Monday, October 16, 2017

James Rickards: A Black Swan Looms - War With Korea Inevitable


Jim discusses how most financial concepts are easy to understand. Dollar and gold are an inverse relationship, and gold has dropped due to recent dollar strength. Throughout 2016 and 2017 the dollar has been weakening. The Euro has risen against the dollar, and this weaker dollar has translated into higher prices for gold. 

Jim thinks a shooting war with North Korea could be a wake-up call for the markets. The markets did react somewhat to Kim Jung-un’s initial missile tests however these launches have become normalized. Jim is convinced the U.S. is on a path toward war and will have to attack before they miniaturize their nuclear warheads to missile size. Korea has achieved made advances faster than intelligence agencies suspected. 

Jim thinks the markets are overly complacent about it. Yellen’s recent speeches indicate the Fed will not raise rates. The Fed uses a relatively simple model that targets 2% inflation. The Fed wants interest rates to be around 3.5% before the next recession because you can’t get out of a recession with rates this low. 

He discusses various pause factors that use in their forecast. Gold stocks are much the same what differs is management. How do you sort the well-run companies from the frauds? Jim says do your homework or find a reliable source.

- Source, Palisade Radio

Friday, October 13, 2017

Jim Rickards: Russia’s on the Way Back

Russia is poised to break out of its oil-related slump and become one of the best performing emerging markets economies in the years ahead. This sleeping giant is breaking its dependence on oil prices and embraces diversified growth.

When you hear the name “Russia” you probably run for cover. Russia has been the subject of nearly continuous media coverage bordering on frenzy since the election of Donald Trump last November.

Russia allegedly hacked U.S. computer systems and email servers, rigged the election in favor of Trump, and colluded with the Trump campaign to defeat Hillary Clinton. Trump campaign officials met with Russian operatives and spies to coordinate all of this nefarious activity. Or so the story goes.

The truth is more complex. Russia certainly does run an around-the-clock hacking and spying operation aimed at any U.S. system they can penetrate. We do the same to Russia. It’s what national intelligence agencies do. No news there.

There may have been some “weaponization” of the hacked data through selective leaks to publishing outlets like Wikileaks. That allegation is less clear. Wikileaks has always insisted that their leaks did not come from Russia. There is some evidence to support the claim that the Hillary Clinton related leaks came from disaffected Bernie Sanders supporters. That truth may emerge later.

Trump campaign efforts to reach out to Russia between November 2016 and January 2017 did not have to do with “collusion.” They were a smart geopolitical move to align U.S. interests with Russia in advance of a confrontation with China about trade, currency, and North Korea.

Unfortunately, the Trump team consisted of amateurs like Jared Kushner who bungled the job. They played into the hands of Democrats who were waiting to pounce on the smallest sign of so-called collusion. This sequence combined with media bias has now poisoned the U.S.-Russia relationship.

Now, the confrontation with China is arriving right on schedule but the U.S. has no relationship with Russia to help back up our position. It’s two-against-one, and the U.S. is the odd man out — thanks to U.S. political dysfunction and the media.

The point in reciting this history is that it’s difficult for investors to separate the economic fundamentals of Russia from the media circus and political noise. If Russia were named “Volgastan,” and not involved in U.S. politics, its economic position would be one of the most attractive emerging markets stories in the world.

Let’s begin our independent analysis by reviewing the fundamentals.

Russia is the 12th largest economy in the world with about $1.3 trillion in GDP. That is slightly larger than Australia or Spain, and significantly larger than well-liked emerging markets economies such as Mexico, Indonesia, and Taiwan.

Russia’s sovereign debt-to-GDP ratio is a microscopic 17%. Compare that to the U.S. debt-to-GDP ratio of 106%, more than six times larger. Other debt-to-GDP zombies are Japan (240%), France (96%) and the UK (89%).

The fact is, in the next liquidity crisis, you won’t be hearing about Russian default. The U.S. and China are more likely to be in the eye of the storm.

Russia is the world’s second largest oil exporter (after Saudi Arabia) and the world’s largest exporter of natural gas. Russia is also the world’s third largest gold producer after China and Australia, and ahead of the United States.

From a geopolitical perspective, Russia is one of only three genuinely powerful countries in the world (along with the U.S. and China) despite media efforts to portray it as an inefficient economic backwater.

Still, there’s much more to the Russian economic analysis than the familiar story of an export and geopolitical powerhouse. In particular, Russia has engaged in one of the most aggressive gold accumulation operations since the U.S. in the 1920s.

Russian reserves are managed by the Central Bank of Russia, CBR. The CBR Chair since 2013 has been Elvira Nabiullina. Think of her as the “Janet Yellen of Russia,” but with a much different pedigree.


Nabiullina did not graduate from one of the Keynesian-monetarist hotbeds such as MIT or the University of Chicago. She graduated from Moscow State University and worked her way up through the Russian Ministry for Economic Development and Trade.

With that background, she has a much better feel for the dynamics of Russian growth and the Russian people than the so-called Western experts who rushed in to “fix” the Russian economy in the 1990s. Those experts ruined Russia and paved the way for the more authoritarian politics of Vladimir Putin.

To his credit, Putin has given Nabiullina independence and allowed her to manage reserves, interest rates, and capital outflows with a minimum of political interference. In 2017, The Banker, a British publication, named Nabiullina “Central Banker of the Year, Europe.”

Nabiullina’s greatest accomplishment is to increase Russia’s gold reserves by 700 tonnes since taking office. This gold has a market value of $32 billion at today’s prices. This is on top of the approximately 1,000 tonens of gold that Russia already had when Nabiullina became CBR Chair in 2013.

This is an extraordinary accomplishment considering that Russian reserves collapsed from about $525 billion to $350 billion during the oil price crash of 2014-2015. Today, Russia’s reserves are back up to a healthy $425 billion, recovering over 40% of the reserves lost in the oil price collapse.

Despite the roller-coaster ride in the overall reserve position, Russia never stopped buying gold. If it needed hard currency, Russia would sell U.S. Treasury securities and keep buying gold.

Russia now has a gold-to-GDP ratio of almost 6% — more than three times the comparable ratio for the U.S. Russia is preparing for the day when a full-blown crisis of confidence in the U.S. dollar emerges. At that point, a new international monetary conference similar to Bretton Woods will be convened.

In such a scenario, gold will be a major determinant of the power of each participant in reshaping the international monetary system. Russia will have a prime seat at the table, while gold weaklings such as the UK, Canada, and Australia sit along the sidelines.

Oil prices have stabilized above $40 per barrel, which puts a floor under the Russian economy. If oil prices rally, the Russian economy, stocks and currency will rally together.

But, Russia is not solely dependent on oil for economic growth. The Russian economy is poised for strong growth from a diversified combination of exports, agriculture, and direct foreign investment.

The combined prospect of strong growth independent of oil prices, and a possible windfall if oil prices spike on geopolitical fears, makes the Russian economy attractive right now.

What indicators am I using to support this positive fundamental analysis of the Russian economy?

The most important development is the diversification of the Russian economy to avoid exclusive reliance on energy exports.

Russia has revved up its export economy. These exports include arms sales to cash customers such as Iran and Turkey.

Russia is also a major exporter of nuclear power plants. Russia recently signed several major deals with Turkey on the expansion of Turkey’s nuclear power generating capacity, for example.

Russia is also harvesting a bumper crop of wheat both from Russia itself and parts of eastern Ukraine effectively dominated by Russia. These crops will be in high demand due to drought conditions in major Russian competitors such as Australia, Canada and the U.S.

Improvement in Russia’s trade surplus and reserve position will make it a magnet for direct foreign investment and global capital flows.

This combination of diversified export revenues and capable central bank reserve management has left Russia less vulnerable to economic sanctions and oil prices than most Western analysts expected.

Having weathered the storm, Russia will be the main beneficiary as sanctions are gradually eased and as oil prices gradually recover.

And did I mention that Russia’s acquiring gold?

- Source, Jim Rickards via the Daily Reckoning

Tuesday, October 10, 2017

Central Banks Are Transitioning the World Away From the Dollar


Central Banks around the world continue to position themselves for the eventual day when the US Dollar will be replaced as the reserve currency of the world. All fiat money fails throughout history, always.

James Rickards discusses what he sees unfolding and how Central Banks are positioning themselves right now, for this new future.  

The days of "King Dollar" are soon coming to a historic and violent end.


- Video Source, X22 Report

Thursday, October 5, 2017

The Truth About Nuclear Proliferation and North Korea


I’ve been arguing for months that we are headed for war with North Korea because of its nuclear program.

This brings us to the topic of nuclear proliferation.

Nuclear proliferation of the kind we are seeing in North Korea is nothing new. The U.S., Soviet Union (now Russia), U.K. and France all had nuclear weapons by 1960. China joined the club in the mid-1960s.

India and Pakistan started becoming nuclear powers in the 1970s. Israel has never officially announced it has nuclear weapons, but it is well-known that Israel possesses them. At various times, South Africa, Brazil, Iran, Syria, Iraq and Libya have pursued nuclear weapons development.

The Iranian program is the only one of those that is still active.

Critics of any effort to attack North Korea to stop its nuclear weapons program point to this extensive proliferation over 60 years as a reason not to risk war. According to these critics, the world has learned to live with eight nuclear powers. One more won’t matter. Deterrence works.

North Korea knows that if it uses nuclear weapons, it will be subject to a nuclear attack by the U.S., and therefore it won’t use them.

But this analysis is wrong on a number of levels.

The U.S. began its nuclear program to end World War II. The U.K., French, Russian and Chinese nuclear programs were part of a Great Power dynamic in the Cold War that does not apply to lesser powers like North Korea.

For the Great Powers, deterrence does work.

Israel’s program is a response to an existential threat from the Arabs (four large wars and many smaller ones in less than 70 years) and Israel’s lack of strategic depth. India and Pakistan are mutually hostile and their weapons are aimed at each other, not at the west.

North Korea is different because it continually threatens to use nuclear weapons on the U.S. and its allies, like Japan.

Deterrence does not work on Kim Jong Un. The North Korean leader will be safe in his nuclear bombproof bunker. He does not care about his people.

Kim’s threats involve actual nuclear missiles striking cities and a potential electromagnetic pulse weapon (EMP) detonated in the high atmosphere that produces a power surge that would destroy the U.S. power grid.

All communications, cellphones, computers, bank ATMs, debit and credit cards, gas station pumps and lights would be disabled. U.S. civilization would last about three days before food and water were depleted and society descended into rival gangs of looters and vigilantes.

That may sound paranoid or alarmist, but it’s not. It’s a legitimate possibility.

This is why North Korea will not be allowed to have nuclear weapons. This is why war is coming.


- Source, Jim Rickards via the Daily Reckoning

Monday, October 2, 2017

Jim Rickards: $10,000 Dollar Gold is Eight Grade Math


I believe gold is ultimately heading to $10,000 an ounce, or higher.

Now, people often ask me, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the Federal Reserve?”

It’s not made up. I don’t throw it out there to get headlines, et cetera.

It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. There’s always enough gold, you just have to get the price right.

I’m not saying that we will have a gold standard. I’m saying if you have anything like a gold standard, it will be critical to get the price right.

The analytical question is, you can have a gold standard if you get the price right; what is the non-deflationary price? What price would gold have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply?

The answer is, $10,000 an ounce.

I use a 40% backing of the M1 money supply. Some people argue for 100% backing. Historically, it’s been as low as 20%, so 40% is my number. If you take the global M1 of the major economies, times 40%, and divide that by the amount of official gold in the world, the answer is approximately $10,000 an ounce.

There’s no mystery here. It’s not a made-up number. The math is eighth grade math, it’s not calculus.

That’s where I get the $10,000 figure. It is also worth noting that you don’t have to have a gold standard, but if you do, this will be the price.

The now impending question is, are we going to have a gold standard?

That’s a function of collapse of confidence in central bank money, which is already being seen. It’s happened three times before, in 1914, 1939 and 1971. Let us not forget that in 1977, the United States issued treasury bonds denominated in Swiss francs, because no other country wanted dollars.

The United States treasury then borrowed in Swiss francs, because people didn’t want dollars, at least at an interest rate that the treasury was willing to pay.

That’s how bad things were, and this type of crisis happens every 30 or 40 years. Again, we can look to history and see what happened in 1998. Wall Street bailed out a hedge fund to save the world. What happened in 2008? The central banks bailed out Wall Street to save the world.

What’s going to happen in 2018?

We don’t know for sure.

But eventually a tipping point will be reached where the dollar collapse suddenly accelerates as happened to sterling in 1931. Investors should acquire gold and other hard assets before that happens.

- Source, Jim Rickards

Friday, September 29, 2017

Cracks in Dollar Are Getting Larger


Many Daily Reckoning readers are familiar with the original petrodollar deal the U.S made with Saudi Arabia.

It was set up by Henry Kissinger and Saudi princes in 1974 to prop up the U.S. dollar. At the time, confidence in the dollar was on shaky ground because President Nixon had ended gold convertibility of dollars in 1971.

Saudi Arabia was receiving dollars for their oil shipments, but they could no longer convert the dollars to gold at a guaranteed price directly with the U.S. Treasury. The Saudis were secretly dumping dollars and buying gold on the London market. This was putting pressure on the bullion banks receiving the dollar.

Confidence in the dollar began to crack. Henry Kissinger and Treasury Secretary William Simon worked out a plan. If the Saudis would price oil in dollars, U.S. banks would hold the dollar deposits for the Saudis.

These dollars would be “recycled” to developing economy borrowers, who in turn would buy manufactured goods from the U.S. and Europe. This would help the global economy and help the U.S. maintain price stability. The Saudis would get more customers and a stable dollar, and the U.S. would force the world to accept dollars because everyone would need the dollars to buy oil.

Behind this “deal” was a not so subtle threat to invade Saudi Arabia and take the oil by force. I personally discussed these invasion plans in the White House with Kissinger’s deputy, Helmut Sonnenfeldt, at the time. The petrodollar plan worked brilliantly and the invasion never happened.

Now, 43 years later, the wheels are coming off. The world is losing confidence in the dollar again. China just announced that any oil-exporter that accepts yuan for oil can convert the oil to gold on the Shanghai Gold Exchange and hedge the hard currency value of the gold on the Shanghai Futures Exchange.

The deal has several parts, which together spell dollar doom. The first part is that China will buy oil from Russia and Iran in exchange for yuan.

The yuan is not a major reserve currency, so it’s not an especially attractive asset for Russia or Iran to hold. China solves that problem by offering to convert yuan into gold on a spot basis on the Shanghai Gold Exchange.

This straight-through processing of oil-to-yuan-to-gold eliminates the role of the dollar.

Russia was the first country to agree to accept yuan. The rest of the BRICS nations (Brazil, India and South Africa) endorsed China’s plan at the BRICS summit in China earlier this month.

Now Venezuela has also now signed on to the plan. Russia is #2 and Venezuela is #7 on the list of the ten largest oil exporters in the world. Others will follow quickly. What can we take away from this?

This marks the beginning of the end of the petrodollar system that Henry Kissinger worked out with Saudi Arabia in 1974, after Nixon abandoned gold.

Of course, leading reserve currencies do die — but not necessarily overnight. The process can persist over many years.

For example, the U.S. dollar replaced the UK pound sterling as the leading reserve currency in the 20th century. That process was completed at the Bretton Woods conference in 1944, but it began thirty years earlier in 1914 at the outbreak of World War I.

That’s when gold began to flow from the UK to New York to pay for badly needed war materials and agricultural exports.

The UK also took massive loans from New York bankers organized by Jack Morgan, head of the Morgan bank at the time. The 1920s and 1930s witnessed a long, slow decline in sterling as it devalued against gold in 1931, and devalued again against the dollar in 1936.

The dollar is losing its leading reserve currency status now, but there’s no single announcement or crucial event, just a long, slow process of marginalization. I mentioned that Russia and Venezuela are now pricing oil in yuan instead of dollars. But Russia has taken its “de-dollarization” plans one step further.

Russia has now banned dollar payments at its seaports. Although these seaport facilities are mostly state-owned, many payments, like those for fuel and tariffs, were still conducted in dollars. Not anymore.

This is just one of many stories from around the world showing how the dollar is being pushed out of international trade and payments to be replaced by yuan, rubles, euros or gold in this case.


- Source, Jim Rickards

Monday, September 25, 2017

The Three Arguments Against Gold and Why They Are Nonsense


It’s no secret that I am a big believer in gold.

But today, I want to take a look at the case against gold.

Starting from a low of about $250 per ounce in mid-1999, gold staged a spectacular rally of over 600%, to about $1,900 per ounce, by August 2011.

Unfortunately, that rally looked increasingly unstable towards the end.

Gold was about $1,400 per ounce as late as January 2011.

Almost $500 per ounce of the overall rally occurred in just the last seven months before the peak.

That kind of hyperbolic growth is almost always unsustainable.

Sure enough, gold fell sharply from that peak to below $1,100 per ounce by July 2015. It still shows a gain of about 350% over 15 years.

But gold has lost nearly 40% over the past five years. Those who invested during the 2011 rally are underwater, and many have given up on gold in disgust.

For long-time observers of gold markets, sentiment has been the worst they’ve ever seen.

Yet it’s in times of extreme bearish sentiment that outstanding investments can be found — if you know how and where to look.

So far this year, there’s already been a change in the winds for gold.

A change that, in many ways, I predicted in my most recent book: The New Case for Gold.

But today, I want to show you three main arguments mainstream economists make against gold.

And why they’re dead wrong.

The first one you may have heard many times…

Argument #1: Not enough gold to support the financial system

‘Experts’ say there’s not enough gold to support a global financial system.

Gold can’t support the entire world’s paper money, its assets and liabilities, its expanded balance sheets of all the banks, and the financial institutions of the world.

They say there’s not enough gold to support that money supply; that the money supplies are too large.

That argument is complete nonsense.

It’s true that there’s a limited quantity of gold. But more importantly, there’s always enough gold to support the financial system.

But it’s also important to set its price correctly.

It is true that at today’s price of about $1,300 an ounce, if you had to scale down the money supply to equal the physical gold times 1,300, that would be a great reduction of the money supply.

That would indeed lead to deflation.

But to avoid that, all we have to do is increase the gold price.

In other words, take the amount of existing gold, place it at, say, $10,000 an ounce, and there’s plenty of gold to support the money supply.

In other words, a certain amount of gold can always support any amount of money supply if its price is set properly.

There can be a debate about the proper gold price, but there’s no real debate that we have enough gold to support the monetary system.

I’ve done that calculation, and it’s fairly simple. It’s not complicated mathematics.

Just take the amount of money supply in the world, then take the amount of physical gold in the world, divide one by the other, and there’s the gold price.

$10,000 an ounce

You do have to make some assumptions, however.

For example, do you want the money supply backed 100% by gold, or is 40% sufficient? Or maybe 20%?

Those are legitimate policy issues that can be debated. I’ve done the calculations for all of them. I assumed 40% gold backing. Some economists say it should be higher, but I think 40% is reasonable.

That number is $10,000 an ounce…


In other words, the amount of money supplied, given the amount of gold if you value the gold at $10,000 an ounce, is enough to back up 40% of the money supply. That is a substantial gold backing.

But if you want to back up 100% of the money supply, that number is $50,000 an ounce. I’m not predicting $50,000 gold. But I am forecasting $10,000 gold, a significant increase from where we are today.

But again, it’s important to realise that there’s always enough gold to meet the needs of the financial system. You just need to get the price right.

Regardless, my research has led me to one conclusion — the coming financial crisis will lead to the collapse of the international monetary system.

When I say that, I specifically mean a collapse in confidence in paper currencies around the world. It’s not just the death of the US dollar, or the demise of the euro. It’s a collapse in confidence of all paper currencies.

In that case, central banks around the world could turn to gold to restore confidence in the international monetary system. No central banker would ever willingly choose to go back to a gold standard.

But in a scenario where there’s a total loss in confidence, they’ll likely have to go back to a gold standard.

Argument #2: Gold can’t support world trade and commerce

The second argument raised against gold is that it cannot support the growth of world trade and commerce because it doesn’t grow fast enough.

The world’s mining output is about 1.6% of total gold stocks.

World growth is roughly 3-4% a year. It varies, but let’s assume 3-4%.

Critics say that if world growth is about 3-4% a year and gold is only growing at 1.6%, then gold is not growing fast enough to support world trade.

A gold standard therefore gives the system a deflationary bias.

But again, that’s nonsense, because mining output has nothing to do with the ability of central banks to expand the gold supply.

The reason is that official gold — the gold owned by central banks and finance ministries — is about 35,000 tonnes.

Total gold, including privately held gold, is about 180,000 tonnes.

That’s 145,000 tonnes of private gold outside the official gold supply.

If any central bank wants to expand the money supply, all it has to do is print money and buy some of the private gold.

Central banks are not constrained by mining output. They don’t have to wait for the miners to dig up gold if they want to expand the money supply.

They simply have to buy some private gold through dealers in the marketplace.

To argue that gold supplies don’t grow enough to support trade is an argument that sounds true on a superficial level.

But when you analyse it further, you realise that’s nonsense. That’s because the gold supply added by mining is irrelevant, since central banks can just buy private gold.

Argument #3: Gold has no yield

The third argument you hear is that gold has no yield.

This is true, but gold isn’t supposed to have a yield.

Gold is money.

I was on Fox Business with Maria Bartiromo last year. We had a discussion in the live interview when the issue came up.

I said, ‘Maria, pull out a dollar bill, hold it up in front of you and look at it. Does it have a yield? No, of course it has no yield — money has no yield.’

If you want yield, you have to take risk. You can put your money in the bank and get a little bit of yield — maybe half a percent.

Probably not even that. But it’s not money anymore.

When you put it in the bank, it’s not money. It’s a bank deposit. That’s an unsecured liability in an occasionally insolvent commercial bank.

You can also buy stocks, bonds, real estate, and many other things with your money.

But when you do, it’s not money anymore. It’s some other asset, and they involve varying degrees of risk.

The point is this: If you want yield, you have to take risk.

Physical gold doesn’t offer an official yield, but it doesn’t carry risk. It’s simply a way of preserving wealth.

I believe the primary way every investor should play the rise in gold is to own the physical metal directly.

At least 10% of your investment portfolio should be devoted to physical gold — bars, coins and the like.

But you can also up the risk to potentially profit from gold too.


- Source, Jim Rickards

Friday, September 22, 2017

Jim Rickards on the New Yuan Priced Gold Backed Oil Contract


Max and Stacy discuss the bricks and mortar meltdown and how private equity has once again led the way to a hollowed-out economy. Max interviews Jim Rickards, author of The Road To Ruin, The Death Of Money, Currency Wars and The New Case For Gold. They discuss the new Yuan-priced gold-backed oil contract and what this means for US dollar hegemony.

- Source, RT

Monday, September 18, 2017

Jim Rickards: The Next Financial Crisis Is Six to Eight Months Away

In this excellent video presentation, Jim Rickards tell's us that It is inevitable the next financial crises is six to eight months away and it will be triggered by a war between the US and North Korea. He still say's one of the best way to protect your wealth preservation is through gold.

Click on the image to view Rickards presentation;





Friday, September 15, 2017

Jim Rickards on How the North Korean Endgame Is Playing out Now


As mounting tensions rise from the latest round of nuclear testing out of North Korea, Jim Rickards believes a considerable window is closing by the United States. The threat of a nuclear armed and capable North Korea is a line that the currency wars expert and macro analyst believes the United States will now allow to be crossed. Speaking on CNBC’s Capital Connection Rickards offered his latest critique of the restrictions and response by the international community on North Korea.

The interview began with a question what an oil embargo would mean for North Korea and how it would impact that country. Rickards blasts, “North Korea has already beaten the world to the punch. They’ve been building up their strategic oil reserves. What that means is they have an estimated year’s worth of held in reserve and China has played a role in these things in the past.”


Tuesday, September 12, 2017

Weird Things Happening In Gold, Expert Sounds the Alarm


Two unusual stories are unfolding for gold — one strange and the other truly weird, this according to bestselling author Jim Rickards. "These stories explain why gold is not just money but is the most politicized form of money," Rickards, the author of Currency Wars said on Wednesday. 

"They show that while politicians publicly disparage gold, they quietly pay close attention to it," Rickards said. The first strange gold story involves Germany and its repatriation of its gold from New York and Paris, Rickards explained how this move was much more political than anything. The second weird event for Rickards is Treasury Secretary, Steve Mnuchin's visit to Fort Knox. After Mnuchin tweeted that all $200 billion dollars worth of gold is still there, Rickards said a few red flags went up for him. 

"Mnuchin is only the third Treasury secretary in history ever to visit Fort Knox and this was the first official visit from Washington, D.C., since 1974. The U.S. government likes to ignore gold and not draw attention to it. So why an impromptu visit by Mnuchin."


Saturday, September 9, 2017

It Won’t Be A Parabolic Rise But $10,000 Gold Is Coming


After hitting its highest level this year, gold has fallen back on profit taking, but best-selling author of Currency Wars Jim Rickards isn’t giving up on the metal just yet. ‘The bigger picture, the one I’m looking at, is that gold hit an interim low on Dec 15 and it’s been grinding higher ever since. 

It’s one of the best performing assets of 2017,’ he told Kitco News. Gold prices rallied to 11-month highs this week as North Korea launched a missile over Japan and even if tensions seem to have cooled off, pushing the safe-haven metal back down to around $1,312.70 an ounce, Rickards is not quite convinced. ‘People seem to have very short attention spans. I’m just looking down the road and you can see the war is coming,’ he said.

- Source, Kitco

Wednesday, September 6, 2017

Jim Rickards Warns - How Gold Regulation Could Come


James Rickards is interviewed and talks about how the system could crack down on gold and what gold regulation really means.


Sunday, September 3, 2017

EXPOSED: The Elite’s Plan to Freeze the Financial System

Today’s complacent markets are faced with a number of potentially destabilizing shocks.

Any one of them could potentially lead to another financial crisis. And the next crisis could see draconian measures by governments that most people are not prepared for today.

You’ll see what I mean in a moment.

But first, what are the catalysts that possibly trigger the next financial crisis?

First off, a debt ceiling crisis is just over a month away. If the ceiling isn’t raised by Sept. 29, the federal government is likely to default on at least some of its bills.

If a deal isn’t reached, it could rock markets and possibly trigger a major recession.

Given Washington’s current political paralysis and intense partisan infighting surrounding President Trump, it’s far from certain that a deal will be reached.

Second, despite some official comments over the weekend downplaying the odds of a war with North Korea, a shooting war remains a very real possibility.

North Korea’s Kim is determined to acquire nuclear weapons that can threaten the lower 48 U.S. states, and Trump is equally determined to prevent that from happening.

Third, a trade war between the U.S. and China seems imminent.

Trump has backed off his campaign pledges to label China a currency manipulator and an unequal trading partner.

And today, Trump is expected to present his case for sanctions against China.

China would likely retaliate, and that could ultimately result in a 10–20% “maxi-devaluation” of the yuan, perhaps by early next year.

That would likely cause a stock market rout. Since China devalued in August 2015, markets fell hundreds of points in single sessions. And that was a much smaller devaluation, less than 2%.

And if markets collapse from either of these scenarios — which is entirely possible — governments will move dramatically to contain the damage.

In my book The Road to Ruin, I discuss a phenomenon called “ice-nine.” The name is taken from a novel, Cat’s Cradle, by Kurt Vonnegut.

In the novel, a scientist invents a molecule he calls ice-nine, which is like water but with two differences. The melting temperature is 114.4 degrees Fahrenheit (meaning it’s frozen at room temperature), and whenever ice-nine comes in contact with water, the water turns to ice-nine and freezes.

The ice-nine is kept in three vials. The plot revolves around the potential release of ice-nine into water, which would eventually freeze the rivers and oceans and end all life on Earth. Cat’s Cradle is darkly comedic, and I highly recommend it.

I used ice-nine in my book as a metaphor for financial contagion.

If regulators freeze money market funds in a crisis, depositors will take money from banks. The regulators will then close the banks, but investors will sell stocks and force the exchanges to close and so on.

Eventually, the entire financial system will be frozen solid and investors will have no access to their money.

Some of my readers were skeptical of this scenario. But I researched it carefully and provided solid evidence that this plan is already in place — it’s just not well understood. But the ice-nine plan is now being put into practice.

Consider a recent Reuters article that admitted elites would likely shut down the entire system when the next financial crisis strikes.

The article claimed that the EU is considering actions that would temporarily prevent people from withdrawing money from banks to prevent bank runs.

“The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” said one source.

Very few people are aware of these developments. They get a brief mention in the media, if they get mentioned at all. But people could be in for a shock when they try to get their money out of the bank during the next financial crisis.

Think of it as a war on currency or a war on money. Even the skeptics can see how the entire financial system will be frozen solid in the next crisis.

The only solution is to have physical gold, silver and bank notes in private storage. The sooner you put your personal ice-nine protection plan in place, the safer you’ll be.

- Source, James Rickards via the Daily Reckoning

Thursday, August 31, 2017

The Coming Gold “Break Out”

Gold has conducted what some are calling a “stealth rally” over the past month.

After bottoming at $1,206 per ounce on July 10, gold is at $1,286 this morning, a healthy 6.5% gain in just over one month.

The has been welcome relief for gold investors after a series of “flash crashes” on June 14, June 26 and July 3 contributed to a gold drawdown from $1,294 per ounce to $1,206 per ounce between June 6 and July 10. At that point it looked as though gold might fall through technical resistance and tumble to the $1,150 per ounce range.

But the new rally restored the upward momentum in gold we have seen since the post-election low on Dec. 15, 2016. Gold seems poised to resume its march to $1,300 after the paper gold bear raids of late June.

The physical fundamentals are stronger than ever for gold. Russia and China continue to be huge buyers. China bans export of its 450 tons per year of physical production.

Gold refiners are working around the clock and cannot meet demand. Gold refiners are also having difficulty finding gold to refine as mining output, official bullion sales and scrap inflows all remain weak.

Private bullion continues to migrate from bank vaults at UBS and Credit Suisse into nonbank vaults at Brinks and Loomis, thus reducing the floating supply available for bank unallocated gold sales.

In other words, the physical supply situation is tight as a drum.

The problem, of course, is unlimited selling in “paper” gold markets such as the Comex gold futures and similar instruments.

One of the flash crashes was precipitated by the instantaneous sale of gold futures contracts equal in underlying amount to 60 tons of physical gold. The largest bullion banks in the world could not source 60 tons of physical gold if they had months to do it.

There’s just not that much gold available. But in the paper gold market, there’s no limit on size, so anything goes.

There’s no sense complaining about this situation. It is what it is, and it won’t be broken up anytime soon. The main source of comfort is knowing that fundamentals always win in the long run even if there are temporary reversals. What you need to do is be patient, stay the course and buy strategically when the drawdowns emerge.

Where do we go from here?

August and September are traditionally strong seasonal periods for gold. This is partly due to proximity to the wedding and gift season in India, when strong buying prevails.

Yet there’s more to the gold demand story this year.

Deteriorating relations between the U.S. and Russia will only accelerate Russia’s efforts to diversify its reserves away from dollar assets (which can be frozen by the U.S. on a moment’s notice) to gold assets, which are immune to asset freezes and seizures.

The countdown to war with North Korea has begun. A U.S. attack on the North Korean nuclear and missile weapons programs is likely by mid-2018. The stock market may not have noticed, but the gold market has. This is part of the reason for recent gold strength.

Finally, we have to deal with our friends at the Fed. The strong jobs report on Friday, Aug. 4, gave life to the view that the Fed would raise interest rates at least one more time this year. Rate hikes make the dollar stronger and are a head wind for the dollar price of gold.

But the Fed will not hike rates again this year. Once the market wakes up to the reality of a prolonged “pause” by the Fed, they will conclude correctly that the Fed is once again attempting to ease by “forward guidance.” This relative ease will keep the dollar on its downward trend and be a boost to the dollar price of gold.

The Fed will not hike rates regardless of the strong jobs report. The reason is that strong job growth was “mission accomplished” for the Fed over a year ago. Jobs are not the determining factor in Fed rate decisions today. The determining factor is disinflation.

The Fed’s main inflation metric has been moving in the wrong direction since January. The readings on the core PCE deflator year over year (the Fed’s preferred metric) were:

January 1.9%
February 1.9%
March 1.6%
April 1.6%
May 1.5%
June 1.5%

The July data will not be available until early September.

The Fed’s target rate for this metric is 2%. It will take a sustained increase over several months for the Fed to conclude that inflation is back on track to meet the Fed’s goal.

There’s no chance of this happening before the Fed’s September meeting. It’s unlikely to happen before December, because of weakness in auto sales, retail sales, discretionary spending and consumer credit.

A weak dollar is the Fed’s only chance for more inflation. The way to get a weak dollar is to delay rate hikes indefinitely, and that’s what the Fed will do.

And a weak dollar means a higher dollar price for gold.

Current levels look like the last stop before $1,300 per ounce gold. After that, a price surge is likely as buyers jump on the bandwagon, and then it’s up, up and away.

There’s an old saying that “a picture is worth a thousand words.” This chart is a good example of why that’s true:


Gold analyst Eddie Van Der Walt produced this 10-year chart for the dollar price of gold showing that gold prices have been converging into a narrow tunnel between two price trends — one trending higher and one lower — for the past six years.

This pattern has been especially pronounced since 2015. You can see gold has traded up and down in a range between $1,050 and $1,380 per ounce. The upper trend line and the lower trend line converge into a funnel.

Since gold will not remain in that funnel much longer (because it converges to a fixed price) gold will likely “break out” to the upside or downside, typically with a huge move that disrupts the pattern.

At the extreme, this could imply a gold price on its way to $1,800 or $800 per ounce. Which will it be?

The evidence overwhelmingly supports the thesis that gold will break out to the upside. Central banks are determined to get more inflation and will flip to easing policies if that’s what it takes.

Geopolitical risks are piling up from North Korea, to Syria, to the South China Sea and beyond.

The failure of the Trump agenda has put the stock market on edge and a substantial market correction may be in the cards.

Acute shortages of physical gold have set the stage for a delivery failure or a short squeeze.

Any one of these developments is enough to send gold soaring in response to a panic or as part of a flight to quality. The only force that could take gold lower is deflation, and that is the one thing central banks will never allow. The above chart is one of the most powerful bullish indicators I’ve ever seen.

Get ready for an explosion to the upside in the dollar price of gold. Make sure you have your physical gold and gold mining shares before the breakout begins.

- Source, James Rickards

Monday, August 28, 2017

How Badly Does China Want Gold?


In best-selling author Jim Rickards’ latest book, the New Case For Gold, he brings up one of the most common criticisms of a new gold standard – that there is not enough gold to support it. 

Rickards makes the argument that it would work at a certain price level. In his interview with Kitco News, Rickards also discusses China and gold buying. He suggests that China is suppressing the gold price through the COMEX market in order to build-up more physical supplies. 

Once they have a sufficient supply, equal to the United States, they will no longer care what the metal's price is and it will likely skyrocket, he explains.


Friday, August 25, 2017

Bitcoin No Threat To U.S. Dollar, Gold - Jim Rickards


The cryptocurrency craze continues with the leading virtual currency — Bitcoin — trading near record highs. But, to bestselling author and currency expert Jim Rickards, the new age currency may be in a bubble. 

Delving into the theory of valuation, the Currency Wars author said that even if investors seem to be expressing a liquidity preference for Bitcoin over the dollar, it doesn’t necessarily mean they are losing confidence in the greenback. ‘If you were losing confidence in the dollar than gold would be going up and it’s not, so it looks like a bubble,’ he told Kitco News. 

He added that investors should not worry that virtual currencies take over the U.S. dollar’s reserve currency status any time soon because the market is just too small. Another facet that investors may be ignoring, Rickards continued, is that investors racking up substantial gains from crypto investments might not be properly filing their taxes. “The IRS could subpoena one of these [cryptocurrency] exchanges and freeze up all the bitcoin,’ he said. ‘The IRS did this with Americans with Swiss bank accounts, they’ll do it with bitcoin.’

- Source, Kitco News

Tuesday, August 22, 2017

Why Elites Are Winning the War on Cash

Visa recently unveiled its own offensive in the war on cash. Visa is offering certain merchants a $10,000 reward if they refuse to accept cash in the future.

Not surprisingly, Visa’s competitor is also part of the war on cash. Mastercard is increasing its efforts to encourage merchants to refuse cash. Here’s Bloomberg, quoting the CEO of Mastercard:

“Mastercard Chief Executive Officer Ajay Banga has been one of the most ardent supporters of ditching paper currency in the U.S. The 57-year-old first declared his war on cash in 2010.”

These private efforts by Visa and MasterCard exist side by side with official efforts to eliminate or discourage the use of cash coming from governments in India, Australia, Sweden as well as the United States.

These efforts are always portrayed in the most favorable light. Private parties talk about convenience and lower costs. Governments talk about putting pressure on tax cheats, terrorists and criminals.

Governments always use money laundering, drug dealing and terrorism as an excuse to keep tabs on honest citizens and deprive them of the ability to use money alternatives such as physical cash and gold.

But the so-called “cashless society” is just a Trojan horse for a system in which all financial wealth is electronic and represented digitally in the records of a small number of megabanks and asset managers.

Once that is achieved, it will be easy for state power to seize and freeze the wealth, or subject it to constant surveillance, taxation and other forms of digital confiscation.

The war on cash has two main thrusts. The first is to make it difficult to obtain cash in the first place. U.S. banks will report anyone taking more than $3,000 in cash as engaging in a “suspicious activity” using Treasury Form SAR (Suspicious Activity Report).

The second thrust is to eliminate large-denomination banknotes. The U.S. got rid of its $500 note in 1969, and the $100 note has lost 85% of its purchasing power since then. With a little more inflation, the $100 bill will be reduced to chump change.

Last year the European Central Bank announced that they were discontinuing the production of new 500 euro notes. Existing 500 euro notes will still be legal tender, but new ones will not be produced.

This means that over time, the notes will be in short supply and individuals in need of large denominations may actually bid up the price above face value paying, say, 502 euros in smaller bills for a 500 euro note. The 2 euro premium in this example is like a negative interest rate on cash.

The real burden of the war on cash falls on honest citizens who are made vulnerable to wealth confiscation through negative interest rates, loss of privacy, account freezes and limits on cash withdrawals or transfers.

The whole idea of the war on cash is to force savers into digital bank accounts so their money can be taken from them in the form of negative interest rates. An easy solution to this is to go to physical cash.

The war on cash is a global effort being waged on many fronts. My view is that the war on cash is dangerous in terms of lost privacy and the risk of government confiscation of wealth. India provides the most dramatic example.

How would you like to go to bed one night and then wake up the next morning to discover that all bills larger than $5.00 were no longer legal tender? That’s essentially what happened in India not long ago.

The good news is that cash is still a dominant form of payment in many countries including the U.S. The problem is that as digital payments grow and the use of cash diminishes, a “tipping point” is reached where suddenly it makes no sense to continue using cash because of the expense and logistics involved.

Once cash usage shrinks to a certain point, economies of scale are lost and usage can go to zero almost overnight. Remember how music CDs disappeared suddenly once MP3 and streaming formats became popular?

That’s how fast cash can disappear.

Once the war on cash gains that kind of momentum, it will be practically impossible to stop. That’s why I’m always saying that savers and those with a long-term view should get physical gold now while prices are still attractive and while they still can.

Given these potential outcomes, one might expect that citizens would push back against the war on cash.

But in some places, the opposite seems to be happening.

A recent survey revealed that more than a third of Americans and Europeans would have no problem at all giving up cash and going completely digital.

Specifically, the study showed 34% of Europeans and 38% of Americans surveyed would prefer going cashless.

Notably, Germans are the most resistant to going cashless. Almost 80% of transactions in Germany are done in cash, and many Germans never use credit cards.

The German experience with hyperinflation after WWI and additional monetary chaos after WWII certainly plays a part in this resistance to the cashless society.

Incidentally, the German word for debt, schuld, also means guilt.

Other countries, such as Romania and Bulgaria, which have recent experiences with currency and financial crises, also tend to use cash extensively.

Of course, there’s no denying that digital payments are certainly convenient. I use them myself in the form of credit and debit cards, wire transfers, automatic deposits and bill payments.

The surest way to lull someone into complacency is to offer a “convenience” that quickly becomes habit and impossible to do without.

The convenience factor is becoming more prevalent, and consumers are moving from cash to digital payments just as they moved from gold and silver coins to paper money a hundred years ago.

But when the next financial panic comes, those without tangible wealth will be totally at the mercy of banks and governments who will decide exactly how much of your own money you’re allowed to have each day.

Just ask the citizens of Cyprus, Greece and India who have gone through this experience in recent years.

It will come to the U.S. soon enough.

Other dangers arise from the fact that digital money, transferred by credit or debit cards or other electronic payments systems, are completely dependent on the power grid. If the power grid goes out due to storms, accidents, sabotage or cyberattacks, our digital economy will grind to a complete halt.

That’s why it’s a good idea to keep some of your liquidity in paper cash (while you can) and gold or silver coins. The gold and silver coins in particular will be money good in every state of the world.

I hold significant portion of my wealth in nondigital form, including real estate, fine art and precious metals in safe, nonbank storage.

I strongly suggest you do the same.

- Source, The Daily Reckoning via Jim Rickards

Saturday, August 19, 2017

Jim Rickards: Thoughts on the US Economy, Section 232 and the Gold Price


Jim Rickards chats about his latest book, the potential for future interest rate hikes and US President Donald Trump's steel probe. He also shares his advice for investors.

- Source, Investing News

Wednesday, August 16, 2017

Gold prices have nowhere to go but up: Jim Rickards

Gold prices have nowhere to go but up: Jim Rickards from CNBC.

Gold prices stand to benefit as central banks continue targeting higher inflation rates, says Strategic Intelligence's Jim Rickards.

- Source, CNBC

Friday, August 11, 2017

Michael Pento and Jim Rickards on When it All Comes Apart


Join Michael Pento and best selling author & National security expert Jim Rickards as they discuss North Korea, debt the stock markets and when this all unravels .

Rickard's says "What Are You Waiting For, Get Your Gold Before Your Not Going To Get It Anymore".


Thursday, August 3, 2017

James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply

Gold was down after the Fed’s hike, but I expect it to start heading higher again. Too many powerful forces are driving it behind the scenes. Dwindling physical supply is a major one.


Gold in USD (5 Years)

On a recent visit to Switzerland, I was informed that secure logistics operators could not build new vaults fast enough and were taking over nuclear-bomb proof mountain bunkers from the Swiss Army to handle the demand for private storage.

Geopolitical fear is another. The crises in North Korea, Syria, Iran, the South China Sea, and Venezuela are not getting better. The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold soaring in a flight to safety.

Fed policy tightening is normally a headwind for gold. But, the last two times the Fed raised rates — December 14, 2016 and March 15, 2017 — gold rallied as if on cue.

Gold is the most forward-looking of any major market. It may be the case that the gold market sees the Fed is tightening into weakness and will eventually over-tighten and cause a recession.

At that point, the Fed will pivot back to easing through forward guidance. That will result in more inflation and a weaker dollar, which is the perfect environment for gold.

In short, all signs point to higher gold prices in the months ahead based on Fed ease, geopolitical tensions, and a weaker dollar.

- Source, Gold Seek

Monday, July 31, 2017

James Rickards: The Fed’s Road Ahead

I’m a big critic of the Fed models, but that’s because they’re obsolete and they don’t record with reality. You need the right ones.

In a typical business cycle, the economy starts from a low base, then gradually business starts expanding, hiring picks up, more people spend money, and businesses expand.

Eventually, industrial capacity is used up, labor markets tighten, resources are stretched. Prices rise, inflation picks up and the Fed comes along and says “Aha! There’s some inflation. We’d better snuff it.”

So it raises rates, usually for a full cycle.

Eventually it has to lower rates when the process goes into reverse. That’s the normal business cycle. It’s what everyone on Wall Street looks at. And historically, they’re right. That process has been happening 40 times since the end of World War II.

The problem is, that’s not what’s happening now. We’re in a new reality.

This is a result of nine years of unconventional monetary policy — QE1, QE2, QE3, Operation Twist and ZIRP. This has never happened before. It was a giant science experiment by Ben Bernanke.

And that’s the key…

You have to have models that accord to the new reality, not the old. Wall Street is still going by the old model.

The new reality is that the Fed basically missed a whole cycle. They should have raised in 2009, 2010 and 2011. Economic growth was not powerful. In fact it was fairly weak. But it was still the early stage of a growth cycle. If they had raised rates, many would have grumbled, the stock market would have hit a speed bump, but it wouldn’t have been the end of the world.

We’d just had a crash. But by the end of 2009, the panic was basically over. There was no liquidity crisis. There was plenty of money in the system. There was no shortage of money and interest rates were zero. They could have tried an initial 25-point rise but they didn’t.

This isn’t Monday morning quarterbacking, either. I was on CNBC’s “Squawk Box” in August ’09. The host turned to me and asked, “Jim, what do you think the Fed should do?”

My response was, “They should raise rates a little bit, just to say they were going to get back to normal.” Of course, that never happened.

Now we’re at a very delicate point, because the Fed missed the opportunity to raise rates five years ago. They’re trying to play catch-up, and yesterday’s was the third rate hike in six months.

Economic research shows that in a recession, they have to cut interest rates 300 basis points or more, or 3%, to lift the economy out of recession. I’m not saying we are in a recession now, although we’re probably close.

But if a recession arrives a few months or even a year from now, how is the Fed going to cut rates 3% if they’re only at 1.25%?

The answer is, they can’t.

So the Fed’s desperately trying to raise interest rates up to 300 basis points, or 3%, before the next recession, so they have room to start cutting again. In other words, they are raising rates so they can cut them.

And that’s what Wall Street doesn’t understand. It’s still operating from its old assumptions about the business cycle.

Wall Street thinks the Fed’s raising rates because official unemployment is low and the economy’s strengthening. But as I just explained, that’s not the reason at all. The reality’s quite different.

The Fed is hiking rates not because economy is strong, but because it’s desperate to catch up with the fact that Bernanke skipped a whole cycle in 2009, 2010 and 2011. So as usual, Wall Street is reading the signals exactly backwards.

The Fed’s actually tightening into weakness.

So now what?

After yesterday’s hike, the Fed still has a long way to get to 3%. That means seven more hikes of 25 basis points each, every other meeting, or four hikes a year. That means the mission won’t be accomplished until June 2019.

What would cause the Fed to back off? Any of three conditions…

Number one is a market meltdown. If the stock market sells off 5%, which would be over 1,000 points on the Dow, that would not be enough to throw them off. But if it goes down 15%, that’s a different story. Ben Bernanke actually told me that not long ago.

Now, if the stock market falls 10%, the Fed will pause. It won’t raise. But it won’t cut either at that point.

Now, markets are complacent right now and are not expecting any sudden moves to the downside. But it’s when markets are most complacent that sudden drops are most likely. August 2015 and January 2016 are good examples. Another drop could be right around the corner.

The second condition is if job creation dries up. Now, job creation does not have to be 200,000 jobs a month, or even 150,000 jobs a month. Their baseline is around 75,000, which is a very low base. If you see jobs go below 75,000, the Fed may pause.

The third condition is disinflation. Now, I’m not talking about outright deflation. I mean inflation falling substantially short of the Fed’s target under a metric called PCE, or the Personal Consumption Expenditure Price Deflator Core.

You may be skeptical of how the Fed measures inflation, and rightly so. But you have to look at what the Fed looks at to know what they’re up to, right or wrong. And they look at the PCE, year over year.

The Fed wants 2% inflation. Lately it’s been getting close. But if that figure drops to, say, 1.4, that’s another reason to hit the pause button. That seems unlikely at this point.

Unless any of these three conditions materialize, the Fed intends to raise rates four times a year, every other meeting, until the middle of 2019. If any one of those three things happen along the way, the Fed will probably hit the pause button. If all three happen, it will definitely pause.

Gold is down today after yesterday’s hike, but I expect it to start heading higher again. Too many powerful forces are driving it behind the scenes. Dwindling physical supply is a major one.

On a recent visit to Switzerland, I was informed that secure logistics operators could not build new vaults fast enough and were taking over nuclear-bomb proof mountain bunkers from the Swiss Army to handle the demand for private storage.

Geopolitical fear is another. The crises in North Korea, Syria, Iran, the South China Sea, and Venezuela are not getting better. The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold soaring in a flight to safety.

Fed policy tightening is normally a headwind for gold. But, the last two times the Fed raised rates — December 14, 2016 and March 15, 2017 — gold rallied as if on cue.

Gold is the most forward-looking of any major market. It may be the case that the gold market sees the Fed is tightening into weakness and will eventually over-tighten and cause a recession.

At that point, the Fed will pivot back to easing through forward guidance. That will result in more inflation and a weaker dollar, which is the perfect environment for gold.

In short, all signs point to higher gold prices in the months ahead based on Fed ease, geopolitical tensions, and a weaker dollar.

- Source, James Rickards via the Daily Reckoning

Thursday, July 27, 2017

Why the Fed Will Fail Once Again

John Maynard Keynes once wrote, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

Truer words were never spoken, although if you updated Keynes today, the quote would begin with “practical women” to take account of Fed Chair Janet Yellen. The “defunct economist” in question would be William Phillips, inventor of the Phillips curve, who died in 1975.

In its simplest form, the Phillips curve is a single-equation model that describes an inverse relationship between inflation and unemployment. As unemployment declines, inflation goes up, and vice versa. The equation was put forward in an academic paper in 1958 and was considered a useful guide to policy in the 1960s and early 1970s.

By the mid-1970s the Phillips curve broke down. The U.S. had high unemployment and high inflation at the same time, something called “stagflation.” Milton Friedman advanced the idea that the Phillips curve could only be valid in the short run because inflation in the long run is always determined by money supply.

Economists began to tweak the original equation to add factors — some of which were not empirical at all but model-based. It became a mess of models based on models, none of which bore any particular relationship to reality. By the early 1980s, the Phillips curve was no longer taken seriously even by academics and seemed buried once and for all. RIP.

But like a zombie from The Walking Dead, the Phillips curve is baaaack!

And the person who has done the most to revive it is none other than Janet Yellen, the 70-year-old liberal labor economist who also happens to be chair of the Federal Reserve.

Unemployment in the U.S. today is 4.3%, the lowest rate since the early 2000s. Yellen assumes this must result in inflation as scarce labor demands a pay raise and the economy pushes up against the limits of real growth. Yellen also agrees with Friedman that monetary policy works with a lag.

If you believe that inflation is coming soon and that policy works with a lag, you better raise interest rates now to keep the inflation from getting out of control. That’s exactly what Yellen and her colleagues have been doing.

Meanwhile, back in the real world, all signs point not to inflation but to deflation. Oil prices are declining, intermediate-term interest rates are falling, labor force participation is falling, demographics favor saving over spending and logistics and supply-chain giants like Wal-Mart and Amazon are relentlessly squashing price increases wherever they appear.

Even traditional high-price sectors like college tuition and health care have been cooling off lately.

Yellen and a small group of Fed insiders, including Bill Dudley and Stan Fischer, are keeping up the drumbeat for more rate hikes later this year. Opposition to more rate hikes among Fed officials is growing, including from Neel Kashkari, Lael Brainard and Charles Evans.

This intellectual tug of war is coming to a head.

First, bonds are rallying because the bond market expects a recession or slowdown due to unnecessary tightening by the Fed. Which brings me to Bill Gross…

Practically every investor has heard of Bill Gross. For decades he was the head of PIMCO and ran the world’s largest bond fund. His specialty was U.S. Treasury debt..

PIMCO was always a “bigfoot” in the bond marketplace. In the 1980s and 1990s, I was chief credit officer at a major U.S. Treasury bond dealer, one of the so-called “primary dealers” who get to trade directly with the Federal Reserve open market operations trading desk.

PIMCO had dedicated lines and a dedicated sales team at our firm. When they called to buy or sell, it would move markets. Every primary dealer wanted to be the first firm to get the call.

Gross is famous for outperforming major bond indices by a wide margin. The way to do that is market timing. If you sell bonds just ahead of a rising rate environment, and buy them back when the Fed is ready to reverse course you not only capture most of the coupon and par value at maturity, you can book huge capital gains besides.

Now Gross has issued one of his most stark warnings yet. He says that market risk levels today are higher than any time since just before the 2008 panic. We all know what happened then. Gross says it could happen again, and soon.

No one reads the market better than Bill Gross. So, when he issues a warning, investors are wise to pay attention.

The stock market is giving a different signal. Stocks are rallying because markets interpret Fed rate hikes as a signal that the economy is getting stronger.

Both markets cannot be right. Either stocks or bonds will crash in the weeks ahead.

Gold is watching and waiting, moving down on deflation fears and then up again on the view that the Fed will have to reverse course once the economy cools down.

My models show that bonds, Bill Gross and gold have it right and that stocks are heading for a fall.

The stock market correction won’t come right away, because the Fed is still in a mode to talk up rate hikes and strong growth and to dismiss disinflation as “transitory.”

Yet even Janet Yellen can’t ignore reality forever. The Atlanta Fed GDP growth forecast for the second quarter has gone from 4.3% on May 1, to 3.4% on June 2, to 2.9% on June 15.

Today it released its latest growth forecast, which remains unchanged from its June 15 reading — 2.9%.

Something is slowing down the economy, and that something is Fed rate hikes.

By August, even the Fed will get the message. But by then it may be too late. If Q2 growth comes in at 2.5% combined with Q1 growth of 1.2%, that would put 2017 first-half growth at about 1.85%.

That’s even weaker than the historically weak 2.0% growth of the current expansion since June 2009. This is not the stuff of which inflation is made.

The Fed’s bungling should come as no surprise.

The Federal Reserve has done almost nothing right for at least the past twenty years, if not longer. The Fed organized a bailout of Long-Term Capital Management in 1998, which arguably should have been allowed to fail (with a Lehman failure right behind) as a cautionary tale for Wall Street.

Instead the bubbles got bigger, leading to a more catastrophic collapse in 2008. Greenspan kept rates too low for too long from 2002-2006, which led to the housing bubble and collapse.

Bernanke conducted an “experiment” (his word) in quantitative easing from 2008-2013, which did not produce expected growth, but did produce new asset bubbles in stocks and emerging markets debt.

Yellen is now raising rates in a weak economy, which should produce the same recessionary reaction as 1937, the last time the Fed raised into weakness.

Why this trail of blunders?

The answer is that the Fed is using obsolete and defective models such as the Phillips Curve and the so-called “wealth effect” to guide policy. None of this is new; I’ve been saying it for years in books, interviews and speeches.

What is new is that even the mainstream media is beginning to see things the same way. Fed leaders have been exposed as charlatans, like the Professor in the Wizard of Oz.

The Fed’s latest failure will cause policy to shift to ease before September in the form of forward guidance on no further rate hikes this year. Just one more failure in a long list.

It’s time to load up on Treasury notes, gold and cash and lighten up on stocks. The Fed may be the last to learn about deflation, but when they do, the policy response could be instantaneous and markets could suffer whiplash.

That’s what happens when zombies are on the loose.



Monday, July 24, 2017

Rickards: The Real Reason for the Fed Hikes


It’s been an interesting day. Cryptocurrency Ethereum hits a record high as OPEC oil production increases thanks to Iraq and Libya. Jim Rickards joins us live to talk about what’s going on tomorrow at the Federal Reserve while Beijing scores a major win as Panama establishes ties with China, leaving Taiwan out in the cold. Rounding us out, Manuel Rapalo takes a look at a malware that reportedly cause a major power outage. All that and more on today’s Boom Bust!

- Source, Boom Bust

Friday, July 21, 2017

Jim Rickards: Bitcoin vs. Gold

Jim Rickards joined The Street and Kitco’s Gold Report to discuss bitcoin, gold and the future economy with Daniela Cambone-Taub. The conversation covered a leader in virtual currency, bitcoin, which continues to make headlines in financial media coverage. Jim Rickards’ interview takes on investor confidence, liquidity preferences and what it might mean for the U.S dollar and gold.

To begin the conversation the host asked how Rickards’ saw the cryptocurrency and the craze unfolding. Rickards’ pressed, “It is interesting. I looked at it last night and it was nearing $3,000 for one bitcoin. It could be closing $4,000 by tonight.”

“Bitcoin is a form of money. I have no quarrel with that. When people say the price is $2,000 or $3,000 it is still not an investment and has no yield. When you buy stock in a company you can analyze the company, the management, the assets, etc. When you buy a bond you can see the interest rate, who is the issuer, creditworthiness, inflation. There are ways to analyze all of these things.”

“There are ways to analyze these things. When you buy a bitcoin and give dollars, euro, yuan to get bitcoin all you are doing is exchanging one form of money for another. It has no yield. There are no bitcoin investable assets. There are no bitcoin bonds. You are just swapping money. When you see the price going to $2,000-$3,000 you can say that bitcoin is going up, but you can also say that the dollar is going down.”

Jim Rickards is a currency expert and economist who examines the complex dynamics of geopolitics and global capital. Rickards’ has worked as a portfolio manager, lawyer and held various senior positions on Wall Street. His most recent New York Times best seller, The Road to Ruin offers his critical analysis of financial crises and what he believes is ahead for the global economy.

When speaking on the trend and value of the cryptocurrency Rickards’ noted, “People are expressing a liquidity preference for bitcoin as a form of money over dollars. That’s one theory of valuation. What’s the evidence for that? None. Because, if that were true, if you were losing confidence of the dollar then gold would be going up and it’s not. So it looks like a bubble.”

The host then pressed on the restriction on “printing” of the virtual money and its reproduction Rickards’ responded that it, “is capped to some level but we’re not there yet. Where does bitcoin come from? Yes, bitcoin can be purchased on a secondary market. But they are created by “miners” which is a bit of a misnomer. They’re basically people with a lot of computing power and developing expertise that solve very hard math problems and give a bitcoin as a reward. When bitcoin reaches levels similar to today, two or three thousand dollars, that is a pretty big incentive.”

“While the cost of [digital] “mining” is not zero, but it is pretty low relatively to the cost. To me it looks a bit more like the Fed. How much does it cost the Fed to create a dollar? The answer is zero. It doesn’t cost them anything to create a dollar.”

“What does it cost to create bitcoin? Sure, you have some investment in computing but it is nowhere near the market price. [So that’s why] it looks a bit like the Fed where you keep cranking them out, they are money, and when you buy bitcoin for dollars you are just swapping money.”


Tuesday, July 18, 2017

We Are Due For Another Financial Crises and Gold Will Explode Higher

Every five, six, seven years, financial crises happen. It’s been eight years since the last one. How long do you think we’re going to go? So that is a catalyst for much higher gold prices.

But I don’t worry much about manipulation. I know it goes on, and I know why it goes on, as I spoke to the statistician’s expert witnesses in some of the pending litigation on gold manipulation.

On June 6th, for example, gold got whacked 2 percent because somebody sold $4 billion’s worth of future contracts on the COMEX. Gold was getting close to $1,300 an ounce.

The impact on the markets is like selling $4 billion in gold. But it wasn’t gold. It was paper gold.

Four billion dollars’ worth of gold is 90 tons. Do you think you could sell 90 tons of physical? You can’t source 90 tons of real gold. You are lucky if you can get a couple of tons of gold. All the mines in the world produce a little over 3,000 tons a year. Those 90 tons are close to 3 percent of all the output of all the gold in the world, with one phone call.

But the point is, all manipulations fail. Jim Fisk and Jay Gould ran a gold corner in 1869, and it failed. The London Gold Pool in the late 1960s failed.

So just get your gold allocation—I recommend 10 percent of investable assets—and put it in a safe place, keep out of the banking system, and sit tight.

- Source, Jim Rickards via Epoch Times

Saturday, July 15, 2017

James Rickards: Fed Is Going to Cause Recession

James Rickards, author of “The Road to Ruin,” has successfully predicted Federal Reserve (Fed) policy in the past. In this interview with The Epoch Times, he explains why the recent tightening could lead to a recession and why he recommends gold as a “crisis hedge.” He also explains why he thinks bitoin is in a bubble.

The Epoch Times: Why did the Federal Reserve (Fed) hike rates last week, and what will its policy look like in the future?

James Rickards: They’re trying to prepare for the next recession. They’re not predicting a recession, they never do, but they know a recession will come sooner rather than later. This expansion is 96 months old. It’s one of the longest expansions in U.S. history. It’s also the weakest expansion in U.S. history. A lot of people say, “What expansion? Feels like a depression to me.”

I think it is a depression defined as depressed growth, but we’re not in a technical recession and haven’t been since June 2009. So it’s been an eight-year expansion at this point, but it won’t fare well, and the Fed knows that. When the U.S. economy goes into recession, you have to cut interest rates about 3 percent to get the United States out of that recession.

Well, how do you cut interest rates by 3 percent when you’re only at 1 percent? The answer is, you can’t. You’ve got to get them up to 3 percent to cut them back down, maybe to zero, to get out of the next recession. So that explains why the Fed is raising interest rates. That’s the fourth rate hike getting them up to 1 percent. They would like to keep going; they would like to get them up to 3, 3.5 percent by 2019.

My estimate is that they’re not going to get there. The recession will come first. In fact, they will probably cause the recession that they’re preparing to cure. So let’s just say we get interest rates to 1 percent and now you go into recession. We can cut them back down to zero. Well, now what do you do? You do a new round of quantitative easing (QE).

The problem is that the Fed’s balance sheet is so bloated at $4.5 trillion. How much more can you do—$5 trillion, $5.5 trillion, $6 trillion—before you cause a loss of confidence in the dollar?

There are a lot of smart people who think that there’s no limit on how much money you can print. “Just print money. What’s the problem?” I disagree. I think there’s an invisible boundary. The Fed won’t talk about it. No one knows what it is. But you don’t want to find out the hard way.

The Epoch Times: What about balance sheet reduction, reversing the QE that you are talking about?


James Rickards thinks bitcoin is a bubble, he prefers gold as a crisis hedge.

Mr. Rickards: You probably want to get from $4.5 trillion, down to $2.5 trillion. Well, you can’t sell any treasury bonds. You destroy the market. Rates would go up, putting us in recession, and the housing market would collapse. They’re not going to do that. What they’re going to do is just let them mature.

When these securities mature, they won’t buy new ones. They won’t roll it over, and they actually will reduce the balance sheet and make money disappear. They’re going to do it in tiny increments, maybe $10 billion a month or $20 billion a month.

They want to run this quantitative tightening in small increments and pretend nothing’s happening. But that’s nonsense. It’s just one more way of tightening money in a weak economy; it will probably cause a recession.

- Source, Epoch Times, Read the Full Interview Here

Wednesday, July 12, 2017

Dollar May Become Local Currency Of The U.S.

Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.

Coming up, we'll hear part one of an amazing two-part interview with Jim Rickards, author of Currency Wars, The New Case for Gold and The Road to Ruin. Jim shares his insights on the Fed's supposed plan to unwind its balance sheet and what it will mean for the economy and for gold prices. He'll discuss some potential fireworks involving the U.S. dollar as it continues losing its reserve currency status. Don't miss a must-hear interview with Jim Rickards, coming up after this week's market update.

Beaten down gold and silver markets showed signs of recovering late this week as prices have risen above recent lows. Mining stocks are rallying strongly, pointing to upside potential for metals in the days ahead.

As of this Friday recording, gold prices come in at $1,256 an ounce, unchanged since last Friday's close. The silver market is also flat on the week with spot prices currently coming in at $16.74. Platinum is off very slightly at $932 an ounce. While palladium, which was outperforming again through Thursday close when it posted a new high for the year, is off 2.5% so far today and is now down 0.5% overall this week to trade at $869.

All of the precious metals are outperforming crude oil this year. Oil prices took another dip earlier this week on concerns about over-supply. The glut has persisted despite OPEC's vows to cut production.

The longer prices persist below $50 a barrel, the more non-OPEC producers will also have to hunker down. Many shale and offshore drilling projects that came online a few years ago are simply uneconomic at today's prices.

By next year, things could look quite different in the market for crude and other commodities. Despite a surge in sales of electric vehicles, global demand for oil will continue to rise. The U.S. Energy Information Administration projects the world will use 100 million barrels of oil per day in 2018, up from 98.5 million this year.

Demand for industrial and precious metals will also rise. But the beleaguered mining industry will have difficulty meeting it. In 2018, we could be facing record supply deficits in copper, silver, and other metals...

- Source, Seeking Alpha, Read the Full Article Here