While think-tanks and central banks increase calls to minimize the amount of physical cash in circulation, many citizens are doing the opposite and stuffing cash under the mattress. We consider this trend and the developing downtrend in the benchmark S&P500 Index.
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Mon 22 February
Germany Flash Manufacturing PMI (actual:50.2 expected:52.1 previous:52.3)
Tue 23 February
US CB Consumer Confidence (actual:92.2 expected:97.4 previous:97.8)
Wed 24 February
US Crude Oil Inventories (expected:2.0M previous:2.1M)
Thu 25 February
US Core Durable Goods Orders m/m (expected:0.2% previous:-1.0%)
US Unemployment Claims (expected:271K previous:262K)
Fri 26 February
US Prelim GDP q/q (expected:0.4% previous:0.7%)
Contrary to the sense of many anti-establishmentarians and critics of fiat, a tendency toward cash hoarding is becoming apparent in various regions of the globe. Why are people doing this, and why are the captains of finance opposing the phenomenon?
Lawrence Summers, former economic adviser to President Obama and Treasury secretary during the 2008 credit crunch, is publicly calling for the US $100 bill to be scrapped.
As reported in a MarketWatch article, Summers quotes research showing that corruption is aided by large denomination paper currency, such as the $100 bill and the 500 euro note.
His argument is that large bills enable criminals and terrorists to move cash with greater ease. Summers’s meticulous investigation found that one million dollars denominated in 500 euro bills weighs only 2.2 pounds (approx. 1kg), as opposed to the same amount denominated in $20 dollar bills which weighs 50 pounds (approx. 22kg).
Summers proposes that the US government stop issuing $100 bills and remove existing $100 bills from circulation. His next target would be the the $50 bill, he says.
Bloomberg reports that demand for 10,000 yen bills is rising in Japan, despite a contracting population and increased use of payment cards and electronic payment.
Japan currently has 100 trillion yen in circulation. During 2015 the number of 10,000 yen bills, jumped by 6.2%, the largest increase since 2002. While it can be argued that the increase of the amount of currency in circulation is a result of the Bank of Japan’s quantitative easing program, there are other clues that the 10,000 yen bills are being hoarded.
Despite there being no ostensible increase in housebreaking or elevated consumption of gold in Japan, safe maker Eiko Co. reports shipments of its consumer safe products have doubled since 2015.
The Bank of Japan announced negative interest rate policy (NIRP) in January this year, and if the hoarding theory is correct, rational citizens would rather store their money where it earns 0% interest than pay interest to have it in the bank.
ZeroHedge quotes Richard Katz, from The Oriental Economist newsletter:
According to the BOJ theory, they should have moved their funds into riskier but higher-earning assets. Instead, they moved into pure cash that earned nothing.
The central banks of Denmark, Sweden and now Switzerland all have negative interest rate policy (NIRP). In other words, bond holders are paying to hold those countries’ bonds, and (as in Japan) ordinary citizens pay interest on any money they have in the bank.
In Switzerland, according to Bloomberg, circulation of the 1,000 franc note soared 17% in 2015 after the Swiss National Bank’s adoption of NIRP.
ZeroHedge ran a thorough article on the ECB’s plans to eliminate the 500 euro bill from circulation, and one has to wonder about the phenomenon of cash hoarding, on the one hand, and the calls for the gradual elimination of cash, on the other. Some commentators argue that the desired outcome will be to force citizens into spending income as soon as it arrives in the bank, and thereby stimulate the economy.
Well, that sounds like a true Orwellian dystopia that our overlords have planned for us. Some people, will no doubt, submit to such an outcome, but those who earn and spend bitcoin could, for the most part, operate outside the fascism.
The calls (and apparent yearning) for dollar collapse by some detractors of fiat currency may be misplaced. We know that money and currency are not the same thing, and that fiat is currency. However, as regularly discussed in Global Economic Outlook articles, it is critical to distinguish between cash and credit.
What the dollar-collapse camp surely means is that dollar credit should collapse – and they will almost certainly get what they’re wishing for because we find ourselves at the deflationary end of a multi-decade credit bubble. But the notes, the actual physical cash, is about to become scarce and, therefore, highly valuable.
Legendary technical analyst, Tom DeMark, has applied his own Tom DeMark Method to the S&P500 Index and has identified a key support level that may be broken this week, thereby, ushering the dreaded bear market in equities.
DeMark told Bloomberg that “a top in the S&P 500 would also be confirmed should the S&P 500 finish below 1,926.82 on Tuesday, or close less than 1,917 on Wednesday or Thursday”.
Well, it’s Wednesday and the S&P500 closed below 1,926 points on Tuesday (red arrow). DeMark’s method identifies a decline target at 1,736 points (blue) and a simple Fibonacci extension tool points at 1,680 points (purple).
After years of being unnaturally levitated a stock market crash is, of course, inevitable – if only it could wait while this analyst hoards more cash…
Conflicting messages are coming from the OPEC cartel, particularly, from Saudi Arabia’s oil minister Al-Naimi, who last week denied production cuts, but yesterday announced plans for an OPEC production freeze.
Saudi Arabia is lobbying OPEC member countries to participate in a collective production “freeze”.
Oil rallied briefly after Saudi Arabia and Russia made a tentative agreement to hold oil output steady should other producer countries do the same.
Iran’s oil minister Bijan Zangeneh, on the same day, called a press conference and labeled the Saudi plan “a joke”. Iran recently had oil export sanctions lifted, just as the oil price reached a quarter of its value of the past decade. Despite pressure from Saudi Arabia and Russia to freeze output, the country is apparently only interested in gaining new customers and is ramping up production and selling oil for euros despite the bottom-of-the-barrel price.
Saudi oil minister Al-Naimi said on Tuesday that more countries (i.e. Iran) could agree to a oil production freeze as early as next month.
This analysis is provided by xbt.social.
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The writer trades Bitcoin. Trade and Investment is risky and subject to probability and market changes. CCN.LA accepts no liability for losses incurred as a result of anything written in this report.
Charts from TradingView, financial data & cartoon from Investing.com, image from Shutterstock.
Last modified (UTC): February 25, 2016 03:10