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.


Monday, March 20, 2017

Jim Rickards - The Coming Big Freeze


"In 1998, he helped save the financial system from the collapse of LTCM… In 2006, he warned Washington officials of the coming $12.6 trillion mortgage meltdown…

Now CIA financial-threat analyst Jim Rickards warns of a looming $326 trillion crisis poised to freeze the world financial system indefinitely… in just 48 hours…"


Sunday, March 12, 2017

Trump? Alarm Bells in Beijing

Yes, war with China could break out in the South China Sea...

HISTORY shows that many wars begin not by design but by accident, writes Jim Rickards in The Daily Reckoning.

World War One is the classic case study.

No one really wanted a world war. And 16 million people died as a result. The Ottoman, Russian, German and Austro-Hungarian empires all collapsed in the aftermath. Still, the war happened anyway – through miscalculation and misreading the intentions of the other side.

Today the US and China are confronting each other in the South China Sea the way Germany and Russia confronted each other just before World War One. Could another world war happen by accident?

The answer is yes, it could.

The shoving matches between China and Japan in the East China Sea, and between China and the Philippines in the South China Sea are getting worse. It's just a matter of time before some incident or accident at sea sparks a war.

The problem is that the US has treaty obligations to Japan and the Philippines, as well as to Taiwan. So a Chinese war with them can quickly become a Chinese war with America.

The maritime regions off China's east and southeast coasts are vital to Chinese interests...

The South China Sea is rich in natural resources. It has rich fishing grounds and as much as $5 trillion in oil and gas.

But apart from its fisheries and vast energy resources, the South China Sea is home to some of the most important sea routes in the world. A third of all the world's seagoing trade, and roughly $5 trillion worth of goods transit through South China Sea each year.

The Malacca Strait links the Indian Ocean to the South China Sea. The amount of oil transported from the Indian Ocean through the Malacca Strait and into the South China Sea is three times the amount that passes through the Suez Canal every year. And fifteen times the amount that passes through the Panama Canal. The Malacca Strait is therefore one of the great choke points in global shipping.

Without access to the strait, China's access to oil and other raw materials from the Middle East and Africa would become greatly reduced. In wargames, American ships and bombers have rehearsed blockading the Malacca Strait. Chinese leaders are well aware of the implications and have watched these wargames with alarm.

China has now essentially claimed the entire South China Sea for itself (except for small zones immediately adjacent to the surrounding nations). But its control is disputed by six countries – China, Vietnam, Philippines, Malaysia, Brunei and Taiwan, all of which lay claim to some portion of it.

Of course, Chinese assertiveness in the South China Sea is nothing new. China has claimed territorial rights to almost the entire South China Sea in defiance of international arbitration and the competing claims of the other nations.

China has been backing up its claims by dredging the ocean floor to create artificial "islands" on existing rocks and atolls. Then it's built military bases on those islands and threatened to interdict any fishing or commerce which it does not approve.

Control of the South China Sea would be a sensitive subject at the best of times, but now it is more of a tinderbox than ever.

Lately, the seriousness of the confrontation has been dialed up.

The US has conducted freedom of navigation patrols in the area by sea and air. Numerous incidents have occurred between China and other claimants involving fishing and coast guard vessels in accidental collisions and intentional boardings.

China also seized a US underwater surveillance drone and has been conducting strategic bomber overflights in the area.

Some of this is in response to comments by President-elect Trump about China's currency manipulation and unfair trade practices and the suggestion that the US acceptance of Beijing's "One China" policy may be up for review.

Soon after his election, Trump received a congratulatory phone call from the president of Taiwan.

That might seem like a routine courtesy.

But from the Chinese perspective, the Taiwan issue is nonnegotiable. Beijing insists Taiwan is a "breakaway province" and not a separate country. US politicians usually tiptoe around this issue, but not Trump.

Not only did Trump chat with Taiwan's president, but he questioned the US "One China" policy in a tweet.

Trump's actions set off alarms in Beijing. The Communist leadership decided to send Trump a message by stealing the underwater drone operating in Philippine waters, nowhere near the disputed South China Sea waters claimed by China.

The drone was later returned, (after Trump tweeted that the Chinese should "keep it"), but the point was made. In short, geopolitical tensions between China and the US are definitely on the rise.

What about the future?

The indications for that are not good. In his confirmation hearing for secretary of state, Trump's nominee, Rex Tillerson, said that China should be denied access to the artificial islands they created in the South China Sea.

Attempting to deny China access by a blockade or other means would be tantamount to an act of war. China fired back immediately. A leading Communist Chinese publication said, "Unless Washington plans to wage a large-scale war in the South China Sea, any other approaches to prevent China access to the islands will be foolish."

President Xi of China is on the world stage at the Davos World Economic Forum this week even as Donald Trump is about to be sworn in as 45th president of the United States. We are certain to hear more on this topic soon from both leaders.

But Trump's not even president yet. That won't happen for a few more days. Imagine how much worse this could get once Trump takes office and his policy suggestions become reality.

The prospects for peaceful resolution are not good. This volatile mix of disputed claims, natural resources and complex treaty networks has the ingredients needed to escalate into a Third World War.

All it would take to start a war is some spark such as a collision at sea or an attack based on mistaken identity or misunderstood intentions. For example, an accidental collision at night between a Philippines' naval vessel and a Chinese fishing boat resulting in Chinese casualties has the potential to start the next world war. Now, I'm not saying it necessarily would, but the potential exists.

So in addition to trade wars and currency wars, China and the US could soon find themselves in a shooting war in the South China Sea.

Of course, the implications of this for markets are nothing short of catastrophic. But the serious potential for a shooting war in the South China Sea has largely being ignored by markets.

World Wars often emerge in unexpected places or on thin pretexts. The same could happen here. In fact, a war there is probably just a matter of time.

The entire situation is a tinderbox waiting to explode.

- Source, Bullion Vault

Thursday, March 9, 2017

Trump About to Declare Currency War!

Six years ago in my first book, Currency Wars, I wrote, “There is nothing today that suggests the currency wars will end anytime soon.” Today, those words seem as true as ever.

A currency war is a battle, but it’s primarily economic. It’s about economic policy. The basic idea is that countries want to cheapen their currency. Now, they say they want to cheapen their currency to promote exports. Maybe it makes a Boeing more competitive internationally with Airbus.

But the real reason, the one that’s less talked about, is that countries actually want to import inflation. Take the United States for example. We have a trade deficit, not a surplus. If the dollar’s cheaper it may make our exports slightly more attractive.

It’s going to increase the price of the goods we buy — whether it’s manufactured good, textiles, electronics, etc. — and that inflation then feeds into the supply chain in the U.S. So, currency wars are actually a way of creating monetary ease and importing inflation.

How many times have you heard the Fed say they want 2% inflation? They analyze it over and over and over. They’re desperate to get there.

The problem is, once one country tries to cheapen their currency, another country cheapens its currency, and so on causing a race to the bottom.

Currency wars are like real wars in more ways than one. They can last longer than the combatants expect, and produce unexpected victories and losses. Real wars do not involve all fighting, all the time. There are quiet periods, punctuated by major battles, followed by new quiet periods as the armies rest and regroup.

There are critical turning points where a long-term directional trend is set to reverse. Today’s “winners” (the strong currencies) suddenly become “losers” (the weak currencies), contrary to most expectations and Wall Street forecasts. Today we could be at one of those turning points, which we’ll explore in a moment. But first, let’s see how we got here.

The currency wars of the early 1930s are potentially instructive for what we could be experiencing today. The U.K. devalued the pound sterling in 1931. Soon after, the U.S. devalued the dollar in 1933. Then France, which devalued the franc in the ‘20s, and the U.K. devalued again in 1936.

You had a period of successive currency devaluations and so-called “beggar-thy-neighbor” policies.

The result was, of course, one of the worst depressions in world history. There was skyrocketing unemployment and crushed industrial production that created a long period of very weak to negative growth. This currency war was not resolved until World War II and then, finally, at the Bretton Woods conference. That’s when the world was put on a new monetary standard.

The next currency war raged from 1967 to 1987. The seminal event in the middle of this war was Nixon’s taking the U.S., and ultimately the world, off the gold standard on August 15, 1971.

He did this to create jobs and promote exports to help the U.S. economy. What actually happened instead?

We had three recessions back to back, in 1974, 1979 and 1980.

Our stock market crashed in 1974. Unemployment skyrocketed, inflation flew out of control between 1977 and 1981 (U.S. inflation in that five-year period was 50%) and the value of the dollar was cut in half.

The real lesson of currency wars is that they don’t produce the results you expect which are increased exports and jobs and some growth. What they generally produce is extreme deflation, extreme inflation, recession, depression or economic catastrophe.

But they’re very, very appealing to politicians because they can stand up say, “Hey, it’s good to have a cheap dollar because we promote jobs.” But the reality is, it doesn’t promote jobs. It just promotes inflation.

You’re actually better off with a strong currency because that attracts capital from overseas. People want to invest in the strong currency area, and it’s that investment and those capital inflows that actually creates the jobs. So as usual, the politicians and the central bankers have it completely wrong. But they’re not listening to me or necessarily reading my newsletters.

The period between 1985 and 2010 was the age of what we call “King dollar” or the “strong dollar” policy. It was a period of very good growth, very good price stability and good economic performance around the world.

The United States agreed to maintain the purchasing power of the dollar and our trading partners could link to the dollar or plan their economies around some peg to the dollar. That gave us a generally stable system. It worked up until 2010 when the U.S. tore up the deal and basically declared another currency war to boost U.S. exports. President Obama did this in his State of the Union address in January 2010.

The currency wars have been ongoing ever since, with varying intensity. But with the election of Donald Trump, they look set to enter a new major battle.

Today, the currency wars have brought the U.S. to the cusp of a trade war. President Trump and several of his top advisers in recent days have complained that not only is China a currency manipulator, but so are Japan and Germany. It seems the U.S. is tired of the new “king dollar” phase it’s been in lately, and is willing to take action to cheapen the dollar.

But how can the administration actually do this?

The Fed will not lower rates because it is in a tightening cycle. The Fed will probably be raising rates in March and possibly later this year. That makes the dollar stronger.

China is trying to prop up the yuan but is running out of dollar reserves to do so and will have to devalue before they go broke. Germany might like a stronger euro to fight inflation, but the decision is not entirely in their hands — it’s up to the European Central Bank, and the ECB is still engaged in QE for the time being.

Japan cannot afford a stronger yen, because they have the highest debt-to-GDP ratio of any major economy and are desperate to get inflation. Japan needs inflation to lower the real value of that debt.

If China, Germany and Japan cannot give Trump what he wants in the foreign exchange markets, what options does the U.S. have?

The main option is tariffs, exactly what Richard Nixon did on Aug. 15, 1971.

You may remember that date as the day Nixon ended the convertibility of dollars for gold. But he also imposed a 10% across-the-board tariff on all imported goods as part of his New Economic Plan. Nixon combined the currency wars and trade wars in one policy by hoarding gold and imposing tariffs.

Historically, currency wars do lead to trade wars and, ultimately, to some form of systemic collapse. That seems to be happening again. I’ll be analyzing each side of this coin in the coming weeks.

- Source, James Rickards

Monday, March 6, 2017

Jim Rickards - Markets Are Experiencing Cognitive Dissonance

Cognitive dissonance is a psychological term to describe a situation where perception and reality are out of sync.

It’s similar to what most people refer to as “denial.” The patient sees things one way, but the reality is different. Of course, it’s just a matter of time before reality prevails and the patient is jolted back to reality. This process can be fast or slow, easy or painful, but the important thing to bear in mind is reality always wins.

Something like cognitive dissonance is going on in markets right now. Markets have been temporarily euphoric over Trump’s tax, regulatory and spending policies. Those policies are important to business and credit cycles and economic growth.

The perception is that happy days are here again. The new Trump administration is expected to pour trillions of dollars of stimulus spending and tax cuts into the economy. Immediately after the Nov. 8 election, investors took a quick look at Trump’s policies and decided they liked what they saw.

Trump wants lower taxes, less regulation and higher infrastructure spending. Corporate profits and consumer spending benefit from lower taxes. Banks and pharmaceutical companies benefit from less regulation. Construction firms and defense contractors benefit from infrastructure spending. There seemed to be something for everyone, and the stock market took off like a Roman candle.

And indeed, the major stock indexes hit one record closing after another. The Dow topped 20,000 this week before pulling back. The dollar has been trading near a 14-year high, although it’s slipped in recent days. Gold was moving mostly sideways until it broke out again over the past few days.

Bank stocks went vertical in expectations of wider net interest margins (from Fed rate hikes) and less regulation (from Dodd-Frank reform). Happy days, indeed.

Reality is another matter. I’ve been warning my readers lately that the Trump trade is levitating in thin air and is ready for a fall. Now that reality could be beginning to sink in.

It’s far from clear how much of the Trump economic agenda will see the light of day. Congress wants to offset tax cuts in one area with tax increases in another so they are “revenue neutral.” That takes away the stimulus. Less regulation for banks won’t help the economy if bankers lead us into another financial meltdown like 2008.

Infrastructure spending will increase the debt-to-GDP ratio past the already high level of 105%, putting the U.S. closer to a sovereign debt crisis like Greece. As I wrote Tuesday, many believe a 60% debt-to-GDP ratio retards growth. That’s the standard the ECB uses for members of the Eurozone. Scholars Ken Rogoff and Carmen Reinhart put the figure at 90%.

Again, the U.S. debt-to-GDP ratio is currently at 105%, as stated, and heading higher. Under any standard, the U.S. is at the point where more debt produces less growth rather than more. This is one more reason why the Trump infrastructure spending plan will not produce the hoped for growth. And if infrastructure is funded privately, you’ll need tools and user fees to pay the bondholders, which is just another form of tax increase.

There’s almost no way Trump’s policies can supply the stimulus the market is pricing in. The Dow Jones index peaked on Jan. 26, 2017, one day after cracking the mythical 20,000 mark. It’s now trading around 19,900. The downhill trend may continue and get steeper soon.

Productivity has stalled out in recent months. Economists are not sure why. It could be due to lack of investment by business, or that workers are not being trained in useful skills, or that everyone is spending too much time on social media. Whatever the cause, productivity is flat.

Fourth-quarter GDP came in at 1.9%, below expectations — the final chapter on the worst year of U.S. growth since 2011 when the economy was still healing from the global financial crisis. The strong dollar is a major headwind to growth, along with flat labor force participation and weak productivity growth.

Growth in a major economy is simply the sum of increases in the labor force plus increases in productivity. Think about it. How many people are working and what is the output per worker? That’s it; that’s all there is. The reality is that the workforce is not growing.

Labor force participation is near 40-year lows and is expected to decline further for demographic reasons. Birthrates have never been this low since the Great Depression. The U.S. used to get a labor force lift from immigration, but that might dry up because of Trump’s policies. We’ll have to wait and see.

A flat labor force plus flat productivity equals a flat economy, or almost zero nominal growth. That’s reality.

How will this situation be resolved?

Either growth will rebound based on “animal spirits” and the Trump stimulus working better than expected or markets will collapse once they realize the growth is not coming. By “collapse,” I mean a violent stock market correction, a falling dollar and major rallies in bonds and gold. We expect the latter.

Financial crises are not mainly about the business cycle. They’re about investor psychology, sudden shocks and the instability of the financial system. Right now investors are skittish, numerous shocks are waiting to happen and the system is highly unstable due to overleverage and nontransparency.

Despite Trump’s best efforts and positive policies, a collapse could happen any day unless radical steps are taken to prevent it — such as breaking up big banks and banning derivatives. I’ve been warning about this for a while, but now mainstream economists see the danger too. Nobel Prize winner Robert Shiller, for example, sees a stock market crash coming that could be worse than 1929 or 2000. I hope he’s wrong.

The problem with a financial panic is that panicked investors don’t care if the president is a Democrat or a Republican; they just want their money back. The same dynamic applies to natural disasters like tsunamis and earthquakes.

Once the disaster starts, the dynamics have a life of their own and don’t care if the victims are liberals or conservatives. Everyone gets hurt just the same. I’m not hoping for it, but this is a lesson Trump may learn the hard way.

Above I said collapse means a violent stock market correction, a falling dollar and major rallies in bonds and gold. I expect the latter. The long-term trends favor gold if U.S. growth continues disappoint.

The strong dollar story can’t last, so it won’t. The Trump administration has clearly signaled that the day of the strong dollar is over. When you see a coordinated attack on the dollar from the White House, the Treasury and the Fed, you can bet the dollar will weaken. That means a higher dollar price for gold.

The dollar may get one last boost from a Fed rate hike in March, but after that, even the Fed will acknowledge that they got it wrong again and start another easing cycle with happy talk and forward guidance.

For now, investors should not stand in front of a moving train. Keep cash ready and be prepared to move into gold, bonds and the euro. In fact, it’s not too soon to leg into those positions now.

Instead of watching the tape or short-term trends, my advice is to stay focused on the long-term trends. That’s how you’ll make the most money and preserve wealth in adversity.

- Source, James Rickards via the Daily Reckoning

Friday, March 3, 2017

The Other Executive Action Trump Took Friday

The Dow fell back below 20,000 today. Many in the media are blaming it in part on Trump’s Friday executive order temporarily banning travel from seven Muslim countries.

It’s amusing and a bit discouraging to watch the mainstream media react to the initial wave of executive orders coming from the White House. Headlines blare, “Trump’s Building a Wall With Mexico,” “Trump’s Stopping Syrian Immigrants” “Trump Pulls out of Trans-Pacific Partnership!”

Really? Why are the mainstream media so shocked? After all, didn’t Trump say he was going to build a wall, stop some immigration and pull out of the TPP? Isn’t that exactly what Trump campaigned on? Of course it is.

What has the media baffled is that Trump is the first politician in living memory who actually does what he said he was going to do. Media and most voters are so accustomed to politicians who say one thing to get elected and do another once in office that they literally can’t process a politician who does what he says.

Hence the hysterical headlines about policies you could see coming a mile away.

My point is not to debate these policies. We all have our own opinions on each one; that’s fine.

Among those policies is a huge boost in defense spending, upgrades to the nuclear arsenal, expanded operations in space and reviving something like Ronald Reagan’s “600-ship Navy.”

You can see this defense spending bonanza coming not only because Trump promised it (and he means what he says), but because Trump will have to go down this road to lend credibility to his other statements about the South China Sea, North Korea, Taiwan and NATO.

Trump has suggested confrontational or unilateral actions in all of those areas. You can’t act confrontationally or unilaterally without a strong defense and intelligence capability. That’s exactly what Trump is out to create.

And on Friday, he issued a presidential memorandum pledging to rebuild the military, reading in part: “To pursue peace through strength, it shall be the policy of the United States to rebuild the U.S. armed forces.”

But defense technology is not something you can create by executive order. It takes a year or longer to conduct feasibility studies and make it through the appropriations process. That’s good news for investors prepared to take advantage of the spending boom because it means they have time to get in on the most promising defense tech startups and medium-sized players before the big orders and the big buyouts start to roll in.

This is a once-in-20-years opportunity, and with Trump in the Oval Office, smart investors who understand the implications will have the wind at their backs for a decade.

- Source, Jim Rickards via the Daily Reckoning

Tuesday, February 28, 2017

Jim Rickards: European Central Bank to Tighten Later This Year

Jim Rickards joined CNBC’s The Rundown to offer his analysis for 2017 and what expectations for the European Central Bank (ECB) may be under rising Eurozone inflation and various regional factors.

Rickards began the conversation by weighing in that, “Mario Draghi is my favorite central banker, I think he is the only one who really understands central banking.” Draghi is the current head of the European Central Bank and a former Goldman Sachs banker who began his term as leader of the ECB in November 2011. Rickards went on to remark, “Central banks are actually not that powerful but they have been given a pretense. Mario Draghi says little, and does less. That is a very effective way of operating.”

Jim Rickards is the New York Times bestselling author of The Road to Ruin. Rickards has worked previously on Wall Street for several decades and has advised the U.S intelligence community on topics surround currency wars and capital markets.


“(Mario Draghi) has a famous phrase” regarding the European Central Bank (ECB) stepping in to support the European common currency by saying he will do “whatever it takes – three words – and he single handedly saved the euro. I think his language, posture and demeanor is exactly right. Mario Draghi is sending a message. They (ECB) will have to tighten before September. As he said, not yet, we will get around to it.”

The CNBC commentator then shifted gears to ask Rickards for his insights on the sudden rise in inflation within the Eurozone and what the ECB will do in response Jim Rickards notes, “There will be tightening. The thing about inflation in Europe is it is focused through Germany at the moment. Germany is very hawkish on this. German Finance Minister Wolfgang Schaeuble has been complaining about it, but Draghi’s mandate is European and not limited to Germany.”

“This is only of the many problems of the European monetary union, and to a greater extent the Eurozone. You can have deflation in one country and inflation in another country. Which is what happened when Greece was collapsing, though it is not so bad right now. Germany is a little bit hot, but you’ve got other countries including among them Greece, Italy and others where it is a little cooler.”

When asked what specific areas that the head of the European Central Bank might be focusing his attention on Rickards indicated, “He’s got to look at average inflation across the entire Eurozone. That is why Draghi didn’t tighten now.

In getting specific on where Draghi’s primary concern for 2017 will be Rickards turned to Germany and the political environment, “The reason I say the Mario Draghi will tighten later is because average inflation might not be that high, but there is an election in Germany coming up later this year. (Draghi) doesn’t want to lose Angela Merkel. She has been a big supporter of his, so he will do what it takes.”

“The German voter is going to vote on German inflation, not European inflation. While Draghi cares about European inflation, he is going to have to do something to make sure Merkel doesn’t lost.”

- Source, Craig Wilson via the Daily Reckoning


Saturday, February 25, 2017

The Gold Chronicles with Jim Rickards and Alex Stanczyk


Interview with Jim Rickards Part 1 topics: 

*Power Triad Dynamics, USA, China, Russia *Why China is concerned about a Trump Presidency *Capital flows out of China continue at a robust pace *China will burn through all of its liquid reserves in one year at the current pace *Analysis of China's three options *Which conditions could place the USA and China in a state of war over the South China Sea


Thursday, February 16, 2017

Global Financial Meltdown - James Rickards on How To Avoid Financial Ruin


James Rickards on how to avoid another financial crisis. Where should you position your money? What can you do? Is the collapse avoidable?

In this video, James Rickards breaks all of these questions down and attempts to dispell some of the myths that exist out there, while at the same time, not sugar coating the future. Bad times are ahead, but profits can still be made.


Monday, February 13, 2017

James Rickards - Gold Shortages Coming


James discusses: Gold shortages; Gold Banks; Negative Interest Rates; Paper Money Collapse; Pound Sterling; Gold Standard; Digital Currencies; Cyber Financial Warfare; Hyperinflation; and BREXIT.


Sunday, January 29, 2017

James Rickards - The Road To Ruin


James Rickards is an American lawyer and a regular commentator on finance. He is the author of The New York Times bestseller Currency Wars: The Making of the Next Global Crisis, published in 2011, The Death of Money: The Coming Collapse of the International Monetary System.


Thursday, January 26, 2017

Recession, market correction next year, expect rate cuts: Rickards

The Federal Reserve hiked interest rates just two weeks ago for the second time in a decade, but it will soon be cutting them again, said Jim Rickards on Tuesday.

Speaking to CNBC's Squawk Box, the director of The James Rickards Project said a stock market correction is coming as President-elect Donald Trump's economic stimulus plans will not pan out, causing a "head-on collision" between perception and reality.

"When the reality of no stimulus catches up with the perception of stimulus plus the Fed tightening: that's the train wreck. Either we're going to have a recession or a stock market correction," he said.

The markets have been rallying on the back of Trump's win as investors bet on tax cuts and fiscal spending under the new administration.

However, "the stimulus is not going to come" as Trump's proposed tax cuts will hit government revenue while the Congress is likely to block his stimulus plans as the U.S. is already $20 trillion in debt, Rickards added.

This will lead to a recession or a "very severe correction" in the stock market, prompting rate cuts later next year, he said, prompting the Fed to cut rates.

"They will raise (rates) in March and then something will hit the wall, either the economy or the stock market or both. Then the Fed will backpedal from there, starting with a forward guidance then perhaps a rate cut later in the year," said Rickards, who recommends holding gold and U.S. 10-year Treasurys.

- Source, CNBC

Monday, January 23, 2017

James Rickards: An End to Globalism

Jim Rickards joined the BBC’s Gordon Brewer on Radio Scotland to discuss globalism and his latest best seller The Road to Ruin. During the conversation Rickards outlines exactly what he believes is a strategy by global elites’ to disguise a looming financial collapse.

When asked about the Donald Trump positioning he responded, “Donald Trump is not a conservative. He is a populist. He is a nationalist. He is a bit of a “Trumpist.” His policies are mercurial, subject to change. He ran as a “champion of working people.” That’s why he got those votes in Pennsylvania, Michigan and Wisconsin that broke up Hillary Clinton’s “blue wall.” So I could very well imagine Trump adopting pro-labor policies to help the working man.”

Jim Rickards is a lawyer and financial analyst who just released his New York Times best selling book, The Road to Ruin. Rickards has advised the U.S intelligence community and has also worked in the world of Wall Street for decades.


When asked about the big thesis of his latest book, The Road to Ruin, he is asked to explain what Ice 9 and the premise of his book relates to when examining the next financial crisis. “I look at three crises. I look at 1998, 2008 and 2018 – which is obviously hypothetical. But the point is it could be tomorrow. Each crisis is bigger than the one before it. Each response is bigger than the one before.”

“We are now at the point where central banks no longer have the ability to respond because they have not normalized their balance sheets or interest rates following the crisis of 2008. All of the money that was printed is still there, those near-zero interest rates are still there. The ability to print more money and lower rates is highly constrained.”

“The question is, where will the money come from? How will we reliquify the system in the next global liquidity crisis, which is – as I have said – just a matter of time? The answer is the International Monetary Fund (IMF). The IMF can print world money. They call it the Special Drawing Rights, or SDR, which is a rather technical name designed to throw people off. It is world money, printed by a world printing press and run by the IMF.”

“(But when the crisis happens) it will take three to six months to gather some consensus… so what will happen when the entire world wants their money back but there is no money? The answer is, they will lock down the system. Money market funds will suspend redemptions, ATMs will be reprogrammed to only allow a certain amount of money.”

- Source, Daily Reckoning

Friday, January 20, 2017

James Rickards says Donald Trump can’t stop the next financial crisis

James Rickards sees threats in many places. In his latest book, “The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis,” he paints a picture of how that crisis will unfold. He argues that rather than pumping the financial system with liquidity, as happened in 2008, “elites” will freeze the financial plumbing until the crisis has passed.

That means banks will close, as will exchanges. Money-market funds will be inaccessible. Forget trying to get your hands on money.

Rickards, who was the principal negotiator of the 1998 bailout of Long-Term Capital Management as the hedge fund’s general counsel, calls this new world “ice-nine,” after a fictitious substance in Kurt Vonnegut’s “Cat’s Cradle.” Freezing customer funds in bank accounts is what happened in Cyprus is 2012 and Greece in 2015, he says. In the U.S., the Securities and Exchange Commission adopted a rule in 2014 that lets money-market funds suspend redemptions.

Prefer stockpiling cash? Governments are eliminating high-denomination bills, and Kenneth Rogoff, a former IMF chief economist, has written a book that Rickards describes as “an elite step-by-step plan to eliminate cash entirely.”

Then, Rickards says, there are rules on banks and other institutions. Capital controls could be imposed to keep money from fleeing across borders. And the U.S. is still under the state of emergency declared by President George W. Bush days after the Sept. 11, 2001, terrorist attacks and renewed annually since then. Rickards argues that such measures can be applied in any emergency, “including money riots in the event of a financial system breakdown and ice-nine asset freeze.”

Rickards, who now advises the Defense Department and U.S. intelligence community on international economics and financial threats, discussed his latest book with MarketWatch.

- Source, Market Watch