1. If Global Debt Expansion Can’t Go on Forever …. It Won’t

    Herbert Stein, a prominent economist and adviser to presidents Richard Nixon and Gerald Ford, once remarked, “If something cannot go on forever, it will stop.” The fact that his remark is obvious makes it no less profound.

    Simple denial or wishful thinking tends to dominate economic debate. Stein’s remark is like a bucket of ice water in the face of those denying the reality of nonsustainability.

    Stein was testifying about international trade deficits when he made his statement, but it applies broadly.

    This article looks at the nonsustainability of global debt levels. Debt actually is sustainable if the debt is used for projects with positive returns and if the economy supporting the debt is growing faster than the debt itself. But neither of those conditions applies today.

    Debt is being incurred “just to pay the bills” in the form of benefits, interest and discretionary spending. It’s not being used for projects with long-term positive returns such as interstate highways, bridges and tunnels; 5G telecommunications; and improved educational outcomes (meaning pedagogical improvements, not teacher pensions). And developed economies are piling on debt faster than they are growing, so debt-to-GDP ratios are moving to levels where more debt stunts growth rather than help.

    It’s a catastrophic global debt crisis (worse than 2008) waiting to happen. What will trigger the crisis? In a word — rates.

    Low interest rates facilitate unsustainable debt levels, at least in the short run. But with so much debt on the books, even modest rate increases will cause debt levels and deficits to explode as new borrowing is sought just to cover interest payments.

    Real rates can skyrocket even as nominal rates fall if deflation takes hold. (A nominal rate of 1% with 2% deflation equals a real rate of 3%.) The world is on the knife edge of a debt crisis not seen since the 1930s. It won’t take much to trigger the crisis. Simple solutions for investors include cash, gold and Treasuries. Be prepared.

    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 Fed Doesn’t Understand How Interest Rates Work and That’s Dangerous

    There’s little doubt that Lael Brainard is one of the brainiest members of the Fed Board of Governors. She’s also the leading expert on the international monetary system, a badly needed bit of expertise in the boardroom.

    I read her speeches and articles with great interest and imagine she must feel like a hostage in board meetings since she’s the only Democratic Obama appointee left (all of the others were either appointed by Trump or, in Powell’s case, is a Republican appointed by Obama and promoted by Trump). Her views are well worth considering.

    Still, this article reveals that even the savviest Fed governors don’t really understand what they’re doing when it comes to interest rates.

    The Fed now looks back on quantitative easing, or QE (2008–2014) as a failure. QE1 may have helped alleviate a liquidity crisis in 2008, but QE2 and QE3 were just madcap experiments by Ben Bernanke that punished savers, hurt bank earnings and inflated a stock bubble that’s now waiting to burst.

    What it did not do was what the Fed wanted, which was to create collateral (at higher valuations) that would stimulate borrowing, spending, velocity and ultimately mild inflation. None of that happened. We got the bubble without the lending and spending.

    Brainard was a big part of this failure. Now she wants “interest rate caps” in the next recession as a “stimulus” tool. In reality, the Fed will be more concerned about interest rate floors, negative interest rates, disinflation and deflation in the next recession.

    Wishful thinking about rate caps to signal a willingness to tolerate inflation won’t cut it.

    Oh, by the way, Jimmy Carter tried “credit controls” (similar to rate caps) in 1980 and it led to one of the fastest and sharpest downturns in U.S. economic history. Brainard might do well to brush up on interest rate history before she writes prescriptions for the future.

    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. If You Act Like a Communist Dictator, Expect to Be Treated Like One

    I grew up during the Cold War (1946–1991) and clearly remember the expectation that the world might end in an exchange of nuclear-armed missiles between the U.S. and the USSR (now Russia). We practiced ducking under our elementary school desks to dodge flying glass and other debris. We practiced tucking our heads under our arms and leaning against walls to protect our eyes from the intense light that comes from a nuclear blast. We built underground fallout shelters lined with lead and concrete and stocked with water and canned food to survive until the radioactive fallout from a blast was cleared away by wind and rain.

    I also remember the leadership of the Soviet Union at the time. After Nikita Khrushchev was forced from power in 1964, he was replaced by a troika consisting of Premier Alexei Kosygin, First Secretary Leonid Brezhnev and Chairman Nikolai Podgorny. The titles were as important as the names.

    “Premier” was a government title something like “president” in the U.S. “First secretary” referred to the leader of the Communist Party. “Chairman” referred to the head of the Presidium of the Supreme Soviet, something like a parliament.

    We understood that the first secretary ran the show because the Communist Party was more important than the government itself. This was borne out over time as Brezhnev gradually forced Kosygin and Podgorny from power to become general secretary of the Communist Party and chairman of the Presidium.

    This ontology has faded from memory, but it’s making a comeback today in China as described in this article. The globalist elites have been referring to the leader of China as President Xi Jinping.

    But “president” refers only to Xi’s title as the head of government. His more important titles are general secretary of the Communist Party and chairman of the Central Military Commission. If you credit China as a legitimate government (I don’t), then President Xi works fine.

    But if you see China as a brutal dictatorship (I do), then it is more appropriate to refer to the leader as “Chairman Xi” or “General Secretary Xi.” That change has now been made official by U.S. Secretary of State Pompeo, who recently referred to Xi as “general secretary,” as reported in the article.

    This is a healthy change and calls China out for what it is. Investors should take the hint and get out of Chinese investments while there’s still time.

    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. John Kerry’s New World War

    Most climate activists know almost nothing about real climate science.

    If you ask an activist how many parts per million of CO2 are in the atmosphere today, they have no idea. (Answer: about 400 parts per million). If you ask how many parts per million of CO2 were in the atmosphere in the Cambrian period (about 500 million years ago), they have no idea. (Answer: about 4,000 parts per million.) If you ask how CO2 levels can be at crisis levels when they’re only 10% of the level during the Cambrian period, they have no idea. (Answer: It’s not a crisis.)

    The activists claim CO2 is a “pollutant” or a “poison.” It’s not. It’s plant food. Where would we be without plants? (Answer: dead).

    The best science is that CO2 is a trace gas that has little impact on anything. You get the point.

    “Climate change” as propounded by the activists is a nonscientific fraud. So if there’s no science behind the climate alarm, why are the elites pushing this agenda so hard?

    An important part of the answer is clear from this article. Former U.S. Secretary of State and presidential candidate John Kerry announced the formation of a new advocacy group called World War Zero full of deep state actors, Hollywood celebrities and never-Trump military figures.

    Kerry wants to treat the climate change crusade “like a war.” His group will hold town meetings and participate heavily in the 2020 campaign for president with a focus on swing states.

    This has nothing to do with climate and everything to do with defeating Donald Trump in 2020. It’s just another way to hijack the legitimate science of climatology and infuse it with blatant partisanship and nonscientific rants.

    Climatology is a real science and there is a sober debate to be had about empirical trends in temperature, sea levels and storms. Unfortunately, you won’t hear anything serious from the ideologues and publicity seekers gathered around Kerry’s new “world war.”

    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. Climate Change Alarmists Show Real Agenda

    Before we turn to this article, let’s state a few things for the record.

    Climate change is a real phenomenon. I lived for 10 years on Long Island Sound. It has a rocky coast because it used to be a glacier, frozen solid from Orient Point to New York City. It melted. That’s climate change.

    The problem is that this happened 20,000 years ago and took thousands of years to play out. And that’s the point. Climate change is real, but it’s slow, complex and unpredictable.

    What about today? Here are some facts: CO2 levels are rising, but there’s no evidence that CO2 causes warming. The evidence points the other way, that warming causes CO2 to be released from permafrost and the oceans.

    Sea levels are rising, but the pace is about seven inches in 100 years. That minimal rise will not inundate the New York subways or drown island nations. The rise that is occurring will likely be reversed due to feedback loops long before any seven-inch increase.

    By the way, sea levels have risen 400 feet since the last ice age and people adapted just fine. Remember Al Gore’s polar bear extinction scare? He hopes you don’t because the evidence is that polar bear populations are thriving.

    Slight actual global warming stopped in the late 1990s. (Recent claims of “record temperatures” are rounded from hundredths of degrees and are within the margin of error; satellite imaging tells a cooling story in contrast to land-based thermometers placed by ideological “scientists” on the U.N. payroll.) If that’s the case, what are the climate alarmists up to?

    Their hidden agenda is given away by the article. Propagandist Greta Thunberg writes, “The climate crisis is not just about the environment. It is a crisis of human rights, of justice and of political will. Colonial, racist and patriarchal systems of oppression have created and fueled it. We need to dismantle them all.”

    There you have it. So-called “climate change” is really about a progressive, socialist ideology using climate as a way to gain international support for the agenda.

    Unfortunately, investors cannot simply ignore this con job, because the activists are coming after energy companies, transportation companies and the entire free-market system.

    Climate activists may be frauds, but their agenda threatens your portfolio to the core. It’s time to push back, call them out and, above all, diversify.

    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. Why the Stock Market is Up But Your Stocks Are Down

    You can’t open a website or turn on the TV without hearing about new “all-time highs” in the major stock indexes. The Dow Jones Industrial Average (DJIA), the S&P 500 and the NASDAQ-100 are all at or near record levels. The current bull market began in March 2009 and is now the longest on record (albeit with some volatility and drawdowns along the way).

    So why do so many investors feel left out? Why are so many stocks underperforming the indexes? This article helps to answer that question.

    It turns out that a disproportionate share of the total gains in the Dow Jones index, for example, are attributable to just two stocks: Apple and Microsoft. If you were to strip those two stocks out, the DJIA would be 1,100 points lower than it is.

    The same is true for the NASDAQ-100. If you strip out just a few components such as Apple, Microsoft, Facebook and Alphabet (Google), the overall index results fall sharply compared with the index performance of that handful of stocks.

    This does not mean you should not own those market leaders; most of them have good reasons for their outperformance. Still, it does point to two dangers.

    On the one hand, you cannot take good performance for granted without these leading stocks. On the other hand, concentration in these stocks is highly risky because of overcrowding in the trade. If confidence breaks, these stocks will fall fast and take the entire market index with them.

    The solution is to have allocations to uncorrelated assets such as cash, gold and private equity. That way you can still have some equity exposure but will have protection through diversification when the market breaks. It always does sooner or later.

    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. Gold Can Preserve Wealth but Can Also Save Your Life

    The fact that gold will preserve wealth in the face of financial crises, inflation and deflation is well known. The record speaks for itself.

    In the early 1930s, during the longest period of sustained deflation in U.S. history, gold went up 70% from $20.67 per ounce to $35.00 per ounce. In the late 1970s, during one of the longest periods of sustained inflation in U.S. history, gold went up 460% from $150 per ounce to $850 per ounce by the end of the decade.

    Gold’s performance during the 2007–10 financial crisis was equally impressive. During that period, it went from $635 per ounce to $1,420 per ounce, a 123.5% gain.

    Whether it’s inflation, deflation or panic, gold preserves wealth. But did you know gold can also save your life? As documented in this article, military forces around the world have consistently included gold coins in survival kits for elite military units. These coin kits have included a 1.08 troy ounce coin issued to pilots and paratroopers in Vietnam and packets of 20 gold sovereigns (about a quarter-ounce each of 22-karat gold) issued to troops and pilots of the Special Air Service by the U.K.’s Ministry of Defense during the Gulf War.

    The reasons are obvious. Troops stranded in remote areas or behind enemy lines have no use for paper money. It either won’t be accepted or will give away their allegiance or both.

    On the other hand, gold is universally recognized and universally accepted in barter or simply as money. It can be used to buy food, secure transportation or as a bribe to escape difficult circumstances.

    Investors subject to power outages, natural disasters or social unrest are just as much in need of gold for survival as elite troops operating at the tip of the spear. Got 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.