- Davos, Switzerland: Population 11,000
- Annual Davos invasion and unintended consequences
- (Farcical) Leaked document reveals global elites’ pecking order
- How Americans handle — or not — a $1,000 emergency
- Why you might be buying a safe this weekend
- Precious metals… and one that can’t be manipulated
- ECB president *basically* says, “Simmer down, peasants!”
Pity the year-round residents of Davos, Switzerland — population 11,000.
Sure, they’re surrounded by the stunning beauty of the Swiss Alps…
Davos as seen from a paraglider [Wikimedia Commons photo by “Flyout”]
… But every January they’re invaded for a week by a couple thousand of the world’s power elite, hobnobbing at the World Economic Forum.
And the preparations begin in mid-December. Temporary conference buildings, trucks coming and going, the stepped-up presence of cops and troops…
Many of the local businesses try to make the best of it. “Hundreds of stores are taken over by big international firms like Facebook, Accenture and HSBC for the week and turned into branded outposts,” reports the BBC, “while local landlords are said to get paid handsome fees.”
But there are a few holdouts: “I would like to keep my shop open for people living here,” says Catherine Kull Bineschedler, owner of a clothing boutique.
Last year she says she turned down an offer from a Japanese company — 50,000 Swiss francs, about $51,500 at today’s exchange rate. “It's sad because it's all become about money, money, money during Davos.
"My daughter can't even work for two weeks because of WEF. She is a figure skating coach, but the council of Davos rents out the training hall she uses, so she doesn't get paid."
And then there’s this: “Over 30 shops on the Promenade are empty all year round, just so they can be rented out during WEF, because that's enough for them,” says restaurant owner Jens Scheer.
We often speak in these virtual pages of the distortions wrought by central-bank money printing. Empty shops in Davos, existing only for the sake of once-a-year visitors who benefit from the largesse of the Federal Reserve, European Central Bank, etc. — really, how many of these people legitimately earned their wealth? — is just one more bizarro manifestation.
Meanwhile, it turns out there’s a pecking order at Davos.
This week the business-news website Quartz published a leaked copy of the “position levels” assigned to every conference attendee. There are seven positions. Level 1 is assigned to rarefied strata — “top executive” or “head of state,” for instance. They make up 46% of this year’s participants.
At the other end of the scale, Level 6 is classified as “honorary guest” or “public sector expert” and Level 7 as “functional staff.”
This year, Donald Trump is a 1. For whatever it’s worth, Ivanka Trump is a 7 — right behind Al Gore and former British Prime Minister Gordon Brown, who are mere 6 “public sector experts.”
More curiosities: The only 1s who are the heads of international organizations are United Nations Secretary-General António Guterres and International Monetary Fund chief Kristalina Georgieva. Meanwhile, the heads of NATO and the Organization for Economic Cooperation and Development are mere 3s because the outfits they run… well, they just don’t count as much in Davos World, apparently.
We have to chuckle at the Establishment financial media’s Davos coverage. It’s as if they’re watching two different conferences. Here’s the Financial Times…
And The Wall Street Journal…
Hmmm… All else being equal we’re more inclined to believe the FT, if only because the byline on its story includes Gillian Tett — herself a card-carrying member of the power elite. She’s probably been a Davos attendee in years past (“Journalists” are considered Level 2 in the pecking order). Heck, for all we know she’s an attendee this year; if so, the salmon-colored rag did not disclose that conflict of interest.
Back in these United States — and in the real world, we hasten to add — only four in 10 adults have enough savings to cover an unexpected expense of $1,000.
That’s the takeaway from Bankrate’s monthly Financial Security Index survey…
An interesting detail: College graduates are more likely than high school graduates or dropouts to say they or an immediate family member ran into unexpected expenses within the last year.
Lamentable as the findings might be, the phenomenon isn’t exactly new, say the researchers. “Bankrate reports indicate that the percentage of U.S. adults who would use their savings to cover a $1,000 emergency room visit or car repair has remained within the range of 37–41% since 2014.”
2014 and the figure has barely budged, they say? Gee, it’s almost as if who’s the president doesn’t matter to your standard of living nearly as much as bigger forces out there — again, the central banks.
Which brings us to this week’s latest “policy-setting” meeting at the European Central Bank.
Wait, they didn’t reschedule it so ECB chief Christine Lagarde could hang out in Davos? What’s with that?
Yesterday the ECB indicated its five-year experiment with negative interest rates will continue for several more years. The question arose because Sweden’s central bank — Sweden isn’t part of the eurozone — recently pushed rates back into positive territory after a decade.
No dice, said Mme. Lagarde. The punishment of savers will continue until inflation “robustly” returns to the ECB’s target of just under 2%.
Lagarde’s remarks — and The Wall Street Journal’s coverage of the ECB’s meeting — betray a profound ignorance of what negative interest rates are all about.
From the WSJ story: “By discouraging commercial banks from parking their money at central banks, negative rates prod financial institutions to lend at low cost to other banks, businesses and consumers, in turn pushing people to borrow more, spend more and save less…
“But economists worry that a longer period of negative interest rates could create distortions in the economy by encouraging businesses and households to take on too much debt…”
They wish. The reality, as our Jim Rickards said in this space in 2016, is “that negative interest rates produce the opposite effect that central bankers intend.” When the Bank of Japan ventured into negative rates that year, everyday Japanese withdrew their cash from the banks… and stashed it in home safes, of which there was a shortage. Safes also flew off the shelves in Germany at one point a few years back.
Makes sense: Negative interest rates are a desperate measure, a signal of trouble ahead. What do people instinctively do when they sense trouble ahead? They sock away cash for a rainy day. (Well, if they can. See above.) Besides, why go out and spend your money if deflation is a bigger risk than inflation?
Maybe one day central bankers will understand how negative rates backfire… but in the meantime, the Fed might well go negative during the next downturn.
As a reminder, that’s what Jim Rickards told us last year after attending a confab of central bankers and other global elites in July at Bretton Woods, New Hampshire — marking the 75th anniversary of the Bretton Woods agreement that made the dollar the global reserve currency.
The highlight was an off-the-record panel featuring a current Fed official, a former Fed official and a current ECB official — their identities kept confidential among the attendees.
The ECB official clearly signaled an interest rate cut, even deeper into negative territory, that the ECB executed two months later.
The Fed, meanwhile, signaled they were open to going negative. “The Fed panelists made it clear that no decision has been taken,” Jim says. “They merely made the point that a negative rate policy might be required and said the Fed was perfectly prepared to go there if needed.
“It was not regarded as controversial by the panelists even though it was completely unprecedented in the history of U.S. monetary policy.”
Consider yourself on notice. You might want to see what they’ve got for safes at your nearest hardware store. Assuming the powers that be don’t pull a cashless-society gambit.
To the markets, which appear to be reacting hourly to headlines about the “coronavirus.”
When we left you yesterday, stocks were selling off. Then late in the session, the World Health Organization said it was too soon to declare the situation a “global health emergency” and most of those losses were erased.
This morning, with word of a second U.S. case, the major indexes are sliding again. Nothing extreme, though: The Dow remains 100 points above the 29,000 level. The Nasdaq, however has slipped below 9,400. The S&P 500 has fallen hardest as we write — down four-tenths of a percent at 3,312.
If it’s a big sell-off you’re looking for, it’s in crude. With Chinese leaders quarantining city after city — just ahead of Chinese New Year, a big holiday-travel window — traders anticipate a drop in demand for energy.
With that, a barrel of West Texas Intermediate is down more than 2.5% again today — barely above $54, a level last seen in early November.
Elsewhere in the commodity complex, gold is serving its safety-trade role — up 10 bucks as we write to $1,573, equaling its high so far this month.
Silver has pushed past $18. Platinum is holding the line on $1,000. Palladium, the darling of the precious metals trade the last six months, has pulled back $55 to $2,286.
And then there’s rhodium — whose chart is going vertical.
Rhodium is one of the platinum group metals, along with platinum and palladium. Like those other two, rhodium is used in automobiles’ catalytic converters. But it’s also used for pollution control in diesel engines.
At $9,000 an ounce this morning, the price has leaped 40% in just the last three weeks…
“It’s being driven by insatiable demand from Asia,” Scotiabank analyst Nicky Shiels tells Reuters. Emissions rules in China are getting tougher. Meanwhile, the newswire says “demand is expected to outstrip supply this year and supplies are being disrupted by power outages at South African mines, which produce more than 80% of mined rhodium.”
Worth pointing out — and we’re indebted to Ed Steer of the independent e-letter Ed Steer’s Gold and Silver Digest for the insight: There are no futures or options markets for rhodium. Thus rhodium can’t be subjected to the manipulation techniques that gold, silver, platinum and palladium are.
“You’re seeing the free market in action,” Mr. Steer says.
The last we mentioned rhodium in our virtual pages was 10 months ago. We lamented the fact there was no pure-play rhodium ETF on a U.S. exchange. But we said if your brokerage account gave you access to London-traded shares, you could take a flier on the Xtrackers Physical Rhodium ETC Fund (XRH0). It’s up 179.8% since then.
Time to bail, maybe? Or at least sell half and let the rest ride…
“Can you help me out?” a reader writes, with an inquiry we’re seeing a lot of lately.
“Since mid-December, I have not been receiving issues of The 5. My regular issues of Rickards’ Strategic Intelligence and Sunrise Profits have been coming in. But along with The 5, the Daily Reckoning and The Rundown have also vanished.
“Many thanks for any assistance that you can give me.”
The 5: It’s been nine days since we last addressed the filtering issues we’ve been experiencing when sending these daily missives. We wish we could tell you we were making progress, but for the moment each step forward seems to be accompanied by a step back.
The good news is that no one’s paid publications have been affected by this malfunction; it’s just the free e-letters.
We still have talented and dogged professionals on the case and we hope we can report progress very soon.
Once again, if you end up becoming a victim of these unfortunate circumstances, we encourage you to bookmark The 5’s voluminous archives. Each day’s episode is posted only a few minutes after it’s emailed, so check it out mid-to-late afternoon Eastern Time.
Have a good weekend,
The 5 Min. Forecast
P.S. Somehow we missed it at the time, but as long as we brought up ECB president Christine Lagarde today…
Last October, she’d given up her gig as head of the International Monetary Fund but hadn’t yet begun her new position at the ECB. Perhaps she felt as if she didn’t have to watch her words so carefully in that moment.
And so, looking back on the previous decade of ultralow interest rates around the globe, she pronounced herself satisfied with the work she and her fellow elites had done after the Panic of 2008.
“Would we not be in a situation today with much higher unemployment and a far lower growth rate, and isn’t it true that ultimately we have done the right thing to act in favor of jobs and of growth rather than the protection of savers?”
She really said that. Fed up with low rates on your bank accounts, CDs and fixed-income investments? Just be grateful you have a job, peasant!
Let them eat cupcakes laden with GMOs and high-fructose corn syrup from the center aisle of the grocery store [World Economic Forum photo, because of course]
That’s a false choice, by the way — as we pointed out when we marked the 10th anniversary of the 2008 crisis.
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