Sunday, April 22, 2018

Jim Rickards: The Roller Coaster to Nowhere


There are four major factors driving the market. The factors are growth, trade wars, geopolitics and regulation of technology.

Each of the four factors has its own internal contradictions, in effect a binary outcome for each. This means there are 16 possible paths the market might follow (24 = 16). No wonder the market acts confused.

With regard to growth, the bulls expect a boost from the Trump tax cuts. They are also anticipating inflation due to strong job creation, rising labor force participation and a low unemployment rate. They expect interest rates to rise but consider this more a sign of economic strength than a cause for concern.

Strong growth is good for corporate earnings, and a little inflation is usually good for nominal stock prices, at least in the early stages. The bull case for growth is a curious mixture of the Phillips curve and the Laffer curve.

Bears point to an economic slowdown in the first quarter (most projections are around 2% or less). This is consistent with the dismal average of 2.1% growth since the end of the last recession in June 2009.

Stronger growth is impeded by demographic and debt head winds and the impact of Chinese labor and technology on global pricing power. Tax cuts are not expected to help, because the drag on growth caused by increased debt will outweigh any stimulus from lower taxes.

The Fed is giving a weak economy a double dose of tightening in the form of rate hikes and the unprecedented destruction of base money as they unwind QE. The Fed will probably push the economy to the brink of recession before they get the message and pause on rate hikes.

This bearish view combines the Reinhart-Rogoff thesis on debt death spirals with a return visit to Fed policy blunders in 1929 and 1937.

To some, the trade wars are another conundrum. There is little doubt that a true trade war will reduce global growth. But many are wondering if we’re facing a trade war or just a series of head fakes by Donald Trump as he pursues the art of the deal?

For example, Trump imposed Section 232 tariffs on steel and aluminum imports and then almost immediately carved out exemptions for Canada and Mexico pending progress on NAFTA. Then the president trumpeted a trade deal with South Korea that imposed quotas on steel imports but almost immediately said that deal was conditional upon South Korean help in dealing with North Korea.

Trump threatened over $50 billion of Section 301 penalties on China for theft of U.S. intellectual property, but within days China and the U.S. calmed market fears by announcing plans for bilateral trade negotiations.

So is it really a trade war, or just a set of negotiating tactics?

I believe the trade war scenario is more likely.

Yes, Trump offered relief to Canada and Mexico on the steel tariffs. But that was only so he could gain negotiating leverage on the NAFTA talks that are ongoing. If Canada and Mexico fail to give Trump the concessions he wants on NAFTA, those steel tariffs can bounce back to hit Canada and Mexico as they already hit China and Brazil.

Meanwhile, Trump will wait to see if China is willing to make concessions in the intellectual property area. If not, he can easily double or triple that $60 billion figure.

My take is that this trade war is not going away anytime soon. It will last for years, get much worse and be a major headwind for stock prices (click here for an urgent trade war update).

But I admit that Trump has left enough wiggle room to indicate he could back off the trade wars if he can exact enough concessions from China and the NAFTA countries.

Geopolitics are another on-again, off-again market driver. A strong case can be made for a coming war with North Korea.

Decades of North Korean development of nuclear weapons and ballistic missiles and a rapid increase in the operational tempo of tests in the past year reveal that North Korea is determined to build an arsenal of nuclear-armed ICBMs that pose an existential threat to the U.S.

For its part, the U.S. has made it clear that North Korea will not be allowed to acquire or possess these weapons. These two views are irreconcilable and point toward war.

- Source, James Rickards

Wednesday, April 18, 2018

Jim Rickards: Trump Prepares to Drop the Hammer on Amazon


President Trump has ratcheted up his war of words against Amazon.

Late last week, Trump tweeted that Amazon is having a negative impact on competing retailers, as well as the federal and local governments:

I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.) and are putting many thousands of retailers out of business!… This Post Office scam must stop. Amazon must pay real costs (and taxes) now!

Then there was this morning’s tweet:

Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country… not a level playing field!

Trump’s campaign against Amazon is nothing new.

He sent out a string of tweets last summer raging against Amazon’s monopolistic business practices. Here’s one from last August, for example, that sounds a lot like last week’s tweets:

Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt — many jobs being lost!

But Trump’s attacks against Amazon are not just economic — they’re also personal.

Amazon CEO Jeff Bezos also owns The Washington Post, which is strongly anti-Trump. Trump sees The Washington Post as the unofficial leader of the resistance to his administration. The president has even referred to the newspaper as the “Amazon Washington Post.” And he knows it’s been out to get him.

What does all this mean?

It means there’s an excellent chance that Trump could pursue antitrust legislation against Amazon.

Trump’s logic is simple. Most of Bezos’ net worth is tied up in Amazon stock. In the world of billionaires and powerful politicians, the way to hit someone hard is in the pocketbook.

Trump will attack Amazon and clip Bezos’ wings by $10–20 billion as payback for what he considers Bezos’ attacks on him via the Post.


Antitrust law enforcement in the United States is a bit like the weather — unpredictable in the long run and highly changeable.

The Justice Department can go years or even decades without bringing a major antitrust case and then suddenly decide the time has come to send a message to big business, with emphasis on the word “big.”

When that happens, there is always one company that stands out from the crowd as a kind of sitting duck for ambitious prosecutors. Today, the sitting duck is Amazon.

When the case against Amazon begins, the stock will tumble. Amazon’s stock price is vulnerable under the best of circumstances because it ran up so far so fast. The bad news of an antitrust case will be the catalyst that causes investors to dump the stock in a desperate race to get out ahead of the crowd. Selling will feed on itself.

The selling contagion will spread to the rest of the FAANG stocks (Facebook, Apple, Netflix and Google) and to the Nasdaq as a whole.

Amazon stock was down as much as 6% today, based on Trump’s latest attacks. And the Dow is down almost 500 points at writing. The S&P and Nasdaq are also getting hammered.

But this could just be the beginning.

These companies are already vulnerable because China has threatened sanctions against U.S. technology companies. Technology stocks, led by Apple, dragged the broader market lower last week when the news broke. These threats of course come in retaliation against Trump’s latest promise to crack down on Chinese theft of U.S. intellectual property.

Any antitrust action Trump pursues against Amazon will trigger another correction or worse in U.S. stocks.

But investors who can read the antitrust tea leaves correctly stand to make huge profits when the Justice Department strikes.

- Source, Jim Rickards

Sunday, April 15, 2018

James Rickards: Trump Will Use the “Nuclear Option” on Trade


What we have seen so far are just the opening shots of the coming trade war. Think of it as the Battles of Lexington and Concord that opened the Revolutionary War. Much larger tariffs and penalties are waiting in the wings.

Trump will soon receive a report under Section 301 of the Trade Act of 1974. That report has been almost a year in preparation and will reveal that China has stolen over $1 trillion in U.S. intellectual property.

Section 301 of the Trade Act of 1974 is the “nuclear option” when it comes to trade wars.

I don’t want to get too deeply in the weeds here, but Section 301 gives the president broad authority to impose sanctions and penalties. The president will have a completely free hand to impose billions of dollars of damages if not more on China.

Trump could receive this report within days or weeks. Regardless, it is coming soon.

Once the president receives it, the law gives him 90 days to react. But he will likely act within days or weeks upon receiving it.

Importantly, Trump does not require Congressional approval to act. Again, the law gives the president enormous flexibility. So he doesn’t need Congressional backing as he did for, say, the tax cuts.

Initial reports indicated that these penalties will be about $60 billion. In fact, Trump used that figure in today’s press conference on tariffs. But that’s just for starters.

Trump will wait to see if China is willing to make concessions in other areas. If not, he can easily double or triple that $60 billion figure.

The penalties Trump seeks to impose are not limited to specific sectors but may apply across a wide range of goods and services from China that benefitted in any way from the theft of intellectual property (IP).

IP is a very tricky subject with a lot of gray area.

Trade restrictions on steel, for example, are much easier to implement. Steel is tangible. You can weigh it, track it, etc.

Intellectual property, on the other hand, is much more vague, much more amorphous. It exists inside human brains, or on the internet or a computer thumb drive. It can be everywhere at once in a sense.

So it’s much more difficult to identify, quantify, and throw tariffs on than traded products like steel, autos, solar panels or washing machines. Yet intellectual property is more important than ever.

We live in a world of technology, a world of the internet, of smart devices, and even cryptocurrencies for that matter. These are all forms of intellectual property.

Now, China has been stealing U.S. intellectual property for decades in various ways. Sometimes it happens when a Chinese scientist comes to the United States and takes what he learns back to China.

But a lot of the theft has been done through malicious hacking of U.S. technology companies. These could be big defense contractors like Lockheed Martin or Northrop Grumman. But they could also be small firms with one great innovation or idea. These smaller firms may actually be more vulnerable because they don’t have the defenses against hacking or cyber warfare that the big guys do.

With this stolen intellectual property, China has been able to build up companies like Huawei, a large technology and telecommunications firm. And its defense industry has made enormous strides because of stolen intellectual property.

Because intellectual property is so amorphous, the president could look at a wide variety of Chinese industries and say:

“You know those electronic products you’re assembling, like smart phones? They wouldn’t be so smart if you hadn’t stolen some of our intellectual properties. So we’re going to throw a tariff on them.”

These penalties will have a much broader and deeper impact than the steel and aluminum tariffs, or those on washing machines or solar panels.

- Source, Jim Rickards via the Daily Reckoning

Thursday, April 12, 2018

Jim Rickards: The Fed Is Going “Cold Turkey”



This is the most aggressive tempo of rate hikes of any major central bank and puts U.S. policy rates significantly higher than those in the U.K., Japan or eurozone.

The issue for investors is whether the Fed is raising rates too aggressively considering the strength of the U.S. economy. Higher rates imply a stronger dollar, imported deflation and head winds to growth.

If the U.S. economy is on a firm footing, then the rate hikes may be appropriate, even necessary to head off inflation.

But if the U.S. economy is vulnerable, then the Fed’s actions could trigger a recession and stock market sell-off unless the Fed reverses course quickly. My view is that the latter is more likely. The Fed is tightening into weakness and will reverse course by pausing rate hikes later this year.

When that happens, important trends in stocks, bonds, currencies and gold will be thrown into reverse. Investors who position now for a coming course correction by the Fed can reap huge gains when that Fed flip-flop occurs.

Outwardly, the Fed is sanguine about the prospects for monetary normalization. Both Janet Yellen and new Fed chair Jay Powell have said that interest rate hikes will be steady and gradual. In practice, this means four rate hikes per year, 0.25% each, every March, June, September and December, with occasional pauses prompted by strong signs of disinflation, disorderly markets or diminution in job creation.

Balance sheet normalization is even more on autopilot than rate hikes. The Fed will not dump its securities holdings. Instead, it refrains from rolling over maturing securities. When the Treasury pays the Fed upon the maturity of a Treasury note, the money simply disappears.

This is the opposite of money printing — it’s money destruction. Instead of QE, we now have QT, or quantitative tightening.

The Fed has been transparent about the rate at which they will run off their balance sheet this way, although transparency should not lead investors to complacency. The balance sheet reduction tempo as of late 2018 is $600 billion per year, equal in impact to four 0.25% rate hikes per year.

The annual combined impact of the Fed’s rate policy and QT is a 2% increase in interest rates. For an economy addicted to cheap money, this is like going cold turkey.

The Fed would have investors believe that the rate hikes are already priced into capital markets, and QT is a nonevent, running on “background” in the Fed’s words, like an Excel spreadsheet on your laptop while you watch a film from Netflix.

Neither assumption is correct.

The view that balance sheet normalization can run on background without disruptive effects is unwarranted. The Fed printed almost $4 trillion of new money over six years from 2008–2014 to inflate the value of risky assets.

Yet somehow, the Fed would have investors believe that destroying $2 trillion in even less time will have no negative impact on the value of those same risky assets.

It’s not true...

- Source, James Rickards via the Daily Reckoning

Monday, April 9, 2018

Big Money Questions: Jim Rickards Predicts a Financial Crisis


The next financial crisis will hit us in the next six to eight months and will be triggered by war between the US and North Korea, best-selling author Jim Rickards predicts on the Big Money Questions show.

- Source, This is Money

Sunday, April 1, 2018

Jim Rickards: The Next Financial Panic Will Be the Biggest of All Time


Jim Rickards examines what the next financial crisis will look like and how it will be different from previous panics, gives us his outlook for gold and the key drivers for the yellow metal in part one of a tremendous two-part interview. Don’t miss my conversation with Jim Rickards, coming up after this week’s market update.


Thursday, March 29, 2018

The Gold Chronicles with Jim Rickards and Alex Stanczyk


How BLS jobs data largely being mis-read by financial media 

*Why all current narratives in the financial media are missing the true causes of early Feb US stock markets correction *Why Atlanta Fed analysis is more of a nowcast than a forecast 

*Why exploding sovereign debt and debt to GDP ratio are critical to market stability in the next few years 

How student loans are a $1.5T problem with a significant default rate *What the two critical confidence boundaries are, and how they might be crossed

*3 Yr playbook - not a forecast but a potential scenario 

*Why the idea that Central Banks dont need capital would be challenged in a collapse of confidence



Monday, March 26, 2018

Jim Rickards: Where is Gold Going in 2018? The Ultimate Gold Panel


Hosted by Kitco News at the 2018 VRIC. Rick Rule, Peter Hug, and Jim Rickards join a panel where they discuss the direction that gold is heading throughout 2018 and beyond.

In addition to this, they break down a number of key issues that are affecting the markets and some that have not yet come to pass...

What is the end game?

- Source, Cambridge House

Monday, March 19, 2018

It's Not Just Jim Rickards, I Prescribe To $10,000 Gold


The imminent collapse of modern currencies will push gold up to $10,000 an ounce, assuming central banks resort back to a gold-backed monetary system, said Byron King, editor of Jim Rickards’ Gold Speculator. 

“If you take the global money supply, back it with 40% gold, you need $10,000 gold to make the math work, and that’s just using a 40% backing,” King told Kitco News on the sidelines of the PDAC 2018. “And it has to do with the eventual demise of modern currencies.”

Byron noted that gold stocks at current valuations are much more attractive now than they were two years ago, and said that today’s miners are backed by “better numbers” and “smarter geologists.” “We are in a new gold bull cycle, we’re in a blip of six or eight month downturn, but it will turn around. 

These are fundamentally good companies with great value behind them,” he said.

- Source, Kitco News

Thursday, March 15, 2018

Jim Rickards explains the day after plan... Forget gold, Silver is going out of sight.


How should you be preparing for the big one? An economic collapse looms on the horizon, but many are simply unprepared. Don't be caught off guard, heed Jim Rickards latest advice and take action before you are completely and utterly wiped out.

- Video Source

Monday, March 12, 2018

Gold: The Once and Future Money with James Rickards


James Rickards joins Cambridge House International, where he discusses how gold has dominated the financial scene throughout history and how it will once again rise from the ashes and take back its rightful throne. Gold is coming.

- Video Source

Friday, March 9, 2018

Rickards: First Came Currency War, Now Trade War, Then Shooting War


A popular thesis since the 1930s is that a natural progression exists from currency wars to trade wars to shooting wars. Both history and analysis support this thesis.

Currency wars do not exist all the time; they arise under certain conditions and persist until there is either systemic reform or systemic collapse. The conditions that give rise to currency wars are too much debt and too little growth.

In those circumstances, countries try to steal growth from trading partners by cheapening their currencies to promote exports and create export-related jobs.

The problem with currency wars is that they are zero-sum or negative-sum games. It is true that countries can obtain short-term relief by cheapening their currencies, but sooner than later, their trading partners also cheapen their currencies to regain the export advantage.

This process of tit-for-tat devaluations feeds on itself with the pendulum of short-term trade advantage swinging back and forth and no one getting any further ahead.

After a few years, the futility of currency wars becomes apparent, and countries resort to trade wars. This consists of punitive tariffs, export subsidies and nontariff barriers to trade.

The dynamic is the same as in a currency war. The first country to impose tariffs gets a short-term advantage, but retaliation is not long in coming and the initial advantage is eliminated as trading partners impose tariffs in response.

Despite the illusion of short-term advantage, in the long-run everyone is worse off. The original condition of too much debt and too little growth never goes away.

Finally, tensions rise, rival blocs are formed and a shooting war begins. The shooting wars often have a not-so-hidden economic grievance or rationale behind them.

The sequence in the early 20th century began with a currency war that started in Weimar Germany with a hyperinflation (1921–23) and then extended through a French devaluation (1925), a U.K. devaluation (1931), a U.S. devaluation (1933) and another French/U.K. devaluation (1936).

Meanwhile, a global trade war emerged after the Smoot-Hawley tariffs (1930) and comparable tariffs of trading partners of the U.S.

Finally, a shooting war progressed with the Japanese invasion of Manchuria (1931), the Japanese invasion of Beijing and China (1937), the German invasion of Poland (1939) and the Japanese attack on Pearl Harbor (1941).

Eventually, the world was engulfed in the flames of World War II, and the international monetary system came to a complete collapse until the Bretton Woods Conference in 1944.

Is this pattern repressing itself today?

Sadly, the answer appears to be yes. The new currency war began in January 2010 with efforts of the Obama administration to promote U.S. growth with a weak dollar. By August 2011, the U.S. dollar reached an all-time low on the Fed’s broad real index.

Other nations retaliated, and the period of the “cheap dollar” was followed by the “cheap euro” and “cheap yuan” after 2012.

Once again, currency wars proved to be a dead end.

Now the trade wars have begun. On Thursday, July 27, the U.S. Congress passed one of the toughest economic sanctions bills ever against Russia.

This law provided that U.S. companies may not participate in Russian efforts to explore for oil and gas in the Arctic. But it went further and said that even foreign companies that do business with Russia in Arctic exploration will be banned from U.S. markets and U.S. contracts.

These new sanctions pose an existential threat to Russia because depends heavily on oil and gas revenue to propel its economy.

Russia has vowed to retaliate...

- Source, James Rickards

Monday, March 5, 2018

Jim Rickards: Fed Policy Implications for 2018


Jim Rickards discusses the recent action witnessed by the FED and how reckless they have truly become. How will this all play out? Will it result in another 2008 disaster?

- Video Source

Friday, March 2, 2018

Michael Pento Talks to Jim Rickards - What Happens When This All Unravels?


Michael Pento sits down with best selling author and National security expert Jim Rickards to talk about North Korea, debt the stock markets and when this all unravels.

- Source, Michael Pento

Monday, February 26, 2018

James Rickards: Is the Future of Money Gold, Crypto or Fiat?


James Rickards discusses a question many of us have asked, what is the future of money? 

Currently, we dominated by a highly corrupt and evil fiat based system, however, that is not to say that it will be replaced anytime soon, given the tremendous power that it allots our financial elites. 

However, things do have a way of spinning out of control, time and time again, as history has shown. Will the successor be the rising crypto star, or will precious metals once again reassert themselves to dominate all others? 

Rickards discusses this, plus much more.


- Video Source

Saturday, February 24, 2018

How Could Central Banks Unwind QE Without Causing a Recession or Worse?

Especially in hindsight, it is easy to point out the obviousness of the Internet stock bubble in the late 90’s and the subprime-mortgage-driven real estate bubble that max-inflated in 2006. They were parabolic and contained within silos; you could point to the specific-to-them factors that were feeding such wild and unsustainable price levitation.

But what about when The Fed prints so much money over such a long period of time that it seeps into every nook and cranny of the entire economy? And how much more difficult is it to recognize a bubble when most every asset class is part of it?

Rickards flatly states:

Bernanke and Yellen did not get a residential real estate bubble. Instead, they got an “everything bubble.” In the fullness of time, this will be viewed as the greatest blunder in the history of central banking.

What happens when you print $8.3 trillion in money and only get $2.1 trillion of growth? What happened to the extra $6.2 trillion of printed money?

The answer is that it went into assets. Stocks, bonds, emerging-market debt and real estate have all been pumped up by central bank money printing.


Further:

This conundrum of how central banks unwind easy money without causing a recession (or worse) is just one small part of a risky mosaic.

Smart investors should prepare now with reduced exposure to stocks and increased allocations to cash and gold.

Lastly, William White, the former chief economist for the Basel, Switzerland-based BIS (“The central bankers’ central bank”) summed it up in no less stark terms than these: “All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten.”


Wednesday, February 21, 2018

The Dominos Are Starting to Fall, The Markets Are Going to Crash


James Rickards appears on Bloomberg news, where he discusses how everything is starting to line up and fall into place, for another major market crash. This is just the beginning, we haven't seen anything yet.

- Video Source

Monday, February 19, 2018

First There Was 1998, Then 2008, Now 2018? The Next Major Crash is Coming


James Rickards appears on Fox Business, where he talks about the history of crashes the markets have experienced and relates them to the current setup we our now seeing in real time. 2018 appears to be the year of the next big crash.

- Video Source

Friday, February 16, 2018

U.S. Dollar Decline, Currency War with China, Gold Price Spike


The US Dollar is declining, a currency war is erupting behind the scenes with China and threatens to spill over into the broader markets. Gold is setting itself up for a massive spike higher.

- Video Source

Monday, February 12, 2018

Silver Was Money, Is Money and Always Will Be Money


The Roman Republic and the later Roman Empire had gold coins called the aureus and solidus, but they also minted a popular silver coin called the denarius. One denarius was the daily wage for unskilled labor and Roman soldiers.

Of course, in the late Empire, the aureus, solidus and denarius were all debased by mixing the gold and silver with base metals. The decline of the Roman Empire went hand in hand with the decline of sound money.

In the early ninth century AD, Charlemagne greatly expanded silver coinage to compensate for a shortage of gold. This was successful in stimulating the economy of the predecessor of the Holy Roman Empire. In a sense, Charlemagne was the inventor of quantitative easing over 1,000 years ago. Silver was his preferred form of money.

Under the U.S. Coinage Act of 1792, both gold and silver coins were legal tender in the U.S. From 1794 to 1935, the U.S. Mint issued “silver dollars” in various designs. These were widely circulated and used as money by everyday Americans. The American dollar was legally defined as one ounce of silver.

The American silver dollar of the late eighteenth century was a copy of the earlier Spanish Real de a ocho minted by the Spanish Empire beginning in the late sixteenth century. The English name for the Spanish coin was the “piece of eight,” (ocho is the Spanish world for “eight”) because the coin could easily be divided into one-eighth pieces.

Until 2001 stock prices on the New York Stock Exchange were quoted in eighths and sixteenths based on the original Spanish silver coin and its one-eight sections.

Until 1935 U.S. silver coins were 90% pure silver with 10% copper alloy added for durability. After the U.S. Coinage Act of 1965, the silver content of half-dollars, quarters and dimes was reduced from 90% to 40% due to rising price of silver and hoarding by citizens who prized the valuable silver content of the older coins.

The new law signed by President Johnson in 1965 marked the end of true silver coinage by the U.S. Other legislation in 1968 ended the redeemability of old “silver certificates” (paper Treasury notes) for silver bullion.

Thereafter, U.S. coinage consisted of base metals and paper money that was not convertible into silver; (gold convertibility had already ended in 1933).

Let’s hope that the U.S. is not following in the footsteps of the Roman Empire in terms of a political decline coinciding with the substitution of base metals for true gold and silver coinage.

In 1986, the U.S. reintroduced silver coinage with a .999 pure silver one-ounce coin called the American Silver Eagle. However, this is not legal tender although it does carry a “one dollar” face value. The silver eagle is a bullion coin prized by investors and collectors for its silver content. But it is not money.

Who in their right mind would pay a full ounce of silver for goods or services worth only a buck?

In short, silver is as much a monetary metal as gold, and has just as good a pedigree when it comes to use in coinage. Silver has supported the economies of empires, kingdoms and nation states throughout history.

It should come as no surprise that percentage increases and decreases in silver and gold prices denominated in dollars are closely correlated.

Silver is more volatile than gold and is more difficult to analyze because it has far more industrial applications than gold. Silver is useful in engines, electronics and coatings.

Interestingly, gold is used very little other than as money in bullion form. Gold has some highly specialized uses for coating and ultra-thin wires, but these are a very small part of the gold market.

Both gold and silver are used extensively in jewelry. I consider jewelry to be “wearable wealth” and akin to bullion rather than a separate market segment.

Because silver has more industrial uses than gold, the price can rise or fall based on the business cycle independent of monetary considerations. However, over long periods of time, monetary and bullion aspects tend to dominate industrial uses and silver closely tracks its close cousin gold in dollar terms.

While gold and silver prices have a high correlation, the correlation is not perfect. There are times where gold outperforms silver and vice versa. Right now we are in a sweet spot for silver.

Gold is performing well, and silver is performing even better!

The latest data is telling me that silver prices are set to rally. This conclusion is based in part on a bull market thesis for gold.

Gold staged an historic rally from 1999 to 2011, from about $250 per ounce to $1,900 per ounce, a gain of about 900% in that twelve-year span. Since then, gold prices fell in a 50% retracement (using the 1999 base) and bottomed at around $1,050 per ounce in December 2015.

Secular bull and bear market tops and bottoms are difficult to see in real time, but they become apparent with hindsight. Gold gained over 23% in 2016-2017. From the perspective of early 2018, it is clear than the gold bear market ended over two years ago and a new multi-year secular bull market has begun.

Silver is not only along for the ride, it is showing even better performance than gold, albeit with greater volatility. Both the gold and silver rallies are based on a combination of supply/demand fundamentals, geopolitical pressures creating safe haven demand, and increasing inflation expectations as confidence in central banking and fiat money erodes.

In addition, silver has an excellent technical set-up right now. Precious metals analyst Samson Li writing in Thomson Reuters on January 2, 2018 offers this insight in the current technical trading position for silver:

Technically, silver is ripe for a major breakout to the upside in 2018. The CFTC figures Managed Money positions show that COMEX silver has been in a net short for three straight weeks since 12th December. This is not unheard of but is relatively rare for silver; the last time COMEX silver was net short was between the end of June and the first week of August 2015. As investment sentiment can swing from one extreme to another, and given silver’s innate volatility, this net short position should point to the possibility of a sharp short-covering rally. Looking back at the corresponding period in 2015, silver price was trading at $15.61/oz on the 7th July, and it was the third consecutive week recording a net short position. Approximately a year later, silver was trading over $20/oz in July 2016… [T]he current poor sentiment does suggest that silver could be one of the better performing precious metals in 2018, barring any crisis that could trump most of the commodities but gold.

The good news is that this secular rally in silver is in its early days. Recent gains will be sustained and amplified in the months and years to come.

Silver will outperform gold in the short-run, and shares in well-managed silver mining companies will do even better than silver.


- Source, Jim Rickards via the Daily Reckoning

Friday, February 9, 2018

James Rickards: The Debt Bomb, This Is Why Gold Is Going a Lot Higher This Year


Jim Rickards discusses Why the Third Great Gold Bull Market is on the way. The U.S. Debt Bomb is at 105% to GDP Ratio and will only go higher. He asks's why are interest rates going up? Rising Deficit equals global financial meltdown.

- Source, James Rickards

Wednesday, February 7, 2018

The Financial Bubble That Could Break the World

The key to bubble analysis is to look at what’s causing the bubble. If you get the hidden dynamics right, your ability to collect huge profits or avoid losses is greatly improved.

Based on data going back to the 1929 crash, this current bubble looks like a particular kind that can produce large, sudden losses for investors.

The market right now is especially susceptible to a sharp correction, or worse.

Before diving into the best way to play the current bubble dynamics to your advantage, let’s look at the evidence for whether a bubble exists in the first place…

My preferred metric is the Shiller Cyclically Adjusted PE Ratio or CAPE. This particular PE ratio was invented by Nobel Prize-winning economist Robert Shiller of Yale University.

CAPE has several design features that set it apart from the PE ratios touted on Wall Street. The first is that it uses a rolling ten-year earnings period. This smooths out fluctuations based on temporary psychological, geopolitical, and commodity-linked factors that should not bear on fundamental valuation.

The second feature is that it is backward-looking only. This eliminates the rosy scenario forward-looking earnings projections favored by Wall Street.

The third feature is that that relevant data is available back to 1870, which allows for robust historical comparisons.

The chart below shows the CAPE from 1870 to 2017. Two conclusions emerge immediately. The CAPE today is at the same level as in 1929 just before the crash that started the Great Depression. The second is that the CAPE is higher today than it was just before the Panic of 2008.

Neither data point is definitive proof of a bubble. CAPE was much higher in 2000 when the dot.com bubble burst. Neither data point means that the market will crash tomorrow.

But today’s CAPE ratio is 182% of the median ratio of the past 137-years.

Given the mean-reverting nature of stock prices, the ratio is sending up storm warnings even if we cannot be sure exactly where and when the hurricane will come ashore.


This chart shows the Shiller Cyclically Adjusted PE Ratio (CAPE) from 1880-2017. Over this 137-year period, the mean ratio is 16.75, media ratio is 16.12, low is 4.78 (Dec 1920) and high is 44.19 (Dec 1999). Right now the 33.68 ratio is above the level of the Panic of 2008, and above the level of the market crash that started the Great Depression.

With the likelihood of a bubble clear, we can now turn to bubble dynamics. The analysis begins with the fact that there are two distinct types of bubbles.

Some bubbles are driven by narrative, and others by cheap credit. Narrative bubbles and credit bubbles burst for different reasons at different times. The difference is critical in knowing what to look for when you time bubbles, and for understanding who gets hurt when they burst.

A narrative-driven bubble is based on a story, or new paradigm, that justifies abandoning traditional valuation metrics. The most famous case of a narrative bubble is the late 1960s, early 1970s “Nifty Fifty” list of fifty stocks that were considered high growth with nowhere to go but up.

The Nifty Fifty were often referred to as “one decision” stocks because you would just buy them and never sell. No further thought was required. Of course, the Nifty Fifty crashed with the overall market in 1974 and remained in an eight-year bear market until a new bull market began in 1982.

The dot.com bubble of the late 1990s is another famous example of a narrative bubble. Investors bid up stock prices without regard to earnings, PE ratios, profits, discounted cash flow or healthy balance sheets.

All that mattered were “eyeballs,” “clicks,” and other superficial internet metrics. The dot.com bubble crashed and burned in 2000. The NASDAQ fell from over 5,000 to around 2,000, then took sixteen years to regain that lost ground before recently making new highs.

Of course, many dot.com companies did not recover their bubble valuations because they went bankrupt, never to be heard from again.

The credit-driven bubble has a different dynamic than a narrative-bubble. If professional investors and brokers can borrow money at 3%, invest in stocks earning 5%, and leverage 3-to-1, they can earn 6% returns on equity plus healthy capital gains that can boost the total return to 10% or higher. Even greater returns are possible using off-balance sheet derivatives.


Credit bubbles don’t need a narrative or a good story. They just need easy money.

A narrative bubble bursts when the story changes. It’s exactly like The Emperor’s New Clothes where loyal subjects go along with the pretense that the emperor is finely dressed until a little boy shouts out that the emperor is actually naked.

Psychology and behavior change in an instant.

When investors realized in 2000 that Pets.com was not the next Amazon but just a sock-puppet mascot with negative cash flow, the stock crashed 98% in 9 months from IPO to bankruptcy. The sock-puppet had no clothes.

A credit bubble bursts when the credit dries up. The Fed won’t raise interest rates just to pop a bubble — they would rather clean up the mess afterwards that try to guess when a bubble exists in the first place.

But the Fed will raise rates for other reasons, including the illusory Phillips Curve that assumes a tradeoff between low unemployment and high inflation, currency wars, inflation or to move away from the zero bound before the next recession. It doesn’t matter.

Higher rates are a case of “taking away the punch bowl” and can cause a credit bubble to burst.

The other leading cause of bursting credit bubbles is rising credit losses. Higher credit losses can emerge in junk bonds (1989), emerging markets (1998), or commercial real estate (2008).

Credit crack-ups in one sector lead to tightening credit conditions in all sectors and lead in turn to recessions and stock market corrections.

What type of bubble are we in now? What signs should investors look for to gauge when this bubble will burst?

My starting hypothesis is that we are in a credit bubble, not a narrative bubble. There is no dominant story similar to the Nifty Fifty or dot.com days. Investors do look at traditional valuation metrics rather than invented substitutes contained in corporate press releases and Wall Street research. But even traditional valuation metrics can turn on a dime when the credit spigot is turned off.

Milton Friedman famously said the monetary policy acts with a lag. The Fed has force-fed the economy easy money with zero rates from 2008 to 2015 and abnormally low rates ever since. Now the effects have emerged.

On top of zero or low rates, the Fed printed almost $4 trillion of new money under its QE programs. Inflation has not appeared in consumer prices, but it has appeared in asset prices. Stocks, bonds, commodities and real estate are all levitating above an ocean of margin loans, student loans, auto loans, credit cards, mortgages, and their derivatives.

Now the Fed is throwing the gears in reverse. They are taking away the punchbowl.

The Fed is on course to raise interest rates again in March, under new chairman, Jerome Powell. In addition, the Fed is undertaking QE in reverse by reducing its balance sheet and contracting the base money supply. This is called quantitative tightening or QT.

Credit conditions are already starting to affect the real economy. Student loan losses are skyrocketing, which stands in the way of household formation and geographic mobility for recent graduates. Losses are also soaring on subprime auto loans, which has put a lid on new car sales. As these losses ripple through the economy, mortgages and credit cards will be the next to feel the pinch.

A recession will follow soon.

The stock market is going to correct in the face of rising credit losses and tightening credit conditions.

No one knows exactly when it’ll happen, but the time to prepare is now. Once the market corrects, it’ll be too late to act.

- Source, James Rickards via the Daily Reckoning

Sunday, February 4, 2018

James Rickards Final Warning, Buy Gold or Rue the Day


The markets continue to degrade and weaken as each month passes, even though they continue to tick higher in price. The foundation that props them up is based on fiat and that is being threatened. 

Gold is incredibly undervalued and has not yet priced in a "collapse style scenario". The time to buy is now. Don't say you weren't warned.

- Video Source

Wednesday, January 31, 2018

Jim Rickards: The Gold Markets Are Utterly Beaten... Now is the Time to Buy


Look, gold just finished a four-year plus bear market. It lasted from August 2011 to December 2015. In that bear market, gold went down about 45% peak to trough, and if you use the about $240 price from 1999 and just scale that up to $1,900 and then back down again to $1,050, which is where it was in December 2015, that was a 50% retracement. And by the way, my friend Jim Rogers, one of the greatest commodities traders in history, co-founder of the Quantum Fund with George Soros, a legendary commodities trader, he said to me and he has a lot of gold. He expects gold to go much higher, as do I, but he said, Jim, “Nothing goes from here to there.” Meaning, he’s reaching way up to the sky up into outer space. He says, “Nothing goes from here to there without a 50% retracement along the way.”

And I think that was very good advice. Well, okay, but we’ve had the 50% retracement. That’s behind us. We’re in a new bull market now. There was a bull market from August 1971 to January 1980 and gold went up over 2,000%. From January 1980 to August 1999, there was a very long, 20-year grind it down bear market, and gold went down about 70%. Then you had a new bull market that lasted from August 1999 to August 2011 and in that 12-year bull market, gold went up over 700%. Then you had another bear market from August 2011 to December 2015 and as I said, gold went down 45%. We’re in a new bull market. It started in December 2015.

Now, here are the facts, gold goes up and down. Lead’s volatile and we know there’s manipulation. People get discouraged and they buy gold and then some hedge fund or China comes along in the gold futures market and slams the price down. “Oh, gee, why did I buy it?” I get all that. I understand the discouragement. I understand how difficult it is to watch stocks go up and Bitcoin go up and I’m sitting here with gold and it just seems to be going sideways, but it’s not true. In 2016, gold went up over 8%. In 2017, gold went up over 13%. So far in 2018, gold is up 3%. You take the entire period from the bottom of the last bear market to the beginning of the bull market, December 2015 to today, gold is up over 25%. It’s been one of the best performing asset classes of all the major asset classes. It’s not crazy like Bitcoin, but Bitcoin’s collapsing, which I also predicted some time ago.

So, the truth of the matter is 2016-2017 are the first back-to-back years of gold gaining since 2011-2012, although at that point, it was already off the top. It’s more a statistical anomaly that gold went up in the year 2011. Yeah, it did, but it was way down, way off the peak in September of that year. But now we have two back-to-back years of gold going up very significantly. We’re in year three, 2018, is year three of this bull market. It’s off to a very nice start. The fundamentals are good. Their technicals are good. The supply and demand situation is good. We haven’t even gotten into other potential catalysts, including War with North Korea, loss of confidence in the dollar, financial panic. Even a normal business cycle recession or if inflation gets out of control, there’s just a whole list of things that are going to drive gold higher.

And the last point I want to make, Mike, is that gold is doing this performance against headwinds. The Fed has been raising rates. When you raise nominal rates and you tighten real rates, that’s normally a very difficult environment for gold and yet, gold’s going up anyway. Can you imagine what’s going to happen when the Fed has to back off… because right now, as I said, they’re over-tightening. When this economy slows, and that data starts rolling in later in the first quarter and early second quarter of 2018, the Fed’s going to do what they call “pause.” It doesn’t mean they’re going cut rates. That’s somewhere down the road, but they pause, which means that they…

Right now, they’re like clockwork. They’re going to raise every March, June, September, December – 25 basis points each time, boom, boom, boom, boom like clockwork. But, every now and then they don’t. They skip. They pause. Well, if your expectation is they’re going to raise and then they don’t, they pause, that’s a form of ease. It’s ease relative to expectations. That’s what’s going to happen later this year. All of a sudden, this headwind’s going to turn into a tailwind and gold’s going to get an even bigger boost. I see it going to $1,400 over the course of this year, perhaps higher. My long-term forecast for gold, of course, is $10,000 an ounce, but that’s… and I’m not backing away from that. That’s just simple math. That’s the implied noninflationary price of gold if you need to use gold to restore confidence in a monetary system in a financial panic or liquidity crisis where people have lost confidence. That’s not some made up number. That number is actually fairly easy to calculate, but you don’t go there overnight. You got to get to $2,000 and $5,000 before you get to $10,000.

I think right now, we’re in a new bull market. It’s going to run for years. We’ve got that momentum. We’re off the bottom, but people are always most discouraged at the bottom, right? Well, that’s the time you should buy. It’s just human nature. I’m not faulting anyone. I’m not criticizing anyone, it’s just human nature to say, “Oh man, I’m so beaten down. I’m so sick of this. I’m so tired of this.” Well, that’s usually the time to buy and guess what, it is.


- Source, Jim Rickards via Value Walk

Sunday, January 28, 2018

The Next Financial Panic Will Be The Biggest Of All, With Only One Place To Turn…


What would the forecast be for the year ahead? What do I think about stocks and so forth? That’s one part of the analysis, but the other one is a little bigger and a little deeper, which is what about another major financial crisis, a liquidity crisis, global financial panic and what would the response function be to that.

Let me separate. They’re related because, I mean the point I always make is that there’s a difference between a business cycle recession and a financial panic. They’re two different things. They can go together, but they don’t have to. For example, October 29, 1987, the Stock Market fell 22% in one day. In today’s Dow terms that would be the equivalent of 5,000 Dow points, so we’re at 26,000 or whatever, as we speak, a 22% drop would take it down about 5,000 points. You and I both know that if the Dow Jones fell 500 points that would be all anybody would hear about or talk about. Well, imagine 5,000 points. Well, that actually happened in percentage terms in October 1987. So, that’s a financial panic, but there was no recession. The economy was fine and we pulled out of that in a couple of days. Actually, after the panic, it wasn’t such a bad time to buy and stocks rallied back. Then, for example in 1990, you had a normal business cycle recession. Unemployment went up. There were some defaults and all that, but there was no financial panic.

In 2008, you had both. You had a recession that began in 2007 and lasted until 2009 and you had a financial panic that reached a peak in September-October 2008 with Lehman and AIG, so they’re separate things. They can run together. Let’s separate them and talk about the business cycle. I’m not as optimistic on the economy right now. I know there’s a lot of hoopla. We just had the big Trump Tax Bill and the Stock Market’s reaching all-time highs. I mean, I read the tape. I get all that, but there are a lot headwinds in this economy. There’s good evidence that the Fed is over-tightening.

Remember the Fed is doing two things at once that they’ve never done before. They’re raising rates. I mean, they’ve done that many times, but they’re raising rates, but at the same time, they’re reducing their balance sheet. This is the opposite of QE. I’m sure a lot of listeners are familiar with QE, Quantitative Easing, which is money printing. That’s all it is. And they do it by buying bonds. Then when they pay for the bonds from the dealers, they do it with money that comes out of thin air. That’s how they expand the money supply. Well, they did that starting in 2008 all the way through until 2013, and then they tapered it off and the taper was over by the end of 2014, but they were still buying bonds. So, that was six years of bond buying. They expanded their balance sheet from $800 billion to $4.4 trillion.

Well, now they’re putting that in reverse. They grabbed the gear and they shifted it into reverse and they’re actually not dumping bonds. They’re not going to sell a single bond, but what happens is, when bonds mature, the Treasury just sends you the money, so if you bought a five-year bond five years ago and it matures today, the Treasury just sends you the money. Well, when you send money to the Fed, the money disappears. It’s the opposite of money printing. So, the Feds are actually destroying money, actually reducing the money supply, so they’re raising rates and destroying money at the same time. It’s a double whammy of tightening and I don’t believe the U.S. economy’s nearly as strong as the Fed believes. They rely on what’s called the “Phillips Curve,” which says unemployment’s low, that’s a constraint and wages are going to go up and inflation is right around the corner. And that’s part of the reason they’re tightening, but there are a lot of flaws in that theory.

First of all, the basic Phillips Curve theory is junk. It’s just not true. We saw that in the late ’70s when we had sky high unemployment and sky-high inflation at the same time. We’ve also seen it recently when we’ve had low unemployment and disinflation at the same time. So, you start by saying the Phillips Curve is junk, but even if you thought there was something to it, there’s so many problems with it in terms of labor force participation demographics, debt deleveraging, technology, et cetera, that it just doesn’t apply under the current circumstances.

So, the Feds are tightening for the wrong reason. They are tightening at the wrong time and there’s a lot of evidence that a lot of the growth in the fourth quarter was consumption driven, but that was debt driven. People charged up their credit cards, consumer debt spiked. The savings rate is near a very long-term low. It doesn’t look sustainable, so lots of reasons to think that the Fed’s going to overdo it, get it wrong, tighten, throw the economy either into a recession or very low growth with disinflation, so I’m just not buying the inflation “happy days are here again” story.

There’s also good reason to believe that the Tax Bill will not be as stimulative as people expect. All that’s truly going on is the running up the deficit by another trillion dollars and we’re already way into the danger zone and then that’s actually a drag on growth. So, there’s a good reason to think the economy is going to slow, that by itself would take the wind out of the Stock Market and close it at the potentially very serious Stock Market correction, at least 10%, maybe as much as 20%. We’re talking about going down as I say 5,000 or 6,000 points on the Dow before the end of the year, so that’s one scenario.

The scenario I talk about in my book really involves a financial panic. Now, the thing there is that these are not that rare. I already mentioned the one, really two-day panic in 1987, but in 1994 you had the Mexico Tequila Crisis. In 1997, you had the Asian Peninsula Crisis. In 1998, you had the Russia Long-Term Capital Management Crisis. In 2000, you had the dot.com meltdown. In 2007, the mortgage meltdown. In 2008, the financial panic. These things happen every five, six, seven years, not like clockwork, but that’s a typical tempo for these kinds of meltdowns and it’s been nine years since the last one. So, nobody should be surprised if it happens tomorrow. I’m not predicting it will happen tomorrow. I’m just saying nobody should be surprised if it does, whether it’s tomorrow, or next month or next year, or even a year and a half from now, don’t think for one minute that we’re living in a world free of financial panics.

By the way, these two things could happen together. You could have a slowdown that leads to a financial crisis, a replay of 2008. But here’s the difference and this is really the point of your question, Mike. In 1998, we had a financial panic and Wall Street got together and bailed out the Hedge Fund Long Term Capital Management. In 2008, we had a financial panic and the Central Banks got together and bailed out Wall Street, so each bailout gets bigger than the one before it. In the next panic, whether it’s this year or next year, who’s going to bail out the Central Banks. In other words, each panic’s bigger than the one before. Each response is bigger than the one before going down this chronological sequence.

The next one is going to be the biggest of all. It’s going to be bigger than the Central Banks and you’re only going to have one place to turn. If you had to get global liquidity right now, the Fed’s at that one and half percent in terms of the target Fed funds rate, so they most they could cut is one and a half percent to get back to zero. There’s good evidence that to get the U.S. economy out of a recession, you have to cut interest rates three or four percent. Well, how can you cut them three percent when you’re only at one and a quarter, one and a half percent. Well, the answer is you can’t, so then what’d you do? Well, then you go to QE, but they already did that.

They haven’t unwound the QE. They started to and that’s what I mentioned, but they haven’t unwound it. The balance sheet is still around four trillion dollars, so what’d going to go to eight trillion, twelve trillion? I mean, some people would say, “Yeah, what’s the problem.” Those are the modern, monetary theorists, Stephanie Calvin, Paul McCulley, Warren Mosler. There’re a bunch of them that think that there’s no limit in the amount of money the Fed can print, but there is a limit. It’s not a legal limit. Legally the Fed could do it, but there’s a psychological limit. There’s an invisible competence boundary that you cross when people just say “You know what, I’m out of here. Get me out of dollars. Get me into gold, silver, fine art, land. Whatever. Crypto-currencies, if you like. Whatever it might be but get me into something other than dollars because I’ve lost confidence in the dollar.” And we’ve seen that before also.

So, putting that all together, in the next financial panic and nobody should be surprised if it happens tomorrow, it’s going to be bigger than the Central Banks. They’re going to have to turn to the IMF for liquidity. The IMF has a printing press also, that’s the International Monetary Fund. They can print this world money called the Special Drawing Right of the SDR, so yeah, they can pull trillions of SDRs worth trillions of dollars. One SDR is worth about $1.50. They could pull trillions of SDRs out of thin air and pass them around, but here’s the point and I spoke to Tim Geithner about this, former Secretary of the Treasury. It takes time.

The last time they did this and by the way, it went completely unnoticed, the panic was in ’08 and in August and September of 2009, the IMF did issue SDRs to help with global liquidity, but that was almost a year after the panic. The point is, the IMF is slow and clunky. It’s not the fire department. I mean, they might be like a construction crew that can come in and put in a new foundation, but they’re not the fire department that can help you when the building’s burning down.

So, what they’re going to have to do is what I call Ice 9. They’re going to have to freeze the system. First, starting with money market funds, then bank accounts, then stock exchanges, they might reprogram the ATMs to let you have $300 a day for gas and groceries. They’ll say, “well, why do you need more than $300 a day to get some food and gas in your car? Why do you need more than that? We can’t let you take all your money out of the bank. We can’t let you take your money out of the money market funds. We can let you sell your stocks.” And I describe all this in the book in detail with a lot of endnotes. You don’t have to read the endnotes unless you want to, but this is all documented. It’s all publicly available. It’s not some science fiction scenario. This plan is actually in place and I describe how.

Just to wrap up, I expect a weaker economy than the mainstream in 2018. Perhaps, a stock market crashing based on that alone. I also expect another financial panic. It’s impossible to say when, but eight years on, nine years on, I would say sooner than later. And this response function is going to be something that people haven’t seen since the 1930s.

- Source, Jim Rickards via Value Walk

Friday, January 26, 2018

James Rickards: Is $10000 Gold What Investors Really Want?


A rapidly increasing price level for gold may not be beneficial to investors, said best-selling author, Jim Rickards. $10,000 an ounce is “approximately the implied non-deflationary price of gold in a gold-backed monetary system,” Rickards told Kitco News on the sidelines of the Vancouver Resource Investment Conference.

Rickards noted, however, that gold at $10,000 levels may imply an increase of prices of other goods and commodities, thus eroding purchasing power. “All gold does is it preserves your purchasing power. 

But, if gold is $5,000, then oil is probably $400, and everything is double or triple, you’re not really ahead of the game,” Rickards said. 

The best-selling author added that 2018 may be a breakout year soon, and that a pending economic downturn is imminent and would be triggered by a liquidity crisis worse than the Great Financial Crisis in 2008.


- Source, Kitco News


Thursday, January 25, 2018

Has Jim Rickards Changed His Mind on Bitcoin?


My readers know I’m not a bitcoin proponent. I don’t deny that it’s made some people a lot of money, but I believe bitcoin is a massive bubble right now.

Yet it’s been reported in some circles that I’ve recently come out in favor of bitcoin.

It’s not true.

Now, it is true that I’ve stated my belief in blockchain technology, which is the technology behind bitcoin and other cryptocurrencies. There’s great promise here. And despite what some critics may claim, I’m not some technophobe who doesn’t understand the technology underlying cryptos.

I know it very well. I’ve been studying cryptos since before many of their current owners even heard of bitcoin. I actually worked with the intelligence community to counter ISIS’s use of cryptocurrencies to bypass the international money system.

And in my opinion, the hype has run far ahead of reality. This is reflected in bitcoin’s meteoric and unsustainable rise. But again, I also believe blockchain technology is for real and has great potential. So just because I’m not a bitcoin cheerleader doesn’t mean I’m opposed to all blockchain-based cryptos.

(In a few weeks, I’ll actually be conducting a debate with leading cryptocurrency expert James Altucher. The topic will be gold versus bitcoin, and I can’t wait to give viewers the whole story. Stay tuned for details.)

Today, I want to talk a little more about how gold and blockchain technology could lead the world away from the dollar-based system…

Despite everything you may hear in the mainstream media, gold is as relevant as ever.

Russia and China, for example, have been accumulating thousands of tons of physical gold bullion for the last 10 years. That’s not news, of course.

What is news is that both countries are starting to make moves toward the end game of a gold-backed currency that completely bypasses the U.S. dollar payments system.

These moves are both geopolitical and monetary.

In fact, they track the gold-based attack on the U.S. dollar that I devised for the Pentagon in their first-ever financial war game in 2009. That financial war game is described in detail in my 2011 book, Currency Wars.

It looks like the Russians and Chinese read my book!

According to Russian government officials attending a recent monetary conference in Moscow, Russia, China and their BRICS allies are moving toward their own gold trading system (bypassing London and New York).

From there it’s a small step toward a new gold-backed digital currency using distributed ledger technology and military-grade encryption. Distributed ledger technology is another term for the blockchain technology I discussed above.

But unlike cryptocurrencies like bitcoin, this digital system is backed by gold.

Once that system is up and running, the BRICS can trade and settle oil, commodities, weapons, manufactured goods and the overall balance of payments without using dollars or Western financial intermediaries at all.

And from there, a global loss of confidence in the dollar is not far behind. Do you think bitcoin will win the most in this scenario?

It won’t. The big winner in all of this will be gold.

Below, my colleague and senior geologist Byron King shows you how Russia is stockpiling gold as a “fire escape” currency to bypass the U.S.-backed monetary system. Read on to see how this development will dramatically affect the price of gold in the years to come.

- Source, Jim Rickards

Wednesday, January 17, 2018

James Rickards Warns: 2018 Will Be The Year Of Living Dangerously


I’m calling 2018 “The Year of Living Dangerously.”

That description might seem odd to lot of observers. Major U.S. stock indexes keep hitting new all-time highs. 2017 went down as the first calendar year in which the Dow Jones industrial average was up for all 12 months.

Even in strong bull market years there are usually one or two down months as stocks take a breather on the way higher. Not last year. There’s been no rest for the bull; it’s up, up and away.

Inflation is tame, even too tame for the Fed’s liking. The unemployment rate is at a 17-year low. U.S. growth was over 3% in the second and third quarters of 2017, much closer to long-term trend growth than the tepid 2% growth we’ve seen since the end of the last recession in June 2009.

The U.S. is not alone. For the first time since 2007, we’re seeing strong synchronized growth in the U.S., Europe, China, Japan (the “big four”) as well as other developed and emerging markets.

Growth breeds growth as consumers in one country create demand for goods and services provided by another. This is what economists mean by “self-sustaining” growth instead of force-fed growth from easy money and government spending.

Technology rules the day. The pace of innovation is unprecedented in world history. Our daily needs are being fulfilled better, faster and cheaper by the likes of Amazon, Google, Netflix and Apple. We can share the good news on Facebook.

Best of all, the U.S. Congress and White House got around to cutting our taxes in late December!

In short, all’s right with the world.

Or not.

To understand why 2018 may unfold catastrophically, we can begin with a simple metaphor. Imagine a magnificent mansion built with the finest materials and craftsmanship and furnished with the most expensive couches and carpets and decorated with fine art.

Now imagine this mansion is built on quicksand. It will have a brief shining moment and then sink slowly before finally collapsing under its own weight.

That’s a metaphor. How about hard analysis? Here it is:

Start with debt. Much of the good news described above was achieved not with real productivity but with mountains of debt including central bank liabilities.

In a recent article, Yale scholar Stephen Roach points out that between 2008 and 2017 the combined balance sheets of the central banks of the U.S., Japan and the eurozone expanded by $8.3 trillion, while nominal GDP in those same economies expanded $2.1 trillion.

What happens when you print $8.3 trillion in money and only get $2.1 trillion of growth? What happened to the extra $6.2 trillion of printed money?

The answer is that it went into assets. Stocks, bonds, emerging-market debt and real estate have all been pumped up by central bank money printing.

What makes 2018 different from the prior 10 years? The answer is that this is the year the central banks stop printing and take away the punch bowl.

The Fed is already destroying money (they do this by not rolling over maturing bonds). By the end of 2018, the annual pace of money destruction will be $600 billion.

The European Central Bank and Bank of Japan are not yet at the point of reducing money supply, but they have stopped expanding it and plan to reduce money supply later this year.

In economics, everything happens at the margin. When something is expanding and then stops expanding, the marginal impact is the same as shrinking.

Apart from money supply, all of the major central banks are planning rate hikes, and some, such as those in the U.S. and U.K., are actually implementing them.

Reducing money supply and raising interest rates might be the right policy if price inflation were out of control. But prices are actually falling.

The “inflation” is not in consumer prices; it’s in asset prices. The impact of money supply reduction and higher rates will be falling asset prices in stocks, bonds and real estate — the asset bubble in reverse.

The problem with asset prices is that they do not move in a smooth, linear way. Asset prices are prone to bubbles on the upside and panics on the downside. Small moves can cascade out of control (the technical name for this is “hypersynchronous”) and lead to a global liquidity crisis worse than 2008.

This will not be a soft landing. The central banks — especially the U.S. Fed, first under Ben Bernanke and later under Janet Yellen — repeated Alan Greenspan’s blunder from 2005–06.

Greenspan left rates too low for too long and got a monstrous bubble in residential real estate that led the financial world to the brink of total collapse in 2008.

Bernanke and Yellen also left rates too low for too long. They should have started rate and balance sheet normalization in 2010 at the early stages of the current expansion when the economy could have borne it (albeit without Dow 25,000). They didn’t.

Bernanke and Yellen did not get a residential real estate bubble. Instead, they got an “everything bubble.” In the fullness of time, this will be viewed as the greatest blunder in the history of central banking.

Not only that, but Greenspan left Bernanke some dry powder in 2007 because the Fed’s balance sheet was only $800 billion. The Fed had policy space to respond to the panic of 2008 with rate cuts and QE1.

Today the Fed’s balance sheet is $4 trillion. If a panic started tomorrow, the Fed’s capacity to cut rates is only 1.25% and its capacity to expand the balance sheet is nil, because the Fed would be pushing the outer limits of an invisible confidence boundary.

This conundrum of how central banks unwind easy money without causing a recession (or worse) is just one small part of a risky mosaic. I’ll be writing about the other pieces of the puzzle in future commentaries.

Here’s a sneak preview:

  • Student loan debt is over $1.4 trillion, and default rates are over 20%. Most of these defaults have not yet hit the federal budget deficit. They will soon. Resulting bad credit ratings are standing in the way of jobs and household formation for an entire generation of millennials.
  • The new U.S. tax bill is the greatest hoax since Orson Welles’ 1938 radio broadcast, “War of the Worlds,” about an invasion of Earth by Mars. Orson Welles caused a panic in the New Jersey/New York listening area, with people fleeing their homes and jamming the roads. The tax bill damage will be less visible but far more damaging.

Biggest winners: corporations and billionaires. Biggest loser: the U.S. economy. I’ll have a lot more to say about this in the weeks ahead. What is certain is the tax bill will add $2 trillion or more to the deficit, something the U.S. can ill afford.

  • A catastrophic wave of emerging-market defaults is coming, with enormous spillover effects likely in developed economies. This will be worse than the Latin American defaults of the 1980s and the Asian-Russia defaults of the late 1990s. It will emerge from Turkey and Venezuela but won’t stop there.
  • A war is coming between the U.S. and North Korea, probably by this summer. The best case is that the U.S. wins but at a very high cost in lives and money. The worst case is World War III when China, Russia and Japan are drawn in due to the inevitable unforeseen consequences of war.
There’s more to come over the weeks ahead. For now, think of 2018 as the year of living dangerously.

- Source, Jim Rickards via Zero Hedge

Sunday, January 14, 2018

Jim Rickards and Peter Schiff Discuss Global Gold Markets


Jim Rickards is Chief Global Strategist at the West Shore Funds, and Director of The James Rickards Project, an inquiry into the complex dynamics of geopolitics and global capital. 

In The Death of Money, Rickards shows why another monetary system collapse is rapidly approaching – and why this time, nothing less than the institution of money itself is at risk. 

Fortunately, it's not too late to prepare for the coming death of money. Rickards explains the power of converting unreliable money into real wealth, such as gold and other long term stores of value.

- Source, Peter Schiff

Thursday, January 11, 2018

James Rickards: Powell Will Do Exactly What Yellen Would Do


James Rickards is the bestselling author of Currency Wars, The Death of Money, The New Case for Gold, and The Road to Ruin. 

Interview Highlights 

[0:55] Update on N. Korea -- A war is not priced into the market. Is it a real possibility? 
[8:05] How important is the language coming out of the White House? 
[12:05] Is Jerome Powell a surprise choice for Fed Chairman? [20:30] Will Powell be 'innovative' with policy? 
[24:00] Are bond yields providing a good signal to investors?