by the US. As the Euro or the Dollar weaken this has a destabilising impact of the global economy. Shelton believes that gold would provide the stability that our world requires. Today, market forces are a driving factor and dictate how capital is spent and what is produced. These forces are controlled and manipulated by governments around the world. One way to control money is through the credit markets, by printing more paper currency and government bonds, which creates a pile of debt that keeps rising. Throughout history we have seen that this leads to a spike in inflation and higher prices. If the United States went back to the gold standard, this would radically curtail the US government’s ability to print paper money. Goodness knows what it would mean for the vast quantity of US government debt held around the globe.
In this macroeconomic uncertainty it’s perhaps little wonder that countries are ramping up their gold buying programmes. China and Russia are leading this charge, as they build their gold reserves to build confidence in a world where trust in the Western system is faltering. This will lead to a drastic rise in the price of gold and eventually lead to a de facto reinstatement of gold as the lead international currency, with the US dollar dislodged from its dominance.
Clint Eastwood plays a San Francisco detective in Dirty Harry, the 1971 Hollywood movie, in which he has an unforgettable line towards the end. He has shot and wounded a psychopathic killer and, as the killer is lying on the ground, thinking about making a lunge for his weapon, asks him: “I know what you’re thinking: ‘Did he fire six shots or only five?’ Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?”
Some truly bizarre things are going on right now in the financial world. And they remind me of Dirty Harry’s words – do we feel lucky? Some of these bizarre things are being touted by very clever people. People who like it to be known that they have a PhD and are “global head” of something are rather special – but they can be as daft as the next person.
Take Jean Boivin, PhD, Managing Director, and Global Head of Research at the “Blackrock Investment Institute”. I am unacquainted with Mr Boivin but I am sure he’s nice to his family, pats dogs and all that stuff. But when it comes to macroeconomics he seems to me to be two sandwiches short of a picnic.
This week he published an extraordinary piece in the Financial Times. There he correctly identified a problem, perhaps the biggest problem of our age: “there is not enough monetary policy space to deal with the next downturn. Conventional and unconventional monetary policy mainly boosts growth by lowering short and long-term interest rates. But this requires rates to go lower, and there is nowhere left for rates to go.” Quite right. Then he goes and spoils it all by saying that central bankers, in order to generate “higher inflation”, need to take an “unprecedented venture” and go direct and set about “finding ways to get money more directly in the hands of entities that can spend it, including consumers.” This kind of suggestion, that central bankers should collaborate and flood the world with cash, in the hope that it will make the next recession less ghastly, is not only out-of-the-box thinking; it’s out of this world thinking.
But of course Boivin has an agenda; there is always an agenda. Blackrock wants more cash to flood the financial system because that cash will have to go somewhere-and some of it will trickle Blackrock’s way.
Onn 22 July this year Rick Reider, BlackRock’s chief investment officer of global fixed-income and a colleague of Boivin’s, published a piece in the FT which called for the European Central Bank to print money in order to buy shares in European companies to “improve European growth prospects”. If you think this idea is obviously a non-starter, think again – the Bank of Japan has been buying share in Japanese companies for years, for all the good it has done Japan’s GDP growth.
Blackrock is the world’s biggest asset manager, with some $4.3 trillion assets under management. What it – and its executives – say, and where they say it (the FT still has a bit of status) carries weight with policymakers. By calling for free money to spend and invest it is serving its own interests. That doesn’t mean that politicians won’t do what it says. For they have no-where else to turn.
With the Bundesbank forecasting that Germany is about to enter a recession, and the USA’s National Association for Business Economics this week publishing a survey in which 38% of economists believing a recession will begin in 2020, and another 34% reckoning a recession will start in 2021, policymakers are indeed worried. They have no more ammo in their locker. This week Germany issued 30 year bonds that pay no interest at all. Imagine that – locking up an investment with no return, for three decades.
Which brings us back to Harry. If you have a Glint card and load it up with gold, you can protect yourself against the storms ahead. And there sure are storms heading this way. The European Union itself is forecasting that the GDP growth for the EU in 2019 is 1.4% and 1.6% in 2020 – figures that are so finely calculated that they are well within the margin of error. In times of recession, gold does well. And in eras of macroeconomic madness (such as now) when central banks hand out free “money”, gold does super-well. So don’t ask yourself “do I feel lucky?” Get a Glint card and know you’re lucky.
August is here and naturally everyone is thinking about holidays – well, if you live in the northern hemisphere that is. It’s time to relax, maybe. The last thing you want to do to pestered by boring stuff like finances, credit cards, bills, fraud…so here’s hoping you are not a Monzo cardholder; if you are one of those unfortunates you will have to spend some of your valuable holiday time checking your account for fraud, changing your pin number, and other boring stuff.
It turns out that Monzo, the UK digital bank, incorrectly stored about 480,000 customer pin numbers in files that were encrypted, but could be decrypted and accessed by any one of its engineers, roughly one hundred people. Who may or may not be honest people. Whoops! So 20% of the Monzo’s customers now have to go to a cash machine and reset their PINs. And are the other 80% confident that all is well; or might they feel a little uneasy? Monzo calls itself “the bank of the future”, but slips like this seem very much like how banking used to be.
The marketplace for new start-up digital “challenger” banks in the UK is getting very crowded and their story is all about very rapid expansion. While some may be very good, and Monzo dislodged First Direct in the Which? consumer survey late in 2018, but they all have one problem as far as we are concerned: they might be super-trendy but they all deal in paper money. Avoiding the risk of you bank’s PIN number being hacked and used fraudulently is one thing – but dealing in paper money is runs the risk of you being subject to fraud of an entirely different magnitude.
The first, most important, and perhaps the only point you need to bear in mind is – who produces the dollars, pounds, euros or whatever paper currency you use? Who controls the amount of that paper money there is in the world? The answer is obvious – governments.
We have all become accustomed to thinking that governments – our government – is basically kindly and concerned to ensure our welfare. We have lost our scepticism; we have lost our willingness to question from first principles. We believe we are living in a settled environment – even though it’s a very unsettled world indeed, and one that shows no sign of regaining its balance very soon. One simple fact ought to be enough to demonstrate what we mean: governments today across the world have collectively borrowed $10 trillion on negative interest rates. This is a highly dangerous Everest, and unlike the real mountain this metaphorical heap just keeps growing.
The US Federal Reserve, which takes a leading role in setting the world’s interest rates, believes that interest rates now will settle at 2.5% in the long run; if 2% is deducted – the Fed’s target for inflation – that means the return in invested capital will be a meagre 0.5%. In Europe and Japan the return will be even lower. So what, you say?
The ‘what’ is that monetary policy is broken. When the next recession hits, central banks will have nothing left in the locker to fight it. In order to stave off misery, demonstrations, civil unrest of all kinds, governments will be forced to step in with further mass printing of money, and to flood the market with free money. And so this mad carousel – indebtedness, low interest rates, money printing – will continue.
All this is a long way from parties and parasols, but you really should not rest easily under the sunshade. Only one form of money – gold – is beyond the control of governments. And Glint gives you the power to save, invest in, and spend gold as money. So enjoy the vacations and join this growing band of people who – intelligently – put their trust in Glint, in gold.