, Jim Rickards Blog

Saturday, January 19, 2019

Jim Rickards: Jerome Powell Caves to Market Demands

Fed Chair Jay Powell just sent the most powerful signal from the Fed since March 2015.

He has pretty much taken a March 2019 rate hike off the table until further notice. At a forum hosted by the American Economic Association in Atlanta last Friday, Powell used the word “patient” to describe the Fed’s approach to the next interest rate hike.

When Powell did this, he was reading from a script of prepared remarks in what was otherwise billed as a “roundtable discussion.”

This is a sign that Powell was being extremely careful to get his words exactly right. When Powell said the Fed would be “patient” in reference to the next rate hike, this was not just happy talk. The word “patient” is Fed code for “no rate hikes until we give you a clear signal.”

This interpretation is backed up by the Fed’s past use of verbal cues to signal ease or tightening in lieu of actual rate hikes or cuts. Prior to March 2015, the Fed consistently used the word “patient” in their FOMC statements.

This was a signal that there would not be a rate hike at the next FOMC meeting. Investors could do carry trades safely. Only when the word “patient” was removed was the Fed signaling that rate hikes were back on the table.

In that event, investors were being given fair warning to move to risk-off positions.

In March 2015, Yellen removed the word “patient” from the statement. In fact, the first rate hike (the “liftoff”) did not happen until December 2015, but the market was on notice through the June and September 2015 FOMC meetings that it could happen.

Now, for the first time since 2015, the word “patient” is back in the Fed’s statements, which means no future Fed rate hikes without fair warning.

For now, the Fed is rescuing markets with a risk-on signal. That's why the market rallied last Friday. But we're not out of the woods by any means.

The U.S. stock market had already anticipated the Fed would not raise rates in March. Friday’s statement by Powell confirms that, but this verbal ease is already priced in. As usual, the markets will want some ice cream to go with the big piece of cake they just got from Powell.

The next FOMC meeting is Jan. 30. If the Fed does not repeat the word “patient,” markets could be in for an extremely negative reaction.

Looking ahead to rest of 2019, what are my models and methods telling us today about the prospects for the economy and markets?

The answer to that question requires an overview of many markets and sovereign economies around the world. While forecasts for China, the U.S. and Europe may differ in many particulars, what they have in common is interconnectedness.

For example, a slowdown in China due to excessive debt and trade wars can reduce exports from Europe. In turn, reduced European exports can slow down European purchases of raw materials and other inputs and lead to a weaker euro.

The weaker euro can translate into a stronger dollar, which causes disinflation in the U.S. That disinflation can increase the real value of debt burdens in the U.S. if nominal growth is lower than the increase in the nominal deficit.

In other words, what happens in China does not stay in China. The world is densely connected. Any sound analysis must consider the ripples spreading out from any one factor.

We need to look at the synchronized global slowdown, the Fed’s misguided policies, currency wars, trade wars and political dysfunction in the U.S. to arrive at conclusions and forecasts for the U.S. and beyond.

All this takes place against a backdrop of mounting global debt.

According to the Institute of International Finance (IIF), it required a record $8 trillion of freshly created debt to create just $1.3 trillion of global GDP. The trend is clear. The massive debts intended to achieve growth are piling on every day. Meanwhile, many of the debts taken on since 2009 are still on the books.

This is a crisis waiting to happen. The combination of slow or negative growth and unprecedented debt is a recipe for a new debt crisis, which could easily slide into another global financial crisis.

The Fed will have to pivot back to loosening, including a possible reintroduction of quantitative easing. But by then, it may be too late.

Below, I show you why the economic head winds are getting stronger as we begin 2019. What can you do to prepare? Read on.

- Source, James Rickards

Wednesday, January 16, 2019

James Rickards: Stay in Gold and Cash, Ride Out the Coming Storm


Investors should play it safe and stay away from publicly-traded stocks that have more room to fall further, warns Jim Rickards, chief global strategist at West Shore Funds.

- Source, CNBC

Saturday, January 12, 2019

Axis of Gold: Sanctions Weaponize the Dollar


Jim Rickards, author of The Road to Ruin, joins Remy Blaire at the NASDAQ MarketSite following the December FOMC rate announcement to discuss the trajectory of the Federal Reserve. 

Rickards weighs in on the U.S.-China trade war and the fundamental outlook for the global investment landscape.

- Source, Sprott Media

Wednesday, January 9, 2019

James Rickards: The Depression Is Over 10 Years Old and Not Over Yet


James G. Rickards, author and strategist, joins Remy Blaire of Sprott Media, to discuss gold and why "the little engine that could" will do more than chug higher when the Federal Reserve pauses. 

Rickards provides an explanation for why growth can occur during a depression and the warning signs that he considers point to an eventual recession in the U.S. economy.

- Source, Sprott Media

Monday, December 31, 2018

Jim Rickards: The Fed is Triple Tightening Into Crisis

I’m in Dublin, Ireland, today, where I was honored and humbled to receive a writing award from Trinity College.

It’s my job to continue pointing out the risks to the financial system that we still face and to try to help people prepare for the next crisis. Of course, central banks are a big part of the problem.

If you have defective and obsolete models, you will produce incorrect analysis and bad policy every time. There’s no better example of this than the Federal Reserve.

The Fed uses equilibrium models to understand an economy that is not an equilibrium system; it’s a complex dynamic system.

The Fed uses the Phillips curve to understand the relationship between unemployment and inflation when 50 years of data say there is no fixed relationship.

The Fed uses “value at risk” modeling based on normally distributed events when the evidence is clear that the degree distribution of risk events is a power curve, not a normal or bell curve.

As a result of these defective models, the Fed printed $3.5 trillion of new money beginning in 2008 to “stimulate” the economy, only to produce the weakest recovery in history.

That’s over now. The Fed’s cycle of monetary tightening has been ongoing in various forms for over five years. First came Bernanke’s taper warning in May 2013. Next came the actual taper in December 2013 that ran until November 2014.

Then came the removal of forward guidance in March 2015, the liftoff in rates in December 2015, seven more rate hikes to date and the start of quantitative tightening in October 2017.

Another rate hike is already in the queue for December, which would be the ninth rate hike since liftoff.

During much of this tightening, the dollar was actually lower because markets believed the Fed would not raise in the first place or was overdoing it and would have to reverse course. Now that the Fed has shown it’s serious and will continue its tightening path (at least until they cause a recession), markets have no choice but to believe them.

And since last October, the Fed has also been reducing its balance sheet with quantitative tightening (QT).

When the Fed started QT last year, they urged market participants to ignore it. They said the QT plan was on autopilot, the Fed was not going to use it as an instrument of policy and the money burning would “run on background” just like a computer program that’s open but not in use at the moment.

It’s fine for the Fed to say that, but markets have another view. Analysts estimate that QT is the equivalent of two–four rate hikes per year over and above the explicit rate hikes. Markets have already suffered two significant sell-offs this year, the most recent being October’s.

While there were other contributing factors like the trade war and political uncertainty leading up to last week’s election, this monetary tightening cannot be dismissed.

Tighter monetary conditions in the U.S. have led to a stronger dollar, capital outflows from emerging markets (EMs) and disinflation.

The dollar is up about 4.5% this year against major competing currencies such as the euro, pound and yen.

A stronger dollar is itself a form of monetary tightening. A stronger dollar cheapens imports for U.S. buyers because they need fewer dollars to purchase goods. That’s a deflationary vector that will make the Fed’s goal of achieving a persistent 2% inflation rate even harder to reach.

The U.S. is now getting a triple shot of tightening in the form of higher rates, reduced money supply and a stronger dollar. At this rate, we may be in a recession sometime next year unless the Fed reverses course. We’ll see if the Fed wakes up to the danger before it’s too late.

I’m not holding my breath. The Fed is always the last to know.

- Source, James Rickards via the Daily Reckoning

Thursday, December 27, 2018

James Rickards: Trump and the Economy


We continue our discussion of Trump and the economy with New York Times bestselling author Jim Rickards, who makes the case that Trump is on the right track with trade. 

But first, Taylor and Tyler break down the week’s news: the legacy of George HW Bush, the Democrats’ contentious leadership fight, and what to make of the latest turn of events in Special Counsel Robert Mueller’s Russia probe, Michael Flynn’s sentencing memo.


Sunday, December 23, 2018

James Rickards Predicts the Next Financial Crisis...


Jim Rickards, a renowned author and the chief global strategist at Meraglim, is now predicting another global financial crisis. 

He explains why, and in so doing, reviews the unusual origins of his predictive analytics tool. 

He also explores complexity theory and Bayesian statistics.


Wednesday, December 19, 2018

Harry Dent VS James Rickards: Inflation / Deflation Debate Live


At the latest Casey Research conference, Recovery Reality Check, James Rickards, senior managing director of Tanget Capital Partners and author of Currency Wars: The Making of the Next Global Crisis, debates Harry Dent, founder and president of HS Dent Foundation, on the subject of which is more likely in the near-term economic future, inflation or deflation.

- Source, Casey Research

Tuesday, December 11, 2018

James Rickards & Egon Von Greyerz Discuss $10000 Gold


In this 18 minutes video, recorded in a Swiss vault, Jim and Egon cover many vital factors that investors must be aware of to protect themselves against the major risks in the financial system...

- Source, Gold Switzerland

Friday, December 7, 2018

Russia Rising, The New Axis of Gold


Russia’s financial war against the U.S. is heating up – dumping U.S. Treasuries and buying gold to break U.S. Dollar hegemony. What’s their next move?

- Source, Jim Rickards

Tuesday, November 27, 2018

A Weaker Dollar is Coming, The Currency Wars Renew

What is the outlook for U.S. dollar exchange rates?

The single most important factor in the analysis is that two currencies cannot devalue against each other at the same time. It’s a mathematical impossibility. If one currency is going down against another, then the other must be going up. There’s no other way.

From January 2010 (when Obama launched the currency war) to August 2011 (when the dollar hit an all-time low), the currency wars benefited the U.S. at the expense of Europe, emerging markets and China. This was considered necessary by the participants at the G-20 leaders summit in Pittsburgh in September 2009.

The U.S. was and is the world’s largest economy. If the U.S. could not escape the impact of the 2008 financial panic, no one else would, either. In effect, the world would suffer stronger currencies while the U.S. devalued to jump-start the global recovery.

After August 2011, the dollar was allowed to revalue upward while the rest of the world, especially Europe and China, was allowed to devalue so they could claim some benefit from a weaker currency. This worked in the short run, but the problem was that the U.S. never returned to sustained growth at the prior trend of 3.25% growth per year.

The U.S. endured a long depression from 2007 until today with annual growth of about 2.3%. Europe and China got a boost, but the U.S. never pulled away from the pack.

Since then, it has been a matter of taking turns. The euro is allowed to depreciate to help growth and the banking system as the dollar gets stronger based on a slightly stronger U.S. economy. But no major economy has solved the problem of achieving self-sustaining trend growth.

China has been free-riding the entire time. There have been periods of a soft peg of the yuan to the dollar, but there are intermittent periods of a weaker yuan. China executed shock devaluations in August 2015 and December 2015.

Both times, U.S. stocks fell 11% in a matter of weeks. China has just executed a 10% slow-motion devaluation over the past six months. U.S. stocks have started to sink again.

Now Trump and Mnuchin are saying, “Enough!” The Europeans will have to take their turn with a stronger currency and China will be penalized for their currency manipulation. A weaker dollar is coming.

Whether this will be achieved with cooperation by the Fed or direct intervention by the Treasury remains to be seen, but a weaker dollar is the only way out of the U.S. growth conundrum and debt debacle.

The chart below shows that the euro has settled into a trading range since April after coming down from the $1.25 range in February.

Chart 1:


The euro will break out of that trading range toward the upside ($1.20–1.30) over the next few months. This will be the result of a possible Fed pause in rate hikes as the U.S. economy weakens, continued determination by the ECB to tighten policy and possible intervention by the U.S. Treasury.

Meanwhile, a weaker dollar will give the U.S. another growth spurt after the 2018 tax cuts to help propel Trump’s reelection prospects for 2020.

- Source, Jim Rickards