The War on Cash

Thursday, 18th February, 2016
Albert Park, Australia
By Kris Sayce

  • Why do stocks move?
  • Apple, the hero?
  • The real motive for e-money

Don’t look now. As I write, the Aussie S&P/ASX 200 index is up 102 points.

That follows another night of big gains in the US and Europe.

The Dow Jones Industrial Average closed up 257 points, or 1.6%.

The S&P 500 index closed up 1.7%.

In Europe, the FTSE 100 index closed 2.9% higher, while the French CAC 40 index ended the day up 3%.

Elsewhere in Asia today, Japan’s Nikkei 225 index is up 2.3%, and Hong Kong’s Hang Seng index is 2.1% higher.

It’s good to see that the panic is over. Move along folks, there’s nothing to see. Just keep your mouths, ears, and eyes shut, and buy stocks.

Why do stocks move?

So, why the sudden excitement on stock markets?

Do you really need to ask?

What have we told you time and again? Only two things move stock prices: earnings and interest rates.

In this case, it’s interest rates doing all the hard work…lifting the market from the depths of despair to the verge of euphoria.

But, as always, you’ll excuse us if we don’t break out into a jig and dance in celebration.

As Bloomberg reports of the release of the minutes from the most recent meeting of the US Federal Open Market Committee:

Federal Reserve officials are already signalling why they might lower forecasts for growth, inflation and the path of future interest rates when they meet next month.

Minutes from the January Federal Open Market Committee meeting released Wednesday in Washington show that officials were worried about a series of drags and disruptions that are likely to derail their December projection of four rate increases this year.

It’s always amusing to hear central bankers when they talk. They claim that they don’t look at the stock market when making their interest rate decisions.

And yet, it’s impossible not to think that it’s the stock market — more than anything else — that matters when the central bankers make their decisions.

The saying that used to go around the markets was that the market would rise on bad news, and fall on good news. That’s because investors wanted more money-printing stimulus.

But what’s happening now? Are stocks rising or falling on good news or bad news?

It’s hard to say. Now they seem to be rising on good news, but only because investors think that stocks are rising of their own accord, not because of money printing — if that makes sense.

Investors aren’t worried about interest rates rising per se, but because they worry that rising interest rates will harm the recovery.

What they haven’t quite grasped is that there isn’t a recovery. Stocks and other asset prices have risen because of low interest rates and money printing…and for no other reason.

Confused? You should be. We’re confused too. We’ll move on to other things, and then we’ll go and lie down…

Apple, the hero?

I’ll be honest, while I may use Apple products, such as an iPad and iPod, I’m by no means an iNerd or iFan.

In fact, your editor can honestly say that the whole Apple fandom stuff annoys us.

Even so, the news that flashed across our screen yesterday evening had us cheering on the tech-fad giant. As the Australian Financial Review reports:

Apple chief executive Tim Cook’s refusal to help the FBI unlock an iPhone used by a terrorist has put the technology company on a collision cause [sic] with the White House and sparked a raucous debate over striking the balance between national security and personal privacy.

In an unprecedented ruling, a California judge ordered Apple to build new software to unlock an iPhone 5c used by terrorist Syed Rizwan Farook in the shooting spree with her husband that killed 14 people in San Bernardino in December.

It was amusing to listen to the buffoons on CNBC discuss it last night.

The general gist of the commentary was, ‘I’m all for privacy, but…’

It’s always the ‘but’.

What it usually means is that ‘I want my privacy, but you…you have to tell the government everything’.

It’s all the more amusing to hear these comments coming from Americans. After all, did their forefathers not supposedly fight against the British due to infringements on privacy and freedom?

Aside from the neat slogan of ‘no taxation without representation’ was the issue of ‘impressment’. That is, British ships forcing anyone, of any nationality, to serve aboard a British vessel.

This was an issue that lasted long after the 13 colonies gained their independence from the British.

You’d therefore think that the idea of privacy and freedom would be so engrained in the American spirit, that there would be an outcry if any government — even, or especially, an American government — tried to impinge on those rights.

Not so. According to the poll conducted by CNBC, 57% of respondents thought that Apple should cooperate with the US government and unlock the terrorist’s phone.

OK, it’s probably not surprising. Check out an American sporting event and, at least once during the TV broadcast or at the stadium, there will be a ‘celebration’ of the military.

And what should surprise you even less is that the Australian government fully supports the idea that Apple should comply with the court ruling.

According to the ABC:

Attorney-General George Brandis has joined calls for Apple to comply with an FBI request to unlock an iPhone used by one of the shooters in December’s San Bernardino massacre.

Now Senator Brandis has joined the calls for Apple to comply, saying all companies in the tech sector should cooperate with investigations into serious crime.

“We would expect, as in Australia, that all orders of courts should be obeyed by any party which is the subject of a lawful order by a court,” he told ABC correspondent Michael Vincent.

But Apple is right to contest the ruling.

Whatever the situation, you can never trust the government to play by the rules.

Once it has an opening, it will always want more.

Look at income taxes as a classic example. When income taxes first arrived on the scene in the early 20th century, they were levied only against the rich.

But, as time went on, the number of people who fell within the grasp of income taxes increased.

So you can be sure that if Apple helped the US government this one time, it would be back again for more…and more…and more. Until not helping the government becomes the exception.

Look at monitoring of the internet as another example. Not so long ago, the idea of the government snooping on, or storing details of, the websites you’ve visited would have caused uproar.

Yet, now, the refrain is that ‘if you’ve got nothing to hide, you’ve got nothing to worry about.’ The same will soon be true (if it isn’t already) of your smart phone data.

If you’re not doing anything illegal, you should be fine with the government checking out what’s on your phone — whether you’re a terrorist or not.

Anyway, you know that your editor is a technological ignoramus. So we got in touch with our resident tech guru, Sam Volkering, for his take on the Apple story.

As you’d expect, Sam put this all in context. Here’s what he emailed through from his base in the UK:

With the pervasive nature of modern technology in our lives we put our data, information and privacy at risk. Everywhere we go we leave “breadcrumbs” of data: GPS location, browser history, biometric information, payments and so on.

We use this to help manage our day to day lives better. But there are nefarious players out there — namely government and law enforcement — who want to use our data and information to know more about us.

They want to keep an eye on us, profile us. And they do it all under the fake guise of “national security”. But in order to get all this information they need big tech companies to play nice. So for us, as private individuals we have to trust companies like Google and Apple that they won¹t just hand over the keys to our data at the government¹s beck and call.

This has just been put to the test with Apple. The FBI sent a court order to Apple demanding they unlock the phone of one of the recent California Shooters. Apple said no. Apple championed the privacy of the individual — regardless of the situation.

Providing Apple sticks to its guns (pardon the pun), it’s a big win for our privacy and a big middle finger to the government. But will Apple have the guts to stand up or will it cave in as the pressure builds?

Should the government get its way, it will be the proverbial thin end of the wedge. And if you’re looking for more examples of governments turning against their own people, look no further than the ongoing worldwide war on cash…

The real motive for e-money

The Washington Post yesterday published an op-ed piece by former US Treasury Secretary, Lawrence Summers. Here’s what he wrote:

Harvard’s Mossavar Rahmani Center for Business and Governmenet, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.

I remember that when the euro was being designed in the late 1990s, I argued with my European G7 colleagues that skirmishing over seigniorage by issuing a 500 euro note was highly irresponsible and mostly would be a boon to corruption and crime. Since the crime and corruption in significant part would happen outside European borders, I suggested that, to paraphrase John Connally, it was their currency, but would be everyone’s problem. And I made clear that in the context of an international agreement, the U.S. would consider policy regarding the $100 bill. But because the Germans were committed to having a high denomination note, the issue was never seriously debated in international forums.

The fact that — as Sands points out — in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it.

Whenever a government wants to really do something it has a go-to move.

That go-to move almost always involves linking something to crime.

In this case, apparently only criminals use the 500 euro note and US $100 bill, and therefore they should abolish it.

Going back to the internet. It was the same justification used for an internet filter. Without an internet filter, paedophiles would run rampage, as would drug dealers and gun runners…and any other criminal you could think of.

But the real issue at stake isn’t that governments want to stop crime. The real issue is that governments want absolute control over money…your money.

You may remember the presentation by Bank of England chief economist, Andy Haldane. He made the case for abolishing all physical currencies.

Why? Because if a bank wants to impose negative interest rates, it will be ineffective because savers could withdraw their money and stick it under the mattress.

Now, be clear. You editor isn’t saying that we oppose electronic currencies. Far from it. Even though we don’t fully understand the concept of Bitcoin, we do understand that it’s a free market invention.

The problem lies with the potential of a government imposing fully electronic currencies on the people.

Because, just as the government has found a way to manipulate the current paper (fiat) system of money by printing more to devalue it, you can be just about guaranteed that if any government mandates electronic money as the sole legal tender, it won’t be long before your savings disappear in a puff of electronic vapour.

Cheers,

Kris

PS. The Quant Trader discounted membership period expired at midnight last night. But, as promised, here’s a link to join at the full price. It may be more experience, but in my view, it’s still worth it. Go here.

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End of day market data

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52-week highs: 22 stocks, including CIMIC Group Ltd [ASX:CIM], Hunter Hall International Ltd [ASX:HHL], Dacian Gold Ltd [ASX:DCN], and The Reject Shop Ltd [ASX:TRS].

52-week lows: 31 stocks, including EQT Holdings Ltd [ASX:EQT], Pepper Group Ltd [ASX:PEP], Rhipe Ltd [ASX:RHP], Reckon Ltd [ASX:RKN], and Tower Ltd [ASX:TWR].