Wednesday, November 25, 2015

A Massive Wave of Defaults

Debt comes in many forms, including high-quality US Treasury debt, high-grade corporate debt and junk bonds. Debt is also issued by both US companies and foreign companies. Some of the foreign corporate debt is issued in local currencies and some in dollars. In discussing debt defaults, it’s necessary to keep all of these distinctions in mind.

The US companies sitting on hoards of cash, such as Apple, IBM and Google, are not the ones I’m concerned about; they will be fine. The defaults will be coming from three other sources.

The first wave of defaults will be from junk bonds issued by energy exploration and drilling companies, especially frackers. These bonds were issued with expectations of continued high energy prices. With oil prices at $60 per barrel or below, many of these bonds will default.

The second wave will be from structured products and special purpose vehicles used to finance auto loans. We are already seeing an increase in subprime auto loan defaults. That will get worse.

The third wave will come from foreign companies that issued US dollar debt but cannot get easy access to US dollars from their central banks or cannot afford the interest costs now that the US dollar is much stronger than when the debt was issued.

The combined total of all three waves — energy junk bonds, auto loans and foreign corporations — is in excess of $10 trillion, more than 10 times larger than the subprime mortgages outstanding before the last crisis, in 2007.

Not all of these loans will default, but even a 10% default rate would result in over $1 trillion of losses for investors, not counting any derivative side bets on the same debt. This debt will not default right away and not all at once, but look for a tsunami of bad debts beginning in late 2015 and into early 2016.


Jim Rickards

Friday, November 20, 2015

Jim Rickards Personal Portfolio

My personal portfolio is a blend of cash, fine art, gold, silver, land and private equity. I do not own any publicly traded stocks or bonds, partly due to restrictions under various regulatory requirements applicable to my role as a portfolio strategist and newsletter writer.

The mix in my portfolio changes from time to time based on valuations of the particular asset classes. My recommended mix is 10% precious metals, 10% fine art, 30% cash, 20% land and 30% alternatives such as hedge funds, private equity and venture capital.

Currently, my personal allocation is overweight land, fine art and private equity and underweight cash and precious metals. However, this will change, because the fine art fund is currently making profit distributions, which are being reallocated to gold, at what I consider to be a good entry point, and to cash.

All investors should be able to purchase precious metals and land and hold cash without difficulty. Alternatives such as hedge funds, private equity and venture capital are not open to all investors, because they are frequently traded as private funds limited to accredited investors with high minimum subscription amounts.

There are also publicly traded equities such as high-quality bond funds and companies holding hard assets in energy, transportation, natural resources and agriculture.

- Source, Daily Reckoning

Sunday, November 15, 2015

Jim Rickards: Oil Shocks & The Global Economy

Jim Rickards appears on Russia Today, where he discusses global growth and the ongoing slowdown in China. Is the Death of Money on the way?

Wednesday, November 4, 2015

Jim Rickards: Recession will force Fed to ease in 2016

Jim Rickards tells Lelde Smits there is no way the US Federal Reserve will hike rates. Instead, Rickards believes the next move will be easing in March 2016 and predicts the impact on markets, metals and currencies.

Monday, October 5, 2015

Jim Rickards: Will Currency Wars Reorder the World?

Our guest this weekend is Jim Rickards, the author of the 'New York Times' bestseller 'The Death of Money' and a well-known expert in geopolitics and global capital.

Jim and Jeff discuss the unfolding drama at the Fed, which can't decide when—if ever—QE will come to an end. They also discuss possible endgame scenarios for liquidating unprecedented amounts of sovereign, commercial, and household debt; whether coming monetary shocks will present the IMF with an opportunity to demand a global currency reset, and who wins and loses when the game of musical chairs stops. This is a must-hear interview for anyone interested in currency wars, central banks, and the unholy politics behind it all.

Friday, September 25, 2015

Threat Of Cyber War - Other Reasons to Own Physical Gold

Author and monetary expert Jim Rickards says that gold, apart from its qualities as a form of insurance against conventional economic crises, is an essential hedge against cyber warfare.

In an interview with Henry Bonner at, ahead of the Sprott-Stansberry Vancouver Natural Resource Symposium taking place this week, Rickards said this subject would form part of his talk at the conference.

We have frequently covered the risks posed by cyber warfare and cyber terrorism to markets, investments and deposits, and these risks remain, as yet, widely underappreciated in the mainstream media and the wider world.

For example, the Stuxnet virus believed to have been deployed by the U.S. and Israel in cyber war against Iranian nuclear reactors almost caused a major environmental disaster in 2010. Dormant malware – believed to be of Russian origin – was found hidden and awaiting activation in the software that runs the Nasdaq exchange.

Moscow-based Kaspersky Lab showed earlier this year that an international team of hackers gained access to bank’s customer accounts – with the ability to alter account balances without the banks even being aware of their presence.

These examples show the highly vulnerable nature of the interconnected systems upon which people in the west have come to rely.

As Rickards astutely points out,

“Physical gold is a non-digital asset. You can’t attack it with cyber warfare, so I think it has another insurance function for investors there.”

He believes that the Greek crisis was a foreseeable step in the centralisation of power in Europe. In 1992 when it was agreed to launch a single currency there was an appetite for a common currency but a strong aversion to fiscal and political union.

The architects of the euro knew that the single currency could not exist indefinitely in the absence of fiscal union and so the project was launched in full anticipation of a crisis which could then be used as a “forcing strategy” to achieve fiscal union.

“We’re getting closer to that now,” he says. “Greece now has to run its government according to German dictates. Greece has already outsourced its monetary policy to the European Central Bank, and now it’s sort of outsourced its fiscal policy to the German finance ministry.”

“So you’re on a path to unified fiscal policy and ultimately the Eurobonds – bonds backed by full strength and credit of not just any one country but the entire Eurozone.”

He believes that there has been a lull in the currency wars between China and the U.S. but that it will likely resume next year if China manages to get the yuan included in the currency basket that makes up the SDRs at the IMF.

He says the U.S. is the gatekeeper of the IMF and so China is on its “best behaviour”. He says the Chinese are resisting the temptation to depreciate their currency despite a sluggish economy with this goal in mind but that once the objective has been achieved it will go back to currency manipulation.

He points out that the Chinese continue to accumulate large volumes of gold and that China’s stated gold reserves are an understatement.

“I believe that the numbers they have shown are significant but not nearly as high as what they actually have.”

When asked whether now is a good time to hold gold, he replied,

“I think it’s always very important to own gold. I’ve recommended that investors have about 10% of their portfolio in the yellow metal.”

He believes that such a proportion will not hurt investors too much even if the price continues its decline but that,

“If I’m right and some catastrophic event is on the horizon, then that 10% would be your portfolio insurance.”

He emphasises, however, the importance of holding physical gold as opposed to digital or paper gold.

“These products allow the counterparties to terminate the agreement by giving the investor a dollar value of their gains. But that would deprive you of any future gains. You might get cashed out just as the crisis was beginning and not be able to participate in the upside as the crises worsened.”

Rickards is correct in these warnings. If you cannot visit, hold and easily take delivery of your gold in the event of a “catastrophic event” then you do not own gold – rather you are speculating on the gold price.

All financial service and investment providers and indeed gold brokers are at the mercy of and dependent on technology today. However, if you only have one point of contact with your gold – a website – and you cannot buy, sell or take delivery of your gold then you do not own gold as financial insurance and a safe haven asset.

- Source, GoldSeek

Monday, September 21, 2015

How China's Devaluation Impacts the U.S.

In case you missed it, watch my new interview with Fox Business’s Deirdre Bolton. We discussed China’s economy and the currency devaluation of the yuan, and how it will effect other Asian and Western currencies.

- Source, DR

Friday, September 18, 2015

Jim Rickards: We Are in a Global Depression

China’s currency devaluation is a confirmation that the world’s second-largest economy could be on the verge of an economic collapse. At least, that’s the opinion of renowned analyst Jim Rickards.

“There’s no such thing as a one-time thing in currency wars,” he told Amanda Lang on CBC. “It won’t be their last move.” (Source: CBC News, August 14, 2015.)

The Chinese economy is slowing down faster than many economists thought before. China’s exports declined significantly and the country’s stock market crashed by more than 25%. In only a few weeks, this wiped out nearly $4.0 trillion of investors’ wealth. Authorities in China devaluated the yuan to boost the struggling economy and repeatedly said it would be a one-time devaluation.

“Currency wars have no logical conclusion except systemic reform or systemic collapse,” Rickards continued.

He believes currency wars which started in 2010 with devaluation of the U.S. dollar could last a long time. He suggested that there are only two solutions to make peace in the intensifying currency wars.

He also believes that the economic growth in the Chinese economy is lower than officials report. “The actual growth has been about four or five; today is down to two or three [percent].”

In respect to the possible interest rate hike in the U.S., Rickards thinks that the economic condition is much worse than people think and raising rates could create many more problems. “Raising rates are deflationary,” he warned.

The Federal Reserve is expected to raise the interest rate in September. But recent economic data suggested that the skepticism has grown over the Fed’s crucial decision.

“There is no way that the Fed can raise rates,” he added.

When the world’s largest economy has grown less than 1.5% this year and the second-largest economy is slowing down dramatically, the whole global economy may be on a verge of an economic collapse.

“We are in a global depression,” Rickards concluded. “The whole world is slowing down.”

Tuesday, September 15, 2015

The Dollar Will Not Be Overthrown in October

Blogs, newsletters, and inboxes are cluttered with dire warnings about an event in October 2015. That will supposedly overthrow the dollar as the global reserve currency and cause a catastrophic meltdown of the international financial system. In fact, nothing of the kind is about to happen.

There are important and significant events happening behind the scenes in the international monetary system. Monetary elites are meeting in Washington, Beijing and Lima, Peru. Decisions are being made that will impact global capital markets in the years to come, and there is a plan underway to solve the global debt problem by stealing your money through inflation.

But elites do not operate on the big bang theory. They do not announce radical changes overnight. They prefer to make small moves, year after year, through boring technical changes that few notice or understand. The elites have a plan to take your money. Yet they prefer a slow orderly approach, opposed to a rapid disorderly approach.

Here is a step-by-step walkthrough of what is really happening. You should not be frightened by the October scare tactics. You should be concerned about this long-term elite plan to destroy your wealth.

The centerpiece of the elite plan to wipe out debt and destroy wealth is the world money issued by the International Monetary Fund, the IMF. This world money is called the special drawing right, or SDR.

The SDR is actually not that complicated. The Federal Reserve can print dollars, the European Central Bank (ECB) can print euros and the IMF can print SDRs — it’s that simple.

The main difference is that we can keep dollars or euros in our bank accounts or wallets, but SDRs are for countries only. They are added to national reserves by the IMF. SDRs can be swapped for dollars, euros, yen or other major currencies using a secret trading facility inside the IMF in Washington. So the inflationary potential of printing trillions of SDRs is the same as printing trillions of dollars or euros once the recipients make the swap.

The main difference between SDRs and dollars or euros is that no one is accountable. When the IMF floods the world with SDRs, you won’t be able to blame the Fed or ECB. Few people will have any idea what’s happening. They’ll just find out the hard way that their savings have been wiped out by inflation.

With that as background, let’s look at a chronology of coming events. As events unfold, you’ll be able to see them in the proper sequence and perspective. We’ll be covering each in future issues, in our five recommended articles every Monday and in our live monthly briefings. Here’s the calendar:
Sept. 17, 2015 — The Fed’s FOMC announces policy changes in interest rates
September 2015 (exact date TBA) — President Xi of China visits White House
Oct. 9, 2015 — IMF annual meeting in Lima, Peru
November 2015 (exact date TBA) — IMF Executive Board discusses “new” SDR
Sept. 30, 2016 — New SDR goes into effect.

The first thing to notice about this schedule is that it blends events from the Fed, the White House and the IMF. That’s a reflection of the fact that the IMF is closely coordinating its efforts with central banks and heads of state.

In the past, the U.S. Treasury was the primary agency involved with the exchange value of the dollar. The Fed focused on the U.S. economy but did not involve itself with the dollar in international markets. That has changed.

When I met Ben Bernanke in Korea recently, he told me he was heavily involved in discussions with the IMF in 2009 and 2010 on a variety of issues including IMF voting rights, issuance of SDRs, U.S. funding of the IMF and an increased voice for China. This four-way interaction of the White House, Fed, Treasury and IMF is now well entrenched.

Right now, traders and investors are focused on the Sept. 17 Fed meeting. Most observers expect the Fed to raise interest rates at that meeting. Fed Chair Janet Yellen has given markets little reason to think otherwise.

But the data tell another story. China’s growth is collapsing and the world is slowing down with them. The U.S. is not immune to this global slowdown. The Fed has an inflation goal of 2%, but the inflation measures watched most closely by the Fed are nowhere near that. The core personal consumption expenditure index is about 1.3%, is trending down and has not been over 2% since 2008.

The U.S. employment cost index, another potential inflation measure, is also trending down and recently collapsed to a 0.2% level. Average hourly earnings have increased at an annual rate of 1.75–2.25% since 2012 and have lately moved down; after adjusting for inflation, those earnings have shown about zero real gains.

In short, Yellen’s entire dashboard is blinking red saying, “No inflation, no wage pressure and no reason to raise rates!”

But there’s another reason Yellen won’t raise rates in September, and it brings us back to the SDR story.

Right now, the value of one SDR is determined by reference to the dollar, euro, yen and sterling under a mathematical formula. China would like their currency, the yuan, to be included in that basket.

By itself, including the yuan in the SDR basket will not disrupt the international monetary system and will not overthrow the dollar as the leading global reserve currency. But it is an important sign of respect and does represent enhanced prestige, which China desperately wants.

Tomorrow, we’ll discuss what they have to do to be admitted, over what timeline, and what it means for you. Stay tuned…

- Source, Jim Rickards via Daily Reckoning