1. The Data From China Are Even Worse Than They Look. A Crash Is Coming

    We’ve been saying for over a year that Chinese growth figures are misleading and a debt-related market crash is just a matter of time. Now the data have confirmed this view, and even the Chinese government can’t cover up the decline any longer.

    China is between a rock and a hard place. If the government tries to sustain economic growth through debt, they just build a bigger debt crisis down the road. But if they try to rein in credit growth, they slow the economy and risk popular discontent through higher unemployment, inflation and debt defaults.

    This article describes the recent history and likely future of China’s slowdown and their failed efforts to hide it. A partial effort to reduce debt creation in 2017 has now come home to roost in the form of much slower growth.

    China’s problems are worse than that, because debt is so high that even more debt does not produce the expected growth. China is trying to thread the needle with infrastructure investment, but even that doesn’t work because the infrastructure is unproductive (white elephants and ghost cities), while the debt is all too real.

    What happens in China won’t stay in China; a slowdown there will produce a global slowdown as China reduces input purchases and the trade wars slow down Chinese exports. The Chinese Communist government fears popular unrest more than slow growth. In 2019, they may get both.

    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. Even a Dovish Fed Won’t Stop the Rate Hikes. Get Ready for Volatility

    The Fed is so confused it’s beginning to confuse the markets too.

    The basic Fed model set up by Janet Yellen and continued by Jay Powell was that the Fed would raise rates four times per year (March, June, September and December), by 0.25% each time, until the fed funds target rate hit 3.75%, at which point the Fed would step back and evaluate the situation. The rate hikes had nothing to do with “data” and everything to do with having dry powder for the next recession.

    The only exception to this clockwork program would be an occasional “pause” if the Fed saw strong disinflation, disorderly market declines or job losses. The finesse was to raise rates without causing the recession the Fed was bracing to cure.

    While Wall Street jabbered about other factors (yield curve, nonexistent inflation, bad days in the market), the Fed stayed on track So far, so good.

    Yellen threw a monkey wrench into this with her “quantitative tightening” (QT) started in October 2017. QT is the equivalent of burning money, the opposite of QE. Then Powell threw another monkey wrench with his early October comment that the Fed was a “long way” from a “neutral” policy rate. This was a mistake, because “neutral” doesn’t exist (it’s another meaningless academic theory) and neutral is not the Fed’s real goal anyway (it’s the 3.75% target).

    This hawkish comment sent markets into a tailspin in October. Powell corrected the record in November by saying the Fed was actually “just below” neutral (another irrelevant comment, but markets cheered and reversed some October losses). As this article reports, the Fed is now boxed in by Powell’s sloppiness.

    There’s a Fed meeting on Dec. 19. If Powell is dovish, there may be a year-end “Christmas rally” on Wall Street. If Powell is hawkish, markets may tank going into year-end. But the entire debate is like a false flag operation because it has nothing to do with the Fed’s real goal of dry powder.

    Powell is not an economist; he’s a lawyer. He should stick to a pragmatic approach and not get pulled into the academic mumbo-jumbo about the “neutral” rate. The Fed will probably try to square the circle with slightly more dovish economic forecasts and slightly more hawkish comments on “gradual” rate hikes.

    Meanwhile, the QT juggernaut is slowing the economy with or without rate hikes. The market can digest all of this along with their Christmas turkeys. Confusion reigns.

    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 Don’t Know Who the Sucker Is, You’re the Sucker

    There’s an old saying in poker: If you’re in a three-sided game and you don’t know who the sucker is, you’re the sucker. This refers to the fact that two players in a poker game can implicitly coordinate their efforts to clean out the third party (the “sucker”). Once that is accomplished, the two players will turn on each other, but at least they have a bigger pile of chips.

    This simple insight also applies to global geopolitics. The only three countries in the world that really matter are Russia, China and the U.S. (Sorry, U.K., France and Japan… you’re in the second tier).

    As strategists from Richard Nixon and Henry Kissinger to Bill Clinton understood, the U.S. needs to be in a de facto alliance with either Russia or China to box in the other superpower. In the 1980s, the U.S. boosted China to pressure the old Soviet Union. In the 1990s, after Tiananmen Square (1989), the U.S. worked closely with Russia to sideline China. In the early 2000s, the play was to coordinate with China again to box in Russia (after the rise of Putin).

    Obama lost sight of this principle after 2008 by failing to realize that China was a much greater threat than Russia and by burning diplomatic bridges to Russia after U.S. interference in Ukraine backfired. Now the game is being played skillfully by Russia and China, with the U.S. as the odd man out or “sucker.”

    Trump tried to rectify this by improving relations with Russia, but this was blown up by China lovers in the U.S. intelligence community such as John Brennan and globalist tycoons such as Mark Zuckerberg at Facebook.

    As reported in this article, the China-Russia axis is now front-page news, and Trump’s hands are tied with regard to Russia because of the fake “collusion” allegations and the Mueller investigation. Until we put “Russiagate” behind us, the U.S. will remain the loser in this three-handed game.

    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. The Clock Is Ticking on the China Trade Scam

    Wall Street and China can’t seem to grasp the fact that the U.S.-China trade war is real and the clock is ticking on massive new tariffs. The wishful thinking since last January is that the trade war is mostly for show, both sides are posturing and a “deal” will soon be worked out that allows Trump to claim victory without really changing very much from China’s perspective.

    We’ve said all along that this misreads the situation. The U.S. is demanding real, verifiable changes regarding China’s theft of intellectual property, limits on U.S. investment in China and technology transfers from U.S. companies that do manage to get in the door. Nothing less is acceptable to Trump.

    After a year of tit-for-tat tariffs and fruitless negotiations, the two sides finally agreed on substantive negotiations on the hard issues. The agreement was reached at the now-famous dinner in Buenos Aires on Dec. 1 with President Trump and Chinese President Xi Jinping and their staffs in attendance. As explained in this article, the U.S. has set March 1, 2019, as a deadline for a satisfactory conclusion to these negotiations.

    So far, China has offered mostly meaningless concessions, including putting some tariffs back where they were before the trade war erupted (no net gain for the U.S.) and modifying its “Made in China 2025” initiative to dominate the technologies of the future (a purely cosmetic change). Meanwhile, the U.S. has kept up the pressure by the Canadian arrest of the CFO of Chinese electronics giant Huawei and making it clear that the March 1 deadline is hard and fast.

    We still have over 60 days left before the deadline. Don’t expect much progress between now and New Year’s Day. If enough progress is made, an extension might be agreed upon. But for now, China is just going through the motions and Wall Street is sleepwalking off a cliff.

    The world may discover on March 1 that tariffs are going up and the trade war is just getting started.

    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. Have You Heard of the “Five Eyes”? China Has, and They’re Paying the Price

    Intelligence agencies from the CIA to MI6 are practiced in the arts of deception and denial. No one trusts anyone. That tradecraft is useful when you’re outwitting the enemy. But how do you engage in honest exchanges of information with friends?

    A solution to this conundrum is called the “Five Eyes.” This term refers to the intelligence agencies of five close allies who share a language and cultural history and have long cooperated in intelligence sharing. The Five Eyes are the U.S., U.K., Australia, Canada and New Zealand.

    While each of the Five Eyes has their own history and unique tools, they all evolved along the lines created by the U.K.’s MI6 international intelligence service. This shared tradecraft includes officers who recruit and handle spies (called “secret agents” or “case officers”), the use of front organizations (called “cutouts”), the use of disguises, and a network of safe houses.

    The 21st-century version includes spy satellites, listening devices and message traffic intercepts. Intelligence agencies worry about sharing information because it can reveal sources and methods, or it could fall into the hands of moles in the agencies with whom it is shared.

    The Five Eyes have the highest level of trust and therefore share information and plans more freely. The latest operation of the Five Eyes involves the destruction of Huawei, which is the world’s largest smartphone manufacturer and one of the largest companies in China.

    Huawei has implanted bugs and back doors in its smartphones to capture message traffic and relay it to Chinese intelligence. Huawei is now making a play as a supplier to the most important 5G networks in the world. As shown in this article, the Five Eyes and their host governments are determined to stop Huawei in its tracks.

    Huawei has been barred from making acquisitions of tech companies in the U.S., U.K., Australia, Canada and New Zealand and is being banned from contracting on government telecoms systems. Other allies including Japan are joining the effort to bar Huawei from all 5G networks. Canada recently arrested the CFO of Huawei pursuant to a U.S. arrest warrant, a good example of Five Eyes cooperation.

    This attack on Huawei is just getting started. Huawei is beginning to feel the scrutiny of the Five Eyes.

    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. New Cold War With China Possible

    On Saturday, Dec. 1, at the end of the G-20 meeting in Buenos Aires, President Trump and his team of trade and finance advisers had dinner with President Xi Jinping of China and his team.

    The purpose was to discuss the ongoing trade war between China and the U.S. Trump’s team had presented the Chinese team with 142 specific trade demands.

    The two sides went over the demands one by one during the course of their two-hour dinner. When they were done, both sides announced a 90-day “truce” in the trade wars. China agreed to negotiate in good faith on the demands and the U.S. agreed to delay the imposition of tariffs scheduled to go into effect Jan. 1, 2019, until March 1, 2019, to give the negotiations time to proceed.

    For the rest of this article, click here.

  7. When It Seems There Are No More Bitcoin Frauds to Find We Find a New One

     

    All financial markets experience some kind of fraud and manipulation, but bitcoin trading seems to have a special knack for it.

    First came the “wash trades,” where miners traded the same coin back and forth at progressively higher prices to create the appearance of a rising market. Then came “painting the tape,” where a single trade at an inflated price created mark-to-market profits for every bitcoin holder in the world.

    Then there was the classic “pump and dump,” where a gang of miners would raise prices with small trades and then dump their inventory on unsuspecting newbies who bought in just before the crash. Wash, rinse and repeat.

    Some scams were more sophisticated, including the sale of cryptocurrency tether, which promised a “stable coin” always worth the same amount in dollars. The problem was the tether sales proceeds were not held in dollars but were used to buy bitcoin to pump up that market.

    The assumption was that the transaction could always be unwound (with profits for the scam sponsor), but the collapse of bitcoin prices revealed that tether was just a Ponzi scheme. There are many more frauds.

    Just when you think you’ve see it all, a new scam emerges. This article describes the fact that cryptocurrency sponsors can get positive ratings and reviews on crypto platforms, including celebrity endorsements, just by paying for them, regardless of the actual merit of a coin.

    When it comes to cryptos, caveat emptor – and don’t believe the hype.

    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 Huawei Arrest Is Not a Sideshow. It’s the Shape of Things to Come

     

    In the midst of stock market gyrations, revelations about Trump by Robert Mueller and former FBI Director James Comey testifying before Congress came a story that received far less attention but may be far more important in the end.

    This article reports that the CFO of Huawei was arrested in Vancouver, Canada, on a warrant issued by the United States. The CFO, Meng Wanzhou, happens to be the daughter of Huawei founder Ren Zhengfei and is one of the most powerful business leaders in China. Huawei is the largest mobile phone manufacturer in the world and a leader in the new 5G phone technology that is just being rolled out globally.

    Huawei is suspected of being controlled by the Chinese government and the People’s Liberation Army. Huawei has a long history of intellectual property theft and of building trapdoors and other devices into its equipment to spy on users and steal data. The specific charges related to Meng involve money laundering, fraud and selling telecommunications gear to Iran in violation of U.S. sanctions.

    The arrest has thrown U.S.–China relations into turmoil just as a 90-day “truce” in the trade wars begins. Hearings on a possible extradition of Meng to the U.S. for trial on the charges have now begun.

    This arrest should not be taken lightly and the struggle between the U.S. and Huawei will not be over soon. The U.S. is acting aggressively to uphold its national security and intellectual property interests.

    There will be more actions against Huawei and other Chinese tech giants. The intellectual property part of the trade war is just getting underway and has a long way to run.

    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. Putin Speaks on the Dollar Again. You Can’t Say You Weren’t Warned

    Russia’s President Vladimir Putin has expressed his disdain for the global U.S. dollar- based payments system so many times that few are still paying attention. The problem is that every time Putin speaks, his position grows stronger from the time before.

    Russia is buying about 30 tons of gold per month and has increased its gold reserves from 600 tons to 2,000 tons over the past 10 years. Russia is also working with some of the world’s most sophisticated software developers to build a heavily encrypted state-of-the-art digital distributed ledger that can support a Russian-backed cryptocurrency possibly backed by gold.

    These efforts are done in conjunction with similar efforts by the Chinese. As this article reports, the endgame is an alternative global payments system that will substitute for SWIFT and be controlled by Russia and China with participation by countries including Turkey, Iran, North Korea and possibly many others.

    This alternative system will exclude the U.S. and U.S. dollars, finally creating a way for nations to trade and settle balance of payments without using dollars and without relying on portals such as SWIFT and Fedwire that are controlled by the U.S. In turn, this means that U.S. economic sanctions will no longer be effective because countries will have an easy way around them using this new nondollar system.

    Putin is insistent on this new system and is close to achieving it. When the new system is rolled out, you won’t be able to say you weren’t warned.

    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. What Do Elites Get Wrong? Just About Everything

    I usually don’t circulate articles in which almost everything the author says is way off base, but sometimes it’s instructive to see just how wrong our most famous commentators can be.

    This article is written by Anatole Kaletsky, a prominent financial analyst and globalist. It was written in advance of the G-20 meeting in Buenos Aires and high-profile dinner between President Trump and President Xi Jinping on Dec. 1, so we have the benefit of hindsight in assessing Kaletsky’s forecast. Kaletsky says Trump’s motto is “shout loudly and carry a white flag.”

    In effect, Trump is belligerent and threatening in the early stages of a negotiation, but he settles for little and walks away declaring “victory.” Based on this, Kaletsky expects an early end to the trade war with China with little more than superficial gains for the U.S. That’s completely wrong.

    Trump may have agreed to a 90-day timeout as negotiations continue, but he’s no less determined to press ahead in the negotiations. Trump will not settle for cheap concessions, so investors should expect the trade wars to escalate and continue perhaps for years.

    Like most pro-China globalists, Kaletsky touts the fact that China has already agreed to 40% of the U.S. demands. Big deal. Does this mean that China has a free hand to violate the other 60%? Not according to Trump and his chief negotiator, Robert Lighthizer.

    By the way, I debated Brexit with Kaletsky in Switzerland in March 2016, when he predicted the U.K. would vote to “remain” and I predicted the U.K. would vote to “leave.” He was wrong about Brexit and he’s more wrong about the trade wars.

    Nothing is more important to Trump and he will see this through. That means a rocky ride for investors despite the elite happy talk from Kaletsky and his ilk.

    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.