Hello Everyone,
We can ignore today’s reality, but we cannot ignore the consequences of ignoring reality, and there will be consequences.
I am really struggling to understand the niceties of the recent banking crisis, but it does seem to me that it is all linked to the vast amounts of Quantitative Easing conducted by central banks who simply manipulated their central reserves in order to purchase government bonds/gilts, which were in turn produced at the wave of a wand.
The following is my faltering understanding of the process and how it happens.
In today’s present environment I do not know of a secure route to protect my investments. I watch and follow the Saltydog numbers to get a lead, but as I have written before, I am using mainly Cash, Gold bullion, Money Market funds from the Safe Haven sector, and to a much lesser extent Structured Income Products.
Another area that has caught my attention is China’s dominance in the refining of rare earth elements and the production of renewable energy products such as solar panels, wind turbines, cathodes and electric cells for batteries. They have also cleverly invested in the countries and governments where these rare earths and other important commodities (like the battery metals nickel, cobalt and lithium) are mined. This in turn gives them control of who will have access to these raw materials. Without access to these refined minerals the West will find it very hard to meet their forecasted net zero carbon dates.
Perhaps this will mean extending the use of coal, oil, and gas to meet the energy requirements of the West. If this is so, then Europe and America will end up being dictated to by Russia, China and OPEC, who will be setting the availability and price of these carbon materials and rare earths. If there is any credence in the above, it may be worth watching to see if over time the prices of raw material, energy, and natural resources funds start to increase.
Best wishes and good luck with your investments.
Douglas
Founder & Chairman
P.S. Having trawled the internet, there appears to be some debate over which elements are actually rare earth elements, but here’s a list of the ones that always seem to crop up …
We can ignore today’s reality, but we cannot ignore the consequences of ignoring reality, and there will be consequences.
I am really struggling to understand the niceties of the recent banking crisis, but it does seem to me that it is all linked to the vast amounts of Quantitative Easing conducted by central banks who simply manipulated their central reserves in order to purchase government bonds/gilts, which were in turn produced at the wave of a wand.
The following is my faltering understanding of the process and how it happens.
- The government is short of money to finance the country and their projects. So, out of thin air, as if by magic, they issue government gilts with a variety of maturity dates (some very long) bearing a fixed rate of interest, which up until recently was next to nothing.
- Having reduced interest rates to nearly zero and still failed to boost the economy, central banks (like the Bank of England) are eager to buy these bonds in order to stimulate growth in a process known as Quantitative Easing.
- Instead of using money that has been raised from government taxation or borrowing, the central banks simply ‘create’ the money digitally in the form of central bank reserves - another wave of the wand, also known as ‘money printing’.
- Now the government has the money to finance the economy and its projects.
- The central bank now owns these government gilts which they can either hold until maturity or at some point they can sell them on to Pension Funds, Commercial Banks and other Financial Institutions.
- These gilts will have varying maturity dates, and at some time in the future the government will have to repay the capital.
- All is fine at this point, but if interest rates have gone up from the time that the Government created and sold the gilts, their value in the bond market will have fallen. This is not a problem if they are held until maturity, as they will still be worth their face value. However, anybody who has these reduced value gilts on their books will end up carrying these at their new lower asset value, and that could be for a long time.
- Whilst the Government and Central Banks do not have to account to anybody, other institutions who own these depreciating gilts (like the banks) have to balance and publish their accounts, which will include these reduced assets, and this may mean insolvency. Not much fun if you are borrowing or looking for investment money into your businesses. Hence the run on the Banks and other financial institutions who are in this situation.
- In the UK the Treasury indemnified the Bank of England for any losses arising from bond purchases. So when the music stops, guess who is going to pay for that? The taxpayer, you and me. And it’s already begun.
- The Bank of England has started trying to offload some of the gilts and surprise, surprise they’re not worth what they paid for them. The Treasury has recently asked Parliament to authorise up to £200bn to cover expected losses and it could be more.
- I do believe that the Bank of England is stuck between a rock and a hard place. They are charged by the government with keeping inflation at around 2%. To do this they have to raise interest rates from the lows of yesterday, and this creates collapsing gilt prices, and today’s financial crisis.
In today’s present environment I do not know of a secure route to protect my investments. I watch and follow the Saltydog numbers to get a lead, but as I have written before, I am using mainly Cash, Gold bullion, Money Market funds from the Safe Haven sector, and to a much lesser extent Structured Income Products.
Another area that has caught my attention is China’s dominance in the refining of rare earth elements and the production of renewable energy products such as solar panels, wind turbines, cathodes and electric cells for batteries. They have also cleverly invested in the countries and governments where these rare earths and other important commodities (like the battery metals nickel, cobalt and lithium) are mined. This in turn gives them control of who will have access to these raw materials. Without access to these refined minerals the West will find it very hard to meet their forecasted net zero carbon dates.
Perhaps this will mean extending the use of coal, oil, and gas to meet the energy requirements of the West. If this is so, then Europe and America will end up being dictated to by Russia, China and OPEC, who will be setting the availability and price of these carbon materials and rare earths. If there is any credence in the above, it may be worth watching to see if over time the prices of raw material, energy, and natural resources funds start to increase.
Best wishes and good luck with your investments.
Douglas
Founder & Chairman
P.S. Having trawled the internet, there appears to be some debate over which elements are actually rare earth elements, but here’s a list of the ones that always seem to crop up …
- Scandium: Used to make light alloys for the aerospace industry, as a radioactive tracer, and in lamps
- Yttrium: Used in yttrium aluminium garnet (YAG) lasers, as a red phosphor, in supercon-ductors, in fluorescent tubes, in LEDs, and as a cancer treatment
- Lanthanum: Use to make high refractive index glass, camera lenses, and catalysts
- Cerium: Use to impart a yellow colour to glass, as a catalyst, as a polishing powder, and to make flints
- Praseodymium: Used in lasers, arc lighting, magnets, flint steel, and as a glass colorant
- Neodymium: Used to impart violet colour to glass and ceramics, in lasers, magnets, capaci-tors, and electric motors
- Promethium: Used in luminous paint and nuclear batteries
- Samarium: Used in lasers, rare earth magnets, masers, nuclear reactor control rods
- Europium: Used to prepare red and blue phosphors, in lasers, in fluorescent lamps, and as an NMR relaxant
- Gadolinium: Used in lasers, x-ray tubes, computer memory, high refractive index glass, NMR relaxation, neutron capture, MRI contrast
- Terbium: Use in green phosphors, magnets, lasers, fluorescent lamps, magnetostrictive al-loys, and sonar systems
- Dysprosium: Used in hard drive disks, magnetostrictive alloys, lasers, and magnets
- Holmium: Use in lasers, magnets, and calibration of spectrophotometers
- Erbium: Used in vanadium steel, infrared lasers, and fibre optics
- Thulium: Used in lasers, metal halide lamps, and portable x-ray machines
- Ytterbium: Used in infrared lasers, stainless steel, and nuclear medicine
- Lutetium: Used in positron emission tomography (PET) scans, high refractive index glass, catalysts, and LEDs
Comments
0 comments
Please sign in to leave a comment.