Most assets by traditional valuations are overpriced. Now are they overpriced compared to zero interest rates or negative interest rates? If you take the 10-year German bonds or the 10-year Swiss bonds or the 10-year Japanese bonds, you have no or negative yield. But you can buy equities that give you a dividend yield of 2 percent or more. Then you say stocks compared to negative interest rates are a bargain.
But they are not cheap by traditional valuation methods. However, I think it’s dangerous for someone to say: “We all agree that it will end badly, so we keep 100 percent of our money in cash.” First, you have to decide which cash.
Number two, we don’t know what the time frame until it ends badly is. And in an extreme money-printing environment, the Dow Jones Industrial Average can go to 100,000.
It may likely not go up against precious metals, but it can go up in nominal terms endlessly. It’s not going to help the typical household. I have seen many hyper-inflating economies, and in each case, the standard of living of average people declined.
That will be the case. If I were interventionist—which I’m not, and I do not support the interventionist—if I were a central banker and I said to myself the right policy now is to increase the negativity of interest rates, we go from 0.5 percent negative to 5 percent negative.
In this particular instance, the people and companies take the money out of the financial system and store it in cash in a vault.
The measure to implement negative 5 percent is not going to work very well, so one way to make it work is to abolish cash. You can still hoard real estate, food, cigarettes, and precious metals, but you can’t hold cash anymore. So that is likely to happen, in my view, if they go all the way.