1. Ice-Nine Comes to the Gold Bullion Market

     

    Regular readers are familiar with my “ice-nine” thesis on how the next financial crisis will play out. Ice-nine is a phrase invented by Kurt Vonnegut Jr. in his novel Cat’s Cradle.

    In the novel, ice-nine is a doomsday device involving a molecule that freezes any water it comes in contact with and converts that water into ice-nine. Once released into a body of water, ice-nine eventually freezes all the water on Earth and causes the extinction of mankind.

    I used ice-nine as a metaphor for a total freeze of bank and brokerage accounts in a new panic. This is explained in my book The Road to Ruin. Now, a real-life version of ice-nine is playing out in the gold market.

    As explained in this article, Venezuela stores some of its gold bullion in vaults at the Bank of England in London. Venezuela has requested that the gold be returned to Venezuela, probably so that it can be pledged to China or Russia for financial assistance. But the Bank of England is freezing Venezuela’s gold and refusing to return it.

    For now, Venezuela is the victim of this ice-nine account freeze. But in the not-distant future, it could be your bank or brokerage account that is frozen in a financial panic.

    The best advice is to keep some physical cash on hand and store your gold or silver in safe nonbank vaults. Only by escaping the government-controlled banking system can you escape ice-nine.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

     

  2. 2019 Headwinds Are Getting Stronger

    In 2017, every prominent economic forecasting entity was shouting from the rooftops about “synchronized global growth.” This was a reference to the fact that not only were certain economies growing, but they were all growing at the same time.

    Chinese GDP growth had come down but was still substantial at 6.85%. U.S. GDP growth was posting solid gains of 3.0% in the second quarter of 2017 and 2.8% in the third quarter. Japan and Europe were not growing as quickly as the U.S. and China, but growth was still accelerating from a low level.

    Click here to read the rest of this article.

  3. Jerome Powell Caves to Market

    Fed Chair Jay Powell just sent the most powerful signal from the Fed since March 2015.

    He has pretty much taken a March 2019 rate hike off the table until further notice. At a forum hosted by the American Economic Association in Atlanta last Friday, Powell used the word “patient” to describe the Fed’s approach to the next interest rate hike.

    When Powell did this, he was reading from a script of prepared remarks in what was otherwise billed as a “roundtable discussion.”

    To read the rest of this article, click here.

     

  4. The Government Could Shut Down Tonight

    Remember the “tea party” revolt in 2009–2010 against government bailouts and government spending? Remember the “fiscal cliff” drama of Dec. 31, 2012, when Congress raised taxes and cut spending to avoid a debt default and government shutdown? Remember the actual government shutdown in October 2013 as Republicans held the line against more government spending?

    Well, congratulations if you do, because everyone else seems to have forgotten.

    Click here for the rest of this article.

     

  5. The Data From China Are Even Worse Than They Look. A Crash Is Coming

     
     

    We’ve been saying for over a year that Chinese growth figures are misleading and a debt-related market crash is just a matter of time. Now the data have confirmed this view, and even the Chinese government can’t cover up the decline any longer.

    China is between a rock and a hard place. If the government tries to sustain economic growth through debt, they just build a bigger debt crisis down the road. But if they try to rein in credit growth, they slow the economy and risk popular discontent through higher unemployment, inflation and debt defaults.

    This article describes the recent history and likely future of China’s slowdown and their failed efforts to hide it. A partial effort to reduce debt creation in 2017 has now come home to roost in the form of much slower growth.

    China’s problems are worse than that, because debt is so high that even more debt does not produce the expected growth. China is trying to thread the needle with infrastructure investment, but even that doesn’t work because the infrastructure is unproductive (white elephants and ghost cities), while the debt is all too real.

    What happens in China won’t stay in China; a slowdown there will produce a global slowdown as China reduces input purchases and the trade wars slow down Chinese exports. The Chinese Communist government fears popular unrest more than slow growth. In 2019, they may get both.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

     

  6. Even a Dovish Fed Won’t Stop the Rate Hikes. Get Ready for Volatility

     

    The Fed is so confused it’s beginning to confuse the markets too.

    The basic Fed model set up by Janet Yellen and continued by Jay Powell was that the Fed would raise rates four times per year (March, June, September and December), by 0.25% each time, until the fed funds target rate hit 3.75%, at which point the Fed would step back and evaluate the situation. The rate hikes had nothing to do with “data” and everything to do with having dry powder for the next recession.

    The only exception to this clockwork program would be an occasional “pause” if the Fed saw strong disinflation, disorderly market declines or job losses. The finesse was to raise rates without causing the recession the Fed was bracing to cure.

    While Wall Street jabbered about other factors (yield curve, nonexistent inflation, bad days in the market), the Fed stayed on track So far, so good.

    Yellen threw a monkey wrench into this with her “quantitative tightening” (QT) started in October 2017. QT is the equivalent of burning money, the opposite of QE. Then Powell threw another monkey wrench with his early October comment that the Fed was a “long way” from a “neutral” policy rate. This was a mistake, because “neutral” doesn’t exist (it’s another meaningless academic theory) and neutral is not the Fed’s real goal anyway (it’s the 3.75% target).

    This hawkish comment sent markets into a tailspin in October. Powell corrected the record in November by saying the Fed was actually “just below” neutral (another irrelevant comment, but markets cheered and reversed some October losses). As this article reports, the Fed is now boxed in by Powell’s sloppiness.

    There’s a Fed meeting on Dec. 19. If Powell is dovish, there may be a year-end “Christmas rally” on Wall Street. If Powell is hawkish, markets may tank going into year-end. But the entire debate is like a false flag operation because it has nothing to do with the Fed’s real goal of dry powder.

    Powell is not an economist; he’s a lawyer. He should stick to a pragmatic approach and not get pulled into the academic mumbo-jumbo about the “neutral” rate. The Fed will probably try to square the circle with slightly more dovish economic forecasts and slightly more hawkish comments on “gradual” rate hikes.

    Meanwhile, the QT juggernaut is slowing the economy with or without rate hikes. The market can digest all of this along with their Christmas turkeys. Confusion reigns.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

     

  7. If You Don’t Know Who the Sucker Is, You’re the Sucker

     

    There’s an old saying in poker: If you’re in a three-sided game and you don’t know who the sucker is, you’re the sucker. This refers to the fact that two players in a poker game can implicitly coordinate their efforts to clean out the third party (the “sucker”). Once that is accomplished, the two players will turn on each other, but at least they have a bigger pile of chips.

    This simple insight also applies to global geopolitics. The only three countries in the world that really matter are Russia, China and the U.S. (Sorry, U.K., France and Japan… you’re in the second tier).

    As strategists from Richard Nixon and Henry Kissinger to Bill Clinton understood, the U.S. needs to be in a de facto alliance with either Russia or China to box in the other superpower. In the 1980s, the U.S. boosted China to pressure the old Soviet Union. In the 1990s, after Tiananmen Square (1989), the U.S. worked closely with Russia to sideline China. In the early 2000s, the play was to coordinate with China again to box in Russia (after the rise of Putin).

    Obama lost sight of this principle after 2008 by failing to realize that China was a much greater threat than Russia and by burning diplomatic bridges to Russia after U.S. interference in Ukraine backfired. Now the game is being played skillfully by Russia and China, with the U.S. as the odd man out or “sucker.”

    Trump tried to rectify this by improving relations with Russia, but this was blown up by China lovers in the U.S. intelligence community such as John Brennan and globalist tycoons such as Mark Zuckerberg at Facebook.

    As reported in this article, the China-Russia axis is now front-page news, and Trump’s hands are tied with regard to Russia because of the fake “collusion” allegations and the Mueller investigation. Until we put “Russiagate” behind us, the U.S. will remain the loser in this three-handed game.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

     

  8. The Clock Is Ticking on the China Trade Scam

     

    Wall Street and China can’t seem to grasp the fact that the U.S.-China trade war is real and the clock is ticking on massive new tariffs. The wishful thinking since last January is that the trade war is mostly for show, both sides are posturing and a “deal” will soon be worked out that allows Trump to claim victory without really changing very much from China’s perspective.

    We’ve said all along that this misreads the situation. The U.S. is demanding real, verifiable changes regarding China’s theft of intellectual property, limits on U.S. investment in China and technology transfers from U.S. companies that do manage to get in the door. Nothing less is acceptable to Trump.

    After a year of tit-for-tat tariffs and fruitless negotiations, the two sides finally agreed on substantive negotiations on the hard issues. The agreement was reached at the now-famous dinner in Buenos Aires on Dec. 1 with President Trump and Chinese President Xi Jinping and their staffs in attendance. As explained in this article, the U.S. has set March 1, 2019, as a deadline for a satisfactory conclusion to these negotiations.

    So far, China has offered mostly meaningless concessions, including putting some tariffs back where they were before the trade war erupted (no net gain for the U.S.) and modifying its “Made in China 2025” initiative to dominate the technologies of the future (a purely cosmetic change). Meanwhile, the U.S. has kept up the pressure by the Canadian arrest of the CFO of Chinese electronics giant Huawei and making it clear that the March 1 deadline is hard and fast.

    We still have over 60 days left before the deadline. Don’t expect much progress between now and New Year’s Day. If enough progress is made, an extension might be agreed upon. But for now, China is just going through the motions and Wall Street is sleepwalking off a cliff.

    The world may discover on March 1 that tariffs are going up and the trade war is just getting started.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

     

  9. Have You Heard of the “Five Eyes”? China Has, and They’re Paying the Price

     

    Intelligence agencies from the CIA to MI6 are practiced in the arts of deception and denial. No one trusts anyone. That tradecraft is useful when you’re outwitting the enemy. But how do you engage in honest exchanges of information with friends?

    A solution to this conundrum is called the “Five Eyes.” This term refers to the intelligence agencies of five close allies who share a language and cultural history and have long cooperated in intelligence sharing. The Five Eyes are the U.S., U.K., Australia, Canada and New Zealand.

    While each of the Five Eyes has their own history and unique tools, they all evolved along the lines created by the U.K.’s MI6 international intelligence service. This shared tradecraft includes officers who recruit and handle spies (called “secret agents” or “case officers”), the use of front organizations (called “cutouts”), the use of disguises, and a network of safe houses.

    The 21st-century version includes spy satellites, listening devices and message traffic intercepts. Intelligence agencies worry about sharing information because it can reveal sources and methods, or it could fall into the hands of moles in the agencies with whom it is shared.

    The Five Eyes have the highest level of trust and therefore share information and plans more freely. The latest operation of the Five Eyes involves the destruction of Huawei, which is the world’s largest smartphone manufacturer and one of the largest companies in China.

    Huawei has implanted bugs and back doors in its smartphones to capture message traffic and relay it to Chinese intelligence. Huawei is now making a play as a supplier to the most important 5G networks in the world. As shown in this article, the Five Eyes and their host governments are determined to stop Huawei in its tracks.

    Huawei has been barred from making acquisitions of tech companies in the U.S., U.K., Australia, Canada and New Zealand and is being banned from contracting on government telecoms systems. Other allies including Japan are joining the effort to bar Huawei from all 5G networks. Canada recently arrested the CFO of Huawei pursuant to a U.S. arrest warrant, a good example of Five Eyes cooperation.

    This attack on Huawei is just getting started. Huawei is beginning to feel the scrutiny of the Five Eyes.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

     

  10. New Cold War With China Possible

    On Saturday, Dec. 1, at the end of the G-20 meeting in Buenos Aires, President Trump and his team of trade and finance advisers had dinner with President Xi Jinping of China and his team.

    The purpose was to discuss the ongoing trade war between China and the U.S. Trump’s team had presented the Chinese team with 142 specific trade demands.

    The two sides went over the demands one by one during the course of their two-hour dinner. When they were done, both sides announced a 90-day “truce” in the trade wars. China agreed to negotiate in good faith on the demands and the U.S. agreed to delay the imposition of tariffs scheduled to go into effect Jan. 1, 2019, until March 1, 2019, to give the negotiations time to proceed.

    For the rest of this article, click here.