The slippery slope to repression…

  • First the helicopters, then…
  • Your take
  • ‘Overnight Dividends’ revealed

The Australian reports:

Germany is to deploy troops on the streets for the first time since the Second World War and France has cancelled summer festivities as terrorism changes the face of Europe.

Ursula von der Leyen, the German defence minister, said that the series of terrorist attacks in neighbouring France had forced the government in Berlin to allow soldiers on to the streets, breaking a taboo that followed Nazi militarism. “Paris has opened all our eyes. I’d rather have the scepticism now than the accusation later that we weren’t prepared,” she said.

Ah, a slippery slope.

By no means are we suggesting that a German dictatorship and Third World War are about to break out tomorrow.

But we are suggesting that there is an unstoppable trend towards more powerful nation states and less freedom for individuals.

It’s why we made the theme of our 2016 investment conference the ‘Great Repression’.

The idea is that repression is everywhere. Most of all, it’s the repression of individual liberty, and interest rates.

More on this in a moment. First, the markets…

Markets

Overnight, the Dow Jones Industrial Average fell 90.74 points, or 0.49%.

The S&P 500 closed down 13.81 points, or 0.64%.

Meanwhile, in Europe, the Euro Stoxx 50 index fell 60.33 points, for a 2.03% drop, while the FTSE 100 lost 0.73%, and Germany’s DAX index closed lower by 1.8%.

In Asian markets, Japan’s Nikkei 225 index is down 320.76 points, or 1.96%. China’s CSI 300 index is down 0.04%.

In Australia, the S&P/ASX 200 index is down 71.74 points, or 1.29%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$39.58 per barrel. Brent crude is US$41.85 per barrel.

Gold is US$1,364 (AU$1,797) per troy ounce. Silver is US$20.70 (AU$27.27) per troy ounce.

The Aussie dollar is worth 75.9 US cents.

First the helicopters, then…

Yesterday, Australian interest rates became even more repressed, as the Reserve Bank of Australia cut the Cash Rate to 1.5% — a record low.

And who would like to bet that rates won’t go lower? Your editor certainly wouldn’t take that bet.

Yesterday, when I wrote about a future where the government abolishes interest rates, I wasn’t kidding, or saying it for shock value.

Sure, you may think it’s nuts, and that it couldn’t happen. But I’d argue that, under a central bank-issued digital currency, there wouldn’t be a need for interest rates.

You see, interest rates act as a price signal. When a bank wants to encourage you to keep money in the bank, it will increase interest rates.

When a bank doesn’t want you to save and, instead, wants you to borrow, it will cut interest rates.

In the ‘old days’ (as in, as recently as eight years ago), interest rates were also a ‘risk signal’. You could look at one interest rate on, say, a bond, and compare it to an interest rate on another bond, or a stock.

You would then be able to fathom out the riskiness of one investment compared to another.

Interest rates still serve these purposes today, but only to a degree. Governments and central banks, in cutting rates to record lows, have almost completely neutered the effectiveness of interest rates as a price and risk signal.

And when central banks abolish physical cash, and create their own central bank-issued digital money, the neutering of interest rates will be complete.

Think back to the reasons for interest rates. They are a price and risk signal. But in a world of central bank digital money, the central bank can easily just change the balance in your account, without the need for publishing an interest rate.

If such a structure was in place now, instead of the RBA cutting the Cash Rate to 1.5%, it would simply announce that it would reduce the balances of all bank accounts by ‘X%’ over the next several days.

As a saver, you would have a choice. Either you could keep your money in the bank, and accept the reduction in your bank balance, or you could spend it.

The central bank would hope for the latter…and would reduce your bank balance until you had no other choice but to spend it. Of course, what would happen to the savings the central bank skimmed away?

That would end up in the hands of the government, for it to spend.

I know, it all sounds like pie-in-the-sky, tinfoil-hat nonsense. But before you dismiss it, just consider how far the world has come in accepting what the mainstream likes to call ‘unconventional’ central bank policies.

Take this snippet from an opinion piece in the Financial Times:

With helicopter drops, there is no such swap. The newly minted cash is added to the private sector’s wealth holdings. From the point of view of private individuals, their net wealth (or their net income stream, if helicopter drops are carried out in portions over time) has increased, and for a large enough increase, they can be counted on to spend more. That should boost nominal demand even if the government, whose financial situation remains unaffected, does nothing.

The accounting counterpart to the private sector’s increase in net wealth will be a fall in the net equity of the central bank — a transfer, as it were, of some of the profitmaking opportunity from being an issuer of legal tender. So one could see helicopter drops as shifting net wealth from an institution that does not engage in spending to the private sector, which does. Far from being essentially a fiscal operation as some would have it, this seems like the purest form of monetary policy possible.

And why would we not engage in it? If not now — in a situation with persistent deflationary pressures, inadequate demand leaving resources idle, and large nominal debt overhangs — then when? The worst-case scenario is that helicopter money only boosts inflation and not real spending. But as we pointed out yesterday, we are in the paradoxically fortunate situation that greater nominal spending growth is a good thing regardless of whether it is initially the volume or the price of demand that goes up.

We can almost hear the fiendish cackling of the mainstream economists who falsely believe they are members of a scientific discipline.

The article openly and proudly vouches for ‘helicopter money’. The idea that the central bank should just print money and deposit it into peoples’ accounts, in order for them to spend it.

This is, in effect, the same principle as our even more worrying digital money scenario — only not as effective, from the central bank’s viewpoint.

The central bank is trying to get you to spend. The problem is that, as long as physical cash exists, it can’t effectively debit your account. If it threatened to do so, you would just withdraw cash and store it at home.

Hence the idea of ‘helicopter money’.

But what happens when that doesn’t work? We know it doesn’t work, because Australia experienced ‘helicopter money’ in 2008, with the Federal government’s $900 cheques to most taxpayers.

It gave the economy a short term boost, and helped sales at Harvey Norman and JB Hi-Fi. But did it lead to an economic recovery?

No, it didn’t. If it did, the RBA wouldn’t have felt the need to cut interest rates to 1.5% yesterday.

The transition to digital money won’t happen overnight. But it will also likely happen sooner than most think. But before we get to that point, central banks will exhaust their only other option first — ‘helicopter money’.

Watch and wait. Once that happens, the countdown to fully-digital, central bank-controlled money will begin.

Your take

I’d like to get your take on ‘helicopter money’ and the prospects of central bank-controlled digital money.

Do you think I’m talking out of my hat? Or do you think what I say is likely to happen?

Maybe you have your own take. If so, drop me a line, I’d love to hear from you. I’ll publish the best and most thoughtful letters here in Port Phillip Insider.

Send your comments to letters@portphillipinsider.com.au and type ‘Digital money’ in the subject line.

‘Overnight Dividends’ revealed

Over the past few weeks we’ve written to you about ‘Overnight Dividends’.

As central banks try their darnedest to squish interest rates as low as possible, many investors are looking for new ways to earn an income.

I believe one of the best methods available for experienced investors is ‘Overnight Dividends’. In an interview with ‘Overnight Dividends’ expert, Matt Hibbard, he explains the subject in full and how investors can use this strategy to boost their income.

It’s not for everyone but, in my view, every serious and experienced investor should at least check it out.

Read on for details…

Cheers,
Kris

……………………………………………………………………………………………………..

The ‘Overnight Dividend’ Secret…
An Interview with ‘Overnight Dividend’ Expert, Matt Hibbard

[NOTE: We’ve resisted the urge to overly edit this interview. What you’re about to read is Matt’s unadulterated response to the questions we put to him.]

What is the aim of this special project?

In my experience, most people come into the market for two reasons…

  1. Either to trade and try to make a profit from capital gains, or;
  2. To try and generate income from regular dividends.

They get very focused on how they’ve gone about it in the past, and they’re not really open to other ways of trying to generate income.

What I aim to do over the next few days is show you that there’s a different way to generate income…and much more often than what you might get with dividends alone.

In fact, it’s really up to you how much you want to try and take out of the market.

So, how are ‘overnight dividends’ different from normal dividends?

Most people are familiar with big bank stocks, where you get a couple of dividend payments a year.

And some ASX exchange traded funds might even give you four dividends a year. But the yield is still reasonably similar.

You might get 5.5­–6% of the current market levels.

But with the system I want to introduce you to, you could actually generate cash income every week if you’d like.

In fact, once you get going, it’s up to you how much you use it. You might look to do it a couple of times a week or you might just want to look at doing it a couple of times every month.

Once you get your head around the actual concept of doing it, it’s really up to you to get in there and trade to your own level or ability, figuring out what you’re most comfortable with by yourself. The point is; you’re not just waiting twice a year for an income cheque to come in.

You can actually go into the market and generate cash instantly yourself.

Dividends usually get paid out twice a year. How many times a year can you get paid using ‘Overnight Dividends’?

As I said, it’s really up to you.

Overall, the aim is to triple what you might make in a year out of just waiting for your dividends to come in.

Overnight Dividends are an active way of generating more consistent and regular income throughout the whole year, instead of waiting for those two dividend cheques that you might receive in March and September. The idea is that you build up these different revenue streams.

Now, you might pick two or three companies and just do this three or four times a year with them. And as you get better at it, and more familiar with it under my guidance, you could build in the revenue streams up to as many as you like.

Where did the idea come from?

Income has become one of the big bugbears of anyone who’s retired or about to retire, especially since interest rates are so low, and will more than likely stay low for a very long time.

So many people are looking for a way to generate income because they are quickly realising that just waiting on dividends is simply not enough. There’s a huge demand for more ways to generate income.

Two years ago, Kris Sayce and I were speaking about this, and we simply asked the question: Is there something else people can do?

Well, there is!

It’s not going off and jumping into some get-rich-quick scheme that you’ve got no idea about. It’s about doing something in the market that most people who’ve bought shares before will get the hang of very quickly.

The other thing too is that Overnight Dividends are not a new way of making money.

They actually took off in the US during the 1970s. Professional traders and investors have been using this particular trading strategy for the better part of 40 years. I’m simply using this strategy with Australian companies.

It’s not brand new. It’s just taking something that’s been tried and proven and using it to generate a regular and consistent income.

So, very simply, how does it work?

OK, rather than just waiting for your dividends twice a year, you could actually go into the market and generate additional revenue another three or four times a year on average.

If you have a Telstra stock, for example, you could go into the market and generate $300–$400 as an instant income. You can do the same with ANZ, Woolworths or CBA. And it’s in your account the next day, hence why we call this strategy ‘Overnight Dividends’.

You’re not waiting three, four, five months for your next dividend cheque to come in. It’s something you could do today, and the money is in your account the very next day.

But here’s the thing. You only do this with big, stable, blue chip shares. I’m talking about the top 20 or 30 stocks on the ASX…the biggest companies in Australia.

In reality, you could go and get your two dividends a year from these companies and THEN do this three or four times…so you have $300–$400 each time when you go into the market. This strategy could actually provide you with two time-tested income streams.

If you’re just sensible and go about it in a rational way, you could double or triple the amount of income you could generate over a 12-month period.

And this money is in your account. It’s cash. It’s not a ‘might or could happen’. It actually goes into your account the very next day.

What’s your background, and how has it influenced the way you invest?

My background is trading. Like I said at the start, a lot of people come to market and they try and trade and make big profits.

But in reality we know that most people either hit out for losses, they give up, or they lose money consistently over time. Or they’ll do OK for a little bit and then they have a big loss that knocks them out of the market.

I can tell you that’s not how the professionals go about trading.

When I was a pit trader, I’d quite often do 10–20 trades a day. But the aim wouldn’t be to hit it big. The aim is just be consistent, trying to take a little bit of money out of the market each time.

We call it ‘scalping the market’…where you’re trying to generate small, but regular, profits that build up over time.

And if you accumulate that over a period of time, it adds up. It could actually add up to quite a big return over a period of time. It’s something that I did as a futures trader. It was leveraged products. I’m used to dealing with risk every day. And that’s what I did — I’d go into the market every day, and try to make a little bit of money out of it.

There are lots of different sayings in the market. My favourite one is that someone’s always got a bigger paddle. So you’ve just got to focus on your own strategy. You just got to know where you are in the market…what you’re about. Don’t concern yourself with what all the big guys are doing, or what everyone else is doing for that matter.

Just go into the market and take out cash each day.

Overnight Dividends hold the same concept. You go into the market and try to generate lots of regular returns. You’re not trying to hit a big thousand dollar return — that’s not what this is about. It’s about taking regular money that’s going to be there every month for you.

What’s the most vivid memory from your time in the markets?

I started off in 1986 working for the original old broker JB Were. I was 18, and was put to work with another fellow newbie.

We started trading. We did quite well. In the October 1987, the stock market crash came along and taught us all about what happens on the other side of the coin. Most of us were back to square one within a day.

That was my first big memory of the market…the ‘87 crash.

I remember it very vividly. At the time you’re trying to take it all in. But historically, it’s just something that happens maybe once or twice in your life. The Global Financial Crisis runs a close second in terms of the impact.

But I just remember the unknown. Everyone looks back at the GFC now a bit like a blip in market history. But at the time, you honestly didn’t know from one day to the next what might happen. That experience taught me a lot.

I’ve tried commodities, futures, shares and options. I’ve tried them all over the years. And if there’s one thing I’ve learnt is that, irrespective of the product you’re trading, having that amount of time in the market gives you more of a feel for what the market does at different times — and how you should react to it.

How do professionals approach trading the markets?

Most of the traders in the pits are doing what I did…chasing lots of little returns.

You go in there every day and just try to generate regular amounts of cash.

Big traders with their transactions make thousands and thousands of dollars a day.

But when I first started off as a sole trader, you’d try and make $100 a day…then you’d try to make $200 a day. Then you’d try to make $400 a day. You just set yourself goals, and each month you build on it.

You’ll lose skin along the way — of course you do. You’re always going to lose skin when you’re trading. But the idea is that you sit on something that’s consistent, has logic to it, in the realisation that you’re not going for the home run every time.

I remember some people would come in and just hit away and make massive amounts of money. But two days later they’ve gone because they’ve blown themselves up and run out of money.

That’s not what the Overnight Dividend strategy is about. No way. We’re doing the opposite of that. We’re just going for regular, consistent income over time.

What did your time as a pro trader teach you about trading successfully?

I remember one of the guys on the trading floor was a very successful trader. He used to make about $1 million a year when I was there.

One time he made about $20,000 in a single day. It was during the currency crisis of 1997, when the Aussie dollar was supposed to go to 30 cents according to the experts.

But as he came out of the pit, he walked past and pulled out his trading ledger and said, ‘What a great job is this. All you need is a bit of paper and a pen and you can make as much money as you like.’ He went off with a smile and counted his money at the end of the day.

But the one thing that always struck me was the diverse backgrounds different people come from.

When people think about trading, they think you need to have certain qualifications, or that you need to have a certain level of experience. You don’t. The trading floor is probably the greatest ‘revealer’ of people there is. You learn who makes money trading…and those who don’t make any at all. There were plenty of very smart guys who came to the floor who couldn’t make a go of it. Then there were guys who had no education, or left school early, and came from very humble backgrounds. They made fortunes out of it.

And that’s one thing I want to stress about trading: Anyone can do it.

It’s just a matter of finding out how to go about it. That’s what I’m aiming to do here — to show you ways to go into the market yourself, making money in a reliable and consistent way.

So I don’t need to be a pro to trade this way?

You certainly don’t. In fact, I want to highlight that anybody can go into the market and scalp money out of it every week, every month — whatever you’re looking to do.

It might be as small as $120. It could be $1,000. It could be $300–$400. It could be $200. But you can go in there and, with this trading strategy, you actually know what you’re going to get before you do the trade.

With my instructions, I’m going to say that if you don’t get this amount of money for this trade, then we’re not going to do it.

There’s always going to be trades to carry out.

If you miss one, or you want to do one, then just let it go.

With every trade, you’ve got to learn how to let things go as well.

If you’re not ready, or you’re nervous and not quite ready to give it a go, don’t make the trade.

But the idea is that these opportunities are in the market every day.

They’re not something you’re waiting for. You’re not waiting for the Dow Jones to reach a particular level, or the Aussie market to do something. The money is there every day.

It’s just a matter of going in and finding out where to get it.

And that’s how you should view this series. With my help, I want to give you a glimpse of how you could go into this yourself.

It might take you 12 months to get really good at it. But two, three or four years from now, you might be making cash that you would never have believed possible.

Why this, and why now?

Look. Interest rates aren’t going anywhere. In fact, they’re more likely heading down than up in this environment.

If you’re waiting for interest rates to increase to a level sufficient for you to live off the income you’ll get from a term deposit…in my humble opinion, you’ll be waiting a very long time.

The US has decided to abandon its rate rises for the foreseeable future. Rates in Australia are expected to go lower too. So you have to get up and do something about it. Either that or you let your money stagnate or get eaten by inflation.

People need to find a way to generate income.

You can’t just wait six months for a couple of dividend cheques to come and try and work out how to get through the next six months. You need to look at different ways to generate cash in the market.

As you know, the markets are volatile right now. Just sitting there and parking all your money in shares is going to cause a lot of people a lot of stress.

But with the strategy we’re using, you don’t even need to own any shares. You don’t need to come into this with any shares at all. You might have put aside a certain amount of money, which you can use to generate these trades.

How will we do that?

You know that just buying shares, hoping that they won’t go down too much, and waiting six months for dividends, is probably not going to be enough for most people.

Likewise, we also know that just putting your money in a term deposit and getting 2% a year probably won’t be enough either.

$100,000 to get $2,000 back a year…it’s a lot of money tied up for little return.

We’ve got to look at something else to generate this income.

That’s what this Overnight Dividend series is all about.

What I’m going to do in the next instalment is show you exactly how we go about it, revealing how you could generate cash once, twice, three times a month — whatever you’re looking to do.

A couple of hundred dollars…$300, $400, or more, if that’s what you’d like to do.

And that’s what we’re going to discuss in the next interview.

KEEP AN EYE OUT FOR PART TWO TOMORROW.