The War On Cash And How To Play It

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Includes: AMZN, MA, OUTR, V
by: Gary Bourgeault

Summary

Moving toward a cashless economy isn't all bleak, as it offers investment opportunities in certain segments.

Steps to take to protect your wealth as governments and banks make it harder to move capital.

What can be done to mitigate risk of being accused of wrongdoing and the resultant freezing of your bank accounts.

I've been somewhat surprised at the relatively low level of resistance to the proclivity of governments and the banking system to move rapidly toward a cashless society.

When looking through comment sections of blogs and news sites, one of the major responses to the concerns is people from the U.S. will allude to the words on our currency that says it's a "legal tender," as if that will stop the forward motion of what has become a global initiative in many nations.

Immediately below is a list of the reasons I have been able to find as to why we should move towards a cashless society. They are from a variety of nations, and not all are given as reasons from any one country.

Stated reasons:

Fight terrorism

Tax evasion

Black market

Costs of currency production

Improve credit rating of country (Uruguay)

Encourages underground economy

Money laundering

Reductions in armed robbery

Counterfeiting

The major emphasis, unsurprisingly, is on terrorism, as few people are willing to logically argue against that because of the heightened use of rhetoric to stir emotions up and make opponents of the elimination of cash appear to be weak on terror, or in some cases, even sympathetic with it.

With that in mind, I do want to look at the implications of removing cash as a means of entering into transactions, and how investors would be able to play it.

Transferring capital to a trading account

As it relates to an investor, I believe we'll need to take steps to limit the potential we'll be flagged for a violation in the U.S. if we transfer money to our brokerage accounts in order to make a trade.

Imagine having your money frozen and not being able to trade for an extensive period of time with that capital. Either we'll have to transfer over $10,000, which shouldn't be a problem for us, as that is required to be reported by banks to authorities, and shouldn't be considered too much of a risk.

What the government is looking for is those that may transfer under $10,000, where it can be assumed a person or company is trying to get around the $10,000 reporting requirement. In those cases, it's more of a red flag than those transferring over $10,000 at any one time.

Another factor is if you place more than one source of money in staggered intervals in your account, which combined, is more than $10,000. That will probably trigger an investigation more than any other action, and is something that should be avoided if at all possible.

We don't have to wait for a totally cashless economy in the U.S. now, as this is the condition under which we now operate. But as we move closer to that as a probability, and if it is indeed put into effect, all of this will only heighten, and we'll have to be very cautious in how we transfer any money, but especially investment capital, which we plan to use soon. What a disaster to think of not only missing out on a great trading opportunity, but to also have our capital tied up for a long period of time without being able to retrieve it.

If possible, the best thing to do is either transfer over $10,000 to our accounts, or if we're going to trade with less than that, transfer it in smaller increments. The latter would work if it adds up to less than $10,000. If you were to transfer money in smaller increments that add up to over $10,000, that would be the biggest mistake to make.

Assuming you're living outside the U.S. and bank in other countries, you should carefully check what is happening in regard to cash and how digital financial transfers are handled. This is going to escalate around the world, and must be closely monitored to protect ourselves financially.

Investing implications

As for how to play this going forward, it's not too difficult to see what sectors will benefit the most from a move to a dominant digital or totally cashless economy.

The most obvious gains that I see would be debit card transactions, as that would skyrocket enormously if there is no other way to do business. That means MasterCard (NYSE:MA) and Visa (NYSE:V) would really get a serious boost in revenue and earnings from that outcome, as would the banks. Larger the banks, obviously the more transactions will occur, and of course the more profitable the impact will be on them. The number of consumer and small business accounts would be what to measure there.

It's impossible to measure now, but when contemplating all the yard, garage or tag sales out there, and the numerous people selling goods at flea markets and other venues, the number of debit card or credit card transactions would explode upward.

That leads to another growth area, which would be companies like Amazon (NASDAQ:AMZN), which recently launched a card reader service where it gets a small piece of each transaction. There are others as well that offer similar services. There is no doubt in my mind that a growing number of people will go this route in order to comply with an increasingly cashless economy, and of course will be forced to if it becomes law.

There is no indication bank checks would be eliminated, so it would be worth looking at the companies that provide those as well, as more people will probably write checks if they have to decide between that and their debit or credit cards.

On the down side, consider Outerwall's (NASDAQ:OUTR) Coinstar if it has no use anymore in the future. That would be a blow to the already struggling company. What would it cost not only in lost revenue, but in the need to remove them all from where they are located?

The point is anything that requires coins to be used would come under extreme pressure, as they would have to be retrofitted in order to comply with the new laws, meaning the need to include a place to use plastic of some type to the product. What companies would have the materials to make that happen?

Investors should also think in terms of who supplies certain products that serve the cashless transaction business. Who makes the boxes that hold checks? Are they publicly traded or not?

I know this is getting ahead of things a little, but if we are in fact heading towards a cashless economy, these will be questions that need to be answered, and those prepared with the answers could do very well before other investors catch on.

Other possibilities

Watching the quick pace nations are employing a variety of restrictions on cash, it's difficult to even keep up with all that is happening and what the eventual fallout will be. But France has been implementing some strong measures, and it's worth looking at them in case they spread to other parts of the world.

Not only will France soon institute new laws disallowing cash payments over €1,000 (down from €3,000), but if cash deposits and withdrawals surpass €10,000 per month, it will be required that banks report them to its anti-fraud and money laundering agency: Tracfin.

Also of interest, is it will not allow individuals to exchange more than €1,000 to another currency without being forced to produce a card confirming and revealing their identity.

At minimum what all this means is investors and others will have to learn to operate with a longer view to getting things done when using their capital, as a lot of rules and regulations are going to result in more obstacles to doing business and become less fluid when they are introduced.

Since everything is in flux, it's impossible to know how it will play out on a country to country basis, but it will continue to get worse. We must make decisions and implement strategies based upon that reality.

What about metals as a currency?

There is no doubt many investors will start to think of currency alternatives, and that suggests there will be a growing desire to buy gold and silver coins to use when transacting some business, or at least to protect some assets.

That will require storage on an international basis in order to keep any one country from locking down and forbidding the movement and use of gold or silver coins. We have to start thinking more in those terms going forward, as it is no longer ambiguous as to the direction governments around the world want to take with cash. It's actually happening at a much faster rate than I believed it ever could happen.

One thing about storage that needs to be taken into account, is it's not free to do so. In the past, some companies have offered storage of precious metals for free, which I would stay away from, as there is something wrong with a business model that doesn't generate revenue. You want to find storage facilities that charge for the service, as that at minimum suggests they should be legitimate.

Negative banking rates and access to capital

Switzerland is a recent domestic example of what we can expect in the future, as it instituted negative banking rates and when pensions attempted to pull capital out because it would cost less to store it elsewhere than keep it in the bank, the country put limits into effect that hadn't existed before in order to keep them from launching and inspiring a powerful bank run, which would have crippled the big banks.

We should expect these types of actions to eventually take place across national borders in the future. That means we'll have to closely follow the agreements between countries when deciding where we want to park our assets, which if significant enough, should be diversified across several countries.

Conclusion

This growing opposition to cash is the beginning of what will be very challenging circumstances for investors in the near future.

We could be investigated for no other reason than receiving quarterly or monthly dividends, which could give the appearance in the eyes of agencies watching these things that there is something wrong going on.

Any large ticket item or service we need money for could be considered a reason to freeze an account or seize our capital if we withdraw it.

Think it through though. Having some money or capital and withdrawing it is now considered suspicious activity.

As mentioned earlier, there are a number of plays we will be able to make as this unfolds - and it will unfold. The second thing to consider is retaining our wealth, which we may have to look at physical gold, silver, and possibly land, along with the portion we keep in the stock market.

These should be domiciled in several countries that appear to be resistant to, or at least incorporate these measures on, a more limited basis.

Look for acceleration of the cashless economy in different countries, and then focus first on card issuers like MasterCard and Visa as a way to play this fast-growing trend. Also look for ways to short it, like mentioned earlier with Outerwall, when it appears cash and coins are close to going out of use permanently.

There are a lot of way to play this as it unfolds, but these are a few ideas to get you thinking on what can be done to profit from this while protecting your wealth.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.