A World Gone Mad

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Today we gasp, stagger, reel.

The enormity of it all has finally overmatched our capacities. Consider…

Total global debt presently piles up to 322% of GDP — a record.

Total “developed world” debt piles higher yet — 383% of GDP — another record.

The world’s stock markets combine to $88 trillion, or 100% of global GDP. That is another record yet.

Record upon record upon record has come down… as debt has gone relentlessly up.

And what does the world have to show for the deluge?

Little Bang for the Buck

Real United States GDP growth gutters along under 2%. Fair estimates place European and Japanese 2020 growth under 1%.

Interest rates, meantime, are coming down. And so the supply of “dry powder” available to the central banks is coming down. They will require heaps of it come the next crisis.

Project Syndicate, in summary:

The major developed economies are not only flirting with overvalued financial markets and still relying on a failed monetary-policy strategy, but they are also lacking a growth cushion just when they may need it most.

Direct your attention now to the Bank of England. Specifically, to its balance sheet…

Where’s the Crisis?

As a percentage of GDP…

Not once in three centuries has this balance sheet swollen to today’s preposterous extreme…

Not when England was life and death with Napoleon, not when England was life and death with the kaiser, not when England was life and death with Hitler:

IMG 1

The Bank of England’s balance sheet — again, as a percentage of GDP — presently nears 30%.

It never cleared 20% even when England was absorbing obscene debts to put down Herr Hitler.

Where is today’s Napoleon? Where is today’s kaiser? Indeed… where is today’s Hitler?

Yet the balance sheet indicates England is battling the three at once. And on 1,000 fronts the world across.

We razz our English cousins only because the Bank of England is nearly the oldest central bank going (est.1694) and keeps exquisite records.

It therefore offers a detailed, three-century sketch of central banking’s shifting moods.

Our own Federal Reserve’s history stretches only to 1913. But its compressed history offers a parallel example…

Crisis-Level Balance Sheet

Its balance sheet expanded to perhaps 20% of GDP against the twin calamities of the Great Depression and Second World War.

It then came steadily, inexorably and appropriately down, decade after decade. Pre-financial crisis… that percentage dropped to a stunning 6%.

But then the great quake of ’08 rumbled on through… and shook the walls of Jericho to their very foundations.

The Federal Reserve got out its mason kits and set to patching the damage.

Patching the damage? It built the walls up higher than ever…

By 2014 quantitative easing and the rest of it swelled the balance sheet to 25% of GDP. That, recall, is five full percentage points above its 20th-century crisis peaks.

Mr. Powell’s subsequent quantitative tightening knocked down some of the recent construction.

The balance sheet — as a percentage of GDP — slipped beneath 20% by 2018.

But last year he pulled back the sledgehammers. Then, in September, the short-term money markets began giving out… and Powell rushed in with the supports.

The Fastest Expansion Ever

He has since expanded the balance sheet some $400 billion in a four-month span — over 10%. Not even the financial crisis saw such a violent expansion.

As we have presented before, the visual evidence:

IMG 2

The balance sheet presently nears $4.2 trillion, only slightly beneath its 2015 maximum.

Here then is irony…

“A Magnet for Trouble”

Observe the 2012–14 comments of Carlyle Group partner Jerome Powell — before he was Federal Reserve chairman Jerome Powell:

I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.

First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated…. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?…

[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response…

Continues the present chairman:

My [next] concern… is the problem of exiting from a near $4 trillion balance sheet… It just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think…

I think we are actually at a point of encouraging risk-taking, and that should give us pause…

I kind of think that a large balance sheet might prove to be a magnet for trouble over time… So I tentatively land on a floor system with the smallest possible balance sheet…

“Why stop at $4 trillion?”… “It will never be enough for the market”… “faster economic growth, which it is probably not in our power to produce”… “a large balance sheet might prove to be a magnet for trouble over time”… “I tentatively land on a floor system with the smallest possible balance sheet”…

Again — here is irony.

What Happened to Powell?

Where a fellow stands often depends upon where he sits. And this particular fellow sits in the chairman’s seat at the Federal Reserve.

The Federal Reserve has a certain institutional… perspective.

And so he leans whichever way it slants.

Our co-founder Bill Bonner puts it this way:

“People come to believe whatever they must believe when they must believe it.”

What does Mr. Powell’s 2012–14 self, the conscience tapping naggingly on his shoulder, tell him?

That no enormity is ever enough for the market? Something about a magnet for trouble? A preference for the smallest possible balance sheet perhaps?

But Jerome Powell has come to believe what he must… when he needed to believe it.

We shudder at what he will come to believe come the crisis — or whatever his successor will come to believe.

Meantime, the world runs to record debt, its stock markets run to record highs…

And we are about ready to run for the hills…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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Now What?

This post Now What? appeared first on Daily Reckoning.

Stocks were up and away this morning, aloft on happy wings. And as stocks went up… records came down.

Both the Dow Jones and S&P established fresh highs today.

Today is — after all — when the United States and China stowed their differences… and came formally to terms.

President Trump and Chinese Vice Premier Liu He signed their names to a “phase one” trade accord late this morning.

What precisely did they pledge? AP draws the overall sketch:

Under the Phase 1 agreement, which the two sides reached in mid-December, the administration dropped plans to impose tariffs on an additional $160 billion in Chinese imports. And it halved, to 7.5%, existing tariffs on $110 billion of goods from China.

For its part, Beijing agreed to significantly increase its purchases of U.S. products. According to the Trump administration, China is to buy $40 billion a year in U.S. farm products — an ambitious goal for a country that has never imported more than $26 billion a year in U.S. agricultural products.

Once the handshakes were over, the president seized a microphone and gushed:

Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade with China. Together we are righting the wrongs of the past.

And so there is more joy in heaven this day. But will there be more joy on Earth the next?

We are not half so convinced. The wrongs of the past — if they be wrongs at all — may well remain wrong.

The warring parties have signed a truce, it is true. But truce is not peace.

Truce may be no more than a mere respite from arms, a temporary cessation of fire, a brief clearing of battlefield smoke.

Consider the terms of this truce…

It cuts in half tariffs on certain Chinese wares from 15% to 7.5%. Yet tariffs on some $360 billion of Chinese exports stand in place.

Perhaps two-thirds of Chinese goods remain under penalty. As do more than half of all United States shipments to China.

Today’s signing scarcely budges them.

Meantime, this phase one armistice leaves unaddressed China’s war aims, its peace terms, its strategic objectives.

Continues the AP wire:

The so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies — that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018…

Most analysts say any meaningful resolution of the key U.S. allegation — that Beijing uses predatory tactics in its drive to supplant America’s technological supremacy — could require years of contentious talks. And skeptics say a satisfactory resolution may be next to impossible given China’s ambitions to become the global leader in such advanced technologies as driverless cars and artificial intelligence.

Adds The New York Times:

The deal also does not address cybersecurity or China’s tight controls over how companies handle data and cloud computing. China rejected American demands to include promises to refrain from hacking American firms in the text, insisting it was not a trade issue.

Affirms Eswar Prasad, who formerly directed the International Monetary Fund’s China desk:

“[The deal] hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.”

And so the generals remain huddled over their charts… the cannons are still loaded… and the troops are ready to answer the bugle.

They only await orders from the commander in chief.

Ultimate peace — lasting peace — will therefore require a “phase two” treaty…

The president has vowed to tackle China’s multiple trade atrocities in phase two of negotiations.

That is why he has held most existing tariffs in place. These represent the stick end of the “carrot and stick” polarity.

He will wield them as clubs, forcing Chinese concessions in this crucial second phase.

But phase two must wait. The president has suggested — strongly — that negotiations may not proceed until this year’s election is decided.

Assume they do proceed…

Will Mr. Trump club China into submission? Will China throw down its arms… and come marching into camp?

Not if it means losing “face,” argues Jim Rickards:

Culturally, saving face may be more important to the Chinese. The Chinese are all about saving face and gaining face. That means they can walk away from a trade deal even if it damages them economically.

Meantime, the truce, the uneasy truce, enters force.

The Lord only knows if it holds…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Now What? appeared first on Daily Reckoning.

Now What?

This post Now What? appeared first on Daily Reckoning.

Stocks were up and away this morning, aloft on happy wings. And as stocks went up… records came down.

Both the Dow Jones and S&P established fresh highs today.

Today is — after all — when the United States and China stowed their differences… and came formally to terms.

President Trump and Chinese Vice Premier Liu He signed their names to a “phase one” trade accord late this morning.

What precisely did they pledge? AP draws the overall sketch:

Under the Phase 1 agreement, which the two sides reached in mid-December, the administration dropped plans to impose tariffs on an additional $160 billion in Chinese imports. And it halved, to 7.5%, existing tariffs on $110 billion of goods from China.

For its part, Beijing agreed to significantly increase its purchases of U.S. products. According to the Trump administration, China is to buy $40 billion a year in U.S. farm products — an ambitious goal for a country that has never imported more than $26 billion a year in U.S. agricultural products.

Once the handshakes were over, the president seized a microphone and gushed:

Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade with China. Together we are righting the wrongs of the past.

And so there is more joy in heaven this day. But will there be more joy on Earth the next?

We are not half so convinced. The wrongs of the past — if they be wrongs at all — may well remain wrong.

The warring parties have signed a truce, it is true. But truce is not peace.

Truce may be no more than a mere respite from arms, a temporary cessation of fire, a brief clearing of battlefield smoke.

Consider the terms of this truce…

It cuts in half tariffs on certain Chinese wares from 15% to 7.5%. Yet tariffs on some $360 billion of Chinese exports stand in place.

Perhaps two-thirds of Chinese goods remain under penalty. As do more than half of all United States shipments to China.

Today’s signing scarcely budges them.

Meantime, this phase one armistice leaves unaddressed China’s war aims, its peace terms, its strategic objectives.

Continues the AP wire:

The so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies — that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018…

Most analysts say any meaningful resolution of the key U.S. allegation — that Beijing uses predatory tactics in its drive to supplant America’s technological supremacy — could require years of contentious talks. And skeptics say a satisfactory resolution may be next to impossible given China’s ambitions to become the global leader in such advanced technologies as driverless cars and artificial intelligence.

Adds The New York Times:

The deal also does not address cybersecurity or China’s tight controls over how companies handle data and cloud computing. China rejected American demands to include promises to refrain from hacking American firms in the text, insisting it was not a trade issue.

Affirms Eswar Prasad, who formerly directed the International Monetary Fund’s China desk:

“[The deal] hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.”

And so the generals remain huddled over their charts… the cannons are still loaded… and the troops are ready to answer the bugle.

They only await orders from the commander in chief.

Ultimate peace — lasting peace — will therefore require a “phase two” treaty…

The president has vowed to tackle China’s multiple trade atrocities in phase two of negotiations.

That is why he has held most existing tariffs in place. These represent the stick end of the “carrot and stick” polarity.

He will wield them as clubs, forcing Chinese concessions in this crucial second phase.

But phase two must wait. The president has suggested — strongly — that negotiations may not proceed until this year’s election is decided.

Assume they do proceed…

Will Mr. Trump club China into submission? Will China throw down its arms… and come marching into camp?

Not if it means losing “face,” argues Jim Rickards:

Culturally, saving face may be more important to the Chinese. The Chinese are all about saving face and gaining face. That means they can walk away from a trade deal even if it damages them economically.

Meantime, the truce, the uneasy truce, enters force.

The Lord only knows if it holds…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Now What? appeared first on Daily Reckoning.

Central Banker Comes Clean

This post Central Banker Comes Clean appeared first on Daily Reckoning.

Reuters broadcasts the confession:

I do think the growth in the balance sheet is having some impact on the financial markets and on the valuation of risk assets…

Here we have the unassailable and unimpeachable testimony of one Robert Kaplan. He, Mr. Kaplan, presides over the Federal Reserve’s Dallas branch office.

And so a central bank grandee gives it straight… and stamps our dark suspicions with an official seal.

For this has been our claim:

The latest stock market fever owes not to trade, not to economics, not to “fundamentals.”

It owes rather to a delirious four-month expansion of the Federal Reserve’s balance sheet.

Irrefutable Evidence

Let us re-enter Exhibit A into evidence:

IMG 1

And Exhibit B:

IMG 2

This, as we have noted repeatedly, is a direct response to liquidity shortages in the short-term lending markets. In brief summary:

The Federal Reserve has expanded its balance sheet $400 billion these past four months — a $1.2 trillion annualized rate.

The same balance sheet presently rises near $4.2 trillion… a mere holler from its $4.5 trillion record.

As Goes the Balance Sheet, so Goes the Stock Market

Now let Exhibit C go into the record:

IMG 3

As revealed, the stock market pandemonium since October matches nearly perfectly the balance sheet engorgement.

The Dow Jones once again crossed 29,000 today, as it did briefly last week. As last week, it lost its purchase… and skidded back down.

It ended the day at 28,939.

But tomorrow promises a fresh assault upon the peaks.

Should we then be surprised that investor sentiment presently runs to extreme greed?

Extreme Greed

Behold CNN’s Fear & Greed Index:

IMG 4

This Fear & Greed Index presently reads a sinfully avaricious 90 — “extreme greed.”

What did it read one year ago today?

It read 30… verging on “extreme fear.”

But that was before the Federal Reserve furled back its sleeves, spat upon its hands… and set to work…

Before it began hacking interest rates, before it halted quantitative tightening — before it sent the balance sheet ballooning.

One year later the stock market rises to record highs and sentiment runs to extreme greed.

“The Bullish Sentiment We’re Getting Now Has Reached the Uncomfortable Stage”

Here at The Daily Reckoning, our distrust of crowds approximates our distrust of politicians, sellers of used autos… and statistics.

When the crowd goes herding into the same railcar, we instinctively jump tracks.

And the railcar is filling fast…

“The bullish sentiment we’re getting now has reached the uncomfortable stage,” affirms Jeff deGraaf, chairman of Renaissance Macro Research, adding:

“Some of the levels we’ve seen are, frankly, similar to what we saw in January of 2018.”

In reminder: The stock market “corrected” over 10% between Jan. 26 and Feb. 8, 2018.

We believe it is preparing to correct again. But not until the market uncorrects further yet…

“Peak Bullishness and Dovishness”

Tomorrow the president puts his signature to the “phase one” trade accord with China.

The United States will cancel scheduled tariffs on Chinese wares… and China will agree to purchase additional American bounty.

The computer algorithms will pluck the joyful news from the wires. They will proceed to pummel the “buy” button.

Thus you can expect CNN’s Fear & Greed Index to lurch even further into greed.

Meantime, the Federal Reserve huddles at Washington in two weeks.

It will not lower rates — but nor will it raise them up. Federal funds futures presently give 87.3% odds that rates remain in place.

Conditions will remain accordingly benign. And markets can continue their journey into the record books, unruffled and undisturbed.

That is why Bank of America warns markets presently careen toward “peak bullishness and dovishness.”

What lies the other side of these lofty and treacherous peaks?

We hazard the stock market will correct in February, once across. We suspect it will correct on the same general scale as 2018.

Let us now turn our attention to the great bugaboo of today’s market, the skunk lurking in this growing woodpile…

Too Many Eggs in Too Few Baskets

Merely five stocks — Apple, Microsoft, Alphabet (Google’s parent company), Amazon and Facebook — presently constitute 18% of the S&P’s total market capitalization.

As Morgan Stanley reminds us, that is the highest percentage in history.

“A ratio like this is unprecedented, including during the tech bubble,” says Mike Wilson, who directs Morgan Stanley’s U.S. equity strategy.

These stocks account for much of the S&P’s 2019 outperformance. Apple and Microsoft accounted for nearly 15% of all S&P gains.

Rarely before, we conclude, have so many investors… owed so much… to so few stocks.

But what if these wagon-pullers crack under the strain — and throw off the burden of leadership?

CNBC:

These mega tech firms have been the front-runners in this record-long bull market as investors bet on superior growth and dominant market share in their respective industries. They were the biggest contributors to the market’s historic gains last year and the trend shows no signs of stopping in 2020. However, multiple Wall Street strategists are sounding alarms on the increasing dominance of Big Tech, warning of a potential pullback in the stocks ahead.

Will anyone carry the standard forward should the leaders falter?

No, suggests Goldman Sachs:

“Narrow bull markets eventually lead to large drawdowns.”

The Tide Rises, Until It Doesn’t

Next we come to the strategy of “passive investing.”

Passive, because it rises or falls with the prevailing tide.

After the 2008 near-collapse, the Federal Reserve inundated markets with oceans of liquidity.

The tide rose, and all boats with it.

Technology stocks like Apple and Microsoft have led the way up.

Much of Wall Street has poured into these stocks… sat back on its oars… and rode the current to record highs.

The biblical-level flooding flattened existing financial signposts. “Fundamentals” no longer mattered.

“Active” asset managers fishing for winners could no longer separate them from the losers. The nets came up full of winners and losers alike.

All is peace while the tide of liquidity rises. But the danger is this, as we have written before:

When the tide recedes… it recedes.

Panic Selling Begets Panic Selling

The same handful of stocks that hauled markets up on an incoming tide can drag them rapidly down on an outgoing tide.

Panic selling begins. And panic selling begets panic selling — which begets panic selling.

Explains Jim Rickards:

In a bull market, the effect is to amplify the upside as indexers pile into hot stocks like Google and Apple. But a small sell-off can turn into a stampede as passive investors head for the exits all at once without regard to the fundamentals of a particular stock…

The technical name for this kind of spontaneous crowd behavior is hypersynchronicity, but it’s just as helpful to think of it as a herd of wildebeest that suddenly stampede as one at the first scent of an approaching lion. The last one to run is mostly likely to be eaten alive.

Meantime, the Federal Reserve’s balance sheet continues to expand, the fools continue to rush in…

And the gods continue to plot.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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Helicopter Money Is No Panacea

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In recent decades, the Fed has engaged in a series of policy interventions and market manipulations that have paradoxically left it more powerful even as those interventions left a trail of crashes, collapses and calamities.

This contradiction between Fed omnipotence and Fed incompetence is coming to a head. The economy has been trapped in a prolonged period of subtrend growth. I’ve referred to it in the past as the “new depression.” And the Fed has been powerless to lift the economy out of it.

You may think of depression as a continuous decline in GDP. The standard definition of a recession is two or more consecutive quarters of declining GDP and rising unemployment. Since a depression is understood to be something worse then a recession, investors think it must mean an extra-long period of decline. But that is not the definition of depression.

The best definition ever offered came from John Maynard Keynes in his 1936 classic, The General Theory of Employment, Interest and Money. Keynes said a depression is, “a chronic condition of subnormal activity for a considerable period without any marked tendency towards recovery or towards complete collapse.”

Keynes did not refer to declining GDP; he talked about “subnormal” activity. In other words, it’s entirely possible to have growth in a depression. The problem is that the growth is below trend. It is weak growth that does not do the job of providing enough jobs or staying ahead of the national debt. That is exactly what the U.S. is experiencing today.

Long-term growth is about 3%. From 1994 to 2000, the heart of the Clinton boom, growth in the U.S. economy averaged over 4% per year.

For a three-year stretch from 1983 to 1985 during the heart of the Reagan boom, growth in the U.S. economy averaged over 5.5% per year. These two periods were unusually strong, but they show what the U.S. economy can do with the right policies. By contrast, growth in the U.S. from 2007 through today has averaged something like 2% per year.

That is the meaning of depression. It is not negative growth, but it is below-trend growth.  And growth under Trump has been no greater than it was under Obama.

The bigger problem is there’s no way out, as I said. One manipulation leads to another. My greatest fear is that the U.S. is becoming like Japan, which has used every trick in the book to no avail.

In my 2014 book, The Death of Money, I wrote, “The United States is Japan on a larger scale.” That was six years ago now.

Japan started its “lost decade” in the 1990s. Now their lost decade has dragged into three lost decades. The U.S. began its first lost decade in 2009 and is now entering its second lost decade with no real end in sight.

What I referred to in 2014 was that central bank policy in both countries has been completely ineffective at restoring long-term trend growth or solving the steady accumulation of unsustainable debt.

In Japan this problem began in the 1990s, and in the U.S. the problem began in 2009, but it’s the same problem with no clear solution.

Now in 2020, central banks have been cutting rates again, as the trade war and slowing global growth have policymakers considering the implications of a new recession without the firepower they need. As things stand, the next recession may be impossible to get out of. And the odds of avoiding a recession are low.

The only way out is for the Fed to guarantee inflation “whatever it takes.” Nothing else has worked. So why not try a more active fiscal policy? Why not load the helicopters with cash and dump it out over Main Street?

First, we need to understand what helicopter money is, and what it isn’t.

The image of the Fed printing paper money, and dumping it from helicopters to consumers waiting below who scoop it up and start spending is a popular, but not very informative way to describe helicopter money.

In reality, helicopter money is the coordination of fiscal policy and monetary policy in a way designed to provide stimulus to a weak economy and to fight deflation.

Helicopter money starts with larger deficits caused by higher government spending. This spending is considered to have a multiplier effect. For each dollar of spending, perhaps $1.50 of additional GDP is created since the recipients of the government spending turn around and spend that same money on additional goods and services. The U.S. Treasury finances these larger deficits by borrowing the money in the government bond market.

Normally this added borrowing might raise interest rates. The economic drag from higher rates could cancel out the stimulus of higher spending and render the entire program pointless.

This is where the Fed steps in. The Fed can buy the additional debt from the Treasury with freshly printed money. The Fed also promises to hold these newly purchased Treasury bonds on its balance sheet until maturity.

By printing money to neutralize the impact of more borrowing, the economy gets the benefit of higher spending, without the headwinds of higher interest rates. The result is mildly inflationary offsetting the feared deflation that would trigger helicopter money in the first place.

It’s a neat theory, but it’s full of holes.

The first problem is there’s not much of a multiplier at this stage of the U.S. expansion. The current expansion is already the longest in U.S. history. It’s also been the weakest expansion in history, but an expansion nonetheless. The multiplier effect of government spending is strongest at the beginning of an expansion when the economy has more spare capacity in labor and capital.

At this point, the actual multiplier is probably less than one. For every dollar of government spending, the economy might only get $0.90 of added GDP; not the best use of borrowed money.

The second problem with helicopter money is there is no assurance that citizens will actually spend the money the government is pushing into the economy. They are just as likely to pay down debt or save any additional income. This is the classic “liquidity trap.” This propensity to save rather than spend is a behavioral issue not easily affected by monetary or fiscal policy.

Finally, there is an invisible but real confidence boundary on the Fed’s balance sheet. After printing $4 trillion in response to the last financial crisis, how much more can the Fed print without risking confidence in the dollar itself?

Quantitative tightening brought the balance sheet back down to $3.8 trillion. But now it’s over $4 trillion again, as the Fed has added hundreds of billions to its balance sheet since September, when it starting shoring up short-term money markets. It’s basically been “QE-lite.”

Modern monetary theorists and neo-Keynesians say there is no limit on Fed printing, yet history says otherwise.

Importantly, with so much U.S. government debt in foreign hands, a simple decision by foreign countries to become net sellers of U.S. Treasuries is enough to cause interest rates to rise thus slowing economic growth and increasing U.S. deficits at the same time.

If such net selling accelerates, it could lead to a debt-deficit death spiral and a U.S. sovereign debt crisis of the type that hit Greece and the Eurozone periphery in recent years.

In short, helicopter money could have far less potency and far greater unintended negative consequences than its supporters expect.

Regards,

Jim Rickards
for The Daily Reckoning

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“Last Hurrah” for Central Bankers

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We’ve all seen zombie movies where the good guys shoot the zombies but the zombies just keep coming because… they’re zombies!

Market observers can’t be blamed for feeling the same way about former Fed Chair Ben Bernanke.

Bernanke was Fed chair from 2006–2014 before handing over the gavel to Janet Yellen. After his term, Bernanke did not return to academia (he had been a professor at Princeton) but became affiliated with the center-left Brookings Institution in Washington, D.C.

Bernanke is proof that Washington has a strange pull on people. They come from all over, but most of them never leave. It gets more like Imperial Rome every day.

But just when we thought that Bernanke might be buried in the D.C. swamp, never to be heard from again… like a zombie, he’s baaack!

Bernanke gave a high-profile address to the American Economic Association at a meeting in San Diego on Jan. 4. In his address, Bernanke said the Fed has plenty of tools to fight a new recession.

He included quantitative easing (QE), negative interest rates and forward guidance among the tools in the toolkit. He estimates that combined, they’re equal to three percentage points of additional rate cuts. But that’s nonsense.

Here’s the actual record…

That QE2 and QE3 did not stimulate the economy at all; this has been the weakest economic expansion in U.S. history. All QE did was create asset bubbles in stocks, bonds and real estate that have yet to deflate (if we’re lucky) or crash (if we’re not).

Meanwhile, negative interest rates do not encourage people to spend as Bernanke expects. Instead, people save more to make up for what the bank is confiscating as “negative” interest. That hurts growth and pushes the Fed even further away from its inflation target.

What about “forward guidance?”

Forward guidance lacks credibility because the Fed’s forecast record is abysmal. I’ve counted at least 13 times when the Fed flip-flopped on policy because they couldn’t get the forecast right.

So every single one of Bernanke’s claims is dubious. There’s just no realistic basis to argue that these combined policies are equal to three percentage points of additional rate cuts.

And the record is clear: The Fed needs interest rates to be between 4% and 5% to fight recession. That’s how much “dry powder” the Fed needs going into a recession.

In September 2007, the fed funds rate was at 4.75%, toward the high end of the range. That gave the Fed plenty of room to cut, which it certainly did. Between 2008 and 2015, rates were essentially at zero.

The current fed funds target rate is between 1.50% and 1.75%. I’m not forecasting a recession this year, but if we do have one, the Fed doesn’t have anywhere near the room to cut as it did to fight the Great Recession.

I’m not the only one to make that point. Here’s what former Treasury Secretary Larry Summers said:

[Bernanke] argued that monetary policy will be able to do it the next time. I think that’s pretty unlikely given that in recessions we usually cut interest rates by five percentage points and interest rates today are below 2%… I just don’t believe QE and that stuff is worth anything like another three percentage points.

Summers goes on to call Bernanke‘s speech “a kind of last hurrah for the central bankers.”

He’s right. But if monetary policy isn’t the answer, what does Summers think the answer is?

Fiscal policy. The government is going to have to spend money directly into the economy instead of relying upon some trickle-down “wealth effect” to stimulate the economy.

Here’s what Summers said:

“We’re going to have to rely on putting money in people’s pockets, on direct government spending.”

Remember the term “helicopter money”? Milton Friedman coined the term 50 years ago when he made the analogy of dropping money from a helicopter to illustrate the effects of aggressive fiscal policy.

That’s essentially what Summers is advocating. It might sound a lot like the idea behind Modern Monetary Theory, or MMT, but it’s not necessarily the same thing. MMT takes helicopter money to a whole new level, and Summers has actually been highly critical of MMT.

But the idea of direct government spending to stimulate the economy is the same, and it’s gaining traction in official circles.

There’s good reason to believe it’s coming to a theater near you. And maybe sooner than you think.

Regards,

Jim Rickards
for The Daily Reckoning

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Daily Reckoning 2020-01-09 17:55:42

This post appeared first on Daily Reckoning.

Dear Reader,

“Journalism is about covering important stories,” said one scalawag. “With a pillow.”

A staggering bailout of the banking system presently proceeds apace.

The mainstream financial press has seized a bed pillow, placed it over this important story… and pressed down murderously.

Today we pry away the pillow… and vent in desperately needed oxygen.

Here we refer to the Federal Reserve’s ongoing support of the “repo” market.

Precisely how large is this bailout? Might it exceed the entire Wall Street bailout of 2007–10?

Answers, elusive answers, anon.

What Is the Repo Market Again?

Here again is a brief sketch of the repo market:

Financial institutions borrow or lend money in the overnight money markets as need dictates.

This short-term borrowing and lending activity takes the form of “repos”… or repurchase agreements.

If a firm wishes to borrow monies, it goes before the “repo” market with an open hat.

It holds up high-grade securities such as Treasury bonds as collateral.

Another financial institution accepts the collateral. It then agrees to loan the overnight money.

The next day the borrower “repurchases” the collateral it originally put up… and returns the borrowed money (with some slight interest into the bargain).

Hence the term “repo.”

The repo market oils the gears of the financial system. Should the lubricant run dry, this system would suddenly and violently seize.

Yet the repo market goes nearly entirely unnoticed. It quietly and routinely hums beneath the thundering din of the stock market.

Explains one Alexander Saeedy in Fortune:

One of the most vital pieces of plumbing that powers the global financial system usually runs so smoothly that it gets overlooked by market watchers. It’s the “repo market”…

“The repo market is at the center of the U.S. financial system but it is little understood even by most people working in finance,” adds another observer, John Carney by name.

How Can It Be Coincidence?

The stock market has gone on a gorgeous spree since the second week of October.

The primary media lavishes credit upon a trade war truce. Some lovely economic data, recently rolled in, have livened the pace.

Yet we are deeply suspicious of the account. Come pull up to the facts…

In September repo market liquidity began to evaporate. The Federal Reserve’s New York branch rushed in with emergency hoses

Come next to this capital fact:

On Oct. 11 the Federal Reserve announced plans to purchase $60 billion of Treasury bills monthly.

And mirabile dictu… the stock market was immediately up and away.

In brief, the stock market rampaged only after the Federal Reserve commenced “QE lite.” Or as some wags have labeled it, QE4.

In all… the Federal Reserve has expanded its balance sheet $400 billion these past four months — a $1.2 trillion annualized rate.

The Federal Reserve shrieks in protest, denying it is QE of any sort, shape, form.

But the balance sheet argues it is.

An Ocean of Liquidity

The grand scale of the operation flabbergasts, staggers, astounds.

Put it against recent history, for example. Look first to 1999…

The Fed laid in $120 billion to support the repo market before “Y2K” — to prepare for the worst.

It likewise backstopped this market after Sept. 11, 2001… and during the Great Financial Crisis.

But these operations are minnows besides today’s whale.

The Federal Reserve is currently carrying on at such a gait… it shames all previous examples. Behold:

An Ocean of Liquidity

Now this question:

Will today’s repo bailout exceed even the supercolossal Wall Street bailout of the Great Financial Crisis?

A $29 Trillion Bailout

Wall Street on Parade sets the backdrop:

During the 20072010 financial collapse on Wall Street the worst financial crisis since the Great Depression the Fed funneled a total of $29 trillion in cumulative loans to Wall Street banks, their trading houses and their foreign derivative counterparties between December 2007 and July 21, 2010.

Last Friday — while the media were fabulously distracted — the Federal Reserve quietly released the minutes to its December meeting…

What did these minutes reveal? Wall Street on Parade:

The Fed’s minutes… acknowledge that its most recent actions have tallied up to “roughly $215 billion per day” flowing to trading houses on Wall Street. There were 29 business days between the last Federal Open Market Committee (FOMC) meeting and the latest Fed minutes, meaning that approximately $6.23 trillion in cumulative loans to Wall Street’s trading houses had been made in that short span of time.

For emphasis: The Federal Reserve has extended $6.23 trillion of loans in 29 days. That is equal to $215 billion per day.

If the business goes on at the present rate… the repo bailout will exceed $29 trillion by June.

That is, it will exceed the scale of the 2007–10 Wall Street bailout by June — if you can believe it.

Can you?

The Deafening Silence

Will it go along at existing rates? Perhaps not. But the Federal Reserve will hold up the repo market through April — by its own admission.

We bet high it will extend beyond April. Beyond June. Beyond August. Beyond October.

Come the end, whenever it is…

We conclude the present operation will ultimately outsize even the great bailouts of the financial crisis.

Yet in the primary press… all is silence.

One question nonetheless hovers in the air: What happens when the Federal Reserve eventually yanks the crutches — and the market is left to stand alone?

We have located a clue. Glance backward to 1999–2000, to “Y2K”…

A Parallel Example

As noted, the Federal Reserve was bracing the repo market in event the world’s computers lost track of time.

From October 1999–April 2000, it emptied in some $120 billion to prepare.

How did the stock market initially take it?

Analyst Jim Bianco of the eponymous Bianco Research:

The Nasdaq went on a tear rarely seen in American finance, starting literally the day the Fed opened its Y2K lending facility.

In reminder, the major averages began going amok in October — precisely when the Federal Reserve announced it would begin monthly Treasury bill purchases:

The Fed announced it would start buying T-bills on Oct. 11, 2019. Stocks have gone [on] a tear since… 9% of the stock market’s gains [this year] came after Oct. 11, when the Fed announced its T-bill purchase problem. So a big part of this year’s nearly 30% stock market gain has come on the heels of Fed moves, much like last year’s 20% decline was coincident with the Fed’s hawkish rhetoric.

Return now to 2000. That April the Federal Reserve announced a halt to the business… and walked away.

Did the Nasdaq stand up, Mr. Bianco?

It crashed 25% the week the facility closed (April 7–14, 2000).

That is our example, nearly a perfect parallel to today. We expect a similar trouncing when the Federal Reserve withdraws present support.

And recall — today’s operation vastly outdoes 1999’s. It may therefore come down with a correspondingly greater thud.

A Tiger by the Tail

And so Jerome Powell has a tiger by the tail…

He can let it go now, and allow the thing to maul the repo market. It would likely proceed against the stock market next.

Or Mr. Powell can hold on until the repo market can stand up alone.

But the stock market bubble may inflate to dimensions truly obscene if he does hold on.

And how could he let go then?

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post appeared first on Daily Reckoning.

The Case Against Economists

This post The Case Against Economists appeared first on Daily Reckoning.

Dear Reader,

Whenever despair slumps our shoulders and the sorrows of the world gnaw our liver… we can rely on CNBC to bring us up:

“Latest Data Show the Economy Ended 2019 on a Strong Note, Putting Recession Fears to Bed.”

Thus we are caressed, soothed, cheered, lifted.

And mortified.

When fear goes to bed… we vault instantly up from our own, hemorrhaging icy sweat.

That is because danger is highest when the guard is lowest — when fear dozes and snoozes.

A Jinx?

CNBC continues in the same lovely, terrifying vein:

The fourth-quarter growth scare is a thing of the past, as the U.S. economy looks set to close the books on 2019 with a solid rise.

Manufacturing and trade reports Tuesday confirmed that GDP is on pace to rise more than 2% for the period.  An Atlanta Fed gauge estimates the gain at 2.3%, better than the 2.1% in the third quarter and enough to close out the year with [an] average quarterly gain of about 2.4%.

While that would mark a slowdown from the 2.9% increase in 2018, it would still be indicative that the decade-old expansion is alive and well and prepped to continue into 2020.

Just so. But we might remind the joymongers that recession is nearly always an invisible menace.

It often comes in on tiptoe… like a noiseless thief in the night.

The Shockingly Short Route From Expansion to Recession

As we have written before:

Periods of jogging, even galloping, growth may immediately precede recession.

We invite you again to consult the following dates. Each reveals the real economic expansion rate — the economic growth rate adjusted for inflation — immediately before recession’s onset:

  • September 1957:     3.07%
  • May 1960:                2.06%
  • January 1970:          0.32%
  • December 1973:      4.02%
  • January 1980:          1.42%
  • July 1981:                4.33%
  • July 1990:                1.73%
  • March 2001:             2.31%
  • December 2007:      1.97%.

(Again we acknowledge Lance Roberts of Real Invest‍ment Advice for the data).

No Indication of Recession “Anywhere in Sight”

Review the figures. You are immediately seized by this strange and remarkable fact:

Recession has followed hard upon jumping growth of 3.07%, 4.02%… and 4.33%.

“At those points in history,” Roberts reminds us, “there was NO indication of a recession ‘anywhere in sight.’”

Let the record further reflect:

Growth ran 2% or higher immediately prior to five of nine recessions listed.

Third-quarter 2019 GDP came ringing in at 2.1%. And the Federal Reserve projects Q4 2019 will turn in 2.3% growth when the tally comes in Jan. 30.

What was GDP before the last recession — the Great Recession?

It was 1.97% — a workable approximation of the rate presently obtaining.

“Very, very few recessions have been predicted nine months or a year in advance,” affirms economist Prakash Loungani.

Adds George Washington University economist Tara Sinclair:

“There’s no economic data or research or analysis that suggests we can look 12 months into the future and predict recessions with any confidence.”

The facts are with them…

A Failure Rate Second to Few

The world has endured 469 downturns since 1988. How many did the IMF see coming?

Four.

This we have on authority of one Andrew Brigden, chief economist at Fathom Consulting.

But perhaps IMF economists are uniquely blinded and botched. Their private-sector brethren may enjoy superior vision. Private-sector economists are, after all, closer to the field of action.

But the record indicates private-sector economists are equally sightless, equally unable to penetrate the fog of data that surrounds them.

Between 1992 and 2014… 153 combined recessions came to 63 countries the world over.

How many recessions did private-sector economists spot coming — as a whole?

Five.

What is more, these bunglers generally undershoot recession’s severity.

Do we condemn the erring and wayward vision of professional economists, their phantom vision?

No. We question their value, certainly. But we do not condemn them.

“A Bedlam of Unpredictability”

The economy is a bedlam of unpredictability, an infinitely complex Rube Goldberg contraption — a chaos of billiard balls in endless and delirious collision.

Try to keep track of it…

A cue ball goes careening into a rack. A six ball lights out in one direction. A nine ball strikes out in a second, a four ball in a third…

A three ball goes knocking into an 11 ball, a two ball into a seven ball, a one ball into a 14 ball, a five ball into a 12 ball, a 13 ball into an eight ball, a 10 ball into a 15 ball…

Each in turn shoots in a random direction. Each then runs into another previously sent on its own indeterminate course.

Another dizzying chain reaction begins… with its own set of imponderables.

Into which pocket will each ball drop ultimately?

The answer is not only difficult to determine at the outset. It is impossible to determine at the outset.

The number of variables is endlessly boggling.

And so the economic outcome is impossible to determine too far out. And for the same exact reason.

As well hazard the winner of the 2096 presidential election… the number of angels that can fit on a pinhead… or the precise number of rocks in a senator’s skull.

Besides, we are in no position to mock the faulty psychic eyesight of economists…

A Prediction, Horribly Failed

That is because our own crystal gazing gives a consistently false image. For instance:

Roll back the calendar — to last Jan. 3.

The stock market had just come within one whisker of correction, defined as a 20% stagger.

We believed the curtain was coming down at last. We divined the Dow Jones would close 2019 at roughly 18,000… and the S&P near 2,000.

But we underestimated the Federal Reserve’s ferocious response and the vast pull of its magnetism.

Jerome Powell went into his trick bag. And our apocalypse went into oblivion…

The Dow Jones concluded the year above 28,500; the S&P above 3,200.

This year we tempted fate further yet. That is, we came out flat-footed with a prediction of the future, 10 years out.

We claimed the S&P will end this newly hatched decade between 1,500 and 2,300.

Today it floats at 3,265.

We claimed additionally the Dow Jones will be similarly trounced percentage wise.

Bulls, take heart! You need only glance at our record if concerned.

But come back home…

Few respectable economists forecast recession this year — or a stock market calamity.

And look at their record…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post The Case Against Economists appeared first on Daily Reckoning.

A New Gold Standard: Orderly or Chaotic?

This post A New Gold Standard: Orderly or Chaotic? appeared first on Daily Reckoning.

Over the past century, monetary systems change about every 30 to 40 years on average. Before 1914, the global monetary system was based on the classical gold standard.

Then in 1945, a new monetary system emerged at Bretton Woods. I was at Bretton Woods this past summer to commemorate its 75th anniversary.

Under that system, the dollar became the global reserve currency, linked to gold at $35 per ounce. In 1971 Nixon ended the direct convertibility of the dollar to gold. For the first time, the monetary system had no gold backing.

Today, the existing monetary system is nearly 50 years old, so the world is long overdue for a change. Gold should once again play a leading role.

I’ve written and spoken publicly for years about the prospects for a new gold standard. My analysis is straightforward.

International monetary figures have a choice. They can reintroduce gold into the monetary system either on a strict or loose basis (such as a “reference price” in monetary policy decision making).

This can be done as the result of a new monetary conference, a la Bretton Woods. It could be organized by some convening power, probably the U.S. working with China.

Or they can ignore the problem, let a debt crisis materialize (that will play out in interest rates and foreign-exchange markets) and watch gold soar to $14,000 per ounce or higher, not because they wanted it to but because the system is out of control.

I’ve also said that the former course (a conference) is more desirable, but the latter course (chaos) is more likely. A monetary conference would be far preferable. Why not avoid the train wreck rather than clear up the wreckage? But will probably be ignored until it’s too late. Either way, the price of gold soars.

The same force that made the dollar the world’s reserve currency is working to dethrone it. It was at Bretton Woods that the dollar was officially designated the world’s leading reserve currency — a position that it still holds today.

Under the Bretton Woods system, all major currencies were pegged to the dollar at a fixed exchange rate. The dollar itself was pegged to gold at the rate of $35 per ounce. Indirectly, the other currencies had a fixed gold value because of their peg to the dollar.

Other currencies could devalue against the dollar, and therefore against gold, if they received permission from the International Monetary Fund (IMF). However, the dollar could not devalue, at least in theory. It was the keystone of the entire system — intended to be permanently anchored to gold.

From 1950–1970 the Bretton Woods system worked fairly well. Trading partners of the U.S. who earned dollars could cash those dollars into the U.S. Treasury and be paid in gold at the fixed rate.

Trading partners of the U.S. who earned dollars could cash those dollars into the U.S. Treasury and be paid in gold at the fixed rate.

In 1950, the U.S. had about 20,000 tons of gold. By 1970, that amount had been reduced to about 9,000 tons. The 11,000-ton decline went to U.S. trading partners, primarily Germany, France and Italy, who earned dollars and cashed them in for gold.

The U.K. pound sterling had previously held the dominant reserve currency role starting in 1816, following the end of the Napoleonic Wars and the official adoption of the gold standard by the U.K. Many observers assume the 1944 Bretton Woods conference was the moment the U.S. dollar replaced sterling as the world’s leading reserve currency.

In fact, that replacement of sterling by the dollar as the world’s leading reserve currency was a process that took 30 years, from 1914 to 1944.

In fact, the period from 1919–1939 was really one in which the world had two major reserve currencies — dollars and sterling — operating side by side.

Finally, in 1939, England suspended gold shipments in order to fight the Second World War and the role of sterling as a reliable store of value was greatly diminished. The 1944 Bretton Woods conference was merely recognition of a process of dollar reserve dominance that had started in 1914.

The significance of the process by which the dollar replaced sterling over a 30-year period has huge implications for you today. Slippage in the dollar’s role as the leading global reserve currency is not necessarily something that would happen overnight, but is more likely to be a slow, steady process.

Signs of this are already visible. In 2000, dollar assets were about 70% of global reserves. Today, the comparable figure is about 62%. If this trend continues, one could easily see the dollar fall below 50% in the not-too-distant future.

It is equally obvious that a major creditor nation is emerging to challenge the U.S. today just as the U.S. emerged to challenge the U.K. in 1914. That power is China. The U.S. had massive gold inflows from 1914-1944. China has been experiencing massive gold inflows in recent years.

Gold reserves at the People’s Bank of China (PBOC) increased to 1948.31 tonnes in the fourth quarter of 2019. For comparison, it held 1,658 tonnes in June, 2015.

But China has acquired thousands of metric tonnes since without reporting these acquisitions to the IMF or World Gold Council.

Based on available data on imports and the output of Chinese mines, actual Chinese government and private gold holdings are likely much higher. It’s hard to pinpoint because China operates through secret channels and does not officially report its gold holdings except at rare intervals.

China’s gold acquisition is not the result of a formal gold standard, but is happening by stealth acquisitions on the market. They’re using intelligence and military assets, covert operations and market manipulation. But the result is the same. Gold’s been flowing to China in recent years, just as gold flowed to the U.S. before Bretton Woods.

China is not alone in its efforts to achieve creditor status and to acquire gold. Russia has greatly increased its gold reserves over the past several years and has little external debt. The move to accumulate gold in Russia is no secret, and as Putin advisor, Sergey Glazyev told Russian Insider has said, “The ruble is the most gold-backed currency in the world.”

Iran has also imported massive amounts of gold, mostly through Turkey and Dubai, although no one knows the exact amount, because Iranian gold imports are a state secret.

Other countries, including BRICS members Brazil, India and South Africa, have joined Russia and China in their desire to break free of U.S. dollar dominance.

Sterling faced a single rival in 1914, the U.S. dollar. Today, the dollar faces a host of rivals. The decline of the dollar as a reserve currency started in 2000 with the advent of the euro and accelerated in 2010 with the beginning of a new currency war.

The dollar collapse has already begun and the need for a new monetary order will need to emerge. The question is whether it will be an orderly process resulting from a new monetary conference, or a chaotic one.

Unfortunately, it’ll probably be chaotic. Don’t count on the elites to act in time.

Regards,

Jim Rickards
for The Daily Reckoning

The post A New Gold Standard: Orderly or Chaotic? appeared first on Daily Reckoning.

Rickards: Here’s Where Gold Will Be in 2026

This post Rickards: Here’s Where Gold Will Be in 2026 appeared first on Daily Reckoning.

Dear Reader,

Gold spiked after last Friday’s drone strike that took out a top Iranian military official and is trading at seven-year highs.

Yes, the news was dramatic and made a major impact. But geopolitics is just one factor driving gold. Even without the latest geopolitical tensions, gold is poised for a historic run.

The first two major gold bull markets were 1971–80 and 1999–2011. Today, gold is in the early stages of its third bull market in 50 years.

If we simply average the performance of the past two bull markets and extend the new bull market on that basis, we would expect to see prices peak at $14,000 per ounce by 2026.

What’s driving the new gold bull market?

From both long-term and short-term perspectives, there are three principal drivers: geopolitics, supply and demand and Fed interest rate policy (the dollar price of gold is just the inverse of dollar strength. A strong dollar = a lower dollar price of gold, and a weak dollar = a higher dollar price of gold. Fed rate policy determines if the dollar is strong or weak).

The first two factors have been driving the price of gold higher since 2015 and will continue to do so. Geopolitical hot spots like Iran, Korea, Crimea, Venezuela, China and Syria remain unresolved. Some are getting worse.

Each flare-up drives a flight to safety that boosts gold along with Treasury notes, as the latest incident shows.

The supply/demand situation remains favorable with Russia and China buying over 50 tons per month to build up their reserves while global mining output has been flat for at least five years.

The third factor, Fed policy, is the hardest to forecast and the most powerful on a day-to-day basis.

But there’s little chance that the Fed will be raising rates anytime soon. It’s much more likely to cut rates as the U.S. economy faces strong headwinds, especially from rising debt levels. Debt is growing faster than the economy.

Debt is now at the highest levels since World War II. We’re nearly in the same position on a relative basis as we were in 1945.

Because of the natural deflationary state of the world and the high debt-to-GDP ratio, growth has been snuffed out.

And based on Congressional Budget Office (CBO) projections — which I think are conservative — the debt-to-GDP ratio is going to keep going up.

There is no way out except inflation.

Add it all up and the environment is highly favorable for gold. But if you want evidence that owning gold is probably the best way to guard your wealth, just look at the “smart money.”

I’m sure you’ve seen plenty of billionaire hedge fund managers on business TV or streaming live from Davos. They like to discuss their investments in Apple, Amazon, Treasury notes and other stocks and bonds.

They love to “talk their book” in the hope that other investors will piggyback on their trades, run up the price and produce more profits for them.

What they almost never discuss in public is gold. After all, why have gold when stocks and bonds are so wonderful?

Well, I worked on Wall Street and in the hedge fund industry for decades. I also lived among the players in New York and Greenwich, Connecticut, at the same time. I’ve met the top hedge fund gurus in private settings. And here’s the thing:

I’ve never met one of them who does not have a large hoard of physical gold stored safely in a nonbank vault. Not one.

Of course, they won’t say so on TV because they don’t want to spook retail investors into dumping stocks and bonds. But watch what they do, not what they say.

If gold bullion is the go-to asset for billionaires, why don’t small investors have at least a 10% allocation to gold and silver bullion just in case?

Some do, but most don’t. They’ll find out the hard way what individuals have learned over centuries and millennia. Gold preserves wealth; paper assets do not.

Below, I show you why a global monetary reset is coming, with gold at its center. It can either be an orderly process — or a chaotic one.

Which will it likely be? Read on.

Regards,

Jim Rickards
for The Daily Reckoning

The post Rickards: Here’s Where Gold Will Be in 2026 appeared first on Daily Reckoning.