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Cash Is Your Safest Investment Option

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Wednesday, 24 Feb 2016 07:43 AM Current | Bio | Archive


Federal Reserve Vice Chairman Stanley Fischer hinted it was too soon to tell if the movements in financial markets would have an impact on the U.S. economy.

“If the recent financial market developments lead to a sustained tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States," he said.

"But we have seen similar periods of volatility in recent years — including in the second half of 2011 — that have left little visible imprint on the economy, and it is still early to judge the ramifications of the increased market volatility of the first seven weeks of 2016,” he said.

I’d like to add that overall behavior in the real world has been largely unaffected by the hectic movements in the financial markets so far this year. Consumers still consume, banks still lend and companies still make stuff.

Investors could do well not to overlook the fact that the financial community is in reality isolated from the real economy. It is off the grid from many people in the real world.

It is worth noting that the UBS weighted global surprise indices have shown a pickup in the growth measure. Growth has been coming in stronger than expected in the immediate past and more pertinently for the Fed the inflation surprise index has also moved higher. The number of positive inflation surprises on a weighted basis has been the largest since early 2014 over the course of the last month.

Keep in mind we are only 3 weeks away from the next FOMC meeting on March 15-16.

Also at that same conference in Houston, Texas, the Saudi Minister of Petroleum and Mineral Resources Ali bin Ibrahim Al-Naimi gave to the audience and investors everywhere that have interest in oil related investing some interesting comments:
  • Why talk about production cuts when the cost curve and marginal costs can help determine prices;
  • Many countries won’t deliver on supply cuts so they won't happen, but a freeze can help reduce high inventories.
  • Cutting low cost production to subsidize high cost supplies only delays the final reckoning. We have not declared war on US shale.
  • We’re still going to [balance the oil market], but we’re going to do it differently: we’re going to let everybody compete;
  • We don’t want oil to be at $20 a barrel but if we have to “co-exist there we will.”
We could say that under today’s so-called “normal-abnormal” circumstances we should not expect a decent oil price recovery over the short to median term.

That doesn't mean a sudden move where the bottom of oil prices literally falls out is still a possibility, which doesn’t mean a probability.

For investors who have cash on the sideline, it is advisable to remain on watch in case that should occur.

Of course, in case a geopolitical event that would upset one or more big oil producers, then a spike to $100 a barrel or more would be completely possible, whereby short covering would amplify extra the oil price spike.

Finally, the Chairman of the Governing Board of the Swiss National Bank (SNB), Thomas Jordan, just gave an interesting speech wherein he cautioned on the waning effects of unconventional monetary policies.

“By introducing unconventional monetary policy measures, central banks have regained a certain room for maneuver. However, these unconventional measures cannot be deployed endlessly to achieve desirable monetary conditions," he said.

"Interest rates, for example, cannot continue to be lowered into negative territory without at some point precipitating a flight to cash. Foreign exchange market interventions and quantitative easing programs carry with them the increasing risk that a central bank’s ability to conduct monetary policy may be compromised in the long term,” he said.

Jordan knows very well what he is talking about as the most recent statistical data of the SNB show there was 45.2 billion Swiss francs worth of 1,000 franc notes (about $1,010) in circulation in December, up from 40.5 billion francs a year before or a 17 percent increase.

No, cash in today’s abnormal world is not as abnormal and stupid as many want you to believe.

Never forget, when prices go down (which is today the case with many investment vehicles), “cash” or cash-equivalents become more valuable.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
Cash in today’s abnormal world is not as abnormal and stupid as many want you to believe.
invest, cash, fed, economy
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2016-43-24
Wednesday, 24 Feb 2016 07:43 AM
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