Friday, August 28, 2020

Jim Rickards Discusses COVID-19, the Resulting Economic Depression and US Elections

In this edition of the Insider, group publisher James Woodburn talks to financial expert and economist Jim Rickards about his thoughts on COVID-19 and the long-term impact on the global economy. 

They go into the details of how COVID-19 spread, the government response of lockdown as well as what the central bank monetary policy and growing money supply means for the future of the global economy. 

Jim also provides his thoughts on US-China relations and what's in store. In his words "The Recession May Be Over, But the Depression has Years to Run..."

Sunday, August 23, 2020

Jim Rickards: Americans Are Getting Out of Dodge

I want to discuss some of the permanent changes that the national economy is going through. It has to do with what you might call the Great American Exodus. There’s a massive migration out of the big cities. Millions of Americans are fleeing the cities for the suburbs or the country from coast to coast.

There’s hard data to support that claim.

For example, let’s say you want to rent a U-Haul trailer from New York City to the Catskill Mountains, which are not that far away. Or you want to rent a U-Haul trailer from Los Angeles to, maybe Sedona, Arizona.

It’ll cost you much, much more than if you were going the other way. If you went from Sedona to LA, or the Catskills to New York, the price is only about one quarter as much. In other words, you have to pay a 400% premium to get the trailer going out of town, but U-Haul will practically pay you to bring it back in.

And there are shortages. If you’re moving out of your apartment to a house or another apartment outside of the city, try getting movers. I’ve done this recently myself, and know others who have. It was very hard to book moving companies or something as simple as a U-Haul trailer.

So the mass exodus out of cities is a real phenomenon, backed by solid evidence.

This is a shift we probably haven’t seen since the 1930s, when people left the Dust Bowl and moved out to California, looking for jobs in the agricultural industry. That was a mass migration. We’re seeing another one now, except this one’s going in the opposite direction.

And that’s a big problem for the economy because cities are centers of economic activity that contribute a lot to GDP. There are three primary reasons for the exodus.

The first is simple demographics. People talk about millennials as if they’re kids just out of college. But, the oldest millennial is turning 40 in two years. So they’re not kids anymore. They’re often adults with jobs and families, and a lot of obligations.

Many of them have been living in cities since cities are generally interesting places to live and offer the greatest opportunity. But there’s a natural tendency for people in that demographic, who might have enjoyed the city in their twenties and thirties, to say it’s time to move out to the suburbs when they reach a certain age.

And that’s happening now. So that’s the first factor contributing to the mass migration from cities. The others are far more serious…

The most obvious is the pandemic. Look at New York City. Clearly it was ground zero for the pandemic in the United States. Something like one-third of all U.S. coronavirus fatalities took place in New York City or its immediate surroundings. That’s a highly compressed area.

And people realize that the density of the population, living on top of each other in crowded apartment buildings and offices, taking crowded public transportation, going to concerts and Broadway shows, etc., is like living in a Petri dish.

It’s obviously a lot easier to catch a virus in a crowded subway car than on a country road. So people are saying, “Give me space, and I think my health prospects are a lot better,” and that’s actually correct.

The third factor driving Americans out of cities is the riots.

Do not understate the damage of these riots. I don’t want to veer off into the social aspects or politics of the riots. Everyone’s got their own opinions. And peaceful protest is our constitutional right, which should be supported. If you’re peaceful, you have every right to protest against injustice.

But no one has a right to loot stores and start fires. We shouldn’t have to debate that.

But that’s what happened in large cities throughout America. Minneapolis obviously saw a lot of violence. But New York, Los Angeles, Chicago, Philadelphia, Atlanta, St. Louis, Denver, Portland, Oregon and many other cities suffered similar damage.

And with many calls to defund the police, people who might enjoy city life can see the writing on the wall. Crime rates are already spiking in New York, for example, which will probably get worse. And the NYPD has seen a 400% increase in retirement applications since the riots.

Cities have always been a trade-off. You had high taxes, lots of city noise, crowded conditions and certain levels of crime. But many put up with all those costs and annoyances in exchange for a very lively cultural and intellectual environment, more interesting jobs, interesting people, museums, great restaurants, movies, live shows, Broadway in the case of New York, etc.

But now the trade-offs don’t seem worth it for many. The cultural aspects are gone. Museums are closed. Restaurants are closed. Movie theaters are closed, etc. And crime is going up. So you’ve got all the costs and then some, but none of the benefits. And that’s why people are leaving.

So when you combine demographics, a pandemic that makes city living unattractive and riots, you get a major generational shift that we haven’t seen since the 1930s.

Now, you cannot underestimate the economic impact of this. The cities are where most 80% or more of the population, economic output, job creation, and R&D are centered. And who’s leaving the cities?

It’s the people who can have the option to leave. It’s the talent. It’s the money. It’s the energy. It’s the people that you most want in your cities who have the ability to leave.

And of course, now we have this whole work from home model. So a lot of corporations are saying, we don’t need 10 floors on 53rd and Park Avenue. We can do two floors of shared conference facilities, with a shared receptionist. So the commercial real estate market faces some strong headwinds.

The bottom line is, we’re looking at a substantial drag on economic recovery based on this migration out of the cities. It’s a big story that’s not getting nearly enough coverage.

And this is going to continue. This is something that only happens every two or three generations. You probably have to go back to the baby boom in the late 1940s and early 1950s for something comparable.

But there’s one sector of the economy that is doing well. That’s residential housing because it’s getting hard to find a house in many places. People are even bidding on houses without ever having seen the property.

If you’re looking to invest, you might want to look at suburban real estate and housing.

- Source, Jim Rickards via the Daily Reckoning

Wednesday, August 19, 2020

Jim Rickards: Just How Secure Is Biden’s Lead Truly?

The drumbeat of polls showing Biden with a big lead over Trump is unrelenting. The RealClear Politics poll (actually an average of many different polls; a good statistical technique) shows Biden with an 8.6-point lead over Trump (49.3% for Biden versus 40.7% for Trump).

Of course, national polls don’t mean much because the U.S. does not have national elections, we have state-by-state votes for Electoral College electors.

But a lead of over 8-points is significant; even adjusting for skew and other biases, that puts Biden firmly in the lead. At the level of swing states (where it really does matter), Biden also dominates. His lead is 6-points in Wisconsin, 6.4-points in Florida, and 7-points in Pennsylvania.

That last number is critical. It’s hard to see how Trump retains the White House if he does not win Pennsylvania. So, is it all over but the shouting? Should we just hand the keys to 1600 Pennsylvania Avenue to Joe Biden?

I’ll reveal the answer shortly. But first let’s look at the bigger picture…

There has never been any mystery about the Republican nominee for president — it’s Donald Trump, case closed. But the identity of the Democratic nominee was contested between Joe Biden and Bernie Sanders during the primary season as other contenders dropped out one by one.

Finally Sanders stepped aside and Biden became the presumptive Democratic nominee, although curiously, Biden never did win a simple majority of the delegates — the nominating process and primaries were brushed aside by the COVID-19 pandemic.

But no one cared because the competition dropped out and released their delegates to support Biden. Now, the world awaits Biden’s decision on who his Vice Presidential candidate will be.

An announcement is expected in a few days.

The candidate will definitely be a woman (Biden pre-announced this), but the identity is still unknown. Elizabeth Warren appears to be the frontrunner, and she would be acceptable to the Bernie Sanders wing of the party, which seems to be calling the shots.

But whoever it is, the VP pick will probably be president within a year if Biden wins. That’s because Biden’s cognitive impairment will render him unfit for office early in his administration. Biden is already surrounded by Sanders’s handlers. Some Obama retreads will make up the Biden cabinet.

Under the 25th Amendment to the U.S. Constitution a majority of the cabinet and the VP can declare the president “unable to discharge the powers and duties of the office.” In that case, the Vice President becomes Acting President.

At that point, the takeover of the White House by the radical wing of the party will be complete. It’s already well underway…

For example, the Democratic primary election was recently held in New York’s 16th Congressional District. Challenger Jamaal Brown defeated incumbent Representative Eliot Engel in a close race.

The district is safe for Democrats, so Jamaal Brown will likely be elected to Congress in November to replace Engel. The initial reaction of most readers might be, “Who cares?” If you don’t live in that district, you’re not directly affected, and even if you do live there, you’re just swapping one liberal Democrat for another so what’s the big deal?

Actually, it’s a highly significant development. Here’s why:

Engle was not just another member of Congress. He had been in power for 32-years and was Chairman of the House Foreign Affairs Committee. Engle was not in the running for House Majority Leader or Speaker, but he was definitely in the leadership ranks and was one of the most powerful Democrats in Washington.

Normally, when either party has a long-time incumbent in a safe seat, you just put that seat in your pocket and spend time and effort on other races where you can flip a seat from the other party or defend an endangered incumbent.

Why the challenge for Engel?

The answer is that Jamaal Brown is a radical progressive and will fit in nicely with “The Squad” of radicals led by Alexandria Ocasio-Cortez (AOC). By the way, AOC got her seat in New York’s 14th District in 2018 by defeating another long-time incumbent, Joe Crowley, who had been in Congress for twenty years and was being mentioned as a possible Speaker of the House.

What’s happening is that Democrats in safe seats are not being challenged by Republicans but are being challenged in primary elections by radicals in their own party.

These challenges are funded by far-left groups such as the George Soros’s Open Society Foundation (through hundreds of sub-accounts) and other outside money. This serves a dual purpose.

When the radicals win, the ranks of The Squad are expanded and AOC’s power grows. Even where no challenge is underway, regular Democrats kowtow to Soros and The Squad to avoid attracting primary opponents themselves.

So, whether by direct challenge or passive subservience, the radicals are taking over the Democratic Party from the inside and The Squad’s agenda is becoming the Party’s agenda.

Keep an eye on these internal party challenges. Once the radicals have enough power they will come for your portfolio in the form of tax increases, regulatory burdens and social justice agendas.

But getting back to Biden’s solid lead in polling, should we just cede the election to him — and his VP candidate who’d probably be in power within a year?

Not so fast. For over 80 years, pollsters have asked two key questions in election polling. The first is, “Who are you voting for?”

That’s the intention question. The second question is, “Who do you expect to win?” That’s the expectation question.

The answer to the intention question gets all the headlines. Those are the polling results we describe above. The answer to the expectation question gets buried and is scarcely discussed.

But guess what? In cases where the intention and expectation questions have different answers, (in effect, “I’m voting for A, but I expect B to win”), the expectation answer had the correct result 78% of the time.

The intention question had the correct result only 22% of the time.

And, Trump is leading the expectation question right now 55% to 45% for Biden. So, Trump actually is ahead in the polls. You just have to be looking at the right polls. That’s key. So don’t write Trump off just yet.

But let’s say for now that Biden does win. Does that mean that the riots we’ve been seeing across the country would end?

It would be nice to think that the violence would wind down. But that probably won’t be the case. It’s true that there is less violence now than in early June. That’s partly due to Biden signing on to the radical agenda and his big lead in the polls.

The radicals see that they may get what they want (including a radical VP selection) and reason that there’s no need for violence if they can advance their agenda through a Biden White House.

But that’s at best a truce. If Biden wins, the demands will ratchet up. They always do when you’re dealing with ideologues and revolutionaries.

If Trump wins, the radicals will conclude they have nothing left to lose (and won’t wait four more years) and will unleash a new wave of violence almost immediately.

The Trump-bashing has been a steady, never-ending 24/7 spectacle for the past four years. There’s no reason why the media, the Resistance and the Democrats in Congress can’t keep it up for another four years.

The Antifa crowd will use a Trump victory as evidence that “democracy doesn’t work,” which will validate their violent tactics at least in their own minds. They’ll find plenty of supporters.

Either way, there’s more violence on the way. It might not be as immediate if Biden wins, but it would still follow.

Are markets ready for this? Is your portfolio ready? Investors should get ready; the chaos is not ending anytime soon, regardless of the election’s outcome.

Physical gold bullion is a good way to preserve your wealth and profit as it all unfolds.

- Source, James Rickards

Friday, August 14, 2020

James Rickards: Don’t Fight the Narrative

It’s widely believed that the stock market looks ahead and discounts the future. But consider this November’s presidential election…

Joe Biden has a substantial lead over President Trump in the polls. But Biden’s platform is not what you would call market friendly. For example, it calls for a 39.6% tax rate on dividends and capital gains.

But the stock market is near all-time highs again, with the Dow Jones Industrial Average nearing 27,000, the S&P over 3,200 and the Nasdaq actually at record highs.

What more proof do you need that stock markets are clueless when it comes to discounting future outcomes?

Now, it’s true you can’t always trust the polls. I know it well since I was one of very few analysts who predicted a Trump victory in 2016, even though he was behind in the polls.

But the same analytical tools that led me to predict a Trump win last time are showing me his chances are poorer this time.

OK, a true believer might say, but maybe the market’s anticipating a robust economic recovery. That’s why it’s rebounded so strongly.

But that argument just doesn’t hold much water.

Yes, unemployment dropped from over 13% to just over 11% last month, but that’s still the highest level since the end of World War II.

And there’s good reason to believe the unemployment rate will surge again heading into August as Payroll Protection Plan loans run out, lockdowns resume and states catch up with a backlog of claims that have not been processed yet.

Big business may be doing fine because it’s crowded into technology, finance and telecommunications, which are relatively unaffected by the pandemic.

But almost half the economy and half of all jobs are the domain of small-and-medium sized enterprises that have been decimated.

These restaurants, salons, dry cleaners, boutiques and other mainstays of neighborhoods across America are operating at half-capacity (at best) or have shut their doors permanently (at worst).

Meanwhile, a wave of bankruptcies is sweeping across the nation.

In other words, the V-shaped recovery that many analysts have been touting simply isn’t in the cards.

My own estimate is that this year may be even worse than the Great Depression.

We’re probably in for an L-shaped recovery, where the economy goes down steeply and is followed by low growth for an indefinite period of time.

But it’s full speed ahead for the stock market.

The market dip in March was the shortest bear market in history. Someone who just looked at stock charts could not be blamed for believing that the pandemic had never really happened.

So, why the strong stock market in a weak economy?

The simplest answer is that the stock market doesn’t have much to do with the economy. It’s just a casino driven by fear, greed, momentum, robots and indexation. There’s certainly something to that.

A more sophisticated answer is given by Nobel Prize-winning economist Robert Shiller.

Shiller writes that stock markets are driven by “narratives” or stories market participants tell each other.

From January to mid-February, even as the coronavirus was spreading out of control, the narrative was that the virus was contained to China. Markets reached new highs.

In March and April, the narrative changed to panic as Italy shut down and the U.S. did likewise. This is when the market fell over 30% ending the record bull market of 2009-2019.

The third phase started in late April as the market rallied 40% based on massive Fed money printing and $5 trillion of new government spending. The narrative was that easy money would rescue the market.

All of these narratives were wrong in the sense that the virus was not under control in February, it did not necessitate a lockdown in April, and the money printing and spending won’t solve the problem today.

Still, the narratives prevailed. “Don’t fight the Fed” is one of the oldest sayings on Wall Street.

The new conventional wisdom might be, “Don’t fight the narrative.”

- Source, James Rickards via the Daily Reckoning

Monday, August 10, 2020

Uncharted Waters: Bullion Soars As Gold Breaks Records & Silver Rockets Higher

James Rickards and Peter Schiff recently both made stunning predication's of $15,000 per oz gold prices. Is this truly where we are going? What will it take to get there?

Waiting on a pullback that may not come as gold enters uncharted waters and silver pushes above $28. Bullion has now entered a new phase of the bull market. 

This week we cover the prices of gold and silver as they continue to see strength across the board. We will also cover the price movements of platinum, palladium, the U.S. Dollar index, the equities sector and more.

Friday, August 7, 2020

James Rickards & Peter Schiff Debate: Deflation vs Inflation

Quantitative easing by the Federal Reserve has undoubtedly expanded the Fed balance sheet to record levels, but the outcome of consumer and asset prices is yet to be seen. 

Jim Rickards, best-selling author, said that the Fed has failed to deliver inflation in the past when there was monetary stimulus, while Peter Schiff, CEO of Euro Pacific Capital, argued that inflation of asset prices is the likely outcome.

- Source, Kitco News

Wednesday, August 5, 2020

James Rickards: Brown Weeds, Not Green Shoots

Remember “green shoots?”

That was the ubiquitous phrase used by White House officials and TV talking heads in 2009 to describe how the U.S. economy was coming back to life after the 2008 global financial crisis.

The problem was we did not get green shoots, we got brown weeds.

The economy did recover but it was the slowest recovery in U.S. history. After the green shoots theory had been discredited, Treasury Secretary Tim Geithner promised a “recovery summer” in 2010.

That didn’t happen either.

The recovery did continue, but it took years for the stock market to return to the 2017 highs and even longer for unemployment to come down to levels that could be regarded as close to full employment.

Now, in the aftermath of the 2020 pandemic and market crash, the same voices are at it again.

The White House is talking about “pent-up demand” as the economy reopens and consumers flock to stores and restaurants to make up for the lost spending during the March to July pandemic lockdown.

But, the data shows that the “pent-up demand” theory is just as much of a mirage as the green shoots.

Many of the businesses that closed have failed in the meantime. They will never reopen and those lost jobs are never coming back. Even people who kept their jobs are not spending like it’s 2019.

Instead they’re saving at record levels.

Even the “reopening” of the economy is now in doubt. In some cities, the reopening was derailed by riots that left shopping districts in ruins.

In other cities, the reopening was stopped in its tracks by new outbreaks of the virus that led to new lockdowns and strict application of rules on wearing masks and social distancing.

There was a pick-up in retail sales in May, but it has disappeared as fast as it arrived because of the new outbreaks and the extension of the lockdown.

Meanwhile, if you’re trying to understand the economy, pay no attention to the stock market. The stock market is almost completely disconnected from the economy.

That’s partly because of the massive distortions caused by the Fed. But it’s also because the stock market is heavily weighted toward finance and technology.

Both sectors have been relatively unaffected by the pandemic and the resulting economic shock.

The industries that have been hurt are small-and-medium sized businesses in food, travel, resorts, bars, hotels, salons and other bricks-and-mortar or personal service establishments. Pain was also felt in mining, manufacturing and some other sectors.

These are important businesses in the economy, but they’re not nearly as important to major stock market indices as Amazon, Apple, Facebook, Google, Netflix, Microsoft and other mainly digital companies.

If you want to understand the economy, look around your own community to see how many stores are still closed, how many are never reopening, and how much sales are down among the relatively few survivors.

It’s not a pretty picture, and based on the dynamics of the virus it won’t get better anytime soon.

But there’s another primary reason why the economy won’t recover anytime soon. It’s not getting much coverage in the mainstream press, but it should.

It involves a major population shift that only happens once every two or three generations. And it’s happening now.

- Source, James Rickards via the Daily Reckoning

Monday, August 3, 2020

James Rickards Warns About the Rapidly Approaching Monetary Collapse

The Federal Reserve has gone past the point of no return and is unlikely to be able to unwind their balance sheet in the foreseeable future, according to best-selling author Jim Rickards and Peter Schiff, CEO of Euro Pacific Capital. 

In this second segment of the three-part interview, Rickards and Schiff discuss the consequences of the Federal Reserve paying for the nation’s expenses, or as Schiff called it, “free money.”

- Source, Kitco News