1. The Jay Kim Show Episode #78: Kevin Massengill

    What do you get when you combine artificial intelligence, human intelligence experts, behavioral psychology, history, and complexity science? You get something that looks like magic. You get RAVEN™, patent pending, the predictive tool developed by Meraglim™ for analysts and investors.
    In today’s episode, Kevin Massengill, Meraglim’s founder and CEO, argues that the emperor has no clothes: the shell game that is our financial system is on the ropes. To thrive in today’s market, investors need a way to aggregate and distill the available data so that intelligent investment decisions can be made.
    In today’s episode you’ll learn:
    • About Kevin’s career path and about how and why he teamed up with Jim Rickards to build Meraglim™
    • How RAVEN™, patent pending, is changing the way analysts distill and digest information
    • About Meraglim’s business model
    • Kevin’s thoughts about sound investments and cryptocurrencies
  2. When It Comes to Kicking the Can Down the Road, China’s out of Road

    As China was piling up huge multitrillion-dollar trade surpluses between 2000 and 2010, certain Chinese companies with access to those reserves went on global shopping sprees. The biggest of the big spenders was HNA Group, a Chinese conglomerate that is believed to be backed by favored members of the Communist Party of China and possibly the Chinese military.

    HNA acquired well-known brands such as Hilton Hotels and Deutsche Bank as well as trophy properties in major cities around the world. To make these acquisitions, HNA borrowed from a syndicate of banks, including the largest banks in China such as ICBC and the Bank of China. Massive leverage, massive valuations and massive acquisitions were all part of the HNA growth story. Now that engine of growth is spinning in reverse.

    China has prohibited the use of foreign exchange for acquisitions outside China without special permission. The valuations of some HNA assets have begun to cool off (Deutsche Bank just reported a losing quarter and its stock plunged, wiping out a large part of HNA’s collateral value for its bank loans). And HNA’s mountain of debt is coming due.

    It will be difficult for HNA to avoid either bankruptcy or a major debt restructuring that could set off a broader credit panic in China. Of course, the Chinese government has the funds to bail out HNA, but that would undermine all of the recent efforts of the Chinese government to reform its financial sector.

    HNA has also been barred from further acquisitions in the U.S. by the U.S. government on national security grounds. HNA is facing lost access to foreign exchange and foreign markets, declining asset values and demanding creditors. 

    Click here to see why the HNA story has the makings of a major credit default at best and a Chinese credit crisis at worst.

  3. More Evidence That Bitcoin Is a Gigantic Fraud. This Crypto Is Going Down

    I’ve said for years that bitcoin is a fraud, a Ponzi and a bubble all at the same time. I based this on analysis of price activity and certain other technical analyses and some anecdotal evidence.

    Critics have always demanded “proof” that bitcoin was a fraud with smoking-gun-type evidence. That was difficult at first because of the secretive nature of bitcoin trading. Yet now the evidence is arriving almost every day.

    New hacks are reported, millions of dollars of bitcoin routinely go missing and exchanges are closing with no recourse for investors. What may be one of the biggest frauds in history, this one involving bitcoin, is now coming to light.

    One cryptocurrency exchange called Bitfinex owes customers hundreds of millions of dollars in bitcoin held in their accounts. Bitfinex is nontransparent about the funds it actually has on hand and whether its customer funds are really safe.

    Bitfinex sponsored another cryptocurrency called tether, which is tied to the U.S. dollar at a one-to-one fixed exchange rate. Customers give tether $1 (or the equivalent in another crypto) and receive one tether in return. The amounts paid for the tether are supposed to be held in reserve to back up the one-for-one promise. No one knows if tether has the funds or not. Tether recently parted ways with an auditor who was supposed to answer that question, so there is still no transparency.

    It also seems that every time the price of bitcoin plunged, millions of tethers were issued out of thin air to prop up bitcoin on the Bitfinex exchange. All of this has raised suspicions that Bitfinex and tether are Ponzi schemes. Last week, as this article reports, the U.S. government sprang into action by hitting Bitfinex and tether with subpoenas demanding information about reserves and the safety of customer funds.

    If it turns out the suspicions of fraud are correct, it could start a run on the bank in all cryptocurrency as holders and investors lose confidence in the crypto space generally. That would be bad enough but the greater fear is that panic in cryptocurrencies could spill over into regulated stock and bond markets and mark the beginning of another global financial panic.

    If that happens, the only safe haven will be physical gold.

  4. You’ve Heard of Fake News. How About a Fake Economy, Made in China?

    By now, U.S. citizens have heard a lot about fake news from the likes of CNN, The Washington Post and The New York Times. Now comes a new source of fake news — China.

    As this article shows, the fake news from China is not about politics or scandals — it’s about the economy. New research shows that China probably overstated its economic growth by several percentage points in 2015.

    Investors recall that 2015 was the year China engineered a shock devaluation in August that took U.S. stock markets down 11% and another more gradual devaluation that December that took U.S. markets down another 11% between January and early February 2016. The Chinese stock market also plunged in the early summer of 2015.

    With all of that turmoil, it was surprising that China reported official growth figures for 2015 of 6.9%, down only slightly from 7.4% in 2014. Now we know that the 2015 Chinese growth figure was fake.

    This is determined by comparing the official growth figure with better data in industrial inputs such as electricity consumption. Even the adjustments reported in this article don’t get to the bottom of China’s overstated growth because investment amounts, about 45% of GDP, have to be adjusted further for the amount of wasted investment in the form of ghost cities, white elephants and other worthless infrastructure projects.

    All in all, Chinese growth has been running at about 4% per year for the past five years rather than the much-vaunted 6–7% pace. This has serious negative implications for global financial stability because of the enormous volume of debt that the Chinese economy must support. Chinese debt-to-equity ratios were already sky-high, over 250%, using the old GDP data.

    After these adjustments, it looks like the Chinese debt-to-equity ratio could be over 400%, making a Chinese debt crisis with global implications inevitable. When that happens, it won’t be fake news: It will be a true catastrophe.

  5. Russian Gold Buying Expands as Russia and China Hold Hands on Gold

    Russian gold buying in 2017 took Russia’s total gold reserve position to 1,778 tons, just slightly behind China’s official gold reserves of 1,842 tons. The U.S. had just over 8,000 tons.

    But considering the U.S. economy is eight times the size of Russia’s and the Chinese economy is four times as large, Russia is the world champion when it comes to the gold-to-GDP ratio.

    That’s the metric that really matters because it reveals how much gold you have to back up your real economy in the event of a loss of confidence in fiat currency. Russia’s gold-to-GDP ratio is more than double the U.S.’ and China’s, leaving Russia in the best position of any major economy to go back to a gold standard (Europe is in the next best position after Russia).

    Russia bought 205.155 tons of gold in 2017, which is almost 5% more than the 195.89 tons they bought in 2016. Interestingly, as this article reveals, Russia is also a major seller of gold on the Shanghai Gold Exchange.

    Russian mines are not only supplying the Russian Central Bank — they are supplying public and private demand in China as well. There is also good reason to believe that China’s official gold reserves are somewhat higher than the reported figure. These excess gold reserves are kept “off the books” from the central bank’s perspective and are held instead by China’s State Administration on Foreign Exchange, or “SAFE.”

    Russian and Chinese gold accumulation and gold cooperation suggest that both countries are preparing for the day when an all-out assault on the status of the U.S. dollar begins. Russia and China are ready for a new gold-backed currency. Are you?

  6. The Currency Wars Are Back (Actually, They Never Went Away)

    The new global currency war began in 2010 in the aftermath of the financial crisis of 2008 and a recession that lasted until 2009. The currency war was an attempt by the U.S. to steal growth from its trading partners by using a cheap dollar.

    The idea was that the U.S. economy was the largest in the world and if the U.S. could not generate growth, the entire world economy would remain in the doldrums. Therefore, the U.S. was justified in running a cheap-dollar policy backed up with zero interest rates that force investors into other currencies and asset classes.

    The dollar hit an all-time low in August 2011. All of this was described in my 2011 best-selling book Currency Wars. After 2011, the dollar regained strength even as the euro sank from $1.60 to $1.04 during the European sovereign debt crisis of 2010–-2015. The euro crash was an effort to give the European economy a boost.

    That’s the problem with currency wars — every currency cannot depreciate against every other currency at the same time. The big economies have to take turns depending on which economy needs the most help at a point in time.

    Right now, the European economy is doing better so it’s the U.S.’ turn to cheapen the dollar again. Analysts are calling this a “new currency war” but it’s the same currency war that’s been going on since 2010. That’s because currency wars have no logical conclusion. They just go back and forth and back and forth with competitive devaluations until the system either collapses or is reformed with a new international agreement such as Bretton Woods (1944) or the Plaza Accord (1985).

    This article describes the latest action in the currency war as the U.S. once again relies on a weak dollar to generate inflation and nominal growth in the face of disinflation. This new bout of dollar weakness is also being blamed for higher volatility in the stock market.

    One thing is for sure. Unless the system collapses, which is entirely possible, we’ll still be writing about the currency wars five years from now. Click here to see why, in a currency war, every currency loses in the end — except gold.