1. How Can the Fed Be “Transparent” When They Don’t Know What They’re Doing?

    When I started in the U.S. government bond market in the 1980s, the Fed was about as transparent as a rock. They held no press conferences. They did not release their minutes or summaries.

    Official announcements about change in the fed funds target rate came after the fact and had no details. The Fed operated exclusively through a small club of “primary dealers” (my firm was one of them).

    There was no official license given to be a primary dealer. It was a business relationship that the Fed could take away (but rarely did). It just meant you were on an approved list for dealing with the open market desk at the Fed. Even within that small approved list, the Fed had a few “favorites” to whom they leaked their intentions.

    When the Fed wanted to change course, they would conduct systemwide repos (or reverse repos), or they would switch from general collateral to “specials.” Only by being on the other side of the trade would a primary dealer know what the Fed was up to. Then we could share this information with our top customers (or not). The rest of the market had to tease out the policy based on market reaction, rumors and leaks to the press.

    How times have changed! Now the Fed holds press conferences, releases detailed statements of policy announcements and promptly publishes minutes of their meetings. The Fed also offers economic forecasts of Fed governors (the “dots”) and governors give speeches about every other day. But is this more transparent?

    In form it is, but in substance maybe not. The reason is the Fed doesn’t really know what it’s doing. Their beloved Phillips curve has broken down, inflation is nowhere to be found (after printing $3.5 trillion in new money) and the Fed is on a destructive path of raising rates and burning money in the face of a weakening economy.

    This article is just the latest evidence that the Fed is winging it. A few weeks ago, Fed Chair Jay Powell said the Fed was a “long way” from its “neutral” rate, and then he said last week the Fed was “just below” its neutral rate and then he suggested the Fed might “wait and see” on rate hikes after earlier implying it was on a steady course to raise rates.

    The market has swung wildly in response to each utterance, even when they contradict each other. Get ready for more of the same. The Fed doesn’t know what it’s doing. That’s transparent.

    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. The Makings of a Global Debt Crisis Are in Place

    In 2017, the financial world was filled with talk of synchronized sustainable growth in major economies for the first time since before the 2008 global financial crisis. This was being proclaimed by global financial elites including Christine Lagarde, head of the IMF.

    Now that vision is in ashes. Synchronized global growth has turned into a synchronized global slowdown. Growth has already turned negative in two of the world’s largest economies, Japan and Germany, and is slowing rapidly in the world’s biggest economies, China and the U.S.

    To read the rest of this article, click here.

  3. People Are Getting Chip Implants to Buy Coffee. Now They’re Owned

    We’ve written many articles on the move toward a “cashless society.” These articles describe how liberal academics such as Ken Rogoff and Larry Summers have campaigned for the elimination of cash and its replacement by 100% digital payments systems.

    This is part of a thinly veiled agenda to monitor all financial transactions, impose negative interest rates and readily freeze bank accounts in the next financial crisis. A lot of the focus has been on Sweden because it has gone further than any other country in the direction of a cashless economy.

    The alternative to cash has included credit cards, debit cards, Apple Pay, Venmo and other all-digital payments systems. Even the most advanced of these systems requires some kind of device such as a smartphone or chipped card to pay for items. As shown in this article, Sweden has now gone the last mile by allowing citizens to have microchips implanted in their bodies.

    These microchips have what’s called near-field radio identification that links to a bank account or other payment sources and also links to the vendor’s payment system. When you want to buy a cup of coffee, you simply wave your hand near the coffee shop scanner and your coffee is paid for. This sounds convenient, but is actually nefarious.

    If an implanted chip can pay for your coffee, it can also be used to track your whereabouts 24/7 and create a complete log of all transactions at all times. In a more extreme crisis, the government will be able to locate you and round you up easily.

    The same is true if you’re carrying an iPhone, but you can always throw your iPhone into a river and keep moving, free of surveillance. That’s not so easy when the “iPhone” is implanted in your body. When people trade freedom for convenience, freedom is always the loser.

    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. Just When You Think You’ve Seen Every Crypto Scam… A New One Emerges

    Side by side with the bitcoin price bubble have been a series of scams designed to pump up the price to encourage unsuspecting victims to buy more crypto from unscrupulous miners.

    These scams include trading the same crypto back and forth at progressively higher prices to create the false impression of a price rally (known as “painting the tape”), bidding up prices to create a rally before dumping miner inventory (known as “pump and dump”), stealing cryptos through hacking, propping up crypto prices by selling other coins and using the proceeds to buy cryptos (most famously the Tether “stablecoin”) and many more scams.

    I’ve chronicled as many of these scams as I can as part of an effort to steer investors away from the crypto mania. Every time I think I’ve seen it all, a new scam emerges.

    As described in this article, a crypto miner can pay a celebrity to endorse a cryptocurrency or give it a good review in a tech publication, even if the endorser knows nothing about cryptos. A good example is John McAfee, a well-known pioneer in online security.

    McAfee revealed that he received $105,000 per tweet to endorse various cryptos on twitter. It’s a simple case of trading your reputation to lure the naïve into the greatest financial bubble in history.

    You get to keep the money, but you won’t get your good reputation back.

    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. Can the Market for Bitcoin Get Any Worse? The Answer Is “Yes”

    I did a television interview in December 2017 at a time when the price of bitcoin was going up $1,000 per week. The interview went viral and had over 1 million likes on Facebook.

    On the exact day of the interview, bitcoin was around $8,000 per coin. My forecast was that bitcoin would go to $20,000 and then crash on its way to $200 as a criminal token. So far, that’s exactly what has happened.

    You can see the interview here. Today, bitcoin has crashed to about $4,000 per coin, down 80% from its top and well on its way to my $200 per coin forecast.

    Lately, the drop has accelerated in percentage terms even beyond the January–February crash earlier this year. This recent crash within a crash is detailed in this article.

    The problem with a crash of this kind is that confidence is destroyed, liquidity dries up and momentum gathers, setting the stage for further losses. Bubbles are not symmetric in their price patterns. The rising part of the bubble is characterized by slow price gains that accelerate and then quickly go hyperbolic. This is the classic “hockey stick” chart.

    Once the bubble bursts, the initial drop is steep, but this is followed by a series of rallies that fade followed by another rally in a pattern called “lower highs.” It can take a few years for a hockey stick bubble to reach its destination low. This is due to denial, wishful thinking and groupthink among the late buyers who have suffered the greatest losses during the bubble stage.

    Meanwhile, the early buyers took the money and ran for the hills. There’s nothing left of bitcoin except disappointment and the occasional pump-and-dump by the miners. Good luck with that.

    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. As Usual, the Fed Does Not Know What It’s Doing. Here’s Why

    Over the past five years, we’ve pointed to many examples of the Federal Reserve’s lack of knowledge as to how the U.S. economy actually works.

    The Fed has never accurately predicted a recession. The Fed has never seen a financial panic in advance. Fed growth forecasts are incorrect by orders of magnitude year after year. The Fed missed the chance to raise rates in 2010 and is now raising rates into weakness in 2018. The list goes on (back to 1913 in fact). Yet the Fed’s latest blunder may be the most dangerous of all.

    The Fed printed $3.7 trillion of new money from 2008–2014 under the banner of “quantitative easing,” or QE. There is no evidence that this ocean of new money did anything to increase growth. In fact, the 2009–2018 recovery has been the weakest recovery in U.S. history despite a few good quarters here and there.

    Now, the Fed is trying to “normalize” interest rates and its balance sheet with rate hikes and “quantitative tightening” (QT) by raising rates and not rolling over maturing positions in U.S. Treasuries.

    The first process is transparent. The Fed has raised rates from 0% to 2.25% in the past three years and is ready to raise rates again on Dec. 19. But, behind the curtain, the Fed is also reducing the base money supply with QT to get their balance sheet down from $4 trillion to $2.5 trillion by the end of 2020.

    As this article shows, the impact of QT is roughly equivalent to another 1% per year of rate hikes. This means that the combination of nominal rate hikes and QT is equal to 2% of rate hikes per year off an extremely low base. The Fed is tightening more than it realizes and will probably cause a recession or worse by the time it realizes its mistake.

    If this happens, the Fed will cut rates back to zero. But it won’t be enough. Then they’ll have to abandon QT and go back to QE4. The more things change, the more they stay the same.

    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. This Trend in Foreign Holdings of U.S. Treasury Notes Is Ominous

    When critics point to Japan’s debt-to-GDP ratio of over 200%, Japan’s defenders are quick to say that most of the Japanese debt is owned by the Japanese themselves in insurance companies, banks, pension plans and personal portfolios, not to mention the Bank of Japan.

    There’s truth in this. Japan has a highly homogenous culture. The Japanese are all in the same lifeboat rowing in the same direction. As long as no one rocks the boat, the debts can keep piling up.

    That’s not true for the U.S. In the U.S. Treasury market, foreign ownership has remained constant as a dollar amount but has dropped as a percentage as the market itself has grown. As this article reports, foreign ownership of U.S. Treasuries has dropped from almost 50% to just over 40% in the past six years.

    Foreign participation in Treasury note auctions has also dropped, leaving the U.S. Treasury to rely more on buying by U.S. banks than end-user demand. These trends are made worse by the fact that overall Treasury note issuance is expanding in line with higher U.S. deficits and Fed-buying has moved in reverse as part of the Fed’s “quantitative tightening” program, which involves burning money instead of printing it.

    Treasuries will always find a buyer; the Fed can force U.S. banks to buy them if necessary. But if these “hands off” policies of foreign buyers continue, interest rates will rise and liquidity will dry up. This opens the door for slower economic growth and possible flash crashes in the Treasury market.

    Conditions could get even worse if China uses the Treasury market as a weapon in the ongoing currency and trade wars. The Treasury may end up as its own worst enemy for failure to get deficits under control.

    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 Trade Truce Won’t Last

    “I will not be the one to break the peace we have made here today.”

    With those words, the Godfather, Don Corleone, played by Marlon Brando, ended the war among the five mafia families in New York. This peace was hammered out at a dinner among the heads of the five families.

    This weekend the eyes of the world were on Buenos Aires, where President Trump, China’s President Xi Jinping and some top aides had a private dinner to discuss the current China-U.S. trade war. When I saw the photos of the dinner on Sunday morning, my mind flashed back to the dinner scene from The Godfather.

    Click here to read the rest of this article.

  9. The Fed Is Slamming the Brakes on the Economy. Will You Be Safe?

    It’s difficult to think of anything the Fed has done right in the past 105 years.

    Monetary policy was too easy in 1927 as the stock market bubble was building. It was too tight in 1929 when the bubble finally burst. It was too tight again in 1937 as the U.S. economy was struggling to emerge from the Great Depression.

    The Fed was too easy from 2003–06 as the mortgage bubble was inflating and then waited too long after 2009 to normalize policy. This has resulted in another stock bubble we’ll now have to deal with. And so it goes.

    Now the Fed is tightening too fast by using a combination of rate hikes and money burning (so-called “quantitative tightening”) at a time when the economy is vulnerable to a recession after nine years of growth. This article shows that even Goldman Sachs, a customary Fed cheerleader, is beginning to have concerns about slowing growth.

    If Goldman is sounding the alarm, it may already be too late to avoid a recession in 2019. Still, it’s good to know so you can take precautions including reducing equity exposure, buying bonds and bond substitutes such as utilities and increasing allocations to cash and gold. Better late than never.

    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. Trump Plays a Long Game in Saudi Arabia. Who Will Be the Next King?

    We’ve all heard the horrific accounts of how Saudi henchmen murdered journalist Jamal Khashoggi. These accounts blend barbaric details with the sheer incompetence of the killers when it comes to operating in stealth and covering their tracks.

    This fiasco has landed squarely in the lap of Crown Prince Mohammed bin Salman, “MbS,” who is the son of the current king and heir to the throne.

    President Trump has had to navigate through this crisis with a combination of criticism, skepticism about Saudi alibis and economic sanctions. At the same time, Trump has to preserve relations with the kingdom of Saudi Arabia, which is a key energy supplier (one of the “Big Three” along with Russia and the U.S.), major weapons customer and ally against terrorist and nuclear threats from Iran.

    This article explains Trump’s balancing act in great detail. What the mainstream media miss (as usual) is that Trump’s choices are not limited to criticizing MbS or ignoring the crime. A deeper choice is that MbS may be on his way out based on the actions of other Saudi royals.

    Trump is preserving our relationship with Saudi Arabia while giving the Saudi royal family time to sideline the crown prince and replace him with a more mature choice as the next king. Trump deserves credit for his foresight and finesse instead of constant criticism from the anti-Trump media.

    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.