Would you pay the bank to hold your money for a (small) guaranteed loss?

jmski52 · May 30, 2012 2:55AM

I believe that I heard (or read it) yesterday, regarding Swiss bank deposits. People are actually sending money to Swiss banks and depositing it for a guaranteed negative return, in an effort to find safe haven.

That's almost like putting money on deposit in the US at low interest rates and letting the Fed take care of devaluing it via inflation. Either way = negative Real Interest Rates.

Either way, people will get desperate to search out risky "investments" that generate some positive returns. A recipe' for lots of money scams, if ya ask me.

(Sidebar - negative real interest rates are always excellent for gold).

cohodk · May 30, 2012 3:05AM

people will get desperate to search out risky "investments" that generate some positive returns

Thats why all the interest in gold and silver.

What is their guarantee?

jmski52 · May 30, 2012 3:22AM

Thats why all the interest in gold and silver.

What is their guarantee?

Generally, the tradeoff between bonds vs. stocks is one of non-risky vs. risky.

Gold & silver qualify as risky investments because their valuation (in fiat currency anyhow) is not known with certainty. However, what IS certain is that gold & silver can't be multiplied at will by the government in order to finance wars & other out-of-control spending projects.

But you already knew all that, didn't you?

derryb · May 30, 2012 3:31AM

When adjusted for inflation, people have been losing money with bank accounts for decades. Most do it for the "safety" factor which includes FDIC insurance on the account.

cohodk · May 30, 2012 3:47AM

The markets are showing that investors are much more willing to accept an "inflation" loss rather than a monetary loss.

Im sure J6P is really kicking himself right now for buying that 100oz of silver last year instead of buying a 1yr CD.

derryb · May 30, 2012 3:55AM

The markets are showing that investors are currently avoiding risk. When they see risk in dollars they will go elsewhere.

erickso1 · May 30, 2012 4:08AM

Not unheard of. A version of it happened domestically in Aug. 2011.

cohodk · May 30, 2012 4:35AM

<< The markets are showing that investors are currently avoiding risk. When they see risk in dollars they will go elsewhere.

>>

But I thought Gold was a store of value. Now I hear it is risky.

No wonder investors shun PM's.

Baley · May 30, 2012 4:55AM

One generally does not make a lot of money if the primary concern is avoiding of risk of losing a lot of money.

It is understandable that if someone's primary concern is NOT losing a lot of money, they might be willing to lock in a (small) guaranteed loss

jmski52 · May 30, 2012 5:27AM

I thought Gold was a store of value. Now I hear it is risky.

Correct on the first count. Perhaps you've been misinformed on the 2nd count. They are not mutually-exclusive.

cohodk · May 30, 2012 5:45AM

I hear it right here. PM's are guaranteed to go higher for a myriad of reasons. If so, then whats the risk?

jmski52 · May 30, 2012 5:52AM

Gold is guaranteed to go higher? If I had that guarantee, I'd be leveraging out the wazoo.

derryb · May 30, 2012 6:08AM

<< 

<< The markets are showing that investors are currently avoiding risk. When they see risk in dollars they will go elsewhere.

>>

But I thought Gold was a store of value. Now I hear it is risky.

No wonder investors shun PM's. >>

I said investors, I didn't say smart investors. We know where the smart investors have parked their money, and we also know they are fully aware that dips preceed rises.

Gold is risky. There's a big risk I won't get enough before it is priced out of reach.

cohodk · May 30, 2012 6:58AM

Seems to me that smart investors have been putting their money in US Treasuries. Another all-time high today.

derryb · May 30, 2012 7:09AM

Even real estate saw all time highs. The question is "what will weather the storm?" Unless you see the storm, you know not of what I speak.

cohodk · May 30, 2012 7:18AM

I just believe that many people are going to be surprised when they find their "insurance" doesnt cover the damage.

But for the OP...

Are real interest rates negative in Spain or Greece?

derryb · May 30, 2012 7:34AM

It boils down to faith. Not faith in what metals will do, but faith in what economic policy makers will do. After all, the policy makers are much more predictable.

Coyn · May 30, 2012 7:40AM

<< I hear it right here. PM's are guaranteed to go higher for a myriad of reasons. If so, then whats the risk? >>

No risk at all, I guarantee it!!!

You want guarantees?? Send me your gold and I promise it will be worth more when I send it back, trust me!!!

Anyone who expects any guarantee of future events is ripe for the pickins!!

pf70collector · May 30, 2012 8:36AM

Would you pay the bank to hold your money for a (small) guaranteed loss?

The reason why the 10 year U.S. Treasury is now at its lowest since WWII. German 2 year bond at 0%.

Its about preservation of wealth now.

2 year german bond at 0%

I've been in cash in my 401K for this reason. Not about investing for me now. Maybe in 4-5 years. Not now.

jmski52 · May 30, 2012 9:18AM

But for the OP...

Are real interest rates negative in Spain or Greece?

I don't think Greece can sell any debt at the moment, and Spain's yields are spiking at just under 7% (for 10-yr?). I don't know their inflation rates, but they are sending money out of the country as Euros so that when local currencies are re-introduced, their money won't be hit with the devaluations that are certain to be part of the new currencies.

I tend to doubt that their inflation rates are lower than their 10-yr debt yields, and if that's the case I would expect that gold will also fare well in those countries.

Think FDR, when gold's overnight price went from $20 to $35. That's an overnight currency devaluation of 75%, and things are worse in most Western countries now (including the US) than they were in the US in 1933 because of the debt levels, not to mention unfunded liabilities and the other weapons of mass financial destruction, i.e. derivatives on bank balance sheets.

pf70collector has it right, it's all about wealth preservation now. Gold (and silver) have no counterparty risk (unless you consider government confiscation a likelihood).

golfer72 · May 30, 2012 10:36AM

The days of investing over long periods of time and watching your assets grow is over. The world has changed for the worse. Its time to pay the piper for all these debts that have been racked up over the decades. The only way to do that is to print more dollars. In bear markets the winners lose less than the others.

WinPitcher · May 30, 2012 2:47PM

Isn't that what we are already doing?

calleocho · May 30, 2012 2:49PM

If i was Greek I wouldnt mind having some gold ...

cohodk · May 31, 2012 1:35AM

I tend to doubt that their inflation rates are lower than their 10-yr debt yields

Deflation in Greece

Hard to have inflation when salaries are cut 25%.

Rate of inflation in Spain declining from 3+% to 0 over last 2 years.

No matter how much money the ECB is pumping into these countries, inflation cannot be generated.

cohodk · May 31, 2012 1:40AM

Historically gold has been a good predictor of inflation rates going forward the next 2 years. This relationship has been strong over the last 25 years. Right now gold is predicting a 13% inflation rate. So either inflation really heats up, or gold is overpriced. As we have seen in Europe, crises usually brings de(dis)inflation. So if we expect the same problems to hit the USA in the next few years, then inflation expectations are grossly overstated.

tincup · May 31, 2012 1:51AM

The Facebook fiasco has been an interesting example of the psychology that is taking place out there. First, lots of money jumping into it; money chasing a riskier investment in the hopes of striking it rich. Now... the tanking of the stock is resulting in an exodus from the market into whatever is viewed as 'safer' such as treasuries, bonds, etc.

I sure don't know what the best investment is, or where the most safety lies. I would think a strategy of having a good assortment of eggs in multiple baskets may be wise... some may become 'broken' (or fail) but hopefully others will hold steady or hatch into something fruitful. Diversify... some stocks, some gold, some silver, some land, some cash on hand, some currencies, and so forth. And that may include having some money for the bank to hold, even if you may lose some due to inflation.

BigRick · May 31, 2012 1:57AM

Isn't that the definition of safe deposit box?

derryb · May 31, 2012 2:18AM

<< Isn't that the definition of safe deposit box?

>>

no FDIC insurance on SDB contents.

fc · May 31, 2012 2:38AM

cohodk, do you enjoy being the punching bag around here giving logical advice
only to see others refute it in anyway possible? Seriously.. you must like this
situation. Heh.

I have to wonder how this forum feels about dividend champion stocks. Total waste
of time I imagine.

When people want gold really bad... i want to sell.
When people do not want equities... i want to buy.
Bonds... eh.. interest rates will eventually go up and it will be interesting to see
what happens then. Greed or fear making people buy them. Does it matter in
this case?

Interesting times we live in.

derryb · May 31, 2012 4:46AM

<< Seems to me that smart investors have been putting their money in US Treasuries. Another all-time high today. >>

bond yields go down for two reasons: a slowing economy and/or a financial crisis. either way it's looking good for QE3 and metals.

cohodk · May 31, 2012 4:51AM

<< 

<< Seems to me that smart investors have been putting their money in US Treasuries. Another all-time high today. >>

bond yields go down for two reasons: a slowing economy and/or a financial crisis. either way it's looking good for QE3 and metals. >>

Yields have been dropping for 30 years. Been one heck of a crisis since 1982.

The markets, in response to Europe, have already done QE3 via the lowering of rates by 75 basis points over the last 3 months.

derryb · May 31, 2012 5:50AM

<< Yields have been dropping for 30 years. Been one heck of a crisis since 1982.

>>

it began in 1971

bluelobster · May 31, 2012 6:20AM

One thing history has taught us, is that when the masses start putting the money in the proverbial mattress or become extremely risk averse, some time in the near future it is time to go the other way. Two of the main reasons stick out to me, are that they will wring much of the risk out of the "risky assets by by selling them off to levels below normalized values for these types of assets and the other main reason is, the masses are usually wrong, even down right stupid, imo, in the long run.... especially when it comes to investing.

clouisejewelers · May 31, 2012 6:59AM

<< Historically gold has been a good predictor of inflation rates going forward the next 2 years. This relationship has been strong over the last 25 years. Right now gold is predicting a 13% inflation rate. So either inflation really heats up, or gold is overpriced. As we have seen in Europe, crises usually brings de(dis)inflation. So if we expect the same problems to hit the USA in the next few years, then inflation expectations are grossly overstated. >>

There does not need to be wage inflation or QE(x) to cause inflation. The Federal Government has other ways to get dollars into the hands of the people. 5 years ago 25 million people were collecting food stamps, today it is 47 million. 99 weeks unemployment is free money for not working. Massive increases in free school lunches, student loans, free cell phones, Section 8 rent assistance, SNAP/WIC food assistance, SCHIP/Medicaid/Medicare(Healthcare expenditures for fedgov have increased 9% per year for 30 YEARS!) etc etc etc.

No they are not "printing money" It all depends what your definition of "is" is. They are propping up asset values however they can, covertly. You really think they are going to let the DOW and S&P and housing prices drop dramatically?

cohodk · May 31, 2012 7:44AM

You really think they are going to let the DOW and S&P and housing prices drop dramatically?

Japan.

derryb · May 31, 2012 8:18AM

FED has abandoned the housing market. They have circled the wagons around equities. This is what will bring QE3 and endless money creation. This is why metals are the long term way to protect what you have. Having twice as many dollars is no good to you if they have tripled the number of them out there.

cohodk · May 31, 2012 9:08AM

Having twice as many dollars is no good to you if they have tripled the number of them out there

And how exactly is this going to happen? After all the "money printing" by all the worlds central banks, the total value of the worlds assets is still 20% lower than 4 years ago.

Increasing debt is deflationary, not inflationary. Last I saw we were making more debt than dollars.

derryb · May 31, 2012 9:19AM

Increasing debt becomes inflationary when it takes new money to satisfy it.

cohodk · May 31, 2012 10:57AM

<< Increasing debt becomes inflationary when it takes new money to satisfy it. >>

Japan.

jmski52 · May 31, 2012 11:58AM

Last I saw we were making more debt than dollars.

That doesn't even address unfunded liabilities and the hidden bad debt that is being shuffled from the bad banks to the clearing houses, to the US taxpayers.

The money supply increased when the investment houses/banks created derivative bets that would never be paid back without taxpayer bailouts. It's really no different than if the Fed had done it.

For every bad derivative position funded by the taxpayers, there is a winning position whose owners have collected their winnings in dollars. Those dollars are somewhere, ready to buy anything that their owners want to buy. The disparity comes when those dollars compete with the dollars that you and I have to go out and actually earn. Those dollars will be competing with our dollars in perpetuity, meaning that we are simply going to pay more, for everything, in perpetuity.

Making more debt than dollars will eventually crash the system. To prevent that, the politicians will create more and more "money". That's on top of everything else I just mentioned. Bernanke's fix for the Great Depression would have been to prevent the deflationary spiral by providing enough liquidity. I have never heard him retract that statement.

cohodk · May 31, 2012 12:29PM

Bernanke's fix for the Great Depression would have been to prevent the deflationary spiral by providing enough liquidity

He is making a massive supposition. He has no clue if that would have worked. I contend that if that is his plan, then he will fail miserably. The 80 year inflation bubble is bigger than all previous bubbles combined. It will pop someday.

pf70collector · June 1, 2012 6:48AM

I have to wonder how this forum feels about dividend champion stocks. Total waste

Not a waste of time, but when there is fear in the marketplace any stock is vulnerable. Even strong companies were not protected from the financial collapse in 08. GE comes to mind. They had no credit liquidity available to them. Apple would survive with its billions in reserve probably.

derryb · June 1, 2012 7:28AM

nothing wrong with dividend paying stocks as long as your basis is not being beat down in a bear trend.

Baley · June 29, 2013 2:44AM

Gold and silver versus stock indicies since last post to this thread 6/1/2012 chart

Money in the bank lost about 2% to inflation in the same year

mrearlygold · June 29, 2013 3:28AM

<< It boils down to faith. Not faith in what metals will do, but faith in what economic policy makers will do. After all, the policy makers are much more predictable. >>

Agree but that faith has to have some awareness, some knowledge behind it otherwise it's just a shearing from a different source.

topstuf · June 29, 2013 4:01AM

<< Seems to me that smart investors have been putting their money in US Treasuries. Another all-time high today. >>

Think ya got that backward. All time highs in the RATES cuts the VALUE of the bonds purdy severely.

topstuf · June 29, 2013 4:04AM

<< nothing wrong with dividend paying stocks as long as your basis is not being beat down in a bear trend. >>

That's a real feat nowadays. Rising borrowing costs will cut into company profits and quite likely drive down the stock.
Also finding a dividend that covers the market ..risk... is really chancy.

The only "decent" yields are on complex strategy stocks that can go either way in a hurry.

derryb · June 29, 2013 5:46AM

<< people will get desperate to search out risky "investments" that generate some positive returns

Thats why all the interest in gold and silver.

What is their guarantee? >>

They know it is a better long term guarantee than the one that says dollars will be worth more in the future.

cohodk · July 1, 2013 3:30PM

I sure did write a lot in the beginning of this thread. Im also glad I paid the bank to hold my money. The other "money store" got robbed and had no insurance.

All tongue in cheek.

Have a great holiday week!!!!

Would you pay the bank to hold your money for a (small) guaranteed loss?

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