Monday, December 30, 2013

When is This Bubble Ready to Pop?

Back off on stimulus, Rickards says

“You don’t promote exports with a cheaper currency. You promote exports with value added,” he said.

“Look at Singapore and Germany, which have had very successful export records for decades, with relatively strong currency. They promote exports with technology, innovation, value-added – in other words, with great products.”

He believes the U.S. program of quantitative easing, which involves the Fed buying $85 billion of U.S. bonds each month, is a mistake.

The policy is not stimulating growth, he said. Instead labour participation is dropping and inflation is low and economic growth is anemic.

Besides putting impetus into a currency war, the Fed stimulus program has contributed to a bubble in stock markets, Rickards said.

“The thing about bubbles – they tend to run a lot longer than you expect and they pop at the most unexpected times, so you ask me when it’s ready to pop – whether it’s the beginning of next year, late next year – I don’t know.”

- Source, CBC:

Saturday, December 28, 2013

If Inflation Takes Off Gold is Going Way Up

My advice for gold investors today is to kind of do what the Chinese do: just buy the dips. The Chinese bought a tonne, hundreds of tonnes of gold at the lows in July, July 2013.

Now, again, we had that smash in April and gold went down over 20 percent between April and June. Well, right there at the end of June, the Chinese were buyers, so my advice to investors: don’t use leverage. Buy physical bullion. Don’t buy paper gold. Do what the Chinese do, which is buy the dips, put it away and don’t read the papers.

So gold’s volatile. You just have to get used to it. And if gold is down a lot, it’s because deflation has the upper hand.

But nothing moves in isolation. If gold traders down to, let’s say, $800 an ounce, that is a highly deflationary world. That probably means the stock market’s crashing, other commodities are going down, so you might actually like your gold better in that environment, because even though it went down a nominal space, it can outperform these other asset classes and still preserve wealth.

Of course, in the opposite case, if inflation takes off, we all know what’s going to happen: gold is going to go way up.

- Jim Rickards via Future Money Trends:

Thursday, December 26, 2013

The Government Will Make the Price of Gold Go Up

There’s certainly some Central Bank manipulation. There’s some fundamental reasons having to do with what we’ve been talking about, which is deflation.

Gold should go down in a deflation environment initially. But if deflation gets bad enough, the government will make the price of gold go up because they get desperate to create inflation.
If you’ve tried everything, if you want inflation, and you’ve tried everything to create it, so you tried money printing, cutting rates, currency wars, Operation Twist, QE, forward guidance, nominal GDP targeting, you’ve tried everything, you still didn’t get the inflation. There’s one thing that always works, which is devaluing your currency against gold.

So there could come a time when deflation gets so bad that the Fed and the treasury actually raise the price of gold, not to enrich gold investors, but to get close to generalized inflation. Because if gold goes up, silver and oil will go up along with it. It’s exactly what happened in 1933.

So that’s one path. But the other, perhaps more likely path, is that the Fed just keeps printing money and finally succeeds in changing behavior, velocity of the turnover money picks up and inflation goes up on its own. Then gold will race way ahead of that. That’ll just change the psychology.

- Source, Jim Rickards via Future Money Trends:

Monday, December 16, 2013

Cutting Rates is the Wrong Way to Boost Export Growth

“Central banks have to avoid deflation at all costs and that’s really what they’re worried about. They’re worried about it in Europe, the U.K., the U.S. and all over the world. This would really make the sovereign debt crisis far worse that what we saw in 2010 and 2011,” said Rickards, who is author of Currency Wars: The Making of the Next Global Crisis.

At the G20 meeting two months ago, members pledged to “refrain from competitive devaluation.”

But the euro's fall has left many countries worried about their exports.

The Czech central bank began selling its own currency last week, forcing the koruna down by 4.4 per cent against the euro.

Peru’s central bank cut borrowing costs on Nov. 4 for the first time in four years, citing slow export growth.

New Zealand’s central bank has delayed expected rate hikes and Australia’s Reserve Bank chairman says its currency is overvalued and it may be forced to cut rates.

The Bank of Japan cut rates six months ago, but is still struggling to meet its inflation targets. Rickards believes the yen may sink as low as 110 to the US dollar.

Rickards said cutting rates is the wrong way to boost export growth and stimulate economies.

- Source, CBC:

Saturday, December 14, 2013

People ARE Shocked

The only reason the interest rates went up over the summer was because of the taper talk. But they didn’t actually taper and I didn’t expect them to and I honestly don’t see how they’re going to, maybe ever. So the rates went up, not only in the fundamentals but because of the talk of tapering.
People were shocked, they said, “Wait a second, you’re going to taper and do weak economic data? You’re going to taper into a recession?” Which is what they’re doing. But they didn’t taper, so now rates are coming back down again.

If we follow the Japan scenario, and I expect we will, I can see ten-year no-rates coming down to 80 basis points. If they go from 250 to 80, that’s the greatest bond market rally in history.

So everyone’s worried about the bond bubble, but they’re focused on nominal rates. They’re not looking at real rates. Nominal rates could come down a lot more as a way of getting real rates lower, because inflation is low it may even dip into deflation.
So we could be set up. But in the long run rates would go way up and the country would go bankrupt and we’ll all have hyper-inflation. That could be two or three or four years away. Over the course of the next year you can see a very strong bond market rally.

- Jim Rickards via Future Money Trends:

Thursday, December 12, 2013

The FED is Going to Keep the Lid on Interest Rates

Every time the rates want to go up, the Fed can just buy more bonds. Of course, they buy bonds with printed money, but it just keeps the lid on rates.

I’ve spoken to people in the primary dealer community. They’re completely relaxed because they’re just middle-men; they’re intermediaries between the Fed and the banks; the institutional investors. They buy bonds from the Treasury, they can finance them or sell them to the Fed or they can sell them to institutions. So the primary dealer is basically the large banks are middle-men.

Now, the risk there is that they’ll get caught out. They’ve got long maturities, so they’ve got five-year notes or ten-year notes and they’re financing them overnight in the repo market. Well, what if the repo rate went up? All of a sudden the trade is profitable, it goes upside down, if the short-term rate gets above the long-term rate. Or if long-term rates go up they have capital losses on the bonds.
So it’s a very risky trade, but the Fed has told them, “We’ve got your back.” That’s what forward guidance is. When the Fed says “We’re not gonna raise rates for two years or three years, etc., then you can do the overnight financing for three years and know that you’re going to be paying zero rates.”

So they’ve taken the risks out of the trade. So the primary dealers are relaxed, the Fed is going to keep the lid on the interest rates.

- Source, Future Money Trends:

Saturday, December 7, 2013

Jim Rickards on the Recession of 2014 and Greek islands for sale

Chat room hours will be closed from 9-5, at least if you're employed by a big bank. That's right, banks may start disabling electronic chat-rooms following regulator scrutiny. We'll tell you all about it coming up.

And is there no where safe to keep your bitcoins? Sadly, that might be the case. Some "bitcoin-bandits" made off with over $1 million worth of electronic booty. We'll tell how they did it.

Finally, we have seen an unprecedented expansion in the monetary base over the past decade. However this phenomenon is not just limited to the US: Canada, South Africa, and Japan have all facilitated extraordinary expansions of their monetary bases, leading some to call this a competitive debasement of currency. In 2010 Guido Mantega, Brazil's finance minister, famously proclaimed "We're in the midst of an international currency war, a general weakening of currency." That was three years ago, so where are we now? We talk to James Rickards, author of of the bestselling book, "Currency Wars."

- Source, Russia Today:

Monday, December 2, 2013

Art Market Melt-Up

In the second half, Max interviews Jim Rickards, author of Currency Wars, about central bank vaporware, straws in the dollar wind and about how Janet Yellen is to Ben Bernanke as Miley Cyrus is to Lady Gaga - trashier than the original.

- Source, Keiser Report: