Ideas To Weather The Storms
Central banks are practically giving money away (almost for free), in order to get liquidity into the global economies. See here for current central bank rates. However, once global economies do stabilise, we shift from this illiquid cycle into an inflationary cycle that will give us an altogether different set of challenges – and at the same time we are still reeling from the massive GDP debts we are incurring right now. I say ‘we’ because that debt is yours and mine, no matter our nationality or country of residence. You and I may not have personally signed the release letters for TARP or the HBOS, AIG etc bail-outs, but for sure the ‘interest’ payments will be passed to us by national Governments for you and me to pay in the coming years.
Certainly, this spells difficult times ahead for depositors; with the prospect of inflation rates becoming higher than deposit rates, and the consequent physical loss of purchasing power for our cash. What should you do about it?
In my opinion, you have two choices, and both need urgent action if you are going to pass through the coming storms and reach port: a) safely, and b) in good condition; or c) in a better condition
Firstly, choose to protect and maintain your cash reserves.
By protection here, I am not referring to bank insolvency; Governments actively and financially protect depositors already; as we have seen all too often lately. The protection I am referring to is to protect and maintain purchasing power against inflation (Governments only protect the paper, not its power of purchase). You need to start shopping around for better cash deposit rates – and urgently.
As yet, the very low central bank rates have not fed substantially through into retail cash deposit rates. This will change for sure over the coming few months as the system becomes more liquid (because of the cash-dumping) and as such the banks will no longer be so desperate to attract and keep depositors – and therefore less inclined to pay depositors such a premium.
The solution to inflation is always to find a way to run faster…!
Secondly, choose to accept that you cannot avoid the coming storm.
Since you cannot avoid it or sail around it; you need to prepare for it, and manage your ship through it. It is here, and right now, that you have choices (believe it or not).
You can choose to batten-down the hatches, pull in the sails, heave-to, and ride out the storm. Choosing such an approach may appear the safest approach, particularly if this is your first big storm… or it is so long since your last “Big One” that you have forgotten how to ride the storm. Whatever your reason, such caution puts your ship solely at the mercy of the storm. The storm will now decide for you whether your ship survives, or fetches up on the rocks, or capsizes, or if you only lose your masts.
Alternatively, you can choose to sail through the storm by harnessing the wind and waves to speed you safely through the storm. If you don’t have the knowledge or experience to steer through then make sure you have a veteran captain in your wheelhouse. You can tell quite easily if your captain is a veteran… because to a veteran, a storm is ‘just another day’.
The solution to risk is having a veteran on your team…!
Tomorrow, I’ll further explore this subject and show you solutions to help you weather the storms. Meanwhile, do feel free to drop us a line or give us a ring should you wish discuss this further – you can also react here under.
