1. The Beginning of the End of Bitcoin Is Now in Sight

    Bitcoin news this week was not confined to crashing prices. An even more ominous trend for bitcoin has emerged, as reported in this article.

    Bitcoin usage dropped almost 80% in the year ending last September. While bitcoin has always served as a speculative gamble and utility token for criminals, many advocates hoped that bitcoin could break out and become a true currency offering liquidity and price stability. Instead, the opposite has happened.

    Along with a usage collapse comes a price collapse from $6,500 to $3,500 per coin in a matter of weeks, a nearly 50% price crash on top of the 67% crash that took place earlier this year. One commentator claims, “There would have to be a stability requirement if [bitcoin] is to become another form of money.”

    That’s a nice sentiment, but it’s detached from reality. Bitcoin is failing in every important category of suitability as money — price stability, convenience, transaction cost, speed, sustainability, scalability and volume.

    What’s happening with bitcoin is not a bump in the road but the end of a fantasy. That’s been my view for a long time, and now the data support that view.

    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. Bubbles Rise Quickly but Crash Slowly. Same Is True for Bitcoin

    Most mainstream economists and central banks insist that asset price bubbles are difficult to spot. That’s one reason they keep away from warning investors or intervening to deflate the bubble. As usual, the mainstream economists have it wrong.

    Bubbles are incredibly easy to spot, especially when you look at a time series of prices on a chart. Whether it’s U.S. stocks in 1929, Japanese stocks in 1989 or dot-com stocks in 1999, the pattern is always the same.

    The price trend rises gradually and persists for several years or longer. Then prices take off into a conventional rally with steep price gains. This is the bend in the hockey stick on a chart.

    Then comes the bubble phase. In this stage, prices rise exponentially until they go almost vertical. At this point, you can see the bubble, sell out if you own any affected assets and then sit back and watch the crash.

    This pattern was followed perfectly in the bitcoin bubble. Prices rose gradually over four years (2009–2013) from $1.00 to $200.00. Then they rallied steeply from $200 to $1,000 in three years (2013–16). Then things got crazy.

    Over the course of 2017, bitcoin rocketed from $2,000 to $20,000, the greatest asset price bubble of all time. The crash came right on time in early 2018.

    But bubble crashes are not symmetric to the bubble itself. It takes time to let all of the air out of the bubble. This is because of those who bought in at the end and are in denial about what happened. They hold their tokens in hopes of a rally or return to the old high, but it never happens. It’s just a long, slow grind down until the last wishful thinker throws in the towel.

    Bitcoin has spent the past year grinding down in stages. This article reveals a new post-bubble low of $4,100 for bitcoin. The price has dropped even lower, to $3,500, since this article was published.

    Commentators blame SEC enforcement, wars between miners, bitcoin “forks” and general market uncertainty. All of these explanations are after-the-fact rationalizations. The reality is that bubbles burst in stages, not all at once. Bitcoin is no exception.

    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. The Doom-and-Gloom Crowd Is Growing. Even Goldman’s Getting Nervous

    The ranks of those predicting difficulties for the stock market and the economy keep getting more crowded.

    In recent weeks, we’ve pointed to establishment voices such as the IMF, the BIS, Larry Fink and Paul Tudor Jones as among those warning that the end of this record bull market is near. I’ve said for over a year that investors should lighten up on equity exposure and allocate more to cash in preparation for a slowdown and possible market crash.

    Stocks today are almost exactly where they were in early December 2017, so my suggestion had no opportunity cost and would have saved a lot of heartburn as stocks fluctuated wildly up and down in the past year.

    In any case, my outlier forecast from late last year now has a lot of company. In addition to the notables mentioned above, Goldman Sachs has now joined the chorus.

    This article reports that Goldman is recommending that investors reduce equity exposures and increase cash. Indeed, Goldman says, “Cash will represent a competitive asset class to stocks for the first time in many years.”

    Goldman’s main concerns about stocks relate to trade wars and tariffs, something we have also been warning about all year. Goldman likes cash because yields are increasing and stocks look overvalued. This is true, but it overlooks other benefits of cash, including reduced volatility in your portfolio and the ability to pivot quickly into attractive assets if valuations fall as much as Goldman fears.

    Goldman has this forecast right. Welcome to the club!

    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. Expect Oil to Rebound

    My model for forecasting oil prices has three top-level factors, represented graphically by arrows pointing up, down or sideways. An up arrow is colored green and points to higher oil prices. A down arrow is colored red and points to lower oil prices. The sideways arrow is colored grey and suggests that the relevant factor is neutral with respect to oil prices.

    Of course, there are innumerable subfactors behind each of the main factors that form a lattice of cause and effect and that lend themselves to inferential methods. Still, the top-level “three arrows” predictive analytic model has served us well when it comes to oil prices.

    To read the rest of this article, click here.

  5. Multiple Risks Are Converging on Markets

    One of the questions I am asked most frequently in my global travels is what will be the cause of the next financial crisis. This question is asked by those who understand that this crisis is coming but want to pin down the date or a specific turn of events that will help them know when to react.

    My answer is always the same: We can be certain the crisis is coming and can estimate its magnitude, but no one knows exactly when it will happen or what the specific catalyst will be.

    To read the rest of this article, click here.

  6. Don’t Believe That Central Banks Are Independent. They’re Not

    It’s difficult to find a central bank speech or press release that does not implicitly or explicitly uphold the “independence” of the central bank and its conduct of monetary policy.

    Of course, there are many central banks that have no independence at all, including failed states such as Venezuela and totalitarian states such as China. But the central banks of major democratic liberal societies do have a plausible case that they are free from political interference.

    Don’t believe it. My first rule of thumb when a party repeatedly insists that something is true is that it’s probably not. Why repeat something incessantly if it’s so obviously true?

    The second rule of thumb is just to look at the historical record. Where was Federal Reserve independence in 1934 when FDR confiscated the Fed’s gold and moved it to the U.S. Treasury in exchange for paper “gold certificates”? Where was Federal Reserve independence from 1941–1951 when the White House insisted on rock-bottom interest rates to finance the Second World War and the Korean War? Where was Fed independence in 1971 when Nixon ended the gold standard? Where was Fed independence in 1972 when Nixon demanded — and got — low interest rates and money supply growth to help his re-election effort?

    There are many more recent examples, including 2008 when the Fed and FDIC guaranteed all bank deposits, money market funds and commercial paper at the insistence of the U.S. Treasury and the White House in order to deal with the financial crisis. The same patterns emerge when looking at the ECB’s political response to the Cyprus and Greece financial crises, which were actually orchestrated by Angela Merkel and Germany.

    This article offers a brief overview of the myth of central bank independence using examples drawn from Europe, Asia and Africa in addition to the Fed examples noted above. This article is a good one to save and re-read the next time you encounter some central bank true believer who tries to insist on central bank independence. It’s a myth.

    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. U.S. National Security Is at the Greatest Risk in Decades

    I’ve been involved in international relations and national security longer than I’ve been involved in capital markets. Before attending law school and starting out as a bank lawyer, I got a graduate degree in international affairs in 1974. I’ve closely studied national security threats from the Cold War arms race through Vietnam, the Russian invasion of Afghanistan, multiple Israel-Arab wars, the first Gulf War, the rise of al-Qaida, 9/11, the War in Iraq and the rise of China.

    All of these issues posed risks to U.S. national security. I’ve learned to balance these risks and keep them in a longer-term perspective. So when I saw this article claiming that U.S. national security was at greater risk “than at any time in decades” I was a bit skeptical that the situation could be as bad as the headline proclaimed.

    However, the author of the article makes a convincing case by reference to a new expert report he describes. The issue is not so much U.S. weakness as it is the rising strength of China and Russia and a host of technological and ideological forces that can be harnessed to that strength.

    The list of threats includes cyberattacks, nuclear terrorism (especially from Pakistan), pandemic and water scarcity. One of the greatest threats to the U.S. comes not from abroad but from our internal politics.

    Americans are so divided in their politics that it makes it difficult to arrive at solutions to all of the other threats. This article (and links for further reading contained in the article) deserves your close attention.

    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. Another Top Elite Sounds the Warning. Is Anybody Listening?

    A regular feature of our selections has consisted of articles in which leading financial elites warn of coming collapses and dangers. We’ve featured such warnings from the IMF’s Christine Lagarde, Bridgewater’s Ray Dalio, the Bank for International Settlements (known as the “central banker’s central bank”) and many other highly regarded sources.

    Just when we think we’ve seen enough of these, another one arrives. This time it’s the legendary Paul Tudor Jones, who manages Tudor Investment.

    I’ve met Jones; he’s a cerebral yet polite and mild-mannered manager from Tennessee who has not lost his Southern accent despite decades in Connecticut and an estate on Maryland’s Eastern Shore.

    What gives Jones’ voice added authority is his longevity in the fund investment world. He’s managed through the 1987 stock crash, the 1994 Mexican crisis, the 1998 Long Term Capital meltdown, the 2000 dot-com crash and, of course, the 2008 financial panic.

    Jones knows that panics happen, but he also knows they don’t happen all the time. Panics take years to build and usually have specific triggers (even though endpoints can spin wildly out of control).

    Jones does not treat the possibility of a financial crisis lightly, so his warning deserves close consideration. In this article, Jones warns that the next crisis is likely to be triggered by excessive debt, specifically corporate debt, which can be more difficult to manage or bail out than sovereign debt.

    At the same time, other gurus are warning that the next panic will emerge from the foreign exchange market, overvalued equities or commercial real estate. Perhaps the real message is that all of these areas are vulnerable and the next crisis will seem to come from everywhere at once.

    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. IMF Calls Your Money “Pieces of Paper” and Recommends “We Take Over”

    When I was a kid, a favorite expression was “If you can’t beat ’em, join ’em.” It sounds like the IMF agrees with that approach when it comes to cryptocurrencies.

    It was not that long ago the IMF was cautioning about cryptocurrency frauds and warning investors to keep away. But in a new speech, the IMF managing director, Christine Lagarde, has joined the crypto revolution and endorses the use of cryptocurrencies by central banks and everyday citizens.

    However, there’s a sinister twist to Lagarde’s embrace. While she endorses cryptos at the retail digital payment level, she reminds us in this speech that behind every retail transaction is a payments system controlled by central banks.

    Far from replacing central bank fiat currency, Lagarde suggests that central banks turn their fiat currency into central bank digital currency (CBDC) and that the central banks offer a payments system that can handle private cryptos along with CBDC tokens. As Lagarde says, “When it comes time to transact, we take over.”

    Hidden behind this talk of digital currency is the more hidden agenda of eliminating all forms of cash. This makes it easier for state power to monitor actors and squash efforts to avoid state control.

    This speech shows the IMF is a wolf in sheep’s clothing pretending to embrace the new while pursuing the old goals of state control of everyday life.

    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. These Losses Exceed Junk Mortgages, and They’re Just Getting Started

    Investors recall that the financial panic of 2008 actually started in 2007 with massive loan losses in subprime mortgages. Those losses caused certain hedge funds and money market funds to close their doors.

    Investors scrambled for liquidity to cover their mortgage loan losses. This led them to sell equities, bonds and gold to raise cash to meet margin calls.

    The panic was subdued in late 2007 but came back to life in 2008 with the collapse of Bear Stearns, Lehman Bros., AIG and others. The Fed and Treasury intervened to provide guarantees and liquidity, but not before everyday investors saw half their net worth wiped out.

    The crisis was not confined to the U.S., but spread worldwide to Europe, China and Japan. Now a new loan loss crisis is unfolding.

    The new crisis is not in mortgages but in student loans. Total student loans today at $1.6 trillion are larger than the amount of junk mortgages in late 2007 of about $1.0 trillion. Default rates on student loans are already higher than mortgage default rates in 2007.

    This time the loan losses are falling not on the banks and hedge funds but on the Treasury itself because of government guarantees. This article explains that not only are student loan defaults soaring, but household debt has hit another all-time high.

    Student loans and household debt are just the tip of the debt iceberg that also includes junk bonds, corporate debt and even sovereign debt, all at or near record highs around the world.

    Get ready for another debt crisis and global financial panic. This time it won’t come from mortgages alone but from all directions at once.

    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.