Sunday, October 23, 2016

Don Coxe: Raise Cash, Hold Gold
"Though the European situation is unattractive, it is not at the epicenter of ultra-fear .. The new power center that emerged in the financial crisis is central banks .. “Einstein said that the most powerful force in the universe is the law of compound interest .. That works both ways. As we go into a negative interest rate environment, that … is self-reinforcing." .. At a zero-bound interest rate, Coxe argues various forces begin to build up in the economy. For example, we’re sitting at an 18 multiple on the S&P and debt is rocketing upwards because it’s possible to borrow for virtually nothing. This money, in turn, hasn’t been allocated toward capital investment; rather, it’s been used to buy back stocks .. "If you look at what is happening with asset classes, what you have to understand is that we have reached the limits as to what central banks can do .. Yet, we’re going to have a recession at some point .. Governments are continually rolling over debt at very low rates, but if we went back to normal rates, given that they gigantically increased government debts, the effect on fiscal policy for governments would be near catastrophic." .. The largest threats to world stability, as Coxe sees it, come from the possibility of a Euro Zone breakup, & from geopolitical risks somewhere in Asia.
LINK HERE to the article

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