Special Guest: Axel Merk, is the
President and Chief Investment Officer of Merk Investments, manager of the
Merk Funds. He is a recognized expert on the global economy, monetary policy
and international investing.
Axel
Merk is a recognized authority on currencies and is a pioneer in the use of
strategic currency investing to seek diversification. He has been named a
"Currency Guru" by Morningstar. Axel Merk is a regular guest on
CNBC, FoxBusiness and Bloomberg. His columns and interviews frequently appear
in the Financial Times, Wall Street Journal, Barron's and other financial
media around the world. Merk is a sought after expert speaker at industry
conferences, including the annual conferences of the CFA, FPA and AAII, as
well as at universities, government organizations and think tanks. Merk's
expertise encompasses topics ranging from the global economy, gold and
currencies to sustainable wealth and personal finance. Axel Merk's Book
"Sustainable Wealth" was published by Wiley in 2009 and his
newsletter Merk Insights reaches a wide audience of investors, analysts and
media following global macroeconomic issues and implications to investing.
PODCAST - 25 Minutes
Financial
Repression
"In a nutshell, it is ways governments are trying to
deprive you of purchasing power because the government has too much debt and
must debase the value of the debt."
"Through the backdoor the government is trying to
take some of your net worth .... It is a wealth TRANSFER from savers to those
who have piled up a excess debt" "It is most commonly done through
negative real interest rates!"
Central Bank Inflation Goals
"You often don't have enough inflation in the world
when you have too much debt".
This is
why the US, the EU and Japan are trying frantically get inflation up, despite
it being bad for the average citizen or saver.
Axel
Merk believes that if in 10 years we were to get back to historic bond
levels, then there would be an additional $1 trillion in government interest
rates. The fed is simply not going to allow that and therefore interest rates
are realistically not going up.
Negative Real Interest Rates
Even a
Fed Funds Rate of 1.75 next year would likely still mean we would have
negative real interest rates.
Social Unrest & Political Instability
"Policy makes never blame themselves for the problems
they have. They always blame a minority, the wealthy or foreigners."
When
you have too much debt political stability declines. In parts of the world
where food and energy are bigger part of their disposable income you can
expect social unrest as these inflation policies take on greater roles.
It is a
fact that austerity policies fail at the polls as we have seen in Europe. In
the US we are electing increasingly more populist politicians which means
entitlement reforms have a slim chance of happening. Therefore
"Kicking-the-Can-Down-the-Road" and reliance on the central bank to
keep rates low.
We have
former super powers on the decline and emerging super powers on the rise. We
can only hope that this transition will be peaceful. A central banker told
Axel prior to his starting his funds that "We can only hope the
adjustment process will be slow and gradual"
Japan is Ahead of Us in This Evolution
"Liquidity has dried up in the JGB market which means
that at some point it is easier to have some sort of crisis."
Regulation
Regulations
in general are about barriers to entry. Therefore it limits risk taking which
inevitably leads to less economic growth. By simply keeping interest rates
low it doesn't put sufficient pressures on the system for structural reforms.
As low interest rate policies continue to fail the political bias will be to
"double down" which means the problems get even worse. Eventually
the structural changes required becomes too great to be politically possible
without hiding behind a major crisis.
Swiss National Referendum
The
Swiss are fiercely independent and don't like the dependencies which the Euro
peg to the Swiss Franc are creating. They don't like the debt an unelected
central bank is piling onto the nation. What is important is that the referendum
is trying to force more discipline into monetary policy.
What Investors Must Realize
Cash is
no longer safe anymore! The purchasing power of cash is at risk. Once
investors realize this the investment world is open! They then need to invest
based on the risk spectrum.
- EQUITIES - Prices are elevated because of the
actions of central banks,
- BONDS - "I wouldn't touch with a ten foot
pole in the current environment."
- DIVERSIFICATION suggests adding Currencies and
Precious Metals.
- BE ALERT - Have your own opinion after building
your own framework
