1. Events Are Getting Hot in the Middle-East. Is War on the Horizon?

    The list of international strategic hot spots keeps getting longer. There is significant potential for confrontation in North Korea, the South China Sea, the Taiwan Straits, the Gaza Strip, Venezuela, Ukraine and a long list of other unstable locales.

    As reported in this article, the newest addition to the list (and one that has been there before) is Iran. The U.S. was in a financial war with Iran in 2012–13, which caused hyperinflation, bank runs and a currency collapse in Iran. Obama eased up on financial sanctions in late 2013 in exchange for Iran’s participation in seven-party talks that resulted in a deal in 2015 to limit Iran’s uranium enrichment and weapons development programs.

    Trump tore up the deal in 2017 and reimposed financial and other sanctions. Those sanctions have been increased to the point where they constitute “maximum pressure.” Iran is now in worse shape than in 2013 because they wasted the $10 billion in cash and gold that Obama gave them in 2015 on sponsoring terrorism in Gaza, Lebanon, Syria, Yemen and elsewhere.

    The Iranian people know this money was wasted and they now have less patience with their government as the effects of the new Trump sanctions grow worse. Since Iran cannot win a financial war with the U.S., they are resorting to kinetic war by attacking Saudi Arabian vessels and pipelines with drone bombs. The latest reports are that Iran has also mounted cruise missiles on small boats, which constitutes a threat to U.S. Navy aircraft carriers and cruisers in the Persian Gulf.

    It’s not clear what happens next, but escalation is likely. Investors should add Iran to their list of places that could erupt into a full-scale shooting war with extensive financial fallout.

    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. Is The Economy Actually Growing or Are We Just Piling on More Debt?

    The airwaves and political channels are filled with self-congratulations on 3.2% annualized growth in the first quarter of 2019. This is touted by Trump administration officials as “proof” that the 2018 tax cuts worked and we have now returned to the days of 3%-plus self-sustaining growth. Don’t believe it.

    Growth in Trump’s first year (2017) was identical to the eight years of the Obama administration, about 2.3%. Growth was slightly better in 2018, but this appears to be a one-time Trump bump due to the tax cuts. That’s fine, but it’s not self-sustaining.

    The first-quarter 2019 figures were propped up by a number of temporary factors including inventory accumulation, government spending on highways and improvement in trade. The inventory accumulation and trade improvement were both related to the trade wars and were an effort to beat the tariffs that are now being imposed. With that behind us, what’s the outlook for the rest of 2019?

    As of today, the best forecast for growth in the second quarter of 2019 from the Atlanta Fed is only 1.2%. If that figure holds, first-half growth annualized would be 2.15%, about where it has been for the past 10 years. In other words, there is no growth miracle, just more of the same.

    Given adverse demographics, persistent disinflation and flat productivity, why do we have any growth at all? This article gives a simple answer to that question: debt. Jeffrey Gundlach, the new “Bond King,” says, “Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased.”

    If growth is unsustainable without debt, how sustainable is the increase in debt? The answer is that any debt that grows faster than income will eventually result in default through inflation, restructuring or nonpayment. The timing is uncertain, but the outcome is not. Investors can prepare for the inevitable for now by increasing allocations to cash and gold.

    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.

  3. Is Bitcoin Back? or Is This Just Part 2 of Tulipomania?

    By now you’ve seen the headlines about the return of bitcoin. Bitcoin mania is back!

    Bitcoin rose from about $2,000 in May 2017 to $20,000 by December 2017 in one of the greatest asset price bubbles in history. Then it crashed from $20,000 to $3,300 by December 2018, an 83.5% collapse in one year and the greatest recorded asset price collapse in history.

    The crash of bitcoin was even more dramatic than the infamous collapse of tulip prices in the tulipomania in Netherlands in the early 17th century. Suddenly bitcoin is back in the news as a new asset bubble is developing.

    Bitcoin rose from $3,900 on March 26, 2019, to $8,100 on May 15, 2019, a gain of 52% in less than seven weeks. This recent bitcoin price action is described in this technical analysis article. Is this the start of a new rally back to the heights of $20,000? That seems highly unlikely.

    Bitcoin still has no use case except for gambling by speculators or the conduct of transactions by terrorists, tax evaders, scam artists and other denizens of the dark web. Bitcoin is still unsustainable due to extreme demands for electricity in the computer “mining” process. It is still nonscalable due to the slow and clunky validation process for new blocks of transactions on the bitcoin blockchain.

    Bitcoin has no future as “money” because the supply of bitcoin cannot grow beyond a preset amount. That feature makes bitcoin inherently deflationary and therefore not suitable for credit creation, which is the real source of any system of money.

    Bitcoin has been subject to continual price manipulation by miners through wash sales, front-running, ramping and other tried-and-true techniques for price manipulation. The bitcoin infrastructure has been plagued with hacking, fraud, bankruptcy and coin theft measured in the billions of dollars.

    Bitcoin may go higher, but it will soon come crashing down again. This is a phony rally and one best avoided.

    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.

  4. Even Cashless Sweden Thinks That Some Cash and Coin Are a Good Idea

    We’ve written a lot about the powerful movement toward a so-called “cashless society.” In its pure form, cash would cease to exist in the same way that gold coins ceased to exist in 1933 and silver coins ceased to exist in 1965.

    Your “money in the bank” would be in digital form only, with no ability to take it in cash form. All payments would be by credit card, debit card, PayPal, Venmo, crypto or some other digital payment channel. All point-of-purchase transactions would be with the help of a swipe, chip reader, bar code, etc.

    Academics and central banks favor this digital world because it puts all private funds under government control in banks. It allows the imposition of confiscation through negative interest rates since individuals cannot escape the digital system. Merchants like it because it lowers transaction costs (it actually costs money to store and move cash).

    This all-digital world of money is closer than you think. One of the movement leaders has been Sweden, which has the lowest cash usage of any developed economy.

    Guess what? According to this article, Sweden is now having second thoughts. Swedish government officials are concerned that in the event of a power outage or cyberattack Swedish citizens would be left without any means of payment. They recommend stockpiling some cash in case of emergencies.

    I can suggest many more reasons to maintain physical cash (including bank freezes and infrastructure collapses), but at least Sweden is on board with the need to maintain cash.

    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.

  5. Will China Use Its “Nuclear Option” in the U.S. Trade War?

    The trade war was never going to be easy for China. There are several reasons for this.

    The easiest one boils down to third-grade math. In round numbers, the U.S. imports about $500 billion per year from China. In turn, China imports about $150 billion per year from the U.S. The difference is a $350 billion-per-year trade deficit with China that Trump wants to eliminate (or at least greatly reduce).

    When Trump put tariffs on $200 billion of Chinese goods, the Chinese initially retaliated with dollar-for-dollar tariffs on U.S. goods. The problem is they ran out of headroom.

    China is now proposing tariffs on almost 100% of its imports from the U.S., but Trump still has $300 billion to go. When Trump puts tariffs on those goods (which he is planning to do over the coming months), China has no way to retaliate directly because they simply don’t buy enough from the U.S.

    If China wants to retaliate, they’ll have to use nontariff measures. These can include bans on acquisitions of Chinese companies by U.S. companies and limits on U.S. direct investment in China. But these restrictions are already tough, so it’s not clear how much more China can do.

    The theft of intellectual property has been going on for decades and is continuing. That’s a big problem, but it’s not new and does not represent an escalation, because it’s already there. What can China do?

    One so-called “nuclear option” is for China to dump its massive holdings of U.S. Treasury notes, about $1.4 trillion in value, as described in this article. The idea is that if China dumps these Treasuries, prices will drop, interest rates will go up, stocks will drop and the U.S. housing market will hit a wall. It’s a kind of economic warfare.

    Everything about this scenario is wrong. China won’t dump Treasuries because they would be the biggest loser (because they own so many themselves and you can’t sell them all at once). The president can freeze China’s accounts with one phone call if any economic damage begins. Besides, there are plenty of other buyers of U.S. Treasuries including U.S. banks and, if needed, the Federal Reserve.

    The bottom line is that China is stuck with a losing hand. And Trump knows it.

    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. “Unrelenting Force” Is Now Added to “Maximum Pressure” on Iran

    U.S.-Iranian relations are back where they were in 2013. But the next few years will play out differently this time around.

    From 2012–2013, the U.S. and Iran fought a financial war. The U.S. first banned Iran from the U.S. dollar payments systems (FedWire) and later worked with allies to ban Iran from the global payments system for all major currencies (SWIFT). This meant that Iran could ship oil but could not get paid in hard currency.

    This started a collapse of the Iranian rial price relative to dollars and a run on the banks in Iran. The Iran central bank raised interest rates to 20% to keep deposits in the banking system. Hyperinflation broke out, the rial fell 50% against the dollar and imported consumer goods became scarce. Smuggling was rampant. Iran was destabilizing and moving closer to regime change without a shot being fired.

    In late 2013, Iran agreed to meet with the Obama administration to discuss its nuclear weapons activities in exchange for financial sanctions relief. The result was the 2015 Joint Comprehensive Plan of Action (JCPOA), which supposedly limited Iran’s nuclear activities but was in fact a sham. Obama topped this off by delivering over $100 billion in cash, gold and sanctions relief.

    In 2017, President Trump abandoned the JCPOA and reimposed sanctions. Except now the sanctions are even more draconian. The U.S. is not only limiting Iran’s access to currency payments systems, but is also banning Iranian oil exports and imposing penalties and secondary boycotts on European and Asian companies that do business in Iran.

    In addition, Iran wasted most of the money provided by Obama financing terror in Yemen, Syria, Lebanon, Gaza and Iraq. Now Iran faces the toughest sanctions yet without financial reserves and no access to international trade. Iran’s only recourse is to threaten terror aimed at the U.S. and Israel.

    According to this article, the U.S. has positioned bombers and an aircraft carrier task force in the vicinity of Iran to retaliate for any attacks. This tense situations resembles 2013, with one important difference: Trump is not interested in bad deals. It’s up to Iran to offer the U.S. real concessions regarding their nuclear efforts — or face the consequences.

    Escalation and outright war are real possibilities in this latest confrontation. This is just one more element of uncertainty that investors must throw into the possible mix of market-moving events.

    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. Biden Won’t Be the Democratic Nominee. Get Ready for Bernie or Kamala

    It’s far too soon to make definitive forecasts about who will win the presidential election in 2020. But it’s not too soon to offer forecasts about who will not win. Right now Joe Biden tops that list.

    Of course he’s ahead in the national polls, but there’s no such thing as a national election in the U.S. Primaries go state by state and the general election also goes state by state through the Electoral College. “National” polls that show Biden ahead by 20 points or more are mostly about name recognition and are not conducted at the state level.

    A huge advantage in California and New York (both of which obviously go to the Democrats in the general election) does you no good when the fight is actually in Michigan, Ohio, Wisconsin and Pennsylvania. When you look at separate polls for the early primary states, Biden’s lead in Iowa and New Hampshire is much smaller.

    This article highlights another Biden weakness. While Biden was vice president, he was busy organizing sweetheart deals in the name of his son, Hunter Biden, with China and Ukraine. China gave Hunter Biden over $1.5 billion for a private equity fund. At standard 2% management fees, that means $30 million per year to the fund managers, including Hunter Biden.

    Then Hunter Biden received over $3 million as an officer of a Ukrainian energy firm. Meanwhile, Joe Biden threatened to withhold over $1 billion in U.S. aid if Ukraine did not fire the prosecutor looking into wrongdoing by his son. The prosecutor was fired.

    With scandals like these (and more) waiting in the wings, Biden’s run for the nomination should be a short one. Look for Bernie Sanders, Kamala Harris or one of the other top-tier Democratic contenders to emerge from the pack by next March. Investors should study their economic policies closely (higher taxes, more regulation, Green New Deal) to prepare for what may be coming.

    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. Think the “Russia Collusion” Scandal Is Over? It’s Just Getting Started

    We’ve all just lived through two years of investigations, accusations and speculation about possible “collusion” between the 2016 Trump campaign and Russian agents designed to interfere with the 2016 presidential election. There’s no doubt about Russian interference, but the subject of collusion by Trump was hotly contested.

    Now that issue is settled. The Mueller report states conclusively that there was no collusion between Trump and Russia, and the U.S. attorney general has ruled that there was no obstruction of justice in the investigation. That should settle matters. But it looks like this fight is just getting started.

    The anti-Trump forces are taking the fight to Congress and demanding more documentation and hearings on the subject. For its part, the Trump Department of Justice is planning investigations into how the collusion story got started and possible improprieties by former FBI officials, including former director James Comey, in terms of obtaining warrants and conducting spying on Trump campaign officials.

    This article is an excellent summary of James Comey’s many ethical and legal violations and why Comey is in serious legal jeopardy. Attorney General Barr has testified he will take criminal referrals seriously and investigate these vigorously. At the same time, Democrats in Congress have vowed to pursue their investigatory hearings just as vigorously.

    This bitter fight will continue right up until Election Day in 2020 and probably beyond. The best advice for investors is to avoid the hype and focus on actual legal wrongdoing that may lead to criminal charges, trials and jail time for former high government officials.

    This article is a good road map as to how that may play out. The result will be more volatility and uncertainty for markets as they navigate the maze of charges and countercharges.

    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. Here’s a Secret About Election Forecasting That Gives Trump a Big Edge

     

    Investors trying to handicap the 2020 presidential election should always bear in mind that 90% of the coverage and analysis you see and hear is filtered through a small band of anti-Trump reporters and channels based in New York and Washington, D.C. This group of mainstream media pundits got the 2016 election badly wrong; they gave Hillary Clinton a 90% chance of winning. Now they’re at it again.

    The media mavens are shouting about Russia “collusion,” Trump “obstruction” and now a “cover-up” of the Mueller report findings. (Actually, you can buy the full Mueller report online from Amazon and have it delivered the next day. Congress doesn’t seem to care.) This is all part of an orchestrated effort to destroy Trump and make sure he loses in 2020.

    This type of unprofessional behavior more or less guarantees Trump will win because it demonstrates his opponents have not learned anything from 2016. For a more realistic look at Trump’s 2020 prospects, I recommend this article.

    While union bosses may be endorsing Joe Biden, the article explains why union rank and file support Trump. There has been a renaissance of manufacturing jobs under President Trump after Obama said those jobs were lost forever. These jobs are heavily concentrated in Pennsylvania, Ohio, Michigan and Wisconsin, which are all traditionally Democratic states that voted for Trump in 2016.

    This was the famous “blue wall” that was supposed to guarantee Hillary Clinton’s victory but instead supported Trump and gave him the win. If anything, Trump’s support in these states is even stronger now than it was in 2016 because he has delivered on his promises and improved the well-being of those workers who supported him.

    Some analysts believe that Trump will carry not only the 30 states he won in 2016, but several additional states as well, for an even stronger overall victory. While the Hollywood, D.C. and New York elites focus on voters inside their thought bubbles, actual blue-collar voters spread across the Midwest, South and Mountain States will decide the election. Right now they’re leaning in Trump’s direction.

    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. This Forecast Shows a Straight Path to Trump’s Re-Election In 2020

    My proprietary model currently gives Trump a 63% of winning re-election in 2020. (This is the same model I used to predict Trump would win in 2016 and the U.K. would vote to “leave” the EU. Both predictions were against all odds.)

    My 63% estimate may be a bit low, but I’m maintaining a conservative approach this early in the process. Importantly, there will be many updates along the way (that’s part of the Bayesian statistical method I use). It’s far too early to put a stake in the ground and declare a winner.

    There are a number of variables I use in the model. One of the important inputs that almost every analyst has overlooked is the third-party candidacy of Howard Schultz.

    Liberal media won’t mention Schultz because they believe he helps Trump (he does). If Schultz takes just 15% of the vote (likely, in my view), then Trump only needs 43% to win (instead of 51%). That’s well within reach.

    Yet a bigger factor is the U.S. economy. Simply put, Trump’s odds of victory are roughly the inverse of the probability of a recession before the third quarter of 2020. My initial estimate of recession odds was 40% (giving Trump the inverse, or 60% chance of victory). But the odds go down each month (because the recession window gets shorter) so Trump’s odds go up.

    Now, this article provides some more good news for Trump. A prominent economist has estimated the impact of Trump’s tax cuts and sees 3.1% real GDP growth through at least 2019.

    Even if growth slips a little after that, it should remain out of recession by a comfortable margin. This will put Trump’s odds of victory at 90% by Election Day in 2020. As a famous political strategist once said, “It’s the economy, stupid.”

    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.