Update for July 8, 2014 - Newsletter (Who Owns Your Portfolio? -4)
OK, I trust that I have made my point about the mess which the US is currently labouring under and which we are seeing behind the scenes in the gold market. However we must be aware that what we are seeing is only what we can read in the rather noisy tabloids and on-line blogs which generally have Washington feeding them enticing bits and pieces, in one form or another. They must realise that the Swiss (to take but one example, as they are prominently mentioned in the Global Research article) are not stupid people. In a tiny nation of about eight million souls (a bit larger, in terms ofland mass, than the combined areas of the US states of Vermont and New Hampshire), the average salaries are immense.
When you can have a referendum (it didn’t pass by the way) on increasing the Swiss minimum wage to the annual equivalent of US$ 50,000 it must say something. This “something” is that the Swiss are experts in handling money; lots of it, or they wouldn’t be as wealthyas they are! Their national reserves are immense and foreigners continue to pour money into the country to the clear chagrin of the EU. The Swiss central bankers can do their sums as well as anyone and have come to the conclusion that the US, if it continues its warlike and profligate ways, is simply going to go bust. This is what they are seeing in the Chinese insistence on taking as much gold as they can. The Swiss have to take defensive measures as well and they are, according to the Global Research article noted at the head of these letters.
As the this comment shows, the Swiss are very big buyers of global equities (to return to the equities portion of this newsletter). From a staggering amount of financial reserves of nearly half a trillion dollars equivalent (keep in mind the size of the nation as you read these numbers), they have about $ 72 billion invested in equities. This number is about $ 9,000 for every man, woman, and child in the country which is large considering this is just the holdings of the Swiss National Bank we are considering and NOT national savings as a whole. So, why are they doing this anyway? What is the purpose of essentially diversifying away from US Treasuries? I do not believe it is because they are not making enough of a return on their “riskless” Treasury holdings. (If, in fact, they are riskless given what Marty Armstrong has been writing about regarding events to occur starting in October next year). If they are buying equities for yield, there are plenty of stocks which pay a dividend of maybe 3-4%. Let us say, factoring in yieldless bullion holdings, they can make 2-2.5% on equities. While it is very true that short date treasury securities around most of the world yield considerably less than 1%, there are longer dated maturities which can pay 4% or so. So, if we factor in maturity holdings, we can easily arrive at an overall average yield of 2-2.5%; the same as equities.