1. Trade Wars Are About More Than Trade. The China-U.S. Battle Is Expanding.

    Readers are familiar with our thesis that the world responds to a situation of too much debt and not enough growth with first currency wars, then trade wars, and finally shooting wars. Currency wars consist of one country cheapening its currency to promote exports, discourage imports, import inflation and increase its GDP.

    This works in the short run, but always fails in the long run because of retaliation when trading partners respond to devaluation by devaluing their own currencies.

    The currency wars are eventually followed by trade wars in which countries try to improve GDP by raising tariffs on imports from trading partners. Trade wars fail for the same reasons as currency wars – retaliation.

    Tariffs are met with counter-tariffs until world trade contracts and the entire world is worse off. Finally come the shooting wars, which actually do improve growth through war manufacturing and post-war rebuilding, but at a very high cost in death, destruction and war debt.

    This pattern occurred in the 1920s and 1930s and seems to be happening again. The currency wars began in 2010. The trade wars began in 2018, and the shooting wars will not be far behind. This article makes the point that trade wars are not limited to tariffs and reduced trade.

    As with any war, there is a lot of collateral damage. In the case of the China-U.S. trade war, this collateral damage consists of reductions in direct foreign investment, deferred capital spending, reduced merger and acquisitions activity, and supply chain disruptions.

    The China-U.S. trade war is not a short-term bit of posturing. It is serious, dangerous and will get worse before it gets better. Let’s hope that the historical segue into shooting wars does not occur this time.

    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. Citizens Cling to Cash, But It Looks Like a Losing Battle

    We’ve been writing about the war on cash for a long time. Governments have been forcing citizens to give up cash and rely exclusively on digital payments in the form of credit cards, debit cards, direct deposits, PayPal, online payments, Apple Pay, Venmo, and a hundred other apps.

    What they have in common is that digital payments can be monitored, frozen, taxed and debited with negative interest rates with a few keystrokes or an algorithm. When pigs are being slaughtered, they are first rounded up into pens where they are easy prey. The same is true with savers.

    Your savings are being rounded up into digital slaughterhouses at J. P. Morgan, Citi, Bank of America, Wells Fargo and a few other banks where they can be frozen or confiscated whenever the government wants. Your “money in the bank” is not your money; it’s the bank’s money, and they’ll give it to you if they feel like it and if the government allows it.

    This article reports that a backlash is developing.  More restaurants, coffee shops and other retail establishments are refusing cash and requiring the customers use digital payments. But, up to 10% of the citizens of most major cities don’t have bank accounts or credit cards.

    These “unbanked” citizens are discriminated against and shut out of the brave new world of digital payments. The unbanked deserve sympathy, but they are part of a losing battle.

    The benefits of a cashless society are embraced by retail merchants as much as they are pursued by the power elites. The complete elimination of cash is just a matter of time.

    Once the cash is gone, if you want real money, you’ll have to hold gold or silver. The best strategy is to buy it now before you can’t get it at all.

    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. You’ll Be on Your Own in the Next Crash. The Rich Are Getting Out of Town.

    Cultures are about shared values. Society has always had its rich, poor and in between, but the glue in any society is that all of citizens have something in common even if their financial circumstances vary. That’s not true anymore.

    The rich are not just rich, they’re super-rich and have options that everyday citizens cannot obtain and can barely imagine. This separation of the super-rich and everyone else is playing out in anticipation of the next financial crisis and the social breakdown that will not be far behind.

    Everyday citizens prepare for adverse circumstances with batteries, bottled water, flashlights and a first-aid kit. The super-rich are preparing to leave the planet in spaceships or at least get to private estates in New Zealand with ample food, water, and solar-powered electricity waiting for them when they get there.

    This article takes a critical look at the preparations of the super-rich to leave the rest of us behind when society implodes. What is most revealing is the extent to which the super-rich are just as confused and unprepared as anyone else when it comes to survival in a crisis.

    Here’s a sample from a conversation with a group of hedge fund billionaires: This single question occupied us… They knew armed guards would be required to protect their compounds from the angry mobs. But how would they pay the guards once money was worthless? What would stop the guards from choosing their own leader?”

    That’s an easy one. You pay your guards the same way Julius Caesar and King Henry II did – in gold and silver. If the rich can’t figure this out, it shows they’re no better off than anyone else despite their rocket ships and New Zealand estates.

    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. The Biggest of the Big Money Is Steering Away From Stocks, Going to Cash.

     

    Investors have a sense that financial markets are completely rigged and there is a hierarchy from retail to the big money that favors the largest investors over the smaller. They’re right.

    The biggest investors have better information, earlier warning and the first chance to get in or get out ahead of the crowd. There’s retail, then high-net-worth, then institutions, banks, and central banks. At the top of the pyramid of power are the sovereign wealth funds.

    Sovereign wealth funds are set up by governments to invest their hard currency reserves. Traditionally, national reserves are managed by central banks or finance ministries in short-term liquid instruments such as U.S. Treasury bills or high-quality bank deposits.  In the past thirty years, countries have allocated part of their reserves to sovereign wealth funds that have a mandate to increase returns by investing in less liquid positions such as private equity, hedge funds, commodities, and natural resources.

    The sovereign wealth funds are the largest investors in the world. The assets of the Norway and Abu Dhabi sovereign wealth funds exceed $1 trillion. Several others, such as the China Investment Corporation and Kuwait Investment Authority, exceed $500 billion.

    Sovereign wealth funds are truly the “big money” with the best information and the ability to reposition ahead of the curve. What are they doing now?

    According to this article, the sovereign wealth funds are sounding the alarm, reducing equity exposures and increasing their allocations to cash. Here’s a chance for the retail investor to keep up with the big money by doing the same thing – reduce your exposure to equities and increase your allocation to cash.

    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. Two Worlds Collide. The Currency Wars Now Converge With Trade Wars

    Readers are familiar with my thesis that currency wars are followed by trade wars and then finally shooting wars among major powers. This happened in the 1930s and it seems to be happening again.

    Currency wars begin in a condition of too much debt and not enough growth. Countries steal growth from their trading partners by cheapening their currencies to promote exports and import inflation. The present currency war started in January 2010.

    The problem is that currency wars don’t work in the long run because trading partners retaliate with their own devaluations. Currency cross-rates end up back where they started, with costs imposed due to the uncertainties. Once countries realize that currency wars don’t work, they turn quickly to trade wars through tariffs and other trade barriers.

    The problem is that trade wars don’t work either, for the same reason currency wars don’t work — retaliation or tit-for-tat tariffs soon put everyone back where they started. The new trade war started in January 2018 with the announcement of tariffs, and those tariffs actually began to take effect last week.

    Just because trade wars have started does not mean the currency wars are over, as this article shows. The currency wars and trade wars continue side by side. In fact, they are related.

    If the U.S. puts tariffs on China, which we have, then China can fight back two ways. The first is to impose their own tariffs on U.S. exports, which they have. The second is to cheapen their currency to offset the impact of the tariffs. If the U.S. imposes a 25% tariff on China but China cheapens its currency by 25%, then everyone is back where they started in terms of the cost of Chinese goods to U.S. consumers.

    There are individual winners and losers from the currency and trade wars, but the global economy as a whole is definitely a loser. We should look for slower growth and possibly a recession as the trade and currency wars play out. Let’s hope that history does not repeat and that we don’t end up in a Third World War.

    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. Is There a Trump Bump in the U.S. Economy? Don’t Count on It

    The White House has issued a steady stream of commentary about how the U.S. economy is the best ever (not true) and how we have finally turned the corner from the slow growth of the Obama years (also not true). Sound analysis is often drowned out by political noise and ideological bias.

    The best way through the noise and bias is to look at hard data. The economy has been growing since June 2009, making this the third-longest economic expansion on record. However, it has also been the weakest economic expansion on record. That has not changed under President Trump.

    Average annual real GDP growth in this nine-year expansion is 2.14%. GDP growth in 2017, the first year of the Trump administration, was 2.3%, slightly above the expansion average. This article reports that GDP growth in the first quarter of 2018 was revised down to 2.0%, slightly below the expansion average.

    In short, growth under Trump has been almost exactly what it was under Obama. It’s true that the second quarter of 2018 looks stronger, about 4%, but we’ve seen that movie before. Even during Obama’s weak expansion we saw strong quarters including the first quarter of 2015, which was 3.2%, and the second quarter of 2015, which was almost 3%.

    The problem is that these strong quarters soon faded; growth in the fourth quarter of 2015 was only 0.5%, almost recession level. It looks as if the strong second quarter in 2018 may be the result of temporary factors arising from the Trump tax cuts. Those factors will soon fade and return growth to the same punk levels we’ve seen for nine years.

    Investors should look past the political rhetoric and happy talk. With weak growth continuing and more Fed tightening in the cards, a recession is far more likely than a return to long-term trend growth. The stock market seems to agree since it peaked last Jan. 26 and has gone nowhere since then.

    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. The Signs of a Recession Keep Piling Up. It Could Begin Before We Know It

    Most investors are familiar with the conventional definition of an economic recession. It’s defined as two consecutive quarters of declining GDP combined with rising unemployment and a few other technical factors. But investors may not be as familiar with two other aspects of recession timing.

    The first is the exact body that makes the determination, and the second has to do with the timing of that body’s announcements. The group that “officially” decides when the U.S. economy is in a recession is called the National Bureau of Economic Research (NBER) based in Cambridge, Massachusetts, although there’s nothing official about what they do. NBER is a private nonprofit think tank that receives substantial input from scholars at Harvard and MIT, but it is not a government agency. Their decisions on the start and finish of recessions are not technically “official,” but they are widely accepted by Washington, the Fed and Wall Street.

    Less well known is the fact that recessions are not called by NBER until well after they have begun. In this respect, NBER looks backward at the data rather than forward like a forecasting firm. On occasion, the NBER might not identify the start date of a recession until nine months or a year after the recession began. By that method, the U.S. could be in a recession next month and we would not know about it until a year from now when the data were all in.

    This article is a timely reminder that analysts have to look for signs of a recession wherever they can find them and not wait for NBER to make its determination. The fact that pending home sales have dropped five months in a row is not by itself a definitive sign of a recession, but it’s certainly a worrying trend.

    Many other signs are appearing on the horizon also as the Fed continues to raise rates and destroy money by reducing their balance sheet. Don’t be surprised if we wake up a year from now only to find the NBER says the recession began in July 2018. Investors need to be ready today for this possibility.

    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. Iran Says if They Can’t Ship Oil, Neither Can Anyone Else

     

    The U.S. fought a financial and cyber war with Iran in 2012–13 with great success. As a result of being excluded from the global payments system, Iran could not receive hard currency for its oil.

    The value of the Iranian rial plunged on the black market, there were runs on Iranian banks, interest rates were raised to 20% to stop the bank runs and inflation was soaring. There was popular unrest due to the inflation and currency collapse. The U.S. was well on the way to regime change in Iran without firing a shot. All of that ended in late 2013 when Obama called a truce in exchange for Iran entering into negotiations on its nuclear weapons programs.

    Those negotiations lead to the Joint Comprehensive Plan of Action (JCPOA) in 2015. The U.S. gave Iran billions of dollars in cash and gold as the price of agreeing to the JCPOA. Then in 2018, President Trump tore up the JCPOA and resumed the financial war. Iran is now the target of “maximum pressure” in the form of financial warfare that again cuts Iran off from global payments systems and punishes any companies involved in sales of oil by Iran.

    The impact on Iran is even worse than in 2013 because Iran wasted a lot of the cash and gold it received supporting terrorism in Syria, Lebanon, Gaza, Sinai and Yemen. Demonstrations are again breaking out in Iran. The difference now is that Iran is ready to fight back.

    As this article shows, Iran’s leaders have said that if Iran cannot sell its oil on world markets, they will make sure other Gulf states cannot sell their oil either. The fastest way to back up that threat is to close the Strait of Hormuz, a narrow body of water where almost all of the Gulf oil output — including oil from Iraq, Kuwait, Bahrain, Qatar and Saudi Arabia — passes.

    Other possible tactics include disabling the Gulf oil infrastructure with missile attacks or sabotage. For now, the world does not seem to be taking these threats seriously. Oil prices have been rising but have not hit the panic stage yet. In any case, Iran will strike back in some fashion as U.S. sanctions begin to bite. Along with currency wars and trade wars.

    This will be one more factor pushing the world closer to a global recession or worse.

    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. North Korea Is Back to Their Old Tricks. The “Feel Good” Moment Is Over

     

    When President Trump met with North Korean leader Kim Jong Un in Singapore on June 12, 2018, the world was understandably optimistic that both sides had taken a step back from the brink of war and that a new foundation for the denuclearization of the Korean Peninsula and a formal end to the 1950–53 Korean War might be at hand.

    The summit itself went smoothly, and there were reassuring statements and press releases saying that indeed a breakthrough had been achieved, although further talks would be needed to hammer out details and produce definitive signed agreements. At the same time, many analysts, myself included, were skeptical that North Korea was dealing in good faith. It was entirely possible that they were merely posturing and playing for time while they built new nuclear testing facilities (their former facility had collapsed due to overuse in test explosions) and pursued hidden research and enrichment that did not require conspicuous missile launches.

    In the month since the summit, the evidence is that North Korea is not dealing in good faith. This article reveals new intelligence that says North Korea is continuing to produce nuclear fuel and has no intention of fully giving up its nuclear weapons capability. Secretary of State Mike Pompeo has returned to North Korea to pursue the ongoing negotiations. No doubt he will confront North Korea with this new intelligence.

    Hopefully these news reports just reflect bargaining chips in a tough negotiation. If not, the U.S. and North Korea will resume the countdown to war that was halted last December.

    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. The Whales of the World’s Biggest Shitcoin? Examining BIS vs. Crypto

    Agustin Carstens, the vanguard example of a central banker, recently reignited the long standing debate surrounding the validity of crypto by imploring young people to “stop trying to create money,” as such cryptocurrencies, per him, are “ponzi scheme[s]” that will “fail dramatically.”

    BIS Bustin’ Bitcoin

    As expected, the comments from the Bank of International Settlements head have elicited highly emotional responses from both the cryptocurrency community and a raft of nocoiners.

    For the rest of the article, click here:  The Whales of the World’s Biggest Shitcoin? Examining BIS vs. Crypto