This is a ‘balance-free’ zone

  • Why this may not be a ‘Lehman Brothers’ moment
  • Real money
  • Another ‘type’ of gold
  • Political Elites versus Financial Elites
  • In the mailbag

Did you miss me?

What do you mean you don’t know who I am?

It’s Kris…Kris Sayce. I write this thing almost every day of the year.

Ah well, I guess it’s a case of ‘What have you done for me lately?’

Fair enough. Give me a minute or so and we’ll see what I can do.

Meanwhile…

Markets

Over the weekend, the Dow Jones Industrial Average gained 164.7 points, or 0.91%.

The S&P 500 gained 17.14 points, or 0.8%.

In Europe, the Euro Stoxx 50 index added 10.66 points, or 0.36%. Meanwhile, the FTSE 100 fell 0.29%, and Germany’s DAX index gained 1.01%.

In Asian markets, Japan’s Nikkei 225 index is up 147.01 points, or 0.89%. China’s market is closed for today and the rest of this week in observance of the National Day holiday.

In Australia, the S&P/ASX 200 index is up 53.48 points, or 0.98%.

On commodities markets, West Texas Intermediate crude oil is trading for US$47.83 per barrel. Brent crude is trading for US$49.79 per barrel.

Gold is US$1,313.77 (AU$1,723.97) per troy ounce. Silver is US$19.31 (AU$25.24) per troy ounce.

The Aussie dollar is worth 76.52 US cents.

Why this may not be a ‘Lehman Brothers’ moment

Deutsche Bank AG [ETR:DBK] is on the brink.

The US Department of Justice (DoJ) has fined the German bank US$16 billion. Although the Wall Street Journal suggests the bank and the DoJ could be close to striking a deal for US$5.4 billion instead.

Either way, that’s a big fine. It’s an especially big fine when you consider Deutsche Bank’s market capitalisation is only €15.9 billion (US$19.63 billion).

The markets had a bit of a swoon, and the bank’s share price had an even bigger swoon. The share price is down 48% so far this year.

It didn’t help when the German government let everyone know that it wouldn’t, and couldn’t, provide a bailout.

No European government can bail out a domestic bank. Before any bail-out, there has to be a bail-in. A bail-in involves investors — namely, the bank’s bond investors — taking a hit on the bonds they own.

It’s the same problem that has struck Italy’s zombie banking system. A perfect example of this is Italian bank, Banca Monte dei Paschi di Siena SpA [BIT:BMPS].

Banca Monte is one of the world’s oldest continually operated banks. It was founded in 1472. That was 20 years before Christopher Columbus sailed from Spain to the New World.

In other words, that’s one heck of an old bank.

Unfortunately, at least in the case of Italian banks, age does not equate to wisdom. The bank expanded heavily in the 2000s, using debt and leverage, and then came a cropper during the financial meltdown from 2008 onwards.

Things haven’t gotten any better since 2008. In May 2007, the stock changed hands at €90.97. Today, it changes hands for €0.19. If you’re the type who likes to know what that means in percentage terms, it’s a 99.79% drop.

And if you’re the type who doesn’t believe anything unless you can see it for yourself in picture form, here’s a chart:



chart image

Source: Bloomberg
Click to enlarge


Just in case you need it for future reference (but hopefully not), that’s what a near 100% loss on an investment looks like.

But as we say, because of European Union rules, like in Germany, the Italian government can’t provide a bailout to Banca Monte.

That’s why all Italian eyes are on Germany and Deutsche Bank. You can bet your bottom dollar that, if Germany blinks and finds some way to bailout Deutsche Bank, Italy will use the same ruse to save Banca Monte.

Thing is, we’ve seen plenty of talk (including within the stable of Port Phillip Publishing investment advisories) that questions whether Deutsche Bank could be a ‘Lehman Brothers’ moment for the market.

We’ll concede that’s entirely possible. If Deutsche Bank goes to the wall, we’re not about to sit here and say that it won’t have any impact on the market.

If you remember back to 2008, the US government and Federal Reserve allowed investment bank Lehman Brothers to go bust. Some theorise that this was payback for Lehman Brothers not chipping in during the Long Term Capital Management (LTCM) bailout in 1998.

More probable is the likelihood that the government and central bank simply didn’t think they could get away with handing billions of dollars to a bunch of rich Wall Street bankers.

But after Lehman Brothers went bust and the whole financial system almost collapsed, governments and central banks realised something new: the markets actually clamoured for them to do something.

Since then, they’ve never looked back. Instead of central banks operating in the background, they are firmly in the foreground. Nobody does anything (especially in investment markets) without considering the Fed’s next move.

What will happen to stocks? Wait for the Fed.

What will happen to bonds? Wait for the Fed.

What will happen to currencies? Wait for the Fed.

Who will win the Grand Final? Wait for the Fed.

What shall I have for lunch? Wait for the Fed.

Would you like fries with that? If the Fed says I should have fries with that, then I shall.

Sadly, we only half joke.

Our point is, for Deutsche Bank to deliver a ‘Lehman Brothers’ moment to the market, you have to believe that the European Central Bank will allow the biggest bank in the Eurozone’s biggest economy to go bust.

That may happen, but we find it hard to believe.

Instead, we believe that you’re more likely to see fudging of the rules. For instance, it’s true that a government can’t directly bail out a bank. But is there anything to stop the German government or European Union setting up a special purpose fund…financing it…and then making it [cough] completely independent of the German government and the EU?

Would there be anything to stop that special purpose fund providing support to Deutsche Bank and, in the spirit of European fraternité, providing support to Banca Monte too?

In short, it’s a mistake to think that the political and economic system and backdrop today is what it was in 2008.

Governments and central banks are emboldened. They know they can do today what their predecessors would never have thought was possible 10 or 20 years ago.

For that reason, we’re starting to think that the next crash won’t look like previous crashes. Instead of picturing a crash as a falling stock market, we’re more inclined to picture the next crash as one where asset prices remain stable (or even rise), but where the currencies pricing those assets experience a catastrophic collapse.

Real money

We won’t deny that such a theory justifies our position to own gold.

We’ve never claimed to have a dispassionate or independent view on gold.

You will not find a ‘balanced’ argument on buying and owning gold in these pages. You will only ever find one argument. That argument is: To buy and own gold.

But, we figure that’s fair. If you want to read the other side of the gold argument, you can find it easily enough for yourself elsewhere.

We believe that gold is money. Paper money is a poor excuse for money. And it’s one that won’t last for long. It may not even see out the rest of this decade.

Emboldened central bankers have realised since 2008 that they can come out from behind the curtain. The things that they used to keep secret, such as printing money, are now out in the open for all to see.

And boy, are they keen to make the most of their time in the spotlight. Not satisfied with destroying the value of money with inflation, they want to destroy the value of money further with plans for central bank-created digital money.

And why not? Fully digital money should mean that bank runs and bank failures never happen. How much easier it would be for the European Central Bank if it could just create and credit the balance sheet of Deutsche Bank with tens of billions of euros…and to not have to seek approval from anyone to do so?

Central banks are in control. And they know it.

Ultimately, it’s why we refuse to budge from our position of owning gold.

Another ‘type’ of gold

In our view, gold is for safety. It’s an ‘insurance’ investment.

So, that doesn’t mean you should put all your money in gold bullion. If you’re looking for investment returns, a different type of ‘gold’ may spark your interest.

We call it ‘penny gold’. You can find out all about it here.

Political Elites versus Financial Elites

Central bankers are just one part of the rising ‘cult of the elite’.

Make no mistake. The elites are in control. Arguably, they’ve been in control for a long time. Only, now, they are overtly taking control, rather than doing so from behind the scenes.

A good example is the current US presidential election.

It’s a battle of the elites. It’s the Political Elite versus the Financial Elite.

It’s no coincidence that the ailing former president, George HW Bush (father of George W Bush), has recently endorsed Hillary Clinton for president.

That’s the political elite in cahoots. It means you can draw a line of elitism, from Barack Obama to George W Bush, to Bill Clinton, to George HW Bush, and through to Ronald Reagan. And if you skip the Jimmy Carter anomaly, by virtue of Dick Cheney and Donald Rumsfeld, you can draw the current dynasty of political elites back to the Gerald Ford and Richard Nixon administrations.

That’s nearly 50 years of political elitism.

As for the Financial Elite, well, that’s plainly obvious. Mr Donald Trump is part of the elite. The Financial Elite runs nearly the length and breadth of Manhattan, encompassing stock, bond, and banking insiders, and property moguls.

The funniest thing about the battle of the Political and Financial Elites is that both sides claim to be fighting for the ‘little guy’.

Let’s be straight on this once and for all. The elites run the system for the elites, and no one else.

In the mailbag

It’s been a while since we delved into the mailbag. But when we received this email from a subscriber a couple of weeks ago, it seemed perfect for the mailbag.

Here’s the letter from subscriber, KJ:

I have lost all my faith in PPP. It is pointless receiving MM or DR as they are repeats of parts of other publications. As an alliance member I receive most of those publications, so I only see new articles from the publications I don’t receive.  I pity the platinum members who receive all your publications.  I like to download reports and refer to them at my leisure, but now I can only do that by going to your website, REALLY?

That is CRAP.

The bigger you guys become, the less service we receive!!  The ALL MIGHTY GODS, CRIS [sic], SAM, etc. are now far too busy to walk among the serfs, sorry, SUBSCRIBERS???, they sit and count their cash all day. Your fast becoming no different than the mass media you supposedly hate, because they churn out stuff miles too late for anyone to take advantage.

Very disappointing, I am sick and tired of receiving countless e-mails which simply advertise your numerous publications!

And here’s how your editor replied to KJ:

Thank you for your email and thank you for being an Alliance member. You may or may not know that while I can’t reply to all emails we receive (due to the volume), I do read all of them. After reading your email, I felt compelled to reply.

Your comment about “The ALL MIGHTY GODS, CRIS [sic], SAM, etc. are now far too busy to walk among the serfs, sorry, SUBSCRIBERS???, they sit and count their cash all day” struck a chord with me. In all honesty, I have no idea how you could come to such a conclusion.

In Sam’s case, I’ve found Sam to be the hardest working analyst on our staff. He writes original content for Money Morning twice each week (Wednesdays and Saturdays). Sam also writes and edits almost single-handedly Australian Small-Cap Investigator and Revolutionary Tech Investor. Due to his prowess and knowledge, I also invited Sam to help me write Microcap Trader. Assuming one stock pick per month for each service, that means Sam writes 36 investment reports each year, and approximately 120 weekly updates spread across the three reports. So far from being “too busy to walk among the serfs” as you erroneously claim, Sam has contact with “the serfs” (your phrase) on 256 occasions each year. That’s roughly once per working day. I think you’ll struggle to find any investment analyst anywhere in Australia or the world who contacts his subscribers (customers) as often as that. And to be frank, I may be pushing my luck if I asked Sam to write to the “serfs” more often (although he doesn’t currently write to subscribers on a Sunday, perhaps I could suggest that!).

As for me, perhaps you’re not familiar with the original content I provide in Money Morning twice each week, or the five days per week that I write Port Phillip Insider. Without being too egotistical, I don’t know of any other financial business operator who writes to their subscribers almost every working day of the year. Perhaps you’re also unfamiliar with the three video updates I post to Facebook and Youtube each week. Perhaps you’re not aware that I read every word of every investment advisory before we send it to subscribers. The same for the promotional material (yes, we advertise, that’s how we stay in business).

Do I take time away from writing now and then? Sure I do.

By counting “their cash all day”, I assume by that you mean whether I take time to run the business. Invariably, when I’m not writing, it’s because I am running a multi-million dollar business that employs over 40 people, and serves over 200,000 subscribers to our free eletters, and more than 50,000 paying subscribers. As an Alliance member, I would have thought you would be pleased that I take the time to run the business. As a Gold Alliance member you receive all of our non-trading investment advisories. After the initial cost for membership, your only fee is the $99 annual maintenance fee. For that, you receive thousands of dollars of investment research per year. You’ll receive those advisories for as long as we publish them. Plus, for no extra charge, you’ll receive any new non-trading investment service we launch in the future.

As for the Platinum members, I wouldn’t pity them too much. They receive all the investment services (including trading services) we currently offer, plus any new investment service we will launch in the future. They are getting great value for their initial investment, as are Gold Alliance members. In fact, the vast majority of feedback we get from our Alliance members is overwhelmingly positive.

Now, if you find that you’re receiving too much information, there is a simple solution — don’t open the emails. The point of the Alliance service isn’t for you to necessarily read everything we publish. The purpose of the Alliance membership is to provide you with a range of investment services, and then for you as an independently minded investor to select which services suit you best at the current time. For instance, right now, perhaps Australian Small-Cap Investigator and Revolutionary Tech Investor will suit you best (although maybe not, given your apparent view of Sam). But maybe five or 10 years from now, Gowdie Family Wealth or Total Income will suit you best.

That’s up to you decide. As I often say, our relationship with our readers is purely voluntary. We present you with an idea, but it’s then up to you to decide whether you like the idea. It’s also up to you whether you continue with your Gold Alliance membership. If you’re no longer satisfied with it, you can contact our Customer Service team, and arrange to cancel the annual maintenance fee and cancel your membership. We will then remove you from the Gold Alliance. Just be aware that there are no refunds for Alliance membership. If you cancel your membership today, no refund will be due to you. Also be aware that we don’t offer any ‘pauses’ for the maintenance fee. If you forgo membership and change your mind a year or so from now, you would have to resubscribe at the full Alliance membership price at the time.

I’m sorry that you’re a “very dissatisfied subscriber”. Hopefully, this email will go some way to changing that view. If so, great, we look forward to you remaining a Gold Alliance member for many years to come. But, if not, we don’t want you to feel as though you’re being “held hostage” to our services. In that case, just contact our Customer Service team and we’ll arrange to cancel your Gold Alliance membership immediately (without any refund), with no hard feeling from us.

As an aside, we will soon accept new members to our Alliance Partnership package. The Alliance Partnership includes all current and future investment and trading services, except Quant Trader and Microcap Trader.

We’ll give you more information on joining the Alliance Partnership program soon. Stay tuned for details.

Cheers,
Kris