QUESTION: Sir,

You mentioned in your blog post that money market funds now have to be in government bonds as per SEC ruling. You have said we are going through a sovereign debt crisis which means government bonds are at risk. If I’m trading and my money is now parked as “cash” before I make another trade in a money market fund, does this mean outside of a trade, my money is now at risk when government bonds crash?

Thanks for all you are doing

DK

ANSWER: Yes. There are two types of funds. One is marked-to-market, so there will be no guarantee you get back 100%. The other will be fully invested in government bonds. There, you will be told you lost nothing, but in reality, you may not be able to sell. When the crisis comes, the only buyer will be the central banks and if they stop buying, look out below.

Personally, if I were in the business I would create a corporate bond fund only that prohibits all government paper. That may not be “politically correct” but neither are politicians.

We are monitoring confidence in the banking system as reflected by cash withdrawals. The sale of home safes has exploded in many countries. I previously reported that one in ten currency notes in Switzerland being printed is now the 1000 franc note. In fact, there is some 41.6 billion in Swiss francs now in circulation in 1000 CHF notes exclusively. The ECB is truly brain-dead for they thought by moving with negative interest rates, people would spend their money and that would rekindle inflation. They are correct that people would not want to pay negative interest rates. However, they totally never guessed that they would withdraw their money and hoard it rather than spend it. The trend toward hoarding cash really became in 2011. It started to make the news in 2012. Now the German savers are buying home safes as well and pulling out cash. Of course, they attribute this primarily to negative rates. However, the concerns that Deutsche Bank may be in serious trouble is also helping matters.

We are witnessing this trend around the world throughout Asia as well. Japan has been printing 10,000 yen notes like crazy. The Japanese are also withdrawing cash and keeping it at home. Even Americans began hoarding cash also back in 2011, which began to make news by 2014. In fact, 43% of Americans keep their savings in cash these days for interest pays nothing. Yet, an amazing 53% of those cash-hoarders “plan to hide bills in a secret location at home.”

Everything is going as our model has projected. The peak in trusting banks and government is in place. From here on out, all we have is the collapse in public confidence and the 2016 elections bring that home.

All we are waiting for now is simply the Crash & Burn. This will be a serious topic for this year’s WEC in Orlando.