- Source, Fat Tail Investment Research
Friday, April 30, 2021
Jim Rickards on Friedman's Hyperinflation Fallacy
Sunday, April 25, 2021
Jim Rickards: Others Will Buy Bitcoin
While the Bros are having fun with their checks, the rest of us should not expect stronger economic growth for the foreseeable future.
The Bros may be using part of their stimulus checks to buy stocks, but others will likely be using it to buy Bitcoin…
It seems like only last week (because it was) that Bitcoin was priced at $50,000 per coin, but by Friday, the price had surged to $60,000, a 20% increase in just one day. The reason doesn’t matter; it is what it is.
The case against Bitcoin as an investable asset is long and compelling. It has no use case; there’s almost nothing you can buy with a Bitcoin, and it has no return other than higher prices based on an application of the greater fool theory.
A glance at the price chart shows it’s clearly a bubble, the worst in history, worse than NASDAQ in 2000 during the dot.com frenzy and worse than the Japanese stock market in 1989.
Golden Anchor
This points to the difference between the “content” of Bitcoin (the price history and types of features discussed above) and the “environment” created by Bitcoin (the unseen and not understood impact on thought and behavior from any new media technology).
Bitcoin will never displace the dollar, but it could destroy confidence in the dollar by its all-encompassing impact. This could cause social disorder and contribute to the decline of linear, rational civilization.
My solution to this conundrum is to hold physical gold. For the Bitcoin believers (and others), the solution is always… more Bitcoin.
The market is becoming unhinged. Gold can be your anchor. Don’t worry about the short-term fluctuations along the way.
Gold plays a long game; you should focus on the long-term…
The Bros may be using part of their stimulus checks to buy stocks, but others will likely be using it to buy Bitcoin…
It seems like only last week (because it was) that Bitcoin was priced at $50,000 per coin, but by Friday, the price had surged to $60,000, a 20% increase in just one day. The reason doesn’t matter; it is what it is.
The case against Bitcoin as an investable asset is long and compelling. It has no use case; there’s almost nothing you can buy with a Bitcoin, and it has no return other than higher prices based on an application of the greater fool theory.
A glance at the price chart shows it’s clearly a bubble, the worst in history, worse than NASDAQ in 2000 during the dot.com frenzy and worse than the Japanese stock market in 1989.
What Good Is It?
Bitcoin simply doesn’t have much practical use. It is also filling the atmosphere with CO2 because most of the “mining” (really high speed computer calculations requiring monumental amounts of electricity for processing and cooling) is done in China, where most power plants are coal-fired.
Now, CO2 is a harmless trace gas that plants need to grow, so I’m not complaining that Bitcoin mining is churning out more of it. But it does require tremendous amounts of electricity. What about Bitcoin as a possible reserve currency?
Bitcoin will never be a reserve currency because its capped issuance amount makes its price deflationary, which is unattractive to borrowers. Without a Bitcoin bond market, there can be no securities in which central banks can invest reserves.
Worse yet, the Bitcoin price is a Ponzi scheme driven by the issuance of the stable coin Tether, which has never accounted for the billions of dollars that have been taken from naive Tether investors. That said, none of this matters.
Bitcoin has become a belief system. The true believers see what they want, hear what they want and are immune to the arguments of the non-believers.
Bitcoin simply doesn’t have much practical use. It is also filling the atmosphere with CO2 because most of the “mining” (really high speed computer calculations requiring monumental amounts of electricity for processing and cooling) is done in China, where most power plants are coal-fired.
Now, CO2 is a harmless trace gas that plants need to grow, so I’m not complaining that Bitcoin mining is churning out more of it. But it does require tremendous amounts of electricity. What about Bitcoin as a possible reserve currency?
Bitcoin will never be a reserve currency because its capped issuance amount makes its price deflationary, which is unattractive to borrowers. Without a Bitcoin bond market, there can be no securities in which central banks can invest reserves.
Worse yet, the Bitcoin price is a Ponzi scheme driven by the issuance of the stable coin Tether, which has never accounted for the billions of dollars that have been taken from naive Tether investors. That said, none of this matters.
Bitcoin has become a belief system. The true believers see what they want, hear what they want and are immune to the arguments of the non-believers.
Golden Anchor
This points to the difference between the “content” of Bitcoin (the price history and types of features discussed above) and the “environment” created by Bitcoin (the unseen and not understood impact on thought and behavior from any new media technology).
Bitcoin will never displace the dollar, but it could destroy confidence in the dollar by its all-encompassing impact. This could cause social disorder and contribute to the decline of linear, rational civilization.
My solution to this conundrum is to hold physical gold. For the Bitcoin believers (and others), the solution is always… more Bitcoin.
The market is becoming unhinged. Gold can be your anchor. Don’t worry about the short-term fluctuations along the way.
Gold plays a long game; you should focus on the long-term…
- Source, Jim Rickards via the Daily Reckoning
Wednesday, April 21, 2021
Jim Rickards: The Bros Are Preparing Their Next Attack
Most investors have heard of the GameStop frenzy. GameStop is a brick-and-mortar retail outlet for video games, equipment and accessories.
It has long been considered a dying company by Wall Street because it does not have a strong online presence. It seemed to be headed in the same direction as Blockbuster after Netflix arrived with a streaming model for movie rentals to replace Blockbuster’s model of drive-to locations with physical VHS cassettes and DVDs.
GameStop was heavily shorted. Then along came the Bros!
The Bros (short for “brothers”) are mostly millennial, mostly male novice traders who used the RobinHood mobile phone app to trade stocks (using call options with leverage) the way people bet on the Super Bowl or basketball during March Madness.
GameStop went from $40 per share to over $400 per share in a matter of weeks, leaving hedge funds that had shorted GameStop with over $20 billion in losses. Of course, the GameStop pump-and-dump came crashing down, resulting in losses for the Bros also, but that’s just how bubbles go.
It has long been considered a dying company by Wall Street because it does not have a strong online presence. It seemed to be headed in the same direction as Blockbuster after Netflix arrived with a streaming model for movie rentals to replace Blockbuster’s model of drive-to locations with physical VHS cassettes and DVDs.
GameStop was heavily shorted. Then along came the Bros!
The Bros (short for “brothers”) are mostly millennial, mostly male novice traders who used the RobinHood mobile phone app to trade stocks (using call options with leverage) the way people bet on the Super Bowl or basketball during March Madness.
GameStop went from $40 per share to over $400 per share in a matter of weeks, leaving hedge funds that had shorted GameStop with over $20 billion in losses. Of course, the GameStop pump-and-dump came crashing down, resulting in losses for the Bros also, but that’s just how bubbles go.
Here We Go Again?
What is not as well-known is that a lot of the money for the Bro’s trading came from the $1,200 COVID relief check the government handed out last spring and the $600 checks handed out at the end of December.
Many Bros were tech-savvy, unemployed and stuck-at-home, so using the government’s “free money” to have fun trading stocks was a great form of entertainment during the lockdowns. Now it’s happening again!
Young retail investors plan to use their new $1,400 government checks from the $1.9 trillion Biden bailout bill to engage in a new round of speculative trading.
For the Bros, this is more like gambling than investing. For more serious investors, there are some important implications. Once the checks are available (in about two weeks), investors should expect some enormous volatility and huge gains in whatever stocks the Bros select.
It’s impossible to know in advance what stocks will be pumped (they use a Reddit chatroom called r/wallstreetbets/ to exchange views), but you’ll know it once the frenzy starts. The other serious economic implication is that the Bros and Americans, in general, are not planning to spend their money on goods and services.
What is not as well-known is that a lot of the money for the Bro’s trading came from the $1,200 COVID relief check the government handed out last spring and the $600 checks handed out at the end of December.
Many Bros were tech-savvy, unemployed and stuck-at-home, so using the government’s “free money” to have fun trading stocks was a great form of entertainment during the lockdowns. Now it’s happening again!
Young retail investors plan to use their new $1,400 government checks from the $1.9 trillion Biden bailout bill to engage in a new round of speculative trading.
For the Bros, this is more like gambling than investing. For more serious investors, there are some important implications. Once the checks are available (in about two weeks), investors should expect some enormous volatility and huge gains in whatever stocks the Bros select.
It’s impossible to know in advance what stocks will be pumped (they use a Reddit chatroom called r/wallstreetbets/ to exchange views), but you’ll know it once the frenzy starts. The other serious economic implication is that the Bros and Americans, in general, are not planning to spend their money on goods and services.
More Debt, Less Growth
The U.S. economy is about 70% dependent on consumption; savings and investment are essential, which can be beneficial in the long-run but do nothing to expand GDP in the short-run.
Biden has said that we need the massive spending package “to grow the economy.” But it will only slow the economy because the added debt causes Americans to save more and spend less in anticipation of higher taxes down the road.
The “stimulus” actually keeps people from looking for jobs because the handouts are often more than they could be making at work. Meanwhile, the higher taxes needed to pay for the handouts also slow the creation of jobs because businesses have less money to invest or hire workers.
The only sustainable way out of the COVID recession is real growth, which comes from getting people back to work and reinvesting corporate profits. It doesn’t come from the printing press or its electronic equivalent.
Whether Americans save the money, pay down debt or invest in stocks (even as speculation), they are not spending. That’s more evidence that the U.S. is in a liquidity trap, and the Biden bailout will not help economic growth.
The U.S. economy is about 70% dependent on consumption; savings and investment are essential, which can be beneficial in the long-run but do nothing to expand GDP in the short-run.
Biden has said that we need the massive spending package “to grow the economy.” But it will only slow the economy because the added debt causes Americans to save more and spend less in anticipation of higher taxes down the road.
The “stimulus” actually keeps people from looking for jobs because the handouts are often more than they could be making at work. Meanwhile, the higher taxes needed to pay for the handouts also slow the creation of jobs because businesses have less money to invest or hire workers.
The only sustainable way out of the COVID recession is real growth, which comes from getting people back to work and reinvesting corporate profits. It doesn’t come from the printing press or its electronic equivalent.
Whether Americans save the money, pay down debt or invest in stocks (even as speculation), they are not spending. That’s more evidence that the U.S. is in a liquidity trap, and the Biden bailout will not help economic growth.
- Source, James Rickards
Sunday, April 18, 2021
James Rickards: The Mainstream Scenario
Here’s the mainstream scenario: The U.S. and global economies are making a strong comeback from the pandemic. China is growing quickly, U.S. unemployment is dropping, the virus is fading and the lockdowns are ending. This would be a recipe for strong growth and higher interest rates by itself.
Now, Congress and the White House have passed a $1.9 trillion COVID relief bill, which has little to do with COVID and everything to do with spending for favored interests, including teachers, municipal workers, federal workers, and community organizers. It also provides money for programs such as the Kennedy Center, the National Endowment for the Arts, etc.
The market view is that this additional $1.9 trillion of spending, combined with the $6 trillion of deficit spending already approved for fiscal 2020 and fiscal 2021 and another $4 trillion deficit spending package expected later this year, is more than the COVID situation requires and more than the economy can absorb without inflation.
Therefore inflation expectations have risen sharply. And, along with inflation expectations, the yield-to-maturity on the benchmark 10-year U.S. Treasury note has spiked.
The yield on the 10-year has risen from 0.917% on January 4 to 1.316% on February 6 to 1.638% today. Those rate hikes might not sound like much, but it’s an earthquake in the note market.
If you compare the rate hikes to the decline in gold prices, there is a high degree of correlation. As rates go up, gold goes down. It’s that simple.
More deficit spending stokes the flames of inflation expectations, which leads to higher rates and lower gold prices. When those fundamental trends are combined with leverage, algo-trading, and momentum, it’s like throwing gasoline on an open flame.
Gold investors have been getting burned.
What’s flawed in this scenario? The short answer: everything.
It spiked again, hitting 3.22% on November 2, 2018, before plummeting to 0.56% on August 3, 2020, one of the greatest rallies in note prices ever.
There’s a pattern in this time series called “lower highs and lower lows.” The highs were 3.96%, 3.75% and 3.22%. The lows were 2.41%, 1.49%, and 0.56%.
The point is that the note market does back up from time-to-time. And when it does, it cannot hold the prior rate highs and eventually sinks to new rate lows.
If we apply that pattern to the current rise in rates, we should expect that the rate increase will top out well short of 2.5%, and a new low may follow as low as 0.25% or even zero. There’s no guarantee of this; it’s not deterministic. But, it would be consistent with the 10-year trend of lowering rates.
Still, there’s more going on. The economy is not nearly as strong as the headlines and Wall Street cheerleaders would have you believe.
Now, Congress and the White House have passed a $1.9 trillion COVID relief bill, which has little to do with COVID and everything to do with spending for favored interests, including teachers, municipal workers, federal workers, and community organizers. It also provides money for programs such as the Kennedy Center, the National Endowment for the Arts, etc.
The market view is that this additional $1.9 trillion of spending, combined with the $6 trillion of deficit spending already approved for fiscal 2020 and fiscal 2021 and another $4 trillion deficit spending package expected later this year, is more than the COVID situation requires and more than the economy can absorb without inflation.
Therefore inflation expectations have risen sharply. And, along with inflation expectations, the yield-to-maturity on the benchmark 10-year U.S. Treasury note has spiked.
The yield on the 10-year has risen from 0.917% on January 4 to 1.316% on February 6 to 1.638% today. Those rate hikes might not sound like much, but it’s an earthquake in the note market.
If you compare the rate hikes to the decline in gold prices, there is a high degree of correlation. As rates go up, gold goes down. It’s that simple.
More deficit spending stokes the flames of inflation expectations, which leads to higher rates and lower gold prices. When those fundamental trends are combined with leverage, algo-trading, and momentum, it’s like throwing gasoline on an open flame.
Gold investors have been getting burned.
What’s flawed in this scenario? The short answer: everything.
Perspective
You can’t argue with the facts – rates are going up, and gold is going down. But, the assumptions behind these trends are flawed. That means the trends will inevitably reverse, probably sharply.
Again, perspective helps.
This is not our first interest rate spike. The 10-year note hit 3.96% on April 2, 2010. It then fell to 2.41% by October 2, 2010. It spiked again to 3.75% on February 8, 2011, before falling sharply to 1.49% on July 24, 2012.
You can’t argue with the facts – rates are going up, and gold is going down. But, the assumptions behind these trends are flawed. That means the trends will inevitably reverse, probably sharply.
Again, perspective helps.
This is not our first interest rate spike. The 10-year note hit 3.96% on April 2, 2010. It then fell to 2.41% by October 2, 2010. It spiked again to 3.75% on February 8, 2011, before falling sharply to 1.49% on July 24, 2012.
It spiked again, hitting 3.22% on November 2, 2018, before plummeting to 0.56% on August 3, 2020, one of the greatest rallies in note prices ever.
There’s a pattern in this time series called “lower highs and lower lows.” The highs were 3.96%, 3.75% and 3.22%. The lows were 2.41%, 1.49%, and 0.56%.
The point is that the note market does back up from time-to-time. And when it does, it cannot hold the prior rate highs and eventually sinks to new rate lows.
If we apply that pattern to the current rise in rates, we should expect that the rate increase will top out well short of 2.5%, and a new low may follow as low as 0.25% or even zero. There’s no guarantee of this; it’s not deterministic. But, it would be consistent with the 10-year trend of lowering rates.
Still, there’s more going on. The economy is not nearly as strong as the headlines and Wall Street cheerleaders would have you believe.
- Source, The Daily Reckoning
Friday, April 16, 2021
Jim Rickards: M2 Skyrocketing As Fed Stops Weekly Data Showing Money Supply
They cover various topics, including Rickards’ stance that deflation remains the greatest risk to the economy, despite reports of inflation.
Rickards also talks about M2 skyrocketing and how it coincides with the discontinuation of the Federal Reserve’s money supply series, data that has been published weekly since 1970.
- Source, Stansberry Research
Wednesday, April 14, 2021
James Rickards: The Mainstream’s Got It Wrong
Gold has taken a hit this year, no doubt about it. Since peaking over $1,950 in early January, the price of gold has fallen to $1,725 today.
But not all is doom and gloom. Some perspective is needed. If we go back to the beginning of the current bull market on December 16, 2015 (when gold bottomed at $1,050 per ounce), gold is up over 60% even at today’s beaten-down price.
That bottom occurred on the exact day that the Fed started their “lift-off” in interest rates after seven years stuck at zero. I urged investors to buy gold then. Those who listened are still sitting on huge gains even after the latest drawdown.
Savvy investors know the dollar price of gold is volatile. They keep their eye on the long-term trends and long-term drivers of the gold price. Sophisticated investors don’t sweat the dips. They see the occasional drawdowns as a great entry point and buying opportunity. So do I.
Nothing New Here
We’ve been here before.
Gold fell 17% from August 5, 2016, to December 1, 2016. It fell 8.1% from September 8, 2017, to December 13, 2017. It fell 12.5% from March 6, 2020, to March 19, 2020, during the pandemic panic.
After every one of these falls, gold rallied back and maintained a trend line of higher highs, finally reaching the $2,000 per ounce threshold in August 2020.
The important questions for gold investors are: Is this just a dip or the start of a new bear market?
And, what’s been driving the dip; when can we expect a turnaround? We address both questions by looking at the mainstream scenario and explaining why it’s wrong and how the turnaround will emerge.
But not all is doom and gloom. Some perspective is needed. If we go back to the beginning of the current bull market on December 16, 2015 (when gold bottomed at $1,050 per ounce), gold is up over 60% even at today’s beaten-down price.
That bottom occurred on the exact day that the Fed started their “lift-off” in interest rates after seven years stuck at zero. I urged investors to buy gold then. Those who listened are still sitting on huge gains even after the latest drawdown.
Savvy investors know the dollar price of gold is volatile. They keep their eye on the long-term trends and long-term drivers of the gold price. Sophisticated investors don’t sweat the dips. They see the occasional drawdowns as a great entry point and buying opportunity. So do I.
Nothing New Here
We’ve been here before.
Gold fell 17% from August 5, 2016, to December 1, 2016. It fell 8.1% from September 8, 2017, to December 13, 2017. It fell 12.5% from March 6, 2020, to March 19, 2020, during the pandemic panic.
After every one of these falls, gold rallied back and maintained a trend line of higher highs, finally reaching the $2,000 per ounce threshold in August 2020.
The important questions for gold investors are: Is this just a dip or the start of a new bear market?
And, what’s been driving the dip; when can we expect a turnaround? We address both questions by looking at the mainstream scenario and explaining why it’s wrong and how the turnaround will emerge.
- Source, James Rickards via the Daily Reckoning
Saturday, April 10, 2021
The Price of Gold Over the Last 10 Years and What That Means for You
Myths about investing in gold abound. However, people turn to gold for a variety of reasons, financial and otherwise. Attributes such as malleability, resistance to corrosion, and ability to conduct electricity attract many to the metal. However, limited supply and availability tend to bolster its appeal as a form of money.
The Federal Reserve can print more dollars, but no entity can “print” gold. Barrick Gold Corp., one of the largest gold producers in the world, spent $1,065 per ounce to mine gold in 2020. While this makes mining profitable at the current price, this takes a considerably larger effort than increasing the supply of paper or digital dollars.
As for how to invest in gold, financial author Jim Rickards recommends a 10% allocation, and many other advisors agree. This is likely due to poor long-term returns.
Investors should remember that gold does not pay interest. Moreover, it has underperformed stocks over time. Today’s price of $1,740 per ounce amounts to a gain of only 22% over 10 years. Over the same period, the S&P 500 has nearly tripled. Hence, investing in gold has generally not served investors well.
Gold Through History
Nonetheless, the reverence for gold goes back to the beginning of civilization. The ancient Egyptians smelted it as far back as 3600 B.C. and began using it for jewelry in 2600 B.C. Ancient civilizations in Persia, China and many other places revered and treasured this precious metal.
Use as money goes back as far as ancient Rome, but most societies treated it as money indirectly. In the 18th, 19th and much of the 20th century, powerful central banks such as the Bank of England established trust in their respective currencies by guaranteeing convertibility to a specified amount of gold per unit. The Federal Reserve maintained a value of $35 per ounce of gold from the 1930s until 1971.
Removing the gold/dollar peg sent gold as high as $850 per ounce in 1981 as inflation and interest rates reached double-digit levels. However, the Fed moved to counter inflation in the early 1980s. Eventually, gold settled in the $300-$400 per ounce range and stayed there for the remainder of the 20th century.
The Federal Reserve can print more dollars, but no entity can “print” gold. Barrick Gold Corp., one of the largest gold producers in the world, spent $1,065 per ounce to mine gold in 2020. While this makes mining profitable at the current price, this takes a considerably larger effort than increasing the supply of paper or digital dollars.
As for how to invest in gold, financial author Jim Rickards recommends a 10% allocation, and many other advisors agree. This is likely due to poor long-term returns.
Investors should remember that gold does not pay interest. Moreover, it has underperformed stocks over time. Today’s price of $1,740 per ounce amounts to a gain of only 22% over 10 years. Over the same period, the S&P 500 has nearly tripled. Hence, investing in gold has generally not served investors well.
Gold Through History
Nonetheless, the reverence for gold goes back to the beginning of civilization. The ancient Egyptians smelted it as far back as 3600 B.C. and began using it for jewelry in 2600 B.C. Ancient civilizations in Persia, China and many other places revered and treasured this precious metal.
Use as money goes back as far as ancient Rome, but most societies treated it as money indirectly. In the 18th, 19th and much of the 20th century, powerful central banks such as the Bank of England established trust in their respective currencies by guaranteeing convertibility to a specified amount of gold per unit. The Federal Reserve maintained a value of $35 per ounce of gold from the 1930s until 1971.
Removing the gold/dollar peg sent gold as high as $850 per ounce in 1981 as inflation and interest rates reached double-digit levels. However, the Fed moved to counter inflation in the early 1980s. Eventually, gold settled in the $300-$400 per ounce range and stayed there for the remainder of the 20th century.
- Source, Go Banking Rates
Tuesday, April 6, 2021
James Rickards: War With North Korea is Inevitable, Only a Matter of Time
Throughout 2016 and 2017 the dollar has been weakening. The Euro has risen against the dollar, and this weaker dollar has translated into higher prices for gold.
Jim thinks a shooting war with North Korea could be a wake-up call for the markets. The markets did react somewhat to Kim Jung-un’s initial missile tests however these launches have become normalized. Jim is convinced the U.S. is on a path toward war and will have to attack before they miniaturize their nuclear warheads to missile size. Korea has achieved made advances faster than intelligence agencies suspected. Jim thinks the markets are overly complacent about it.
Yellen’s recent speeches indicate the Fed will not raise rates. The Fed uses a relatively simple model that targets 2% inflation. The Fed wants interest rates to be around 3.5% before the next recession because you can’t get out of a recession with rates this low. He discusses various pause factors that use in their forecast.
Gold stocks are much the same what differs is management. How do you sort the well-run companies from the frauds? Jim says do your homework or find a reliable source.
Jim provides an overview of meraglim.com a company he is working with that utilize four scientific principals and a supercomputer to analyze the market and make predictions about possible outcomes of future events.
Jim thinks a shooting war with North Korea could be a wake-up call for the markets. The markets did react somewhat to Kim Jung-un’s initial missile tests however these launches have become normalized. Jim is convinced the U.S. is on a path toward war and will have to attack before they miniaturize their nuclear warheads to missile size. Korea has achieved made advances faster than intelligence agencies suspected. Jim thinks the markets are overly complacent about it.
Yellen’s recent speeches indicate the Fed will not raise rates. The Fed uses a relatively simple model that targets 2% inflation. The Fed wants interest rates to be around 3.5% before the next recession because you can’t get out of a recession with rates this low. He discusses various pause factors that use in their forecast.
Gold stocks are much the same what differs is management. How do you sort the well-run companies from the frauds? Jim says do your homework or find a reliable source.
Jim provides an overview of meraglim.com a company he is working with that utilize four scientific principals and a supercomputer to analyze the market and make predictions about possible outcomes of future events.
- Source, Palisade Radio
Friday, April 2, 2021
James Rickards: Too Soon to Say if There's an Archegos Contagion
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