James Rickards: The Greatest Policy Blunder Ever

Since the outbreak of the pandemic, the “respectable” media has pushed the theory that the virus came from a wet market in Wuhan, China.

Any talk that it might have come from a bioweapons lab in Wuhan was dismissed as a conspiracy theory.

But the Bulletin of Atomic Scientists, not exactly a fringe organization, published a paper recently acknowledging the possibility that the virus escaped from a lab.

It didn’t say definitively that the virus escaped from a lab, but it maintained that it’s a legitimate possibility, not just some baseless conspiracy theory.

The origins of the virus are still being debated, but here’s what we do know:

The outbreak of the COVID-19 pandemic began in November 2019 in Wuhan, China. From there, it spread west to Milan, Italy and east to Seattle, Washington.

The virus mutated in Italy, then spread to New York, where it hit the tri-state area (NY, NJ, CT) viciously in March-April 2020. Eventually, it spread to the entire world with severe outbreaks in Melbourne, Madrid, London and Lima.

Over 3.2 million around the world have died from COVID. Even now, the virus is out of control in Brazil and India.

Although lower caseloads and much lower fatality rates are emerging in the U.S. and elsewhere, the pandemic is far from over.

The progress is due to both herd immunity from infected survivors with antibodies and the impact of experimental gene modification treatments from Moderna, Pfizer, Astra-Zeneca, and others.

The end is in sight, if not quite here. What have we learned?

Lockdowns Didn’t Work

Obviously, public health authorities around the world were completely unprepared for a health emergency of this magnitude. There were severe shortages of personal protective gear, masks, oxygen, testing kits and trained staff.

China was grossly negligent to the point of criminality in covering up the outbreak, not allowing foreign experts to research the outbreak or possible cures on-site, and blaming others for their negligence. Still, the list of government blunders doesn’t stop there.

The lockdown response used by the U.S. and other countries did no good medically and was immensely destructive from an economic perspective.

Scientific evidence that lockdowns don’t work to contain a virus was available in 2006. The anti-lockdown view was widely shared long before that.

Evidence from the 50 states in the U.S. (which had varied lockdown policies) and 30 countries around the world shows that there is no correlation between lockdown policies and virus spread. Orders for extreme, moderate, or no lockdowns all resulted in similar caseloads and fatalities.

Lockdowns had no material impact on the course of the disease.

But, lockdowns did destroy businesses and jobs. Large parts of the economy were simply destroyed and will never recover – they’re gone. Lockdowns also increased suicides, drug and alcohol abuse as well as domestic abuse.

The CDC, White House, state governors and other officials adopted lockdown policies without knowing if they worked (they don’t) and without considering the costs, which resulted in trillions of dollars of lost wealth and output.

- Source, The Daily Reckoning

Jim Rickards Drops Truth Bombs Behind LBMA Silver Inventory Mishap

Bestselling author Jim Rickards speaks with our Daniela Cambone about the recent stories surrounding silver inventories and the London Bullion Association. 

The LBMA overstated their silver holdings in April, an error which they later rectified. Rickards gives his thoughts on the matter and other theories circulating in the gold and silver market.

- Source, Stansberry Research

Inflation: The Biggest Financial Story Today

Economists had expected over one million jobs to be created in April. The actual number was 266,000, and March’s numbers were revised lower.

Do last month’s woeful unemployment numbers undercut the mainstream theory that falling unemployment will lead to inflation?

The biggest financial story today is fear of inflation. Inflation has spooked the bond market and raised expectations that the Fed will soon have to raise interest rates to fight inflation.

Any increase in rates will also hurt stocks because stocks and bonds compete for investor dollars. If yields on bonds go up, prices on stocks will go down.

Growth stocks, like many leading tech stocks, are especially vulnerable to inflation because much of their valuation comes from future earnings. As inflation rises, the present value of their futures earnings can fall dramatically.

There’s no doubt that inflation expectations have been rising. This is especially true after a spike in the reported CPI core and non-core data on May 12. This inflation spike roiled the bond markets.

From the low yield of 0.508% on August 4, 2020, the 10-year note yield peaked at 1.745% on March 31, 2021, and hit a recent peak of 1.704% on May 13 (intraday) on the CPI news before backing down a bit to the current level (1.640%).

The dollar price of gold moved down in lockstep as the yield on the 10-year note rose. Still, there’s less than meets the eye in the recent increase in rates.

“Transitory”

As recently as November 4, 2018, the yield on the 10-year note was 3.238%. On November 4, 2019, the yield was 1.942%. The fact is today’s “high yields” are actually quite low and are much lower than the two interim peaks of the past three years.

In fact, real inflation is as elusive as it’s been for over a decade.

The surge in CPI reported on May 12 was driven predominately by base effects and energy prices. The Fed isn’t right often, but in this case, I believe they got it right. Year-over-year price gains off the low 2020 base are to be expected.

April 2020 marked one of the steepest output declines in U.S. history. Consumer prices plunged. In April 2021, many of those prices recovered, especially in travel, airfares, hotels, restaurants and other services that were almost completely shut down in 2020.

They are also transitory because the 2020 output collapse was transitory. As we move into the third quarter of 2021, the new base will reflect the strong growth in Q3 2020. That’s a much steeper hill to climb for inflation metrics.

Inflation will come down sharply, and the ten-year note yield will come down with it. Gold will rally, and stocks will breathe a sigh of relief.

This does not mean all is well in the stock market. Bubble dynamics persist, although it’s impossible to know exactly when a bubble will burst.

But, at least in the short run, inflation fears are a false alarm. Inflation will arrive eventually, maybe in 2022 or later, but for now, the disinflationary dynamic is fully intact.

Don’t believe the hype.

- Source, James Rickards

Jim Rickards: Could the Fed Actually Be Right?

You can’t have it both ways, but that doesn’t mean you can’t try. That’s what Joe Biden is doing right now.

On the one hand, Biden policies are, at least, partly responsible for the recent rise in unemployment and might be largely responsible.

They’re also responsible for the inability of employers to hire employees so they can reopen their businesses and return to full capacity. If that sounds like a contradiction, it’s not.

The unemployment rate is rising, and job losses are still high. In addition to those actually counted as unemployed, there’s a huge group of Americans, perhaps ten million or more individuals, who don’t have jobs but are not technically counted as unemployed because they’re not looking for jobs.

There are always some people in this category who may be retired, homemakers, students or have other duties that keep them out of the workforce. But that does not account for the steep decline in labor force participation in recent years.

So, if unemployment is high and labor force participation is low, why are employers having difficulties finding employees?

Why Work When You Can Make More Sitting at Home?

There are literally millions of able-bodied Americans between the ages of 25-59 who are sitting around without jobs. Why won’t they take the jobs being offered?

The reason is that millions of Americans make more money on unemployment and other benefits than they could make working. Unemployment benefits have been increased and extended with a $300 per week supplement on top of regular benefits.

Other benefit programs come into play, including childcare tax credits, low-income tax credits, Obamacare credits, etc. It’s not difficult to make up to $40,000 per year with such benefit programs (and with very low tax liabilities).

Why work for McDonald’s or Walmart for $31,200 per year (that’s a full-time job at $15.00 per hour with benefits and training) when you can get $40,000 per year to stay home?

People can do the math, and they choose to stay home. And by the way, you can expect to pay more for a McDonald’s hamburger if they’re going to pay entry-level workers $15 per hour. They’ll try to pass along their increased labor costs to customers, as businesses generally do.

One way to solve this problem is to cut the benefits and programs. Then people would take up the job openings available, and the country would move closer to self-sustaining growth.

Instead, Biden is proposing more “rescue” benefits, continued high unemployment payouts and other goodies that gave rise to the labor shortage in the first place.

Biden’s plan will be a headwind to growth in the year ahead. But it’s music to the ears of the progressives, who are actually in charge behind the scenes, calling the shots.

- James Rickards via the Daily Reckoning

How Behavior Can Lead to Hyperinflation with Jim Rickards

The New Great Depression, with Jim Rickards

The end of the pandemic draws ever closer. Would you like to know what the“new normal” will look like? If you do, Jim Rickards is the man you should be listening to. And his book, The New Great Depression – Winners and Losers in a Post-Pandemic World, is the book to read. 

You’ll discover: 

• The origins of the pandemic and what they’ll mean for geopolitics and financial markets, just when the dust appears to settle 

• The shape of recoveries and what’s actually in them 

• The surprising recovery mechanism that governments won’t use, but you can...and more.

- Source, Southbank Investment

Jim Rickards: The Stock Market Will Crash, This is How to Prepare

Jim Rickards on How to Invest During the New Great Depression

Paul Buitink talks to best-selling author Jim Rickards about his new book 'The New Great Depression'. Jim explains the difference between recessions and depressions. He says the US could be considered in a depression since 2008 in terms of depressed growth.

- Source, Reinvent Money

Jim Rickards on Friedman's Hyperinflation Fallacy

Jim Rickards' on why printing money alone does not cause hyperinflation. It is however, a core piece that when joined with a change of behavior, will ignite this change.

- Source, Fat Tail Investment Research

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.

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.

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

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.

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.

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.

- Source, James Rickards 

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.

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.

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