All my very rich friends are holding a lot of cash, says ex-Dallas Fed chief
Negative interest rates and their growing implementation globally have dominated the financial headlines in the past couple of weeks, and investors are increasingly looking for safety.
Germanys Bundesbank on Friday joined Deutsche Banks recent criticism of the European Central Banks negative-interest-rate policy (NIRP), with President Jens Weidmann warning that asset managers might become increasingly nervous the longer monetary policymakers try to maintain the low-interest-rate policy. This, in turn, could raise the probability of a sudden hike in risk premiums, the longer that forward guidance is in place and the more aggressively quantitative easing is pursued.
German bank mulls hoarding billions: Some major banks arent standing pat as negative rates take hold. Following major reinsurer Munich Res March announcement that it would increase its gold and euro reserves to offset the effects of NIRP, another major German financial institution could be taking similar steps.
Commerzbank, one of Germanys biggest lenders, is examining the possibility of hoarding billions of euros in vaults rather than paying a penalty charge for parking it with the European Central Bank, Reuters reported. Such a move by a bank part-owned by the German government would represent one of the most substantial protests yet against the ECBs ultra-low rates.
Bankers portfolio in fetal position: And its not just banks that are protecting their wealth by hoarding physical cash and gold. With recessionary winds blowing even amid the recent stock-market highs, and with bonds yields around the world at record lows thanks to negative rates, the super-rich also are stockpiling cash.
Thats according to former Dallas Federal Reserve chief Richard Fisher, who told an economic conference in May that all my very rich friends are holding a lot of cash.
Fisher, who notably was the biggest gold investor at the Fed during his 2005-15 tenure, has long been an outspoken critic of the central banks policies. Fisher is worried about the nations $19 trillion debt and has blasted the Feds easy-money polices, which he has likened to monetary cocaine and heroin injected into the system to create a wealth effect in the stock market.
Asked to describe how he was managing his own portfolio in the current environment, Fisher responded that it is in the fetal position, that is, bracing for shocks.
Japans gold sales rocket after NIRP: And even rank-and-file investors know where negative rates are likely to take the global economy, and theyre also turning to gold. Thats whats happening now in Japan, which instituted NIRP early in 2016.
According to Tanaka Kikinzoku Kogyo, the countrys biggest bullion retailer, gold bar sales climbed by 35% y/y to 8,192 kilograms in Q1 2016, Australia and New Zealand Banking Group analysts wrote Friday. Total consumer demand climbed from virtually nothing in Q1 2015 to 6.8 tonnes in Q1 2016.
Those figures jibe with the surge in bullion buying seen by a major coin producer in the European Union, the Austrian Mint, which reported that its gold coin and bar sales jumped 45% year-over-year in 2015 to record levels, from 910,000 ounces to 1.32 million ounces. Its silver sales, meanwhile, rose to 7.3 million ounces in 2015 from 4.6 million ounces.
With the U.S. Mints silver American Eagle coin sales headed for all-time highs this year, and the Royal Mint of Canada reporting record-breaking silver Maple Leaf purchases in the first quarter of 2016, just imagine the stampede into precious metals should negative rates ever hit North America with full force.