1. Let’s Give Bitcoin Big Shots Credit for New, Creative Ways to Lose Money

    Bitcoin is a funny combination of my least favorite topic and my most studied sector. It’s my least favorite because the nonsustainability, nonscalability and nonsecurity make bitcoin blaringly unsuitable as currency. It’s my most studied because I’m continually dragged into gold versus bitcoin debates on the gold side, so I take the time and effort to become expert on bitcoin in order not to be outscored by the bitcoin side (so far, I’ve won every debate of this sort).

    So there you have it. I’m a total expert on something that makes no sense. At least the expertise is in high demand!

    As part of my studies, I focus on the number of ways bitcoin groupies have invented to scam naive bitcoin investors. There are the usual scams (pump-and-dump, hack-and-steal, simple frauds, coordinated crypto-bots and many more). Yet every time I pat myself on the back for having comprehensive scamming expertise, the bitcoin gangs come up with a new way to steal your money.

    This article highlights the latest. A “bitcoin whale” with a huge (probably underwater) long position tried to wipe out losses and generate some profits by making a $400 million-plus long bet on bitcoin using futures listed on the OKEx, a Hong Kong-based exchange. Predictably, bitcoin crashed and the trader (ID 2051247) lost a fortune and refused to make good or meet margin calls at the exchange.

    The exchange itself had inadequate reserves and had to “claw back” the actual losses from innocent member accounts that had nothing to do with the scam. As cowboy card players used to say, “Read ’em and weep.” The bitcoin whale bet big, lost, walked away and left the ruins to be cleaned up by the bystanders.

    One more way for bitcoin scammers to take your money. I’m sure I’ll find a new one by my next column.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  2. Coalition of Germany’s “Iron Chancellor” Merkel Looks Shaky

    In a world where the U.K. voted to leave the EU, the U.S. elected Trump, Italy empowered its dissident Five Star Movement to enter a coalition government and Austria elected a 31-year-old rightist as its new prime minister, it’s fair to say the nationalist anti-immigration right wing is having its moment in the sun.

    A look around the U.S.-Euro-Japan political landscape reveals almost only one powerful ruler who is still on the globalist glide path — the inimitable Chancellor Angela Merkel of Germany. Yet there’s a serious problem with the description of Merkel as a “powerful ruler.” While this description was true during most of her reign (2005–2018), her standing lately has deteriorated to the point that her continued role as chancellor is in doubt.

    This article pulls back the curtain and takes a close look at one of Merkel’s coalition party leaders who joined the now ruling coalition that launched in March 2018. Andrea Nahles, leader of coalition member Social Democrats, SPD, has expressed deep misgivings about Merkel’s tighter immigration policies.

    Nahles’ comments might not normally be decisive, but the ruling coalition is meticulously stitched together and any dissent could be enough to tip it into dissolution and new elections. This prospect combined with Merkel’s declining poll numbers leave the Iron Chancellor hanging by a thread.

    Far from being a role model for globalists, Merkel looks more like the last domino standing in the fall of globalists across the board. Nahles would not be pushing Merkel unless she felt that her target was more than a bit wobbly.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  3. Big Names “Run for Cash” Ahead of Election Uncertainty. It’s a Good Idea

    We have recommended a reduced exposure to equities and increased allocation to cash for months. This reallocation of assets has obvious benefits.

    Equities are obviously vulnerable (still 4% below the January 2018 all-time high with asset inflation in FAANG stocks, financials and other sectors). Cash offers the double benefit of reduced portfolio volatility and increased optionality. That cash-linked optionality is valuable in a market crash because you can go shopping among the knocked-down stocks and pick up some strong long-term plays.

    Warren Buffett has been validating this; he’s up to $111 billion in cash at Berkshire Hathaway and that stock is hitting record highs. Suddenly, the cash endorsement field is getting crowded. According to this article, major institutions such as OppenheimerFunds, Federated Investors, BMO Global and many others are moving from equities to cash.

    Their motives are not partisan, but they are political. The midterm House election results are highly uncertain. A Democratic victory could lead straight to impeachment, while a Republican victory could be an economic booster shot. Take your pick.

    Institutions despise uncertainty and the best way to deal with that is move to cash and bide your time. Our readers are ahead of this curve. Still, the article is a good reminder that the cash move will get stronger, not weaker, until this fall.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  4. U.S. Must Turn to Russia to Contain China

    Vladimir Putin stands accused in the media and global public opinion of rigging his recent reelection, imprisoning his political enemies, murdering Russian spies turned double-agent, meddling in Western elections, seizing Crimea, destabilizing Ukraine, supporting a murderous dictator in Syria and exporting arms to terrorist nations like Iran.

    At the same time, the country of Russia is more than Mr. Putin, despite his authoritarian and heavy-handed methods. Russia is the world’s 12th-largest economy, with a GDP in excess of $1.5 trillion, larger than many developed economies such as Australia (No. 13), Spain (No. 14) and the Netherlands (No. 18).

    For more of this article, click here.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  5. Fed Says the Economy Is “Strong;” Plans Rate Hike. Wrong but Consistent.

    The Fed has the worst economic forecasting record of any major institution, with the IMF running a close second. Every year the Fed produces a one-year forward forecast. In 2009, a 2010 economic forecast is produced, and so on through today. If the Fed were off by a few tenths of one-percent, I’d be the first one to congratulate them.

    That’s not what happens. The realistic range for forecasts is about 8 percentage points, (from +5% to -3%, although more extreme outcomes are possible). Being off by 1 or 2 percentage points means missing the green on approach by 12.5% to 25% of the outcomes. That’s a huge miss and is exactly what the Fed has been doing since 2009 (“green shoots”), 2010 (“recovery summer”) and ever since.

    The Fed’s latest forecast, found here, issued last week is that the U.S. economy is “strong” and that the Fed is on track for another rate hike in September as planned. That forecast relies on steady job creation, low unemployment and the predictive power of the Phillips Curve. That’s fine except that “job creation” ignores ten million able-bodied adults who have dropped out of the workforce and are not considered unemployed; “unemployment” ignores forty-year low labor force participation, and the Phillips Curve has not produced statistically reliable forecasts since the 1960s.

    Meanwhile the Fed ignores the negative impact of trade wars, currency wars, falling ISM services expectations surveys, stagnant wages and a host of other important data. Leave aside the fact that the Fed has never forecast a recession in its 105-year institutional history. What’s unfolding is a slow-motion train-wreck in which weak forecasting and over tightening by the Fed are about to collide with a weak U.S. economy and lead to a recession.

    The best outcome is that the Fed wakes up to the data by late summer and pauses its rate hikes in September, December or both. The worst outcome is the Fed remains asleep at the switch, keeps tightening, and actually causes the recession they’re preparing to avoid.

    Let’s hope for the best. But, just in case, an increased allocation from stocks to cash will reduce portfolio volatility and create optionality if the Fed gets this wrong again.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  6. Jamie Dimon Has One Thing Right – the Market Has Never Seen so Much Debt.

     
    I’ve been a consistent critic of Jamie Dimon as CEO of J. P. Morgan and its predecessor banks where Dimon worked. He has enriched himself to billionaire status and JPMorgan Chase stock (JPM) is near an all-time high thanks in part to over $40 billion of stock buybacks. That’s fine for himself and his stockholders, but the benefits to the U.S. economy are far less clear. Dimon conveniently ignores the U.S. government bailouts of 2007-2009, the artificial inflation of bank profits through the Fed’s zero-interest rate policy, ZIRP, and his own embarrassing public remarks including this April 2015 classic from his annual shareholder letter:

    “Treasury markets were quite turbulent in the spring and summer of 2013, when the Fed hinted that it soon would slow its asset purchases. Then on one day, October 15, 2014, Treasury securities moved 40 basis points, statistically 7 to 8 standard deviations — an unprecedented move — an event that is supposed to happen only once in every 3 billion years or so  (the Treasury market has only been around for 200 years or so — of course, this should make you question statistics to begin with). Some currencies recently have had similar large moves.”

    This is statistical nonsense, of course. Referring to “7 or 8 standard deviations” is a reference to a normal distribution (also know as a Gaussian distribution) that presupposes a bell-curved degree distribution of risky events. That distribution leads quickly to the “3 billion years” estimate.

    But, risk is actually distributed on a so-called “power curve” in which extreme moves happen with much greater frequency than a normal distribution. The empirical support of analyzing risk in a power curve distribution has been amply demonstrated since the early 1960s, but mostly ignored.

    Dimon is either wildly off-base in this estimate, or is relying on subordinate analysis. Both outcomes are disturbing. That said, Dimon does hit home in some remarks in this article including those in a cut-and-paste TV interview.

    Dimon says that quantitative easing was unprecedented (correct), quantitative tightening is unprecedented (correct) and the U.S. debt-to-GDP ratio is near unprecedented levels (also correct, except the prior heights brought victories in the Civil War and the Second World War). Dimon’s understanding of the statistics may be sketchy, but his bottom-line conclusions are correct. Let’s give credit where it’s due and heed these prudent warnings from the most powerful private banker in the world.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

     

  7. I’ll See Your Tariff Increase, and Raise You 10% with a Cheaper Currency!

    “There’s more than one way to skin a cat.” As a long-time cat owner (one lived 13 years and the other 16 years), that’s not my favorite expression, but I’ll grant it’s true enough. It leads directly to the idea that, “There’s more than one way to win a trade war.”

    Typically, trade wars are defined as tariff-for-tariff. The country that begins the trade war (say, the U.S.) imposes tariffs on its adversary (say, China). At that point, China has two options. It can cave, negotiate, make concessions and get the original tariffs removed.

    Or, China can impose its own tariffs in retaliation on the U.S., and the trade war can escalate from there. At least so far, the escalatory path is being pursued by both sides. China’s problem is that it will soon run out of U.S. imports to tariff. China has a several hundred billion dollar per year trade surplus with the U.S.

    Even if China tariffed every good purchased from the U.S., it would run out of items to tariff long before the U.S. does. As President Trump accurately forecasted, the U.S. has to win the trade war with China because “we already lost.”

    Yet, the twenty-first-century trade chessboard is considerably more complex than the late twentieth-century version. The trade wars began in 2018, but the currency wars have been going strong since 2010. If China is running out of scope on tariffs of U.S. goods (it is), China can turn to extreme currency devaluation as another way to retaliate.

    This article reports that China has already allowed the yuan to devalue against the U.S. dollar almost 10% in recent months and some analyses expect a further 10% devaluation between now and the end of the year. The U.S. can complain all it wants about “currency manipulation” (and may do so formally in October), but having launched a trade war, the U.S. is in no position to complain about currency war retaliation.

    Observers can discuss posturing, negotiation and compromise all they want. The truth is that trade war and currency war vectors have now converged and U.S.-China relations will get a lot worse before they get better.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  8. Sweden Makes Cash Disappear as Russia Makes Treasury Notes Disappear

    Dealing with the same topic of lackluster cash relevance in banks, this article is more sensational, but no less important. Just as Sweden is making the shift to electronic currency over cash, Russia is making U.S. Treasury securities disappear.

    According to an official U.S. Treasury report issued July 18, holdings of U.S. Treasury securities plunged 84% between March and May, from $96.1 billion to $14.9 billion. At that rate of decline, the rest may be gone already.

    The backstory is unclear (typical of Russia), yet the most likely explanation is that Putin was preparing for his early June Helsinki Summit with Trump by reducing his dependence on U.S. creditworthiness. Moving the same securities to non-transparent offshore accounts in the Caymans is another possibility. It’s hard to tell.

    This motivational mystery may persist, but the story is on the front pages. Trump can impose all the sanctions on Russia he wants, but Putin can wave them off by dumping Treasuries and reallocating assets to gold.

    The two leaders may be chatting, but this story rips back the curtain and shows us what’s going on backstage. The Trump v. Putin saga has a long way to run.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  9. World’s Oldest Central Bank Leads the Way in Getting Rid of Cash

    Fans who put forward the Bank of England as the world’s oldest central bank (1694) are swiftly reminded that the actual oldest central bank is the Sveriges Riksbank (Swedish Central Bank, 1668). So, when Stefan Ingves, Governor of the Sveriges Riksbank, gave remarks to the IMF recently, just published in the IMF Finance & Development newsletter here, they naturally attracted attention.

    The opening lines of his remarks are striking, if not totally surprising: “Sweden is rapidly moving away from cash. Demand for cash has dropped by more than 50 percent over the past decade as a growing number of people rely on debit cards or a mobile phone… More than half of all bank branches no longer handle cash. Seven out of ten consumers say they can manage without cash… [a]nd cash now accounts for just 13 percent of payments in stores.”

    His remarks continue to pour cold water on cryptocurrencies, (“I do not consider these so-called currencies to be money…”), and raises doubts about the future of central banking itself, (“The state cannot entirely withdraw from its social responsibilities. But exactly what its new role will become remains to be seen.”)

    There’s something ironic about the world’s oldest central bank leaning into the most advanced anti-cash policies in the world. Then again, if you see Sveriges Riksbank as a stalking horse for their larger brethren in the anti-cash movement, then it all makes sense.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

  10. Signs Point to a Global Slowdown

    As gold has struggled through 2018, (down over 10% from $1,363/oz. on January 25 to $1,215/oz. today), my forecast for a strong year-end for gold has remained unchanged.

    This forecast is based on a better-late-than-never realization by the Fed that they are overtightening into fundamental economic weakness, followed quickly by a full-reversal flip to easing in the form of pauses on rate hikes in September and December.

    Read more of this article here.

    Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.