How to Profit When Negative Rates Push Cash to Extinction

Cash is likely going the way of the dinosaur, thanks to a one-two punch from governments and their central banks on one hand, and technology on the other.

It's unruly and chaotic, simply too hard to track and control. So, as part of a quiet but all-out war on cash, governments have thrown their weight behind the adoption of next-generation credit and debit card features, like the Euro-import "EMV standard" gold chip cards that were rapidly adopted in the United States.

When all you have to do is tap your credit card or smartphone to complete a purchase, the convenience is almost impossible to resist. Add the rapidly increasing galaxy of payment apps and devices, and you can see that the days of banknotes and coins are numbered worldwide.

This war is still in its early stages, but it's already going well for those who would see cash gone: A Gallup poll released in July reported that just five years ago, 36% of Americans said they made nearly all of their purchases with cash. In June this year, the result was just 24%.

The outcome is probably inevitable, but like the investing adage goes, "make the trend your friend" and tap into this really juicy profit opportunity I'm going to show you.

The Plan: Prepare You for Eventual Negative Rates

Remember last year's fracas when former U.S. Treasury Secretary Larry Summers took to The Washington Post to moot getting rid of the €500 and $100 bill, along with the UK's £50 and the Swiss CF1,000 notes?

He pointed out that, in certain circles, the €500 is called the "the Bin Laden" in the same way folks call the $100 bill the "Benjamin." He noted that a loot bag with $1 million in $100 bills would weigh just 2.2 pounds whereas, if that $1 million were in $20 bills, it would tip the scales at 50 pounds, making it - and I'm not kidding here - that much more difficult for crooks or bandits or, I suppose, drug dealers to carry off.

Apparently, that's all the proof he needs to be certain only criminals use high-denomination notes.

But Summers just might get his way after all, if he'd just cool his heels. Like I said, use of cash in America has dropped by one-third in just five years, and you see similar numbers elsewhere in the developed world, too.

The Janet Yellens and Mario Draghis of this world couldn't be happier. Vanishing cash is just fine by them.

cash

That's because, effectively, the easiest way for most regular people to avoid negative rates is simply to hoard their physical cash. In a small, dark place where the rate is always zero.

In Japan, for instance, where the central bank has been busy pioneering and inflicting their negative rate "policy innovations" on long-suffering taxpayers, hardware retailer Shimachu Co. has reported sales of their safes and lockboxes have more than doubled over 2015. According to The Wall Street Journal, in some Japanese towns, a popular $700 model is chronically out of stock, and business is so brisk that the safe is often backordered for a whole month.

It's not hard to see why... The safe craze may go global yet.

As I've pointed out numerous times before, aside from Japan, negative interest rates are already in effect in the Eurozone, Switzerland, Sweden, and Denmark. In those jurisdictions, private sector commercial banks must effectively pay to place their funds on deposit with the central bank.

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Already certain banks in the United Kingdom have warned they could start charging retail customers if negative rates are initiated by the Bank of England.

Meanwhile, negative rates have already arrived for customers of a cooperative savings bank in Germany. A Raiffeisen Bank in Bavaria has said it will charge retail customers on savings exceeding €100,000 ($119,957) at a rate of 0.4%.

But bigger players have already begun making plans and positioning for the effects of negative rates.

Huge Banks Are Taking Cash Out of the System

Back in April, I told you how 136-year-old reinsurance company Munich Re, with an investment float worth $261 billion, said it was "trying out" a gold and cash allocation.

What's intriguing about Munich Re's approach is that they are warehousing physical cash, rather than pay for the "privilege" of having those funds on deposit at a European bank. For Munich Re, the amount stored adds up to some tens of millions of euros.

More recently, according to Reuters, Commerzbank AG is looking at holding billions of euros in vaults, as an alternative to paying to keep it on deposit at the European Central Bank under its repressive negative rate policies.

Here's what Reuters had to say...

Commerzbank's examination of storage alternatives to the ECB comes at a time of growing frustration among European lenders with the ECB charge on deposits. Were it to store cash on a significant scale, it would become the first major European bank to take such a step... If other lenders were to follow suit, it could render the ECB penalty charge policy increasingly ineffective.

The ECB imposes a so-called negative rate equivalent to four euros annually on each 1,000 euros lenders deposit with the central bank. This is designed to encourage banks to lend money, rather than park it.

But some banks complain that a dim global economic outlook means there is weak demand for loans on the terms they require, and they have little option but to hoard cash.

Keep in mind, Commerzbank isn't just some little regional bank - it's Germany's second largest.

Of course, regular investors don't necessarily have the option of stashing billions in bullion, coins, and banknotes in vast, subterranean vaults. And there's a much better way to beat the central bankers than stuffing your net worth into safes or under mattresses.

Since you can't beat the trend (and, as you can see, it would be pretty foolish to try), go with it... and profit.

In a Cashless World, This Is a Must-Own Stock

In May last year, I first told you about Atlanta, Georgia-based Global Payments Inc. (NYSE: GPN). Founded in 1967, the company has nearly 50 years of know-how, making it a leader in check processing, payment cards, and e-commerce transactions.

Acting essentially as a middleman lodged between banks and merchants, Global Payments works to expedite billions of payment transactions for more than 1.5 million locations globally.

Near the end of 2015, GPN bought Heartland Payments Systems for $4.3 billion. That has meant slightly lower revenue, earnings, and margins for fiscal 2016 versus 2015 as the integration moves forward.

But don't let that scare you. This major acquisition is going to pay off in spades next year, as it makes GPN into the single largest tech provider of cashless payment solutions anywhere.

Despite an essentially flat year, shares are ahead 49% since my original recommendation. And the outlook is stronger than ever.

Although the share price has gone mostly sideways for several months, it has still been acting well and is setting up nicely from a technical perspective.

war on cash

The chart is forming a wedge pattern and will likely break out soon.

Given the bullish fundamentals of the entire sector in general and this company in particular, odds are good it will be breaking to the upside, giving us a beautiful entry point right now.

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