Tuesday, May 21, 2019

Jim Rickards: Trump Attacks!


The trade war is back on. The trade deadline came and went at midnight last night without a deal. So 25% tariffs on $200 billion worth of Chinese goods took effect at 12:01. The tariffs had previously been set at 10%.

Based on Trump’s comments, 25% tariffs may possibly be applied to an additional $300 billion of Chinese goods.

China said it would respond with unspecified but “necessary countermeasures,” although negotiations continued today in Washington.

Some analysts say China can dump its large holdings of U.S. Treasuries on world markets. That would drive up U.S. interest rates as well as mortgage rates, damaging the U.S. housing market and possibly driving the U.S. economy into a recession. Analysts call this China’s “nuclear option.”

There’s only one problem.

The nuclear option is a dud. If China did sell some of their Treasuries, they would hurt themselves because any increase in interest rates would reduce the market value of what they have left.

Also, there are plenty of buyers around if China became a seller. Those Treasuries would be bought up by U.S. banks or even the Fed itself. If China pursued an extreme version of this Treasury dumping, the U.S. president could stop it with a single phone call to the Treasury.

That’s because the U.S. controls the digital ledger that records ownership of all Treasury securities. We could simply freeze the Chinese bond accounts in place and that would be the end of that.

So don’t worry when you hear about China dumping U.S. Treasuries. China is stuck with them. It has no nuclear option in the Treasury market.

How did we get here?

Trump’s trade representatives have complained that China had backtracked on previous agreements and that China was trying to renegotiate key points at the last minute. The Chinese are not accustomed to such resistance from U.S. officials. But Trump and his team are unlike previous administrations.

China assumed it was “business as usual” as it had been during the Clinton, Bush 43 and Obama administrations. China assumed it could pay lip service to trading relations and continue down its path of unfair trade practices and theft of intellectual property. Trump has proven them wrong.

Trump was never bluffing. He means business, which China is finally learning.

There’s still time to reach a deal, however, before the tariffs actually have any practical impact. The tariffs only apply to Chinese goods that leave port after last night’s deadline. That means goods already en route to the U.S. will not be affected...


- Source, The Daily Reckoning, Read More Here

Friday, May 17, 2019

Jim Rickards: The Fed's Options Are All Bad

The Federal Reserve is caught in a difficult situation of having to raise rates without causing another recession, said best-selling author Jim Rickards.

Unlike previous monetary cycles, the Fed is trying to raise rates in anticipation of a possible recession, even while the economy is not showing signs of overheating.

"The Fed is racing to get rates up to three and a half, four percent, wherever they can, before the next recession, even though the economy is weak. Normally, you would never raise rates in an economy that's as weak as we are right now but they're doing it anyway, because they're building up some capacity to cut rates in the next recession," Rickards told Kitco News.

Contrary to popular belief, the Fed's actions are reactionary to the economy, not prescriptive, and so is behind the curve on macroeconomic trends.

"The Fed never leads the economy. This notion that the Fed does things and the economy follows is not true. The Fed follows the economy, so they'll start out with coming out of a recession with very low rates and then unemployment will go down and inflation will tick up, capacity utilization will tick up, etc. and then the Fed watches and watches," he said.

Rickards said the last administration is to blame, as the Fed should have raised rates a little bit back in 2009, and not wait until 2015.

He added that the current Fed remains "patient" but may remove that word and change their dovish stance should the economy show more signs of growth.

- Source, The Street

Tuesday, April 30, 2019

Jim Rickards: Why Gold is Definitely Going to $10000


Jim Rickards sits down with Hedgeye CEO Keith McCullough to discuss why a cocktail of factors makes it more critical than ever for investors to protect their portfolios with gold.

- Source, Hedgeye TV

Friday, April 26, 2019

Jim Rickards: The Investing Secret Wall Street Won't Tell You


Best-selling author Jim Rickards has shown how an investor saving for retirement could do better holding gold than stocks, and in his new book, “Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos,” he outlines how gold is integral to his investment strategy. 

In Rickard’s study, two fictitious investors began saving with their 401k in 1999, with one buying stocks, and the other buying 100% gold; the second investor realized higher returns during this period. 

“Gold did very well, held its own and that’s something you’ll never hear from Harvard or the University of Chicago,” Rickards told Kitco News in the second part of this exclusive interview.

- Source, Kitco News

Friday, April 19, 2019

Jim Rickards Exclusive: The Aftermath Of The 2008 Crisis Is That We Never Really Escaped


The economy is vulnerable to economic “chaos” due to several monetary and policy mistakes made since the 2008 recession, said best-selling author Jim Rickards. 

His new book “Aftermath: Seven Secrets of Wealth Preservation In The Coming Chaos” details how the last economic crisis never really ended. “Technically, the recession was over in June 2009 and the U.S. economy has been expanding ever since. 

We’re coming up on 10 years of expansion, it’s one of the longest expansions in U.S. history and it’s one of the longest bull markets in stocks in U.S. history, so that’s true. 

But, it’s also been the weakest expansion in U.S. history. For 10 years average growth has been about 2.2%,” Rickards told Kitco News.

- Source, Kitco News

Friday, April 12, 2019

Jim Rickards: Prepare Now for the Aftermath



Jim Rickards and Albert Lu, the President & CEO of Sprott Money sit down to discuss the coming disaster on the horizon and how best to prepare for it? 

This is laid out clearly in Jim Rickards soon to be released book, Aftermath.

In his most prescriptive book to date, financial expert and investment advisor James Rickards shows how and why our financial markets are being artificially inflated and what smart investors can do to protect their assets.



What goes up, must come down. As any student of financial history knows, the dizzying heights of the stock market can't continue indefinitely, especially since asset prices have been artificially inflated by investor optimism around the Trump administration, ruinously low interest rates, and the infiltration of behavioral economics into our financial lives. 

The elites are prepared, but what's the average investor to do?

Sunday, April 7, 2019

James Rickards: A Recipe for Massive Government Spending

I try to avoid partisan politics in my analysis. And I never try to tell people how to vote or what they should think. I trust my readers to make their own judgments. But sometimes I can’t avoid partisan politics because they can have a major impact on markets and the economy.

Leading Democratic presidential hopefuls Elizabeth Warren, Kamala Harris and Bernie Sanders have expressed desires to increase income taxes to 70% or even 90% on the rich, impose “wealth taxes” on their net worth and impose estate taxes that are equally onerous when they die.

The result would be that working people would pay state and local income tax on their wages, super-high income taxes on interest and dividends and annual wealth taxes and whatever was left over would be confiscated when they die.

In case you think these proposals are too extreme to become law, you might want to check out the polls. Recent polls show 74% of registered voters support a 2% annual wealth tax on those with $50 million of assets and 3% on those with $1 billion of assets.

Don’t assume you’re exempt just because your annual income is lower. Those tax thresholds are on wealth, not income, and could include stocks, bonds, business equity and intangible business equity for doctors, dentists and lawyers.

Another poll shows 59% of voters support the 70% income tax rate proposed by Rep. Alexandria Ocasio-Cortez (D-New York). Politicians go where the votes are. Right now, the votes are in favor of much higher taxes on you.

The history of these taxes is that the rates start low and the thresholds start high, but it’s just a matter of time before rates rise, thresholds drop and everyone is handing over their wealth.

But taxes become very unpopular when too many people get clipped. And politicians are very sensitive to that. Now some Democrats are calling for a system that would allow them to spend much, much more money on social programs without appreciably raising taxes. For politicians, it’s a dream come true — if it could work.

The leading Democratic candidates for president and numerous members of Congress have come out in favor of Medicare for All, free child care, fee tuition, a guaranteed basic income even for those unwilling to work and a Green New Deal that will require all Americans to give up their cars, stop flying in planes and rebuild most commercial buildings and residences from the ground up to use renewable energy sources only.

The costs of these programs are estimated at $75–95 trillion over the next 10 years. To put those costs in perspective, $20 trillion represents the entire U.S. GDP and $22 trillion is the national debt.

It used to be easy to knock these ideas down with a simple rebuttal that the U.S. couldn’t afford it. If we raised taxes, it would kill the economy. If we printed the money, it would cause inflation. Those types of objections are still heard from mainstream economists and policymakers, including Fed Chair Jay Powell.

But now the big spenders have a simple answer to the complaint that we can’t afford it. Their answer is, “Yes, we can!” That’s because of a new school of thought called Modern Monetary Theory, or MMT.

Daily Reckoning managing editor Brian Maher previously discussed MMT here and here.

This theory says that the U.S. can spend as much as it wants and run the deficit as high as we want because the Fed can monetize any Treasury debt by printing money and holding the debt on its balance sheet until maturity, at which time it can be rolled over with new debt.

What’s the problem?

Bernanke printed $4 trillion from 2008–2014 to bail out the banks and help Wall Street keep their big bonuses. There was no inflation. So why not print $10 trillion or more to try out these new programs?

There are serious problems with MMT (not the ones Jay Powell and mainstream voices point to). But very few analysts can really see the flaws. I’ll be in an MMT debate with a leading proponent in a few weeks, where I will point out what I believe to be the biggest flaws with MMT. To my knowledge, no one else has raised them.

For now, get used to the rise of MMT. It will be a central feature of the 2020 election campaign. The disastrous consequences are a little further down the road.


- Source, Jim Rickards via the Daily Reckoning

Tuesday, April 2, 2019

The Real Problem With Modern Monetary Theory

MMT supporters will point to 2008 and say, “Just look at QE. In 2008, the Federal Reserve Balance sheet was $800 billion. But as a result of QE1, QE2, and QE3, that number went to $4.5 trillion. And the world didn’t end. To the contrary, the stock market went on a huge bull run.We did not have an economic crash. And again, inflation was muted.”

Fed chairman Jay Powell has criticized MMT, for example. But its advocates say Powell and other Fed officials hoist themselves on their own petard. That’s because they are the ones who actually proved that MMT works. They point to the fact that the Fed printed close to $4 trillion and nothing bad happened. So it should go ahead and print another $4 trillion.

This is one of the great ironies of the debate. The Fed criticizes MMT, but it was its very own money creation after 2008 that MMT advocates point to as proof that it works.

Their only quibble is that the benefit of all that money creation went to rich investors, the major banks and corporations. The rich simply got richer. MMT advocates say it will simply redirect the money towards the poor, students, everyday Americans, people who need healthcare and childcare. It would basically be QE for the people, instead of the rich.

And it will go into the real economy, where it will boost productivity and finally give us significant growth.

When I first encountered these arguments, I knew they weren’t right. Both my gut feeling and my more rigorous approach to my own theory of money told me MMT was wrong. But I must admit, their arguments were more difficult to answer than I expected. I had a tough time uncovering the logical flaws.

Their points are internally consistent, and they did have a point. After all, the Fed did create all that money and it didn’t produce a calamity. Who’s to say they couldn’t do a lot more of it?

In other words, the Keynesian argument does not hold water when you look at the facts or certainly recent economic history.

Without doing any more serious thinking about it, I probably would have lost a debate with any leading MMT proponent who’s done a lot of work on it, despite “knowing” they were wrong. I couldn’t easily refute their basic arguments.

You can never win a debate if you don’t understand your opponent’s position. Over the past several years I got dragged into endless gold versus bitcoin debates, and I always thought they were silly because gold is gold, and bitcoin is bitcoin. Contrasting them never made sense to me, but that’s what everybody wanted to hear, so I participated in a lot of gold versus bitcoin debates.

I won every debate according to the judges or the audience, but the point being I had to understand bitcoin in order to see its shortcomings. I wasn’t about to debate somebody about bitcoin and get blindsided or embarrassed because I didn’t understand their arguments. I had to become a complete expert on bitcoin to win these debates.

The same applies to MMT. If you’re going to debate somebody on MMT, you’d better know it better than they do or you’re going to lose that debate. It just so happens that I’ll be debating a leading MMT proponent on April 3, in just a few weeks. So I had to immerse myself in it to learn it inside and out.

I knew I had to go beyond the standard arguments that we can’t afford it, that it would explode the deficit, etc. I’m happy to say that I worked out an answer refuting MMT, but it wasn’t easy. It took a lot of hard thinking. Today I’m giving you a preview of what I’ll argue at the upcoming debate.

Here’s what it comes down to…

The real problem with MMT can be traced to its very definition of money. The MMT advocates say they know what money is. Money derives its value from the fact that you need it to pay your taxes. In the U.S. case, money is dollars.

But their definition of money is flawed. In other words, the whole theory is built on quicksand. And this is the point that everyone is missing, including the usual critics. No one else has raised it.

The basis of money, the definition of money, has nothing to do with paying taxes. I can think of a hundred ways to hold money and store wealth where you don’t owe any taxes. Here’s one example…

If you buy a share of stock and stick it in your portfolio for 10 years without selling it, how much do you owe in taxes? Zero. You don’t owe any taxes until you sell it. This is one of the reasons why Warren Buffet is so rich, by the way. He pays very little taxes...


- Source, Jim Rickards via the Daily Reckoning, read more here

Friday, March 29, 2019

Jim Rickards: Exposing the Myth of MMT

Yesterday I discussed modern monetary theory (MMT) and how it’s become very popular in Democratic circles.

That’s because it allows for much greater government spending without having to raise everyone’s taxes. And everyday citizens could get behind it because it promises to fund lots of programs without seeing their taxes raised.

What’s not to like?

If MMT were just a fringe idea with a few fringe followers, I wouldn’t waste my time or your time on it. But it’s coming your way, so it is important to understand it.

If you missed yesterday’s reckoning, go here for a refresher.

The people who are thinking about MMT, who understand it at least in some superficial way, are the people who are driving the policy debate or running for president.

Many mainstream economists and money managers have attacked MMT, including Fed Chairman Jay Powell, Larry Summers, Paul Krugman, Kenneth Rogoff, Larry Fink, Jeff Gundlach, Jamie Dimon and Ray Dalio.

But much of their criticism is unjustified (see below for more). I’m an opponent of MMT — but for different reasons. As far as I know, I’m the only analyst who’s raised the objections I list below.

Today, I’m going to show you what I believe to be the real problem with MMT.

Again, it’s easy to see why so many politicians on the Democratic side would be such big supporters of MMT.

Some or all of them have come out in support of the following programs:

Free college tuition, student loan forgiveness, Medicare for all, free child care, universal basic income (UBI) and a Green New Deal. Some support them all.

Needless to say, that’s going to cost a lot of money. Just consider the Green New Deal alone.

I’m not going to go through every detail of it. But in essence it would spend trillions of dollars, for example, building high-speed rail. The idea is to cut down dramatically on air travel. It would also convert nearly every single structure in the country to solar power.

I wrote this article from a house that’s running on solar power. But it’s very expensive to put the system in. I have a big system, but it barely covers my house. And every time I look at it, I say, “Oh, we’re going to do this for every house in the country? Good luck with that.”

Some analysts have estimated that the Green New Deal would cost around $97 trillion. That’s trillion, not billion — or nearly five times annual U.S. GDP.

When critics hear that a Green New Deal could potentially cost something like $97 trillion, or proposals for Medicare for all, free tuition, free child care or guaranteed basic income, they say, “That all sounds nice, but we just can’t afford it.”

That’s their main argument — that no matter how desirable these programs might be in theory, we just can’t afford them. Most criticism of MMT falls along those lines.

Even the Keynesians like those I mentioned earlier, who generally favor large amounts of government spending to stimulate the economy, have come out against MMT.

Besides that claim that we can’t afford it, even the Keynesians say MMT would be highly inflationary. If you printed that much money and start handing it out to people, demand would outstrip the output capacity of the economy and you’d get high inflation.

But the MMT advocates have an answer to these objections. They’re not the least bit intimidated by critics who say we can’t afford it.

They say, “Yes, we can, and Modern Monetary Theory proves it. Just print the money and monetize the debt. Japanese debt is 2.5 times the United States’ debt, and China’s is higher than ours.”

They haven’t collapsed, so we can take on far more debt than we have today. Furthermore, QE did not create much inflation. In fact, the Fed would like to see more inflation than it has. It still can’t produce a sustained 2% inflation rate after all these years.

You might think the argument is ridiculous. After all, do we really want to become Japan?

But in important ways, the MMT crowd has the upper hand in the debate.


- Source, Jim Rickards via the Daily Reckoning

Monday, March 25, 2019

Jim Rickards: Fed Desperate for Inflation, Bullish for Gold


Four time best-selling author Jim Rickards says “The time to buy gold is when sentiment is low and people hate it. So, the bull market is intact.” 

We are in the fourth year. Bull markets start off slow because of all the bad sentiment, but then they gather momentum. 

So, it’s still not too late to jump on this train, and my expectation is this will pick up. The signal the gold market is getting right now is the Fed is throwing in the towel.

They made some headway, but it came at a high cost because they slowed the economy and they can’t continue.

Now, they are going to be desperate for inflation, and that is very bullish for gold.”

- Source, USA Watchdog