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

Saturday, July 8, 2017

Jim Rickards - Bitcoin Looks Like A Bubble


Is Bitcoin now in bubble territory? Will it scream higher before it comes crashing down? Or could it possibly be the next big thing, the replacement for the flawed fiat currency system that we now find ourselves under? Jim Rickards discusses.

- Video Source

Wednesday, July 5, 2017

Will gold and silver prices be climbing higher?


Gold and silver prices generally move inversely to the U.S. dollar, which is expected to remain weak, says Strategic Intelligence's Jim Rickards.

- Source, CNBC

Thursday, June 29, 2017

Bitcoin No Threat To U.S. Dollar, Gold


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

Saturday, June 3, 2017

China, Currency Wars and Gold

When asked about President Trump’s commentary on China not being a currency manipulator and whether the U.S and China currency war may be over Rickards’ indicated, “It is not over. I would say we’ve been in one big currency war since 2010… This is just one long currency war. They can last for 10 or 15 years. At times it will get more intense.”

“What Trump is doing is all part of The Art of the Deal. They’ve made it clear that they’re not going to label China a currency manipulator. That was a bargaining chip for Trump to get help [from China] on North Korea. We’re headed to war with North Korea and the Chinese have helped. They’ve mobilized the People’s Liberation Army (the Chinese army) and put them on the border, they have said that they are not going to import coal from North Korea. Trump is situational, mercurial and not terribly hard to predict in the sense that you can predict the unpredictable.”


When asked about Trump’s leverage for the Federal Reserve, Rickards indicated, “Right now Trump does not want the Federal Reserve to raise rates because it would slow the economy. The Fed is going to raise rates because they have bad models… They have bad models and can’t see the recession coming. Trump is trying to understand what leverage he has on Janet Yellen – and that is her job position. He has indicated that he may very well keep Yellen if she does not raise rates. Then, along comes the Godfather – Robert Rubin, who is the most powerful figure in finance that is behind the scenes. He came out yesterday with an Op-Ed that said “don’t play politics with the Fed.” There is a struggle going on with the Fed. Trump will have five open seats at the Fed over the next year. Trump essentially owns the Fed.”

When asked about what actions he might recommend be taken ahead of perceived economic trouble Rickards urged, “The first thing I would recommend is to have 10% of your investable assets in gold. When I say investable assets, what I mean is take your home equity, your business equity, etc. and put that to one side… whatever is left from that investable asset remainder should be put into physical gold. I don’t recommend paper gold. They trade GLD ETF’s here on the NYSE. That’s good for short term but will not save you in a panic. I would also recommend real estate and even cash… I might not have it for long, but I like it in the short run. It gives you optionality. You can pivot. Inflation and deflation are both in play. The person with cash can be nimble.”


Tuesday, May 30, 2017

Trump, The Federal Reserve and the Looming Recession

“Here’s the point I make in my book, in 1998 Wall Street got together and bailed out a hedge fund. Then in 2008 the central banks and bailed out Wall Street. In the next crisis, who is going to bail out the big banks. In other words, each crisis gets bigger than the one before. Each bailout gets bigger than the one before. We’re now to the point where we’ve exceeded the capacity of the central banks to “save the day.” When the next crisis hits… where’s the money going to come from next? The Fed balance sheet has expanded from $800 billion to $4 trillion to deal with the last crisis. The problem is they have not normalized and are still at the $4 trillion mark. What are they going to do in the next crisis… Go to $8 trillion? What’s the limit? There is an invisible limit. The Fed knows it. They’re not prepared for the next crisis right now.”

“Where is the money going to come from if you have to reliquify the system? It has to come from the International Monetary Fund (IMF). They have the only clean balance sheet left. We’re focused on trillions of Special Drawing Rights (SDR’s), or world money, that they will print. These outcomes are very predictable based around the models and complexity theory.”

When asked about the Federal Reserve plan to reduce its balance sheet by the Modern Wall Street host, Rickards responded, “I wish they had done it eight years ago. Creating liquidity to deal with the crisis in 2008 was what they were supposed to do. I’ll give them credit QE 1 (quantitative easing), but QE 2 and QE 3 were just experiments by Ben Bernanke. I’ve spoke to Ben Bernanke about this and those are his words, not mine. He indicated that thirty years from now scholars will look back and tell us if we did a good job.”

“Right now, it’s not working. We never got growth [in the economy]. The Fed in 2009 and 2010 when it set out on QE 2 never thought we would be in 2017 with a $4 trillion balance sheet and less than 1% growth – but here we are. I’ll give Janet Yellen for starting the process – but it should’ve been done seven or eight years ago.”


Saturday, May 27, 2017

Rickards: Predict the Unpredictable... We're Heading Straight Into a Recession


Jim Rickards joined Modern Wall Street and host Olivia Bono-Voznenko outside of the New York Stock Exchange in order to discuss his latest book, “The Road to Ruin” along with a series of topics focused on currency wars, the Federal Reserve and the looming recession facing Trump.

When asked about whether he is suggesting an inevitable economic catastrophe or whether the system is setting up for disaster he responded, “Both items are true. It is the way we’re structured and the risk in the system that will lead to a catastrophe. I would distinguish between a financial panic seen in 1998 and 2008, and a normal business cycle. Right now I think we’re more vulnerable to the business cycle. I think we’re headed into a recession.”

Jim Rickards is a New York Times best-selling author of The Road to Ruin. He is a lawyer who worked on Wall Street for decades. Currently, he advises the U.S intelligence community and military outlets on topics covering currency wars and international economics.


Tuesday, May 23, 2017

The Instability of the System is Something We Should All Be Concerned About


When asked about the confidence that is currently boosting the markets, Rickards’ remarked, “First off, I don’t put a lot of stock in confidence reports… There is a high correlation between consumer confidence and the stock market. The reason consumers are confident is because the stock market is going up. As soon as the stock market goes down, consumer confidence is going to plunge. So what could cause it? Imagine that snow is building up on a mountainside. You could look at it and see its unstable and know it is going to collapse. All it takes is one snowflake to come along, start a slide and disturb others while gaining momentum. The next thing you know the whole avalanche is coming down. Who do you blame? The snowflake or the system as a whole?”

“What I am doing is looking at the system as a whole. It is the instability of the system that we need to be concerned about… There are lots of things that could cause it. That’s not the important aspect to focus on. My advice to investors is get gold now. Don’t go all in, I recommend 10% of your investable assets. That’s not 50% or 100%. That’s your insurance if everything I am saying is wrong, you won’t get hurt with that slice of gold… But if things do get bad and fall apart you’ll be very happy to have it.”


Wednesday, May 17, 2017

The Reality of the Trump Tax Plan

Offering his insights the author explained, “I’ve looked at it and understand the details but it is almost meaningless. I think this is for show and something of a “trophy” for Donald Trump’s first hundred days. They want to put a stake in the ground and begin negotiation but the numbers [on the tax bill] don’t add up and it would never get through the U.S Congress with the present form.”

“It is completely devoid of detail and even the points given don’t give specifics. It is an interest starting place and a good discussion point but I don’t take it very seriously at all. There will be a tax bill later on in the year though.”

When asked how the market has responded in the past months to the talk about the tax plan he pressed. “President Trump was elected in November and the U.S market went up with the S&P jumping 100 points, the Dow Jones went up 1000 points – because of the possibility of the Trump tax cuts. Then in December the Dow Jones went up another 1000 points because of the possibility of the Trump tax cuts. Then again in January the market went up another 1000 points because of the Trump tax cuts. This is bubble behavior. The market went up three times based on the same tax cuts.”

“[The President] is only going to cut taxes once. The market seems to react at every rally opportunity. There is an old saying on Wall Street “buy the rumor, sell the news.” Late today the U.S stock market averages turned down because they took a look at the tax cut proposals released today and it didn’t have a lot of the things they wanted with details expected. It is a one page press release, so we still have more to see. I think the market is going to reserve judgement.”

“If, in fact, the proposed tax bill doesn’t come anywhere close to what Trump is describing the market is going to sell off because they cannot meet expectations.”


Sunday, May 14, 2017

Rickards: Trump Tax Plan is a Sideshow


Jim Rickards joined Sky News Australia while speaking from New York City he delved into the expectations of the Trump tax plan proposals, what the political landscape shows the general public and how the market could react.

When asked about his read on the proposed “largest tax reform in U.S history” Rickards did not hold back. “In a carnival or circus you used to have something called a side show. It would have funny acts with sword swallowers, flame swallowers or living mermaids. I view this whole thing as a side show. I don’t think that analysts should take it very literally. I think it is very difficult for viewers outside of the United States to understand. Most democratically elected parliamentary systems operate under where when the Prime Minister directs something, if they have a working majority, it becomes the law. While there is usually some debate, the leadership typically gets what they want.”


Wednesday, May 10, 2017

Jim Rickards: The Numbers Impacting the Fed

Jim Rickards joined Stephen Guilfoyle on The Street to discuss his latest take on the numbers that will move the Fed in through its decision making process. During the conversation Jim Rickards and Mr. Guilfoyle, also known as “Sarge” on Wall Street, cover how the Federal Reserve will continue to push rates higher and potentially trigger a recession.

To begin the discussion Sarge prompted Rickards’ on his read regarding the trajectory of monetary policy in the United States. Rickards noted, “I see the Federal Reserve raising rates in June — the market is getting there, they’re not quite ready yet though. The Fed is on track to raise rates four times a year until 2019 in order to get the Federal funds rate at 3.25%. The expectation is rate hikes in March, June, September, December in a sequence until 2019.”

“There are only three reasons that the Fed might his a “pause button.” There are only three reasons they would do so. First, if job creation falls below 75 thousand per month, which is a pretty low hurdle. Second, if the stock market fell out of bed and I don’t mean 5%. If the Dow was to fall more than 2000% that would cause the Fed to pause. The third thing would be disinflation. Inflation is currently moving toward the Fed’s goal but if it started to move the over way [you could see the central bank take a pause]. If you don’t see those things then expect the Fed to raise four times a year.”


The bestselling author went on to note, “This has nothing to do with the business cycle. This is where I think Wall Street has got it wrong in assuming “you’re raising rates when the economy is strong, so the economy is strong” which has been true for seventy years – it’s not true now. They’re raising rates into weakness. The Fed has to get rates up so that they can cut them in the next recession. They skipped a cycle and now have to make up for lost time.”

Jim Rickards is an American economist and bestselling author who just released the paperback version of his book The Death of Money. Rickards’ is a currency wars expert who has advised the United States government on issues related to currency wars and international economics.

When asked whether the Fed could cause the next recession Rickards’ pressed, “They might. That’s the finesse. Can you raise rates in order to prepare to cure the next recession, without causing the recession you’re trying to cure? I think the answer is probably no. For the first time ever the Fed is tightening into weakness. Now the Fed is tightening for a completely different reason than the business cycle. They’re trying to make up for lost time.”

When asked whether the Federal Reserve is acting on partisan reasoning Rickards’ did not hold back in expressing, “I have recently written on just that where I noted – Donald Trump owns the Fed. What I mean is he’s got three vacancies that he’ll be able to fill. There is a lone Republican on the Federal Reserve’s board with Jay Powell. He’s been alone ‘in the sandbox’ for years and he’s going to potentially three Republican replacements joining him to take up four seats. Janet Yellen [the chairman of the Federal Reserve] is up in January 2018.”

“While that will need Senate confirmation, expect President Trump to name her replacement by November – if not sooner. So that will allow for a fifth Republican on board. Then, Stanley Fischer term with end in June 2018. That will allow for six seats to be filled. At that point Lael Brainard will be the last remaining board member from a Democrat. No president has had that many vacant seats at one time since Woodrow Wilson… You’d have to go all the way back to the creation of the Fed in 1913 when Woodrow Wilson had a vacant board except for two automatically filled seats.”


“Trump owns the Fed. Whatever Trump wants, he’s going to get. The question is, what does Trump want? A lot of speculation is that he’ll want ‘easy money’ because he’s talking about a cheaper dollar. [Expect Trump] to put ‘hard money’ people on the board to not fight the currency wars but to fight the trade wars.”

The Street host then asked whether Rickards’ whether he expected practitioners rather than academics to be appointed? Rickards took the case to point saying, “I think there will be a mixture. The leading candidate right now to replace Janet Yellen is Kevin Warsh. He was on the board before and there is no reason for him to go back on the board unless he’s going to be chairman.”

Rickards’ signals, “If he is seen being appointed to one of the vacancies, you know he’ll be the future chairman. That would make Yellen a lame-duck from day one. I think we will see people appointed who will believe that interest rates should already be at 2%.”


Sunday, May 7, 2017

Jim Rickards: Trump Owns The Fed


Jim Rickards joined The Lance Roberts Show to discuss Trump’s first 100 days in office, the Fed and what he has identified as The Death of Money. During the conversation Rickards calls attention to the biggest underreported story facing Trump and what to anticipate in the economy going forward.

Lance started the conversation asking about Rickards impressions on Donald Trump’s initial first weeks in office and the “bumps out of the gate” coming out. Rickards began by noting, “Historians and pundits like to talk about the first 100 days of a president. It is a big deal because there is no doubt that a President’s power is at its peak just after the election. The second term and lame-duck periods are difficult to getting much done. With Trump it has been a mixed bag. He’s had some high profile legislative failures. They failed with repealing Obamacare and it appears it is going to take longer than expected with tax reform.”

“On the executive order side, this has been a revolution. Whether you look at climate change, more military spending the U.S profile in the middle east, trade and tariffs, etc. Trump has done a lot of what he said he was going to do. So, on the one hand a lot of activity and promises kept. I would think that to continue but with some high profile failures also… Most presidents get Congressional Honeymoon, but it appears Trump’s got more of a burning bed.”


Monday, May 1, 2017

James Rickards - Gold Repeats Itself


James Rickards discusses the cyclical nature of the markets and how they always repeat themselves time and time again throughout history. This time, it is never different. Gold will rise again.


Friday, April 28, 2017

They're Going To Lock Down The System


This week, seasoned financier, risk manager and author Jim Rickards returns to the program to share the predictions from his new book The Road To Ruin: The Global Elite's Secret Plan For The Next Financial Crisis.

Rickards warns of a coming confidence boundary in central bank omnipotence. Once breached, trust and belief in the central banking cartel quickly vaporizes. Rickards predicts that boundary will be crossed by 2018 or sooner; and when it is, the entire financial system will go into lockdown, freezing access to our money.


Friday, April 21, 2017

James Rickards: End Game for the Global Economy


On Mises Weekends this week, James Rickards joins Jeff to discuss The Road to Ruin, his latest book outlining what financial elites have planned for the next financial crisis. Rickards highlights a number of policy tools governments and central bankers have created for themselves, and points to their handling of recent crises in Cypress and Greece bail-in approach as patterns for the rest of the world.

- Source

Friday, April 14, 2017

James Rickards: China Disaster to Trigger Gold Run...


Is a massive collapse brewing in the Chinese economy? Perhaps, and what would this entail? Can it be staved off, or are we looking at a massive economic collapse on the horizon, that will have drastic effects on the world? James Rickards explores.

- Source

Monday, April 10, 2017

I'm Extremely Bullish on Gold Under a Trump Presidency

Gold's got a little bit of a headwind right here in the short run, because I expect the Fed to raise interest rates in March.

If they don't, they'll almost certainly raise them in June, I think March, but whether it's March or June, you're looking at a rate hike, you're looking at the market discounting further rate hikes. This is what Janet Yellen said in her recent testimony before the Congress, and so that's going to make the dollar stronger which is a little bit of a headwind for gold. But just looking passed that a little bit, we have an extraordinary situation where there are three vacancies on the Federal Reserve Board right now. Two completely empty seats, and one, Dan Tarullo, who just announced his resignation.

He announced it, but I think it'll be effective sometime in April, so count that as a third seat and then we have two others, one Janet Yellen, her term expires next January, so the President's going to have announce that replacement by December, and then beyond that, Stan Fisher in the middle of next year. You're looking at three seats immediately for appointees by the end of the year, including a new chairman, and then one just six months behind that. There are only seven seats on the Board of Governors at the Fed, so Trump is going to fill five of them at a minimum, so five of them in the next 16 months, and there's one Republican already on the board, Jay Powell, you don't hear much about Jay Powell, that's because he's outnumbered by the Democrats. Well, that's about to change.

He's going to find a lot of his buddies sitting next to him, so Yellen, to say her days are numbered as Chairman is an understatement. She's going to be outvoted, outgunned, out manned almost immediately once the President makes these announcements. So, Trump basically owns the Federal Reserve Board because of this appointment position situation, so Trump's going to get whatever he wants. The question is what does he want? Well, he kind of told us. He and Steve Mnuchin, the new Secretary of the Treasury said they want a weaker dollar. Well, okay, if you want a weaker dollar, then don't be raising rates, don't be pursuing a tight money policy.

If Trump follows through on the logic of the cheaper dollar, he's going to appoint doves to the board, the market's going to get the signal immediately, and the price of gold is going to soar because easy money, weak dollar means higher dollar price for gold. So, we've got some very short run headwinds, maybe between now and April, but for the certainly the second half, even the last three quarters of the year, I'm extremely bullish on gold.

- Source, Jim Rickards

Friday, April 7, 2017

Jim Rickards' Predictive Analytics: Brexit and U.S. Election 2016


Meraglim's Chief Global Strategist Jim Rickards demonstrates our predictive analytics on international news shows ahead of BREXIT and US presidential elections...


Tuesday, April 4, 2017

China Will Doing Everything They Can to Stay in the IMF's SDR

If your investors, your citizens perceive that the exchange rate is going to break and you're trying to maintain the exchange rate, the way you do it, you use your reserves to buy your own currency. So, if money's going out the door and my currency's trying to get weaker, and I'm trying to hold it up to a certain level, I'm trying to peg it to a certain level, how do I actually do that?

Well, the way I do it if I'm China, and I'm trying to prop up the yuan, I take dollars and I buy the yuan. Some businessman says, "I want to get my yuan out of the country," and I'm the central bank, I say, "Okay, give me your yuan. Here are the dollars," and you send the dollars out of the country. But I buy it at a fixed rate and that's how I maintain the pace. In other words, you have to use up your reserves to maintain the peg if you have an open capital account and the peg's always going to be under stress because of these interest rate and currency differentials. That's what China's doing. It cannot work, they will go broke, you always fail.

Now, having said that, China is not actually going to go broke. They understand what I just described to the listeners, they see this coming, so they're saying to themselves, "What can I do? What can China do to keep it from happening?" Well, they can close the capital account and they're starting to do that in a small way. The problem is it's kind of all or none. You can completely close the capital account and use firing squads for anyone who tries to get the money out of the country, but now you've taken yourself out of the international monetary system. They can't do that. They just got into the international monetary system, the Chinese yuan was just included in the IMF's special drawing rights, that's this world money that the IMF prints.

Having gone to great lengths to join the club, they can't now quit the club and close the capital account. So, they're working around the edges, but it will not be successful and always fails. They could raise interest rates, give up the independent monetary policy and say, "We're going to raise interest rates to 10%." Well, that could work because hey, you put the interest rates that high people will say, "Well, I'll leave my money here. I'm not worried about the devaluation anymore because I'm getting so much interest that I'll keep my money here." The problem with that is going back to what I said earlier about the bad loans, there are companies who are already going bankrupt. What's going to happen if you raise interest rates?

They'll go bankrupt faster and then that's going to cause unemployment, that's going to destabilize the people in the Communist Parry of China, so they can't do that, so what's the third thing? If you can't close the capital account, at least not completely, and if you can't raise interest rates without sinking the economy, what can you do? You can devalue the yuan. That's what they're going to do. That makes that a very easy forecast. Now, I'm not going to say it's going to happen tomorrow morning, but you look at how George Soros broke the Bank of England in 1992, this is how he did it. He just said, "I can sell Sterling longer than you can buy dollars," and he did, and eventually the Bank of England devalued the currency.

That's what China's going to have to do, but now, come over to our friend, Donald Trump, President of the United States. What is his biggest complaint? He says that China's a currency manipulator, they keep their currency too weak. Well, from 2000 to 2014, approximately, that was a valid complaint. They were keeping their currency too weak, but it's not true anymore, as I described. China's using their hard currency reserves to prop the yuan up, actually make it stronger, so it's not true that they're weakening the yuan today. They're actually propping it up, as I said, they're going broke in the process, but what's going to happen if they devalue to save the capital account, to save the reserves? What's that going to do? That's going to inflame Trump and he's going to come down with them with hammer and tongs and tariffs, and we're going to have a trade war with China.

By the way, this has happened time and time again where something starts out as a currency war and it turns into a trade war. It's what happened in the 1930's, and I can kind of see that happening again. So, we're looking at a train wreck, but in terms of what to expect, on August 10th, 2015, China devalued 3% in two days. Not 10%, not 20%, 3%. The U.S. stock market crashed immediately from August 10th to August 31st, 2015. The U.S. stock market went down over 10%. Think about where you were at the end of the summer in 2015, on vacation or taking the kids back to school or whatever, but people thought they were staring into the abyss.

Now, the Fed came out, they didn't hike rates in September '15, as expected. That was the famous liftoff which got postponed and there was a lot of happy talk, and yeah, the market turned around and I know it's at an all-time high, but for those three weeks you saw the market completely crash. Well, what do you think's going to happen if China devalues 5% or 10%? It's going to be even worse. So, there's just some big, big stressors in the system and I'm watching them all very closely. Interesting times.

- Source, Minyanville

Saturday, April 1, 2017

China is Going Broke, Regardless of Trump's Policies

The thesis on China is really independent of the election of Donald Trump and Trump's policy. Now, I think that's a big deal obviously. Trump has very firm views on China and he's got a staff of advisors who are going to pursue those, so I think there are a lot of very important things in play in the area of currency manipulation, tariffs, trade, subsidies to Chinese state owned enterprises, et cetera. We'll talk a little bit about that but there are bigger things going on in China that are true, regardless of Trump's policies, even regardless of his president. Just to cut to the chase, China is going broke and when you say that, people roll their eyes. They go, "What do you mean China's going broke? It's the second largest economy in the world and it's got the largest reserve position in the history of the world and it's got a big trade surplus. I mean, what are you talking about?"

Well, all those things are true. When I say they're going broke I don't mean that China's going to disappear or the civilization's going to collapse. What I mean is that they are running out of hard currency. They're going to get to the point where they don't have any money, or at least money that the world wants. Let me explain, Mike, exactly what I mean by that. Going back to the end of 2014, China had a reserve position of about four trillion dollars. That was the largest reserve position in the history of the world. Now, just for the listeners' benefit, what is a reserve position? It's actually very easy to understand.

Imagine you make $50,000 a year and your taxes and your expenses and your rent and all of the things you've got to pay come to $40,000 a year, and you have $10,000 left over, you put that in your savings account or you can put it in the stock market, whatever you want with it, but that simple example where you make $50,000, you spend and pay taxes up to $40,000, you've got $10,000 left over, that's your surplus. That goes in your savings account, that's your reserve. It's no different for a country. A country exports things and gets paid in hard currency and then they import things and they have to pay hard currency to get it, and they invest overseas and people invest in them, so you've got all these capital flows and trade flows going back and forth.

But if at the end of the day you have more hard currency coming in than going out, that's your savings, and your national savings account if you want to think of it that way, is your reserves. That's what we mean by reserves and China had basically a four trillion-dollar reserve at the end of 2014. Today, that number is about 2.9 trillion. In other words, they have lost 1.1 trillion dollars in their reserve position in a little over two years, not quite two years. The reserves are going out the door. Now, people say, "Well, you've got 2.9 trillion left, isn't that a lot of money?"

Well, it is a lot of money except of the 2.9 trillion, about one trillion of that is not liquid, meaning it's wealth of some kind, it represents investment, but China wanted to improve their returns actually on their investments, so they invested in hedge funds, they invested in private equity funds, they made direct investments in gold mines in Zambia and so forth, so about a trillion of that is, it's wealth, but it's not liquid. It's not money that you can use to pay your bills. So now, we're down to 1.9 trillion liquid. Well, about another trillion is going to have to be held in what's called a "precautionary reserve" to bail out the Chinese banking system.

When you look at the Chinese banking system, private estimates are that the bad debts are 25% of total assets. Banks usually run with 5, maybe 7-8% capital. Even if you said 10% capital, well, if 25% of your assets are bad, that completely wipes out your capital, so the Chinese banking system is technically insolvent, even though they don't admit that. I mean, they cook the books, they take these bad loans. Let's say I'm a bank and I have a loan to a state-owned enterprise, a steel mill or something and the guy can't pay me, can't even come close to paying me and the loan's due, I say, "Well, look, you owe me 300 million dollars. I'll tell you what. I'll give you a new loan for 400 million dollars, but I'll take the money and pay myself back the old loan plus the interest, and then I'll give the new loan to your maturity and I'll see you in two years."

So, if you did that in the U.S. banking system you'd go to jail. You're not allowed to do that. You're throwing good money after bad and you're supposed to right off a loan that is clearly not performing or where the borrower is unable to pay. But in this case, it's just extend to pretend, and so it's still on the books, in my example, 400 million dollar good loan with a two year maturity, but in fact it's a rotten loan that the guy couldn't pay in the first place, and now he just can't pay a bigger amount. He's probably going to go bankrupt and I'll have to write it off at the end of the day. So, with that as background for the Chinese banking system, people kind of shrug and say, "Well, can't China just bail it out? They've got all this money."

Well, the answer is they could, and they've done so before, and they can bail it out, but it's going to trust a trillion dollars, so you've got to put a trillion dollars to one side, for when the time comes, to bail out the banking system. Well, now you're down to 900 billion, right? Remember, we started with four trillion, 1.1 trillion's out door, 1 trillion's their liquid, 1 trillion you've got to hold to one side to bail out the banking system, well now you only have 900 
billion of liquid assets to defend your currency, to prop up the Chinese yuan. But the problem is the reserves are going out the door at a rate of, it varies month to month, 30, 40, 50 billion dollars a month. Some months more, some months over 100 billion dollars.

So, if you just say, "Well, I've got 900 billion in the kitty, it's going out the door at 50 to 100 billion a month," I'm going to be broke by the end of 2017. That's what I mean by going broke. You say, "Well, wait a second. Where did the 1.1 trillion, the first part we talked about that the reserve position went down, where did the money go? It didn't disappear." Well, no, it didn't disappear. What's happening is that everybody in China is getting their money out. They're scared to death that the yuan's going to devalue, so what are the Chinese doing? By hook or by crook, some of it's legitimate, some of it's corrupt, some of it involves bribery, some of it involves false invoicing.

As I said, by hook or by crook. I travel around the world quite a bit and you go to Sydney, Australia, Melbourne, Vancouver, Canada, London, Istanbul, Paris, New York, the story's the same everywhere. The Chinese are buying up all the high end real estate, the Chinese are buying up condos. Well, they sure are, and that's part of this capital flight, that's part of this money getting out of China. We've seen it before in Argentina in 2000, Mexico in 1994. It's happened over and over again, and it always ends in complete disaster. This is what's confronting China.


- Source, James Rickards via Minyanville

Friday, March 31, 2017

Jim Rickards: Gold and a China Trump Trade War


In this interview Jim Rickards explains that China is getting ready for a post dollar world by on going accumulation of gold.

During this 30+ minute interview, Jason starts off by asking Jim about his recent trip to mainland China and if he learned on his trip if physical gold demand in China is still strong?

Jason also asks Jim if China is worried about President Trump starting a trade war by putting a very high tariff on Chinese goods, why Keynesian predictive models with extremely poor long term track records are still given any credibility and whether Janet Yellen and the Federal Reserve will raise interest rates anymore in 2017?


Wednesday, March 29, 2017

The Fed’s Getting Ready to Raise into Weakness

I was surprised this week that the stock market reached new highs — despite the fact that expectations of a March rate hike by the Fed moved from 40% to 60% in three days. Today those expectations are about 75%.

But I’ve been calling a March rate hike since late December. I was almost alone in that view. Wall Street analysts were paying lip service to the idea that the Fed might raise rates twice before the end of the year, but said the process might begin in June, not March. Market indicators were giving only a 25% chance of a rate hike within the past couple weeks.

Is it because I’m smarter than all these other analysts?

No, I certainly don’t claim to be smarter than any of them. It’s just that I use better analytical techniques based on complexity theory, behavioral psychology and other sciences that account for the ways actual markets behave. Meanwhile, most analysts are using outdated, static models that don’t apply to the real world.

Speculation began after Janet Yellen’s testimony to House and Senate committees last month. She said a solid job market and an overall improving economy suggested the Fed would likely resume raising rates soon. But, Yellen did not say anything she hadn’t said in December.

But suddenly this week everything heated up. Now the markets agree that a rate hike is coming, thanks to an orchestrated campaign of speeches and leaks from senior Fed officials. Several Fed members have been talking about the need to tighten, including Fed Governor and uber-dove Lael Brainard. When she starts sounding like a hawk, it’s time to pay attention.

As I said, markets are now pricing in nearly a 75% chance of a March rate hike (my estimate is now 90%).

But there’s a big difference between the dynamics behind my view of a rate increase and the market’s view. In effect, markets are saying, “The Fed is hiking rates, therefore, the economy must be strong.”

What I’m saying is “The Fed is tightening into weakness (because they don’t see it), so they will stall the economy and will flip to ease by May.”

My view is the economy is fundamentally weak, the Fed is tightening into weakness. By later this year, the Fed will have to flip-flop to ease (via forward guidance) for the ninth time since 2013. Stocks will fall, while bonds and precious metals will rally.

Both theses start with a rate hike, but they rest on totally different assumptions and analyses.

Under my scenario, the stock market is headed for a brick wall in April or May, when weak first-quarter data roll in. But for now, it’s still up, up and away.

My take is that the Fed is desperate to raise rates before the next recession (so they can cut them again), and will take every opportunity to do so. I believe the Fed will raise rates 0.25% every other meeting (March, June, September and December) until 2019 unless one of three events happens — a stock market crash, job losses, or deflation.

Right now the stock market is booming, job creation is strong, and inflation is emerging. So, none of the speed bumps are in place. The coast is clear for the March rate hike.

There is a great deal of happy talk surrounding the market right now. But with so much bullishness around, it’s time to take a close look at the bear case for stocks. It’s actually straightforward.

Growth is being financed with debt, which has now reached epic proportions. The debt bubble can be seen at the personal, corporate and sovereign level. Sure, a lot of money has been printed since 2007, but debt has expanded much faster.

In a liquidity crisis, investors who think they have “money” (in the form of stocks, bonds, real estate, etc.) suddenly realize that those investments are not money at all — they’re just assets.

When investors all sell their assets at once to get their money back, markets crash and the panic feeds on itself. What would it take to set off this kind of panic? In a super-highly leveraged system, the answer is: “Not much.”

There’s a long list of potential catalysts, including delays and disappointments with Trump’s economic plans, aggressive rate hikes by the Fed, a stronger dollar, and economic turmoil due to China’s vanishing reserves or the new Greek bailout.

It could also be anything from a high-profile bankruptcy, a failed deal, a bad headline, a natural disaster, and so on.

This issue is not the catalyst; the issue is the leverage and instability of the system. The bulls are ignoring the risks.

My view is we’re well into bubble territory, and stocks will reverse sooner than later. Stocks are a bubble that will certainly crash. But you must realize that the timing is uncertain. Recall that Greenspan gave his “irrational exuberance” speech in 1996, but stocks did not crash until 2000. That’s a long time to be on the sidelines.

Conversely, bonds are not in a bubble, despite the large number of analysts who make that claim. These analysts are looking at nominal rates. You need to look at real rates, which are still fairly high.

Nominal and real yields on the 10-year Treasury note were much higher at the end of 2013 than they are today. Wall Street yelled “bubble” then and shorted the bond market when the 10-year note yield-to-maturity was 3% in 2013.

Those who shorted Treasury notes got crushed when yields fell to 1.4% by early 2016 (they have reversed since). I expect another bond market rally (bonds up, rates down) to play out between now and this summer.

One source of investor confusion is that the White House and Congress are moving toward fiscal stimulus, while the Fed is moving toward monetary tightening. That’s a highly unstable dynamic. Markets could tip either way.

Investors have to be prepared for countertrends and reversals while waiting for this picture to unfold. The Trump administration is perfectly capable of shouting “strong dollar” on Monday and “weak dollar” on Tuesday. That’s one reason I recommend a cash allocation — it allows you to be nimble.

Something else to remember going forward is that Trump will have a minimum of three, and perhaps as many as four or five, chances to appoint members of the Fed board of governors, including a new chairman in the next 10 months. I expect these new governors will be dovish based on Trump’s publicly expressed preference for a weaker dollar.

The Senate will definitely confirm Trump’s choices. So get ready for an extreme makeover at the Fed, with the likelihood of easy money, more inflation, higher gold prices and a weaker dollar right around the corner.

That combination of Fed ease (due to slowing) and Fed doves flying into the boardroom on Constitution Avenue in Washington will give gold prices in particular a major lift in the second half of the year.

- Source, Jim Rickards via the Daily Reckoning

Sunday, March 26, 2017

Jim Rickards - Markets Have Finally Woken Up

I’ve been warning my readers since last December that the Fed was on track to raise interest rates on March 15.

I was almost alone in that view. Market indicators were giving only a 25% chance of a rate hike. Wall Street analysts were paying lip service to the idea that the Fed might raise rates twice before the end of the year but said the process might begin in June, not March.

Wall Street expectations and market indicators did not catch up with Fed reality until last week, when expectations moved from 30% to 90% in four trading days before converging on 100%.

So expectations of a Fed rate hike March 15 are now near 100% based on surveys of economists and fed funds futures contracts.

Markets are looking at things like business cycle indicators, but that’s not what the Fed is watching these days. The Fed is desperate to raise rates before the next recession (so they can cut them again) and will take every opportunity to do so.

But as I’ve said before, the Fed is getting ready to raise into weakness. It may soon have to reverse course.

My view is that the Fed will raise rates 0.25% every other meeting (March, June, September and December) until 2019 unless one of three events happens — a stock market crash, job losses or deflation.

But right now the stock market is booming, job creation is strong and inflation is emerging. So none of the usual speed bumps is in place. The coast is clear for a rate hike this Wednesday.

But growth is being financed with debt, which has now reached epic proportions. A lot of money has been printed since 2007, but debt has expanded much faster. The debt bubble can be seen at the personal, corporate and sovereign levels.

If the debt bubble bursts, things can get very messy.

In a liquidity crisis, investors who think they have “money” (in the form of stocks, bonds, real estate, etc.) suddenly realize that those investments are not money at all — they’re just assets.

When investors all sell their assets at once to get their money back, markets crash and the panic feeds on itself.

What would it take to set off this kind of panic?

In a super-highly leveraged system, the answer is: Not much. It could be anything: a high-profile bankruptcy, a failed deal, a bad headline, a geopolitical crisis, a natural disaster and so on.

This issue is not the catalyst; the issue is the leverage and instability of the system.

This looks like a good time to get out of stocks, increase cash and buy some gold if you are not fully allocated. Gold faces some head winds in the short run, but today’s prices offer an excellent entry point. Gold is a great safe-haven asset.


Thursday, March 23, 2017

The Next Signal to Watch

Trump advisors believe they can avoid a debt crisis through higher than average growth. This is mathematically possible but extremely unlikely.

A debt-to-GDP ratio is the product of two parts — a numerator consisting of nominal debt and a denominator consisting of nominal GDP. In this issue, we have focused on the numerator in the form of massively expanding government debt. Yet, mathematically it is true that if the denominator grows faster than the numerator, the debt ratio will decline.

The Trump team hopes for nominal deficits of about 3% of gross domestic product (GDP) and nominal GDP growth of about 6% consisting of 4% real growth and 2% inflation. If that happens, the debt-to-GDP ratio will decline and a crisis might be averted.

This outcome is extremely unlikely. As shown in the chart below, deficits are already over 3% of GDP and are projected by CBO to go higher. We are past the demographic sweet spot that Obama used to his budget advantage in 2012–2016.



The Congressional Budget Office, CBO, estimates that inflation and real GDP will each grow at about 2% per year in the coming ten years. This means that nominal GDP, which is the sum of real GDP plus inflation, will grow at about 4% per year. Since debt is incurred and paid in nominal terms, nominal GDP growth is the critical measure of the sustainability of U.S. debt.
The Fiscal Budget

The Congressional Budget Office, CBO, estimates that inflation and real GDP will each grow at about 2% per year in the coming ten years. This means that nominal GDP, which is the sum of real GDP plus inflation, will grow at about 4% per year. Since debt is incurred and paid in nominal terms, nominal GDP growth is the critical measure of the sustainability of U.S. debt.

From now on, retiring Baby Boomers will make demands on social security, Medicare, Medicaid, Disability payments, Veterans benefits and other programs that will drive deficits higher.

The CBO projections show that deficits will increase to 5% of GDP in the years ahead, substantially higher than the hoped for 3% in the Trump team formula.

As for growth, we are now in the eighth year of an expansion — quite long by historical standards. This does not mean a recession occurs tomorrow, but no one should be surprised if it does.

Official CBO projections, shown in the chart below, expect approximately 2% growth and 2% inflation for the next ten years. That would yield 4% nominal growth, not enough to match the deficit projections. The debt-to-GDP ratio is projected to soar even under these rosy scenarios.


There are numerous problems with the CBO projections. They make no allowance for a recession in the next ten years. That is highly unrealistic considering that the current expansion is already one of the longest in history. A recession will demolish the growth projections and blow-up the deficits at the same time.

CBO also makes no allowance for substantially higher interest rates. With $20 trillion in debt, most of it short-term, a 2% increase in interest rates would quickly add $400 billion per year to the deficit in the form of increased interest expense in addition to any currently project spending 

The Impact Signal of Debt on Growth

Finally, CBO fails to consider the ground-breaking research of Kenneth Rogoff and Carmen Reinhart on the impact of debt on growth. We have discussed the 60% debt ratio danger threshold in this article. But there is an even more dangerous threshold of 90% debt-to-GDP revealed in the Rogoff-Reinhart research. At that 90% level, debt itself causes reduced confidence in growth prospects — partly due to fear of higher taxes or inflation — which results in a material decline in growth relative to long-term trends.

These headwinds practically insure that the Trump growth projections are wholly unrealistic. With higher than expected deficits, and lower than projected real growth, there is one and only one way for the Trump administration to reduce the debt ratio — inflation.

If inflation is allowed to rip to 4% and Fed financial repression can keep a lid on interest rates at around 2.5%, then it is possible to achieve 6% nominal growth with 5% deficits, which would be just enough to keep the debt ratio under control and even reduce it slightly.

Can Trump pull-off this finesse? Are his advisors even analyzing the problem along these lines?

We will know soon. As we’ll discuss in upcoming issues, Trump will have the chance to make an unprecedented five appointments to the Fed board of governors in the next 16 months, including a new chair and two vice chairs.

If he appoints doves, that will be the signal that inflation in the form of helicopter money and financial repression is on the way. That will also be the signal to move out of cash and increase our allocation to gold beyond the current 10% level.

If Trump appoints hawks to the board, that will be a signal that his team does not understand the problem and is relying on overoptimistic growth assumptions. In that case, we could expect a recession, possible debt crisis and strong deflation. That is a signal to keep our 10% gold allocation as a safe haven, but also buy Treasury notes in expectation of lower nominal rates.

We are watching for a signal on Trump’s nominations to the Fed board. The first three should be announced soon. Once the names and their views are known, the die will be cast.