Central Bank Rate Cuts – They Know What They’re Doing

Vern and I like to put the boot into our dear benevolent central bankers.

Mostly, we do it out of frustration. I mean, they’re playing God and getting away with it. Their policies reward profligacy and punish thriftiness. It’s the exact opposite of what we teach our kids, and how we expect risk and reward to work.

Rum Rebellion readers, who for the most part are smarter than me, know exactly what is going on.

This email came through from a loyal reader recently, and I thought it was worth sharing…

Could it be possible that the RBAs decision was made with them understanding full well the implications of their actions? I’m struggling to believe that after 11 years of low interest rates that not only the RBA but also the rest of the worlds Reserve banks are clueless to the consequences of their actions.

What I mean is do you think it’s possible that someone, somewhere, is manufacturing the current conditions with the sole intention of creating a long term cataclysmic crash? These people are supposedly the best qualified and most well learned economists our universities have ever produced with access to the most up to date research. At what point do you start to question their motives?

It’s a great point. And if no one else is going to start questioning their motives, then we certainly should.

Because you really have to wonder, don’t you? What is the point of ongoing rate cuts? If it’s to revive the economy and boost the housing market, we know that doesn’t work beyond a short-term boost…they’ve tried it before.

They know it too.

But are they really trying to crash the economy? What would be their motive? Who’s bidding are they doing?

What do you think about the rate cuts?

I’d be interested to know what you think. Are central bankers trying their best, operating with limited and increasingly useless armoury? Or do they know exactly what they’re doing, nefariously twisting the incentives that for centuries have made modern capitalism function?

Before you answer (send your emails to cs@portphillippublishing.com.au) have a read of the following. It appeared in a client note from well-known asset adviser Charles Gave of Gavekal Research.

When meeting some clients a few weeks ago in Amsterdam, I made my usual remark about the stupidity of running negative interest rates. In response my host told me a sobering story. He manages a pension fund and had recently started to build large cash positions. One day he was called by a pension regulator at the central bank and reminded of a rule that says funds should not hold too much cash because it’s risky; they should instead buy more long-dated bonds. His retort was that most eurozone long bonds had negative yields and so he was sure to lose money. “It doesn’t matter,” came the regulator’s reply: “A rule is a rule, and you must apply it.” Thus, to “reduce” risk the manager had to buy assets that were 100% sure to lose the pensioners money.

That, dear reader, is the insanity of bureaucracy. But is it malevolence? Is this deliberate policy by the ‘elites’ to bankrupt us, to force us into lending to governments AND pay them for the privilege of doing so?

It’s hard to see how it’s not. Surely the education system isn’t churning out people so stupid and so ignorant of history?

I don’t know. Maybe it is?

Anyway, tell me what you think. I’ll publish some answers in future editions of The Rum Rebellion.

Gold is the secure alternative

In the meantime, buy gold!

Given the monetary craziness you’re seeing, it surely makes sense to have at least a portion of your assets in bullion. I know gold has rallied strongly over the past few years. But so have stocks and bonds. Don’t expect to buy ‘cheap’ in a world of central banking manipulation.

As I point out in my latest video update, the Aussie dollar gold price is consolidating after its move to record highs. This makes it a good time to take a position or accumulate on weakness.

Or, if you’re more of a risk taker and want more bang for your buck, you could look at the smaller end of the gold market for some ideas. I’ve put together a comprehensive report on this, giving you a strategy to play the next leg of the gold bull market. If you’re interested, please click here.

In tomorrow’s Rum Rebellion, I’ll take a look at the Aussie stock market in more detail and give you some tips on how to avoid blue chips gone bad…like AMP.

Stay tuned…

Regards,

Greg Canavan,
Editor, The Rum Rebellion

PS: Two Aussie Gold Stocks to Watch in 2019. Download Your Free Report


Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own. Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts. At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates. Greg will help The Rum Rebellion readers block out all the nonsense and encourage personal responsibility…both in the financial and political world.


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