Friday, August 30, 2013

They May Have to Go to a Gold Standard

People are going to have to pay attention to that. And either the Chinese are dopes, which they’re not, or people will start to get gold, which they will.

But if there’s a run on paper currencies (which is entirely possible) and there’s borderline hyperinflation (which is entirely possible), they may have to go to a gold standard… Not because they want to, but because they find it necessary to calm the markets.

- Jim Rickards via Wall Street Pit:

Wednesday, August 28, 2013

Are the Chinese Stupid? NO!

Central banks don’t want to go to a gold standard. But if gold is a barbarous relic, if gold has no role in the monetary system, if gold is a “stupid” investment, then why do the Chinese have 5,000 tonnes? Are they stupid?

If some scenarios play out, you are going to see the price of gold go up… a lot. And it may go up a lot in a very short period of time. It’s not going to go up 10% per year for seven years and the price doubles. It’s going to chug along sideways, maybe in an upward trend, with a lot of volatility. It will have a kind of a slow grind upward… and then a spike… and then another spike… and then a super-spike. The whole thing could happen in a matter of 90 days, six months at the most.

- Source, Jim Rickards via Wall Street Pit:

Monday, August 26, 2013

The Economy is Fundamentally Weak

“The last time, in 2008 when the crisis started, the Fed’s balance sheet was $800 billion. Today, the Fed’s balance sheet is $3.3 trillion and increasing at $1 trillion a year.” Rickards contends, “You’re going to have a banking crisis worse than the last one because the banking system is bigger without the resources because the Fed is tapped out.” As far as the Fed ending the money printing, Rickards predicts, “My view is they won’t. 

The economy is fundamentally weak. We have 50 million on food stamps, 24 million unemployed and 11 million on disability, and all these numbers are going up.” When the subject of gold confiscation came up, Rickards said, “I just don’t think it will happen because the government will find it will be very hard to enforce.”

- James Rickards via a recent USA Watchdog interview, see the full interview here:

Saturday, August 24, 2013

Everything is Worse

“The problem in 2008 was too-big-to-fail banks. Well, those banks are now bigger. Their derivative books are bigger. In other words, everything that was wrong in 2008 is worse today.”

- Jim Rickards via a recent USA Watchdog interview:

Thursday, August 22, 2013

FED Money Printing Won't Stop

According to investment banker James Rickards, rumors of the Federal Reserve ending the money printing propping up the markets is not going to end anytime soon. Rickards predicts, "My view is they won't. The economy is fundamentally weak. We have 50 million on food stamps, 24 million unemployed and 11 million on disability, and all these numbers are going up." When the subject of gold confiscation came up, Rickards said, "I just don't think it will happen because the government will find it will be very hard to enforce."

- Source, USA Watchdog:

Tuesday, August 20, 2013

Now is a Great Time to Buy Gold

Rickards also said that now a great time to buy gold. He recommends investors put 10 to 20 percent of their portfolio in gold.

"Gold is going down. The dollar is getting stronger, which is the opposite of what the Fed wants," he told CNBC. "The Fed wants a weaker dollar, negative real rates ... and more inflation. And that's good for gold."

Federal Reserve Chairman Ben Bernanke rattled markets by announcing that the Fed might start winding down its stimulus later this year and end it completely in mid-2014 if the economy improves as it expects. Markets settled down last week after Bernanke said a highly accommodated monetary policy will be needed for an extended time.

Most Fed members want to start trimming the bond purchases in September, but tapering that month is "not a done deal," Eric Green, global head of rates and foreign-exchange research at TD Securities, told Bloomberg. "Most of them want to see more evidence the job market is improving. The only way for the job market to improve is if growth shifts higher from the pace of the first half."

"Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,” according to FOMC minutes from the June meeting.

- Source, Money News:

Sunday, August 18, 2013

Gold's Short Term Outlook

The long term outlook for gold remains positive. Shorter term, however, increased volatility is likely. Both higher and lower prices are in the cards. It all depends on policy makers, in particular the US Fed. Between August and September there are two FOMC meetings with a press conference: September and December. Suppose the Fed would “taper” their bond purchases they will not announce it in December because it will be right before the new Chairman will take over. September is the most likely month to announce it.

So the September FOMC meeting will be an important one. Basically there are two possible outcomes. Tightening monetary policy is the first one. Doing so in a weak economy will have deflationary consequences. It will lead to higher interest rates and lower precious metals prices. Accommodative monetary policy, by contrast, would be bullish for gold and will lead to higher prices going to the end of the year.

- Source, Gold Silver Worlds:

Friday, August 16, 2013

The Banks Don't Have the Gold

If I'm a contract holder and I have read the fine print, and I have allocated gold, and I insist on physical delivery and I won’t take anything else and I come in with my pick-up truck and back up the truck and say give me my gold, the banks are going to be the ones that are embarrassed. Because it’s likely the government will be calling back its gold at the same time in this kind of super-spike high-stress atmosphere.

‘And the banks are going to find they don’t have it. So the banks are going to be the ones that come up short. Because remember, it never left the vaults. If I’m the Fed, or I’m the Treasury, and I’ve leased my gold to you, and I call it back, and you can’t deliver to me, you can’t honor the contract, I’ll just terminate the contract, keep the gold, reconvert title to my name and send you a bill.

‘Everybody’s going to default on everybody else. The banks will default on their obligations to their customers…and to the government. The people who had the paper gold, who thought they were protected, are going to find out they participated in part of the price increase – but not the whole thing. They’ll get a nice run-up, they’ll get a nice check, but in this environment, gold will continue to surge way beyond their contract price. They’ll get closed out at a lower level and miss the top.’

- Source, Jim Rickards via Money Morning:

Wednesday, August 14, 2013

The Tale of Two America's

You’re going to have two Americas. You’re going to have an America that was not prepared. Paper savings will be wiped out; 401(k)s will be devalued; pensions, insurance and annuities will be devalued through inflation… Because remember, it’s not just the price of gold going up.

It’s like putting a thermometer in a patient, getting a 104-degree temperature and blaming the thermometer. The thermometer’s not to blame; it’s just telling you what’s going on. Likewise, the price of gold is not an economic object or aim in itself; it’s a price signal. It tells you what’s going on in the economy. And gold at the levels I'm talking about would mean that you've now verged into hyperinflation, or something close to it, because nothing happens in isolation.

At that point, you have to give more credence to gold. Now you've crossed the threshold. The minute you think of gold and paper money side by side, or having some relationship, you get to these price levels of $7,000-8,000 an ounce. They’re not made up. They’re not there to be provocative. They’re actually the math. Those are the numbers you get when you simply divide the money supply by the amount of gold in the market.

- Jim Rickards via Wall Street Pit:

Friday, August 9, 2013

Economy Will Sink if the FED Tapers

If the Federal Reserve does begin to taper its stimulus in September, a slowing economy will force it to reverse course and restore its monthly $85 billion asset purchases, predicts Jim Rickards, managing director of Tangent Capital and author of the 2011 best-seller "Currency Wars."

If the central bank is going to taper its stimulus this year, it will do it in September, he told CNBC, because the Fed will want to explain its decision and the only meetings for the Federal Open Market Committee (FOMC) to hold a press conference after the meeting are in September and December.

"If they taper, it will be at an FOMC meeting with a press conference because the move is so significant the Fed will want the press conference to explain very carefully what they have done," Rickards told CNBC.
The December meeting, he explained, is too near Fed Chairman Ben Bernanke's expected exit in January to announce a monetary policy change.

"However, if the Fed does taper in September, they will find the economy sinks much faster than expected and ... they will have to increase asset purchases by early 2014."

- Source, Money News:

Wednesday, August 7, 2013

Gold Confiscation is Very Unlikely

There isn't a central bank in the world that wants to go back to a gold standard. But that’s not the point. The point is whether they will have to.

I've had conversations with several of the Federal Reserve Bank presidents. When you ask them point-blank, “Is there a theoretical limit to the Fed’s balance sheet?” they say no. They say there are policy reasons to make it higher or lower, but that there’s no limit to the amount of money you can print.

That is completely wrong. That’s what they say; that’s how they think; and that’s how they act. But in their heart of hearts, some people at the Fed know it’s wrong. Luckily, people can vote with their feet.

I always tell people who say we’re not on the gold standard that, in a way, we are. You can put yourself on a personal gold standard just by buying gold. In other words, if you think that the value of paper money will be in some jeopardy, or confidence in paper money may be lost, one way to protect yourself is by buying gold, and there’s nothing stopping you.

The typical rejoinder is, “What’s the point of owning gold? They’re just going to confiscate it, like Roosevelt did in 1933?”

I find that extremely unlikely.

- Source, Wall Street Pit:

Monday, August 5, 2013

Jim Rickards Long Term Outlook

Mr. Rickards sees that we are heading towards the first of the four scenarios. Although he does not pretend to know the future (which nobody does evidently) he comes to his conclusion by analyzing the evolution. Up until now, based on the decisions and behaviour of policy makers, he believes there is enough evidence to believe that all signs point to a monetary collapse.

Just to clarify things, he adds, “there is nobody who really wants a collapse. The reason why it could happen has more to do with a basket of factors, including [but not limited to] the inherent instability of the monetary system, the inability of policy makers to correctly analyze the situation, wishful thinking, denial, delay, bad monetary science, wrong assessment of risk, etc.”

Is it too late to change direction and avoid a collapse? Mr. Rickards believes it is not; we can still avoid it. The key point, however, is that policy makers are not showing signs of understanding the seriousness of the situation and their policy outcomes. They neither show signs of reversing course and solving the underlying structural issues. Going forward, those are the most important signs to force a reversal of the path we are on.

Mr. Rickards adds to it that chaos is not the end of the analysis. In other words, suppose the world will face a collapse it will undoubtedly result in rather draconian executive orders. We might end up in a form of a gold standard based on a gold backed SDR. A gold standard or an SDR standard are the two most likely outcomes of a collapse; a combination of both is also a realistic possibility.

- Source, Gold Silver Worlds:

Saturday, August 3, 2013

China Quietly Building Gold Reserves

Here we are, nearly every asset class is selling off and the Fed’s preferred measures of inflation are so low they’re in the Fed’s panic zone. It seems like right now, from their standpoint, the playbook isn’t working. What gives?

“There’s an ideal playbook, and it would look something like this:” explains Jim Rickards, author of Currency Wars, “You’d have higher inflation than we’d have today, but not super high. It might be in the 3-4% range. GDP of maybe 5% — which is pretty high — and then that would bring down the debt-to-GDP ratio so the United States doesn’t look like Greece.”

The result would be a cheaper dollar, which would help exports and get the inflation the Fed wants. “And you’d have negative real interest rates,” he added, “which is to say inflation would be higher than the nominal rate — so let’s say inflation 3.5% and a nominal rate of maybe 2.5%, you’d have 1% negative rates.”

But if we look closely, says Rickards, none of that is happening. There’s no inflation…in fact, the Fed is talking about deflation, which to them is worse. Instead of a weaker dollar, we have a stronger one. Interest rates are rising, but without any inflation, we’re getting positive real rates.

“I don’t think the market correction was really about believing that the Fed would actually ‘taper,’” he continued, “the way they said they’re going to or raising interest rates in 2014, which I don’t think anyone expects, although there was a lot of talk about that.”

Mr. Rickards thinks the Fed is way off the mark about the economy’s health. Bernanke thinks the economy is in much better shape than it really is. “My expectation between now and [the next major Fed meeting in] September,” he told us, “is that as the data come in, it’ll be very clear their forecast is wrong, again. You look at the Fed’s forecasts for the last four years, they were wrong every time, and they were wrong by a lot — meaning why should we believe the forecast now? [See chart nearby.] They’re not going to taper.”

After September, things get even more interesting. After all, Jim reminds us, Bernanke will be a lame duck. That means his last Board of Governors meeting will be in January. “We can’t be certain of this,” Rickards qualified, “but it seems very unlikely that he’s going to do anything dramatic on his way out the door. If Bernanke actually does taper in September, which I don’t expect, it’s going to be a shock to the markets, and we’re going to see more of a drawdown in gold, a drawdown in stocks, etc.”

After we had our fill about the Fed, we pivoted to gold. The People’s Bank of China last revealed its total gold holdings in April 2009 — 1,054 tonnes — and they could use it as a weapon in the currency wars.

“I don’t know specifically” he said. “I certainly don’t want to pretend I have that date here on my desk.” But he said he expects the Chinese to give an update of their official gold figures at the end of the first quarter in 2014. That date would match with China’s previous announcements.

He confirmed that “they made that announcement in April 2009. The last prior announcement was, I think, five years earlier.” But he told us something more important: “If you’re China, the last thing you want to do is be transparent about your gold purchases, because it will drive the price up.”

So, we wondered, what will make the Chinese reveal their true gold purchases? Mr. Rickards answered simply they’ll do it when they “have enough gold that you don’t need more. In other words, they may want more, they may buy more, but they want to be in a position where they just raise their hand and say to the world, ‘Hey, we’ve got our gold, now we’re a player. Now when the international monetary system collapses and the world has to reconfigure the system, we get a big seat at the table.’”

He compared China’s strategy to a game of Texas hold ’em. “You want a big pile of chips. The U.S. has a big pile of chips, Europe has a big pile of chips. The U.S. has 8,000 tonnes of gold, 17 members of the euro system have 10,000 tonnes. China at 1,000 tonnes is not a player, but at 5,000 tonnes, they are a player.”

According to his best information…China is there already. To be clear, no one really knows –except for maybe a member of the Communist Party, says Jim. “But I have spoken to a number of sources in Asia,” he told us, “I’ve spoken to a number of people who are very close to the physical market, I’ve done my own investigations, etc. Every time I have an estimate and try to verify it, what I get back is that I’m wrong on the low side.”

So he expects that come April 2014, China will announce that they own 5,000 tonnes of gold.

“That should be an earthquake. Because even the gold deniers, the gold doubters, are going to have to sit up and take notice. Either the Chinese are dopes, which they’re not, or people will start to get gold, which I think they will.”

If these scenarios played out, gold would go a lot higher. Jim told us it could go up in a very short span of time, say, 90 days or at the most six months.

“The world of $4,000 gold is the world of $400 oil, $100 silver, higher prices for copper, corn, wheat and everything else,” he continued. “In other words, it’s a world of very high inflation in which the value of your retirement funds and your annuities, etc., have been wiped out.

In that case, there will be winners and losers. As Mr. Rickards explains, the winners will include those that hold gold. “That’s going to be a very small minority. It’s a small minority today. It might get a little bit larger, but that’s not most of the population.”

The losers will be everyone else. “So,” Jim explains, “you’re going to have this resentment, this political resentment, where the vast majority of the people who just sort of took it on the chin are going to be looking at a small number of people who protected themselves, and they’re going to say that’s not fair. And we’ve seen this before. Congress has a way of dealing with it, which is a windfall profits tax.”

He was quick to add that laws like that don’t happen overnight — there’s a legislative process that bogs it down. “Secondly,” he adds, “you should be able to see it coming and maybe pivot out.”

Per Mr. Rickards’ recommendation, “buy your gold at current levels — $1,200, $1,250 — and ride the wave up to these much higher levels, $4,000-5,000 an ounce, and then assess the situation. Be nimble. I don’t think you can just write a game plan today and say here’s the plan and just follow it step by step. That’s nonsense. You have to be nimble, you have to be following developments, you have to be prepared to change your mind based on new news.”


Addison Wiggin
for the Daily Reckoning

Thursday, August 1, 2013

Most Likely Outcome Is Still A Monetary Collapse

In his latest interview Jim Rickards gives an update on his economic and monetary outlook and compares it with his view two years ago when he was writing his book. In particular, he talks about the scenario that is unfolding currently: a monetary collapse.

In general he recognizes that we are going through a major transition which started in 2007. We are on our way to a new economic and monetary situation. Major transitions are characterized by unstability, or a bubbly environment. That will continue till one of the following scenarios becomes reality:

  • Chaos, or monetary collapse.
  • A basket of currencies acting as a world reserve currency.
  • SDR (special drawing rights) issued by the IMF.
  • A form of a gold standard.

Mr. Rickards still expects a collapse of the dollar as the most likely outcome. That has not changed since he has written his book.

- Source, Gold Silver Worlds: