James Rickards is the author of the national bestseller, Currency Wars: The Making of the Next Global Crisis and a Partner in JAC Capital Advisors, a hedge fund based in New York. He is a counselor and investment advisor and has held senior positions at Citibank, Long-Term Capital Management and Caxton Associates. In 1998, he was the principal negotiator of the rescue of LTCM sponsored by the Federal Reserve. His clients include institutional investors and government directorates. He has been interviewed in The Wall Street Journal and has appeared on CNBC, Bloomberg, Fox, CNN, BBC and NPR and is an Op-Ed contributor to the Financial Times, New York Times and Washington Post. Mr. Rickards is a visiting lecturer at Northwestern and the School of Advanced International Studies, has delivered papers on risk at Singularity University, the Applied Physics Laboratory and the Los Alamos National Laboratory and has written numerous articles on risk management. He is an advisor on capital markets to the Director of National Intelligence and the Office of the Secretary of Defense. Mr. Rickards holds an LL.M. (Taxation) from the NYU School of Law; a J.D. from the University of Pennsylvania Law School; an M.A. in economics from SAIS and a B.A. from Johns Hopkins.
Hey guys welcome back to Nifty invest in this video Jim Rickards discusses the relationship between interest rates and the business cycle and the different indicators that suggest an economic downturn may be on the horizon he notes that interest rates are a lagging indicator and that business owners entrepreneurs and medium-sized
Businesses are often the first to notice when a recession is imminent he also points out that while the stock market is predicting a soft Landing the bond market is signaling that a recession is coming and that the inversion of Feld curves is a particularly worrisome indicator don’t forget to like And
Subscribe if you enjoy the content we do here on this channel let’s get right into the Video the uh interest rates are a lagging indicator everyone’s like well how could interest rates be um you know going up if we’re in a recession the answer is um as you get close to recession who who figures it out first well the FED figures it out last they’re
Usually the last to know Wall Street is second last to know the people who figure it out first are actual business people entrepreneurs restaurant owners dry cleaners taxi drivers um or even medium-sized businesses um they see it um you know if you’re in the trucking business it’s it’s real time uh you know
If inventories are skyh high and new ERS are being slashed you’re not you’re not mov anything by truck uh so there are certain businesses that are Concurrent but the the stock market is saying uh yeah the fed’s raising rates inflation is coming down but we think they’re already at the terminal rate but not only that we think they’re going to get the memo that that the FED will figure that out uh before they get to 5
And a quarter before they raise rates in May maybe even March you know maybe they’re done um and because of a recession uh this is these soft Landing Goldilocks scenario where the Market’s right the fed’s wrong but the FED will realize that the Market’s actually right
And cut rates you know and if you’re going to cut rates by stocks that’s like Wall Street always ends every analysis with bu stocks if you’re listening to Michael Barry uh Jeremy Grantham uh you know Charlie moner these people have been around and they they run uh you know
Hundreds of billions uh and uh they’re saying the same thing so Jeremy Grantham actually did do a 100-year Time series and looked at bubbles all over the world you know 1929 us 1989 Japan 2000 Doom stocks you know and and many others um and he said he’s
Never seen anything like it you know it’s a triple greatest bubble of all time times three in the sense that it’s um real estate stocks and and other asset classes so uh yeah I do uh that that is my view but it’s it’s shared by a number of other analysts 1929 everyone’s like
Yeah October uh I think 18th or 19th it was late October 1929 the stock market fell 22% in two days it wasn’t one day it was you it was like 12% one day 11% the next day so 23% over two days but that wasn’t the crash
I mean that was the beginning of the crash this this D Jones fell 82% from from top to bottom now it took three years it bottomed in uh June 1932 uh started in October 1929 so not quite three years but uh that fell 82% and and that happen so uh so yeah
We’re down you know nasdaq’s down U bounced back a little bit in recent days down close to 30% down the S&P down over 20% we’re in bare Market territory but that that’s just the beginning that’s not what a full full bare Market full you know Market adjustment looks like in
The face of the kind of recession that I expect Jin Rickards explains that interest rates are a lagging indicator and that people like to question how they could go up if we’re in a recession however as we get closer to a recession business people like entrepreneurs restaurant owners and taxi drivers are
The ones who figure it out first not the Federal Reserve or Wall Street the stock market might say that the Federal Reserve is raising rates in inflation is coming down but it might not be the case the bond market is telling a completely different story by the way and and this
Is a little more esoteric uh but uh if you look at um y curves look at the treasury y curve euro dollar Futures yur German buns they’re all inverted they’re all inverted now inversions happen just meaning the longer term rate is lower than the shortterm rate now this is in
The treasury y curve they’re inverted from one month to 20 years it’s not like you know talk twos and fives and fives and tens and one month a one month bill is yielding more than a 20-year note okay that’s inverted across the entire y curve um your dollar future same thing
The inversion kicks in uh it doesn’t kick in immediately because the FED does control very short-term rates and they’re raising them but the Kink kicks in um like in March uh March 2023 which isn’t that far away um and buns have never been inverted they are now um even the inversions that have
Happened in the past which are rare uh have not been as steeply inverted as they are now we’re seeing something globally we’ve never seen before and it is the best single indicator of a recession the last time we saw anything like this was uh 2007 I just ahead of
The 2008 financial catastrophe so the stock market saying it’s all good Goldie Locks soft Landing fed’s going to get the memo they’re going to cut rates the pivot and buy stocks the bond market is saying no this is bad and it’s going to get worse and it’s actually too late for
The FED to do anything about it but as far as Banking and credit is concerned what happens is if you’re a business person and you see business uh heading down you know fewer customers whatever you go out and borrow all you can you’re like hey it’s a really bad recession
Coming I better if I got lines of credit I’m going to use them up now I don’t want my bank changing the terms I don’t want material aage clubs Clause average change Clause is kicking in a said I’m going to borrow everything I can and that creates a demand for funds and
Interest rates go up and then the recession hits and the bankers go huh what’s going on credit losses start going up and then then they just turn off the spets and they raise standards they stop doing L and then interest rates will start to come down but they
Interest rates Peak after the recession be has already begun so it’s not so interest rates may not have peaked yet I mean um even you know even the treasury market so that’s not unusual Jim Rickards believes that we are in a triple greatest bubble of all time that
Includes real estate stocks and other asset classes the bond market is telling a completely different story and indicating that we might be headed for a recession this is the best single indicator of a recession and the last time we saw anything like this was 2007 just ahead of the 2008 financial
Catastrophe the stock market believes that it’s a goldilock soft Landing but the bond market is saying that it’s going to get worse and it’s actually too late for the FED to do anything about it so so stock market’s telling us Goldie Locks bond market is telling us you know
Here comes you know hurricane Mitch or whatever um and then uh there’s what I call the reality the standard definition of a recession is two consecutive quarters of decline in GDP there are a few more bells and whistles having to do with unemployment and a few other things but
That’s that’s the rule of thumb So based on that based on the best available estimate for a second quarter likely to be accurate we’re in a recession today now it’s not severe but that’s like saying I’m in bed with you know pneumonia but I’m not dying well okay
But uh we’re in we’re in a recession right now the fed’s doing what they’re doing right or wrong okay they’re they’re doing what they’re doing the market has their own interpretation I agree with the market certainly the bond market that the FED has probably overtightened that means they’re going
To make it worse they’re going to make the recession even worse in other words If the Fed Cuts rates which they may the pivot may be real it’s not because they engineered a soft landing and Goldilocks and everything oh that’s just right it’s because they screwed up as usual as
They’ve been doing since 1913 and we’ve seen this movie before this is exactly what happened in 2018 I mean the Fed was tightening into that collapse the fed Titans on uh December 16th 2018 only like 8 days before the Christmas Eve Massacre and after most of the 20% collapse had already happened they
Tightened one last time so what it shows you is that when the fed’s on a mission they they actually don’t care about the stock market this whole you know bernoni put and Greenspan put and all that that’s not how it works uh they don’t care that much about the stock market
Level here’s what they do care about they care about dis orderly markets what do you think about this video comment down below don’t forget to like And subscribe this is Nifty invest we’ll see you in the next Video the narrow uh Focus I’d like to start with since it’s the topic of the day is the dollar um and you know I’m going to throw red meat to the Wolves here by citing a headline across Bloomberg earlier from Larry Summers talking about how the dollar can
Continue to move higher because the US has all these great fundamental advantages this comes you know 24 hours after another Bloomberg headline talked about the Unstoppable strength in the dollar so there’s the red need for you and I’ll let you know on that for a little bit well may comes a surprise I
Think I think Larry Summers was half right and I’ve met him a number of times he’s a brilliant brilliant guys always I I uh I almost always agree with his analysis and then disagree with his policy so I always have to stop him where with L like good analysis Larry
But you’re you’re going going the wrong way um but yeah I think he’s right that the dollar will get strong uh is probably correct also where I disagree and this is critical is the reason why the dollar is getting stronger for some very bad reasons meaning bad in terms of
The macroeconomy what’s what probably lies ahead what is probably telling us um so let’s just maybe step back and not be Larry Summers for a minute but just be everyday investors and asset allocators and analysts and and say um you I hate to use the word conundrum because Greenspan used it but conundrum
Is a fancy way of saying I don’t really understand what’s going on but um but this is a conundrum for a lot of people because they look at it the US objectively okay or our debt to GDP ratio is over 130% highest in US history um tons of
Research coming from um obviously Ken rogo but really Carmen Reinhardt Vincent Reinhardt and others but many others not just them that says um at those debt GDP ratios you um you can’t grow uh you you can maybe refinance and muddle through but it always ends either in um default
Which is unlikely because we can print the money that much is true or um extreme inflation where here’s your trillion dollars back good luck buying a loaf of bread so we’ll we’ll see how that plays out but the way it’s playing out in real time is that the US economic
Growth is incredibly weak so we’ve got high sky high debt to GDP ratio by the way when you look at other countries in the world you say okay who who’s at that lunch table you know 130% the answer is Lebanon Greece uh Italy th those are your those are your your lunch Partners
So to speak and this is like the scene from Animal House would you like to meet fighton jug Dash and Mohammed that’s a good that that’s a good comparison um economic growth is weak uh we’re in a recession I don’t care what Johnny Ellen says I don’t
Consider her expert on the topic but we’ve had our two consecutive quarters of declining GDP like it or not that’s the definition of recession um the fact that the National Bureau of economic research which is a private group by the way but they’re the recognized referees on recessions and recoveries the fact
That they haven’t said so doesn’t mean anything because they never do say so until you know nine months or a year um after it happened and for that matter most recessions are two quarter some three some have been longer but but most recessions are a couple of quarters the
The national be of economic research usually declares a recession after it’s already over like it started it happened it’s over we’re in recovery they go oh by the way we had a recession last January um okay so they’ll probably get back to us I would bet heavily after the
Election but um we we’ll hear from them at some point but we’re in a recession now and people say what about the third quarter um and it’s interesting because I do put some weight on the Atlanta fed GDP now I I do think it’s a very good tool they miss sometimes they’re not
Always accurate but it’s the best tool out there but very few people understand their statistical technique uh because what Wall Street does uh you get a whole bunch of components for GDP and they come in at different times with different lags and you add them all up
And you get GDP um and what Wall Street does they look at what they have and they project all the rest based on regressions and correlations which you know don’t necessarily hold up but here’s what we think here’s our forecast for third quarter GDP based on uh projections of what we don’t know
Atlanta doesn’t do that Atlanta takes what we do know hard data and they ask a different question they say what would GDP be now if this was all we had and they put out a number but uh they don’t guess at the stuff they don’t have and
It fills in as it goes along so it’s much more basian in that sense um but because of how the data comes out the time sequence to which the data comes out it typically Fades as the quarter goes on it’s not because they’re using uh bad methodology it’s just because
That’s how they do it um and so just in the last uh week nine days or so it went you know I almost cheer anything with September 1st it was 2.3% maybe a little higher but about 2.3% two days later it was 1.6 and now it’s down to 1.3 so it’s
Following that pattern I would expect by the end of September we still got three weeks to go given what I said about how it fades it it it doesn’t have to be negative but it could very well be negative maybe 34s of decline in GDP but
Whatever it is it’s going to be weak so if it’s positive you know 210 or 310 I mean that’s okay but you’re still rounding are away from recession it doesn’t mean the problem’s over so uh Deb to GDP Skyhigh economy weak at best probably had a recession the first half
Maybe that’s continuing um people talk unemployment close alltime low went up a little bit in the last report yeah but even at 3.5% or so uh that that is extremely low I mean I go back to the 1960s and uh that was that was low low by the
Measures of the 1960s but that completely ignores probably 8 to 10 million Americans who were were perfectly able of having jobs and working ume prime age 25 to 54 years old who are not in the workforce um that’s that’s that measure is picked up in labor force particular participation
Rate which is uh low I that was that peaked around 70% in 19 sorry in 2000 uh M up from the 1970s and that was women coming into the workforce and other factors uh but now it’s down to around 62% and change it ticked up a little bit
In the last report but it’s still extremely low it’s never 100 I mean there’s always you could be um a homemaker a a student um they’re they’re uh retired early retirees there are a lot of reasons people aren’t the workforce but not you know taking 10%
Off or 14% decline uh from the starting place in um uh over 20 years that’s uh so if if you throw those people into the UN they’re not called unemployed because they’re not looking for jobs but if you threw them in unemployment would be closer to 10% which is a recession or
Depression level actually um so and I could go on but the point is there there are all kinds of signs of weakness so you know I forgot the deficit uh we’re um you know the Baseline deficit is a trillion that’s before uh an extra two trillion for Trump’s covid relief uh an
Extra three trillion for Biden’s Co relief if you include the uh ludicrously named inflation reduction act and and and the American Rescue Act and the infrastructure act call what you want it’s it’s still three to four trillion two for Trump that’s six on top of two Baseline that’s $8 trillion in two years
So your deficits out of control and your trade deficits out of control so what’s not to like um and you look at all that say what you kidding me I mean get me out of the dollar get me go get anything else uh why is the dollar so strong and
The answer is for this you have to go behind the curtain you have to look into the What’s called the plumbing of the international monetary system and I had a discussion um and this goes back this is 1980 uh so I’m a you know an up young upand cominging vice president of City
Bank that’s back uh back in the days when it was a bank before they turned into a hedge fund uh so I’m like a 27 or whatever a 28 maybe year old lawyer um but I’m I’m talking to Wal wriston it’s a one-on-one conversation he was for
Those who don’t know the name or don’t recall he was probably the second greatest Banker of the 20th century after P Pont Morgan so I’ll give Morgan the prize uh but he left around 1910 uh but um and wristen was the inventor of the euro dollar oh so the the negotiable
Certificate of deposit Euro dollars are around a little bit earlier but he took the CD that that repres that was your interest in the euro dollar made them negotiable and tradable um so I’m having a conversation with him and I I had just seen this movie which I highly recommend
That Chris kristofers and Hume Cronin and Jane Fonda it’s called rollover um and it’s again 1980 but Allstar yes yeah I got a murder mystery a little sex tone in but it’s uh it’s basically about the collapse of confidence in the US dollar and human Cronin plays the waler wristen
Part um and basically the idea was the remember this is during the the Arab oil embargos and the Iranian Oil Embargo and price World quadrupled in eight years and all that so the the theme was the the Arabs are taking the money out of the banking system and buying gold and
They stashing to Gold away and this is the the collapse of the financial system that that was sort of the plot so uh Mr wriston uh uh what about that you know everyone took their money out of the system and uh bought gold wouldn’t that collapse the system and he looked
At me like I was a new kid on the Block which I was and he said well what you have to understand is that you can take your money out of the bank and you can buy gold but the person who sold you the gold got the money and they put it back
In the bank so it doesn’t go anywhere it’s a closed circuit and of course now I’m like oh oh yeah you’re right of course he’s right um and he said so the the uh stability of the system doesn’t depend on who sells what for dollars yeah it affects exchange rates a little
Bit and um and interest rates with the price of gold but he said the money always it can’t literally disappear it has to go back into the system it’s a closed circuit and of course that’s how the euro dollar system works the supply chain was breaking down
Before Co now of course Co made it worse yes uh and the war in Ukraine made it worse yet yes but this really started with Trump’s trade war in 2018 so um that like I said there’s a thread that runs through all these things so uh not
To throw out my hands I’m not going to do that but um when you ask me that I’m like I’m thinking well you talk about China Ukraine supply chain Biden they’re they’re all they’re all a big deal if if um you know in terms of tragedy
Probably uh the war on Ukraine is the most important because it’s highly highly significant economic Ally and strategically but of course it’s a human tragedy going with it you know if Chinese real estate implodes okay there’s some hardship here and there but it’s not like uh people being killed or
Maine or forced into Refugee status and that is uh part of what’s going on in Ukraine so that’s a that’s probably the biggest single one but I wouldn’t uh miss the fact that all these Leed about inflation but uh there there’s a big backstory there but I always say when
When it comes to your own money everybody has a PHD in economics you don’t need Larry Summers to tell you what’s going on with your budget and your you know ability to feed your family or keep a roof over your head so people get inflation one of the reasons
It’s so politically toxic is because it’s unavoidable you can’t fudge it you can’t spin it it’s like hey if I used to fill up my Ford F-150 truck for 50 bucks and now it’s 125 bucks a you get it it’s right in your face and B that’s 75 bucks
That you don’t have to take your spouse out to dinner you know buy a new jacket or whatever um so there’s kind of demand ruction at the same time you’re spending more money on the one thing you can’t do without so so people get it but then
From there the question I get the most is hey Jim is this going to cause a recession or we’re going to have a recession and I you as recently as a few months ago I would say yeah I think so you can see it coming late this year
Early next year now I say we’re in a recession I mean it’s not coming we’re in it and and there’s data I you I never make statements like that Brian without supporting it so the the standard definition of recession is two consecutive quarters of decline in GDP
There a few more bells and whistles having to do with unemployment and a few other things but that’s that’s the rule of thumb So based on that based on the best available estimate for the second quarter likely to be accurate we’re in a recession today now it’s not severe but
That’s like saying I’m in bed with you know pneumonia but I’m not dying well okay but uh we’re in we’re in a recession right now um and there’s there’s a lot of whistling past the graveyard I mean the stock market uh is still you know greatly overpriced there’s still you know the
Buy the dips mentality hasn’t gone away it’s still there you got people like Jim Kramer yelling you know buy Netflix or whatever and uh you know there’s institutional support uh this momentum trading of course 95% of the trading is by robots so you got a reverse engineer
The 27 year olds from Bangladesh who don’t get out much the ones really writing these algorithms I mean brilliant Engineers but you know you’d have to show them around Wall Street so so all that’s going on so we haven’t really seen the real the market collapse stock market collapse that I would
Expect in association with a severe recession has not happened yet this is just going to play out it’ll get worse as the year goes on all right so you’re expecting a major correction in stock markets on the back I’m not alone I mean I mean that that is my expectation I
Have my own models and I look at it closely but if you’re listening to Michael Barry uh Jeremy Grantham uh you know Charlie moner these people have been around and they they run you you know hundreds of billions uh and uh they’re saying the same thing so you
Know every now and then someone will throw some statistic at me I go how long is your time serious oh we took it back five years I was like you know talk to me if you’ve done it for hundred years because that’s a little more meaningful but Jeremy Grantham actually did do a
100e Time series and looked at bubbles all over the world you know 1929 us 1989 Japan 2000.com stocks you know and and many others and he said he’s never seen anything like it you know it’s a triple the greatest bubble of all time times three in the sense that it’s um real
Estate stocks and and other asset classes so uh yeah I do that that is my view but it’s it’s shared by a number of other analysts and that would mean like S&P coming off another 20 30% yes uh and again you remind you have to remind people um 1929 everyone’s like
Yeah October uh I think 18th or 19th it was late October 1929 the stock market fell 22% in two days it wasn’t one day it was it was like 12% one day 11% the next day so 23% over two days but that wasn’t the crash I mean
That was the beginning of the crash this this Dow Jones fell 82% from from top to bottom now took three years it bottomed in uh June 1932 uh started in October 1929 so not quite 3 years but uh that fell 82% and and that happens so uh so yeah we’re
Down you know nasdaq’s down uh bounced back a little bit in recent days down close to 30% down the S&P down over 20% we’re in bare Market territory but that that’s just the beginning that’s not what a full bare Market full you know Market adjustment looks like in the face
Of the kind of recession that I expect talk to me about inflation because you know I was looking at some of the inflation numbers and you have to go back to the 80s to see anything that’s approaching double digit you you know I remember being a just a kid hearing
About double- digigit inflation I could kind of remember the the the gas pumps you know the lines at the gas it’s like a distant memory of me in the 70s and but you know how do you talk to you know younger people these days about what
Inflation is or it means because I don’t think people really Gras what it actually means to your savings or to the economy and even a medium term well that’s exactly right Brian and if you um uh you know you’re you’re younger than I
Am but I I I lived through it I was uh I started my career uh in banking in 1976 and uh so I start I remember my uh my wife and I used to kid each other she was in advertising I was in banking and the inflation was so bad you’d get a
Raise every like four or five months and you didn’t have to ask they would just give it to you because they knew that you were going to quit if if they didn’t keep up so she would get a raise and she was making more than I was at the time
So we’d go out to dinner and then I would get a raise and I was making more than she was so we would just teach each other about that that’s how it was and the psychology was you know if you needed a whatever you know TV set or
Refrigerator new car whatever you I better buy it now because the price is going to be higher if I wait a month or two months the price is going to run away from me so it it had huge behavioral effects of course gold was you know going to the Moon there was a
Lot going on at the time but but Brian you’re right when you say we’re putting up inflation numbers today that are the highest in 40 years that is correct a little 41 actually it was 1981 before we saw these numbers but I remind people the inflation
1981 was the end of a 10-year period of inflation it wasn’t the beginning it’s like oh had some inflation yeah we did but it had started me some ways it started 1968 and it really took off in 1974 75 so 81 these numbers that was when vulker finally got it under control
But you go back to 80 7 you 70 well between 77 and 81 so that 5year period the dollar lost 50% of its purchasing power not 15 50 uh in that 5year stretch so you were putting up numbers you know 10% 11% 133% and higher year after year
Yeah 1981 it was um you know n or 10 which is what they’re comparing it to today but that was that was on the Downs slope it had been higher than that in 7778 and and you know and 79 so the question is is this the beginning of an
Inflationary surge or it’s going to get even worse and it is going to Last 5 Years or is it is it different than that but I but keep that in mind because the the 40-year comparison it is correct but that was the tail end of an even worse
Episode again there is this comparison to the 70s by the way I think the situation we’re in today is very different from the 1970s and I’ll explain why in the 70s it was triggered from the supply side with first the Arab oil embargo in 1973 as a result of the
Uh the 1973 Arab Israeli War and then the price tripled but it went from like $2 to $6 okay but you know percentage terms that’s a huge jump but it was still $6 and then it got to 12 and then in 1979 you had a second Oil Embargo
Because of Iran and the iol and the revolution the hostages and all that and then it went from kind of 12 to 20 so uh went up by a factor of 10 um in the course of the late ’70s for because there’s two different embargos so that’s
Coming from the supply side but what happened was the other source of inflation is on the demand side so you have what’s called cost push inflation that’s where you know supplies choked off or there’s an abgo or there’s a shortage natural disaster a lot of things it’s coming from the supply side
And demand is in elastic so you just pay up or you know going to do without but the demand side is much more psychological that’s called uh demand pull in infation that’s when consumers behave the way I described and as I say I live through the 70s um where you know
Hey I better buy it today I better buy it now you’re pulling all this demand forward and bidding up prices because you’re worried that it’s going to get even worse so as that applies to today we are starting with the cost push inflation mainly the price of energy but
The price of food is a big factor and of course they’re related you know it’s like oh it’s like here’s the energy here’s the food you where do you think the food comes from you to get the food you got to feig feed the pigs and cows
What do you feed them you feed them corn huh how do you get corn well you grow it on a farm you need nitrogen fertilizer you need diesel in your tractors uh you get the food you got to put it in a truck to get it from point A to point B
That requires diesel the higher the diesel price the higher the cost of food because you’re moving it by truck Etc so these things as I say are linked but but food prices are going up substantially and you can’t the two things you can’t do without our gas in the car and food
So so you have that cost push inflation the thing I would point out is that um there are bull markets and bare markets and uh in basically any tradable instrument or commodity or uh I consider gold to be a form of money but what we’re really talking about when we say
You know gold is up what we’re talking about the dollar price of gold and I view it as a cross exchange rate people talk about the dollar you know the euro dollar exchange rate well there’s a dollar gold exchange rate and that’s the dollar price of gold uh so they’re just
Alternative forms of money where people get to express liquidity preference or uh a credit preference if you will if you’re concerned about the U if you’re losing confidence in the dollar but the first great bull market was um 1971 to 1980 uh lasted nine years and gold went
Up 2,200 per. um the Second Great bull market was from uh 1999 to 2011 Gold went up at just a little under 700% uh but um in between you had a bare Market from 1980 to 1999 it’s a long one uh you know almost 20 years gold dropped
From $800 to $250 at the bottom in 1999 and we had a second bear Market starting in 2011 I had a very interesting conversation with uh Jim Rogers um you know Jim is one of the great commodity Traders uh money managers of all times and um we were down in uh Dominican
Republic At Cost compai this is around 2004 but you know the the bare Market started in 2011 but it really fell off a cliff in 2013 so I said Jim you know what what do you think of goal what are you doing he goes
Well I own it of course and he said I’m not selling but I’m not buying right here and he says something that just hit me right between the eyes and it stayed with me and of course he’s right he said goal’s going to the moon but nothing
Goes to the moon without a 50% correction along the way and if you look at the high in 2011 $1,900 you know approximately and where was the bottom of the of the bare Market it was $1,050 on December 16th 20 2015 nobody knew it was the bottom at the time but if you
Look at that drop down and you you Ed $250 as your base because you know you need a base so you had uh basically a uh uh the run from 250 to 1900 uh was $1,750 go down 50% from there it’s $825 ,900 minus $825 is $175 and the
Bottom was 1050 so so Jim totally stuck The Landing like at 1050 like okay there’s your 50% retracement now that’s the bottom now it’s going up and the sky’s limit well we’re not overheated at all I’ve got gold at uh I would put at $115,000 an ounce before 2025 but as I
Point out if you’re going to $15,000 an ounce you got to get to 3,000 5,000 7,000 first so there’s plenty of room to run plenty of room for profits but you know when I say things like that I want to be clear there’s a lot of analysis
Behind it I don’t just pull a big number out of the air and you know for publicity because I could care less but if you just took the average and there a couple ways to think about it just take the average of the two prior
Bull markets I mentioned so 71 to 80 9 years 2200 99 to 2011 a 12year bull market um about 700% just take the average you don’t have to go to the higher of the two or extrapolate just take the average of those two bow markets you would say
Okay well though the next bll Market is going to be a little over 10 years and it’s going to go up um it’s going to go up, 1500% so using that your base just take the average of the two you say right 10 years in 2015 that puts you out
To 2025 and you know, 1400% it puts you at $155,000 an ounce off of 1050 base so that’s just that’s just history but there are other ways to think about it now um you know I don’t know if there’ll be a gold standard or not but I do know
That gold will move the price of gold will move in the direction of where it would need to be if you’re going to have a gold standard and you know I talked to Paul vuler about this and and he agreed you um uh if you just took the money
Supply so just take M M1 which is you know pretty widely accepted definition of uh money supply take it for the US ECB UK bank of Japan and People’s Bank in China there are other entities you could include but that’s that’s about that’s over 75% of global GDP right
There uh divide that number by the official goal which is about 34,000 metric tons a little bit less you come to $115,000 an ounce so uh if you’re if you’re going to either have a gold standard or even use gold as a reference point for money if you if you need to
Restore confidence in the dollar the implied non- deflationary price is $155,000 now so what I find interesting is that if you use the just the history of the last two bull markets and average them or if you use you know a rigorous calculation what’s the what’s implied non- deflationary price interestingly
They come out in the same place I don’t think they have to they’re two different methods but they both point to $15,000 an ounce sometime over the next three or four years it is a moving Target the numbers I gave you were based on current levels but you keep printing money you
You need a higher price to if you want to reference gold and not cause deflation which they don’t you’re going to need a progressively higher price of gold one thing people forget um you know they tend they look at the dollar price in absolute dollar so it went up $100 an
Ounce or you know I expect before long it’ll go up $1,000 an ounce a week but each dollar increase is a smaller percentage increase so people look at the dollar it’s real money it’s nice to make the money but you know if you go from uh $14,000 an ounce to $155,000 an
Ounce that’s only a 7% increase I mean that’s you can do that in a week so so my point is it’s still $1,000 an ounce good for the holders but the the percentage increase gets smaller and smaller as the absolute dollar amount gets larger and larger so $115,000
Sounds like a big number from today’s perspective but as you go to 10 11 12 it gets to be a progressively smaller percentage increase and therefore more likely you really you need to see it logarithmically to see it you know a less hyperbolic curve so log logarithmically is the right way to
Think about it but in dollar terms the percentage increase gets to be pretty small those levels and uh when I say $115,000 now I don’t think I’m stretching I mean could it be 25,000 40,000 I me just take my my monetary equivalent if you use M2 and by the way
My when I said when I used M1 and did that math that’s with 40% backing because historically 40% has been a high level of backing if you take M2 at 100% backing you get to 50,000 an ounce in a heartbeat my numbers I think are conservative they could be much higher
But the thing I would point out is that the the FED dug a hole and they can’t get out of it and I said in uh you know well all along but certainly you know 2014 2015 Etc as they did the taper and then they did the liftoff and then they
Raised rates and all that I said the FED is trying to get out of this they’re trying to normalize the balance sheet trying to normalize interest rates but I also said they won’t be able to do it and that’s exactly what happened in the fourth quarter of 2018 between October
1st and December um 24th 2018 the stock market dropped 19% it was one point away from a bare Market at that stage and then you had the Christmas Eve Massacre and that’s when J pal threw in the towel he got religion he said okay first he said we’re not going to raise rates
Anymore then he said we’re on pause then he said we’re actually going to cut rates and then 9 months later he said we’re going to end quantitative tightening which is was reducing the balance the the the money supply and then September uh 2019 they started qe4
Which is the that was before any before the recession before the depression before the pandemic they were already in qe4 and uh cutting rates again so they can’t get out of it now it’s worse so they prove that the failure is Manifest they prove that they can’t get out of it
Uh what and and what can they do by the way on on monetary Theory I mean they say what’s the secret behind mon I think it’s garbage by the way but but so what’s the secret behind well the secret behind it is if you can issue debt and
Collect taxes in a money that you print you can force people to accept the money because they need the money to pay their taxes and if they don’t pay the taxes they end up in jail now you can you can you know get extensions or you know do
Whatever but at the end of the day if you manifestly refuse to pay your taxes they will come and uh and put you in jail and and the point is it relies on state power it’s really a Neo fascist concept it relies on coercion you know
The point of a gun jails and state power to enforce the confidence and money now that’s and they say that I I’ve I’ve read Stephanie Kelton she’s the bright light I mean this goes back a long way but I’ve met her you read her books and
And her book I should say and her articles uh but they’re very explicit about that now I think that’s completely wrong because there are so many workarounds there so many ways to get out from under that kind of state power but they do rely on state power at the
End of the day so that’s why it has this this Neo fascist element pal did not say we’re going to raise rates until core PC is 2% he didn’t say that what he said was we’re going to raise rates until it’s acting in a restrictive way on inflation and inflation will come
Down on its own because rates will be higher high enough to cause that at which point we will We the FED will pause and then you say well when are you going to cut rates he was like the PA could be a year so you’re talking TW
Forget this fed pivot non sense I me you’re talking 2024 if then before they cut race but in the meantime um so they’ve got to get rates high enough so they’re going to go you know well 75 basis points in November December who knows we’ll we’ll know closer to the
Date it’ll either be 50 or 75 you know some talk about 50 but it doesn’t matter I mean it it it’s going up probably going to go up you I have the calendar for 2023 there’s a meeting February 1st and another one in late March I think March 22nd they’ll probably raise up
Both of those they’re going to get rates up to five fiveish um at that point they probably will have achieved the goal of bringing core pce down but they will also have destroyed the economy in the process it’s like I remember in Vietnam the old saying you know we have to we
Had to this is the latest and long string of uh fed blunder since uh 1913 seems to be their specialty but that’s what they’re doing the they could uh they could uh at least pause now or maybe even cut rates if if if everything I said is correct and obviously I think
It is or I wouldn’t be saying it but if we’re on the verge of a global liquidity crisis as revealed by the euro dollar Futures curve and the treasury yield curve and you know negative swap spreads and uh treasury bill auctions with the yield of maturity below what the FED
Will give you for a phone call I mean all those things are happening that’s hard data uh and it’s a very very uh troubling sign less seen in 2008 by the way before the two before the Lemur Brothers meltdown if all that’s happening and the fundamental signs are
Also weak which we just saw in third quarter GDP which is based on net exports which won’t last how you going to drive a trade surplus with with the strongest dollar and 20 years good luck with that I mean nobody can afford our stuff we’re not buying anybody else’s
Stuff so with the economy going into a recession on its own with the global liquidity crisis Brewing why on Earth is the Fed raising rates at all you know when I when I talk to my editor about this you know go back a year ago so November 2021 you every headline you
Looked at website comment supply chain supply chain supply Chain’s breaking down there’s no uh you know uh uh they they couldn’t get cream cheese to make uh make cheesecakes uh a Juniors you know the world world’s most famous cheesecake place um you know and on and
On and on like a long list and then last spring was the baby formula shortage which is actually was serious I mean mothers couldn’t feed their children so it was very bad but I found some really really interesting research that uh because everyone says well yeah Co
Messed it up and the war in Ukraine messed it up well that’s true but it didn’t start there this started in 2018 with Trump’s tariffs because when and I’m not here to debate the tariffs I actually think the tariffs were good idea but that was the start of the
Supply chain breakdown because when Trump put tariffs on started with uh appliances you know washing machines refrigerators and stuff and then solar panels and then you know techn then they just kept piling on but but you have to look at what China did in response CH
The US and Brazil are the two largest exporters to soybeans China is the world’s largest importer of soybeans China was buying all their soybeans from the United States just as a way to kind of make it make it up a little bit like well we don’t want we got to buy the
Soybeans anyway why not buy them from the US to keep the US China trade deficit under control so it doesn’t become too politically toxic um well as soon as we Trump threw on the tariffs China retaliated by moving their soybean uh orders to Brazil stop buying us
Soybeans well that’s not a home call I mean you’re talking about vessels Port facilities uh agriculture you know trucks how do you get the soybeans to the ports how many do you grow where’s the fertilizer coming from you know etc etc and all those parties you know the shippers the cargo the insurance
Companies and so many people involved Banks letters of credit it’s just a lot involved um they don’t like short-term relationships they say okay I’ll do it I want a five contract and China said okay so they reconfigured all those Transportation Lanes to get the soybeans
From Brazil all of a sudden you’re a US soybean grower you say what do I do well we start selling them to the Netherlands because the Netherlands needs soybeans too so now but now instead of shipping them from like port of LA to dingbo and near Shanghai we’re shipping them from
Port of Houston to I don’t know uh France in marsill or someplace uh or or reram so the point being um you completely scrambled all these uh supply chain relationship and they break down that it’s not it’s not it’s the end of the supply chain so there’s nothing new
About Supply chains we can document to the Bronze Age what was New Beginning around 1989 was supply chain science the combination of Vally improved computing power artificial intelligence new algorithms and more sources of data that could be put together and used by experts to to optimize and make the
Supply chains more efficient that was new and it kind of began with the fall of the Berlin wall and the collapse of the Soviet Union in you know Berlin Wall fell in 1989 Soviet Union uh dissolved in 1991 I talked to the guy who you know
Like this is a worldwide Endeavor but he was probably the single most responsible individual for all the significant developments in the supply chain in the last 30 years and he said to me he said Jim you have to understand it took us 30 years to build it we blew it up in three
Years it’s not going to come back overnight it’s going to take 10 years or more to rebuild it and what I talk about in the book is supply chain 1.0 which is 1989 to 2019 and then supply chain 2.0 which kind of starts now but it’s going to go
Indefinitely because it’s going to take a long time to put this together it’s uh you know it’s like dropping a vase and it breaks in a thousand pieces you can’t put it back together you got to go buy a new B and that’s what’s going on with
The supply chain there will be a supply chain there always is but the new supply chain will look very different from what we’ve just come through because the whole the whole 30 years of period I’m describing was built on efficiency you know lower cost lower cost lower cost it
Was kind of the Walmart model so yeah just in time inventory everyone knows about that but there’s something called cross docking that’s where a truck pulls up at a warehouse and you unload it instead of putting the stuff in the warehouse you move it to another truck that then goes to a destination
The stuff never goes in the warehouse inventories are very expensive they’re they’re they’re costly to finance you got to move the stuff around it’s called picking you know pick the stuff off the shelf with your I us to drive forklifts I know a little bit about it uh you know
And put it on a truck us to unload trucks too so you know hey I’ve got seven suppliers why don’t I cut it down to three and do bigger contracts with each one and get lower unit cost I’ve got five Transportation Lanes why don’t I cut that down to two get everything to
You know Los Angeles and SE battle as the case may be you know Etc and they did it for three and they got cost lower you know and in Walmart and Amazon were the champions of this but everyone else was doing it but they missed something what they missed was that they’re while
They were getting those un unit costs lower for consumers they there were hidden costs and the main hidden cost was you you were creating greater Frailty this whole system was subject to a massive massive breakdown so uh you know what happens if you have two suppliers and they both go on strike
What happens if you have one port of entry and it’s backlogged what happens if you’ve got uh Quest stocking and warehouses orun enough trucks we need 80,000 drivers 80,000 drivers wish they’d hire them instead of these IRS agents but the point being um it it is breaking down all across the board now
Will it it can it be put back together yes but the biggest difference between 2.0 and 1.0 uh this goes by different names uh you Johnny Ellen called it friend Shore and mcon called it a constellation of Nations uh I I use the term a college of Nations you know
Collegial Club if you will so you’ll still have trading partners you’ll still have Outsourcing you’ll still have transportation Lanes but it’ll be members only it’ll be basically Democratic kind of liberal republics Western Europe uh you know the EU of course US Canada Australia New Zealand Japan uh you know and some others India
I would expect to be included F friendly Nations but China’s out we’re decoupling from them they’re decoupling from us this isn’t us driven the US is participating but this is what China wants too both sides are decoupling as fast as they can China can develop its own network you know maybe Central Asian
Republic some Southeast Asian um you know suppliers and so forth but they’re going to lose customers well most of their customers actually in in the United States we won’t buy their stuff and we won’t sell them our stuff particularly Hightech stuff so you the world’s a break and and these new clubs
Are going to be formed and there will be trade there will be Transportation Lanes but it’ll be much more restrictive now will prices be a little higher yes but it’ll be more secure so the way I describe that you know if you buy uh Insurance on
Your house or I buy insurance on my house you don’t want your house to burn down you hope it doesn’t but if it does you don’t think your insurance premiums who a waste of money like when you write that check you’re like that’s money well spent when you pay higher PR prices for
Consumer goods the the Delta between the old price and new price is your insurance premium for a more reliable system and also there’s a big National Security component to this it’s going to get worse inflation’s here to stay um Commodities are going to Boom oil prices are going to soore bonds
Are going to crash and gold has been in a very funny situation which is the following normally you say well if there inflation coming why isn’t the price of gold going to the moon and why on Earth would gold prices go up if there were deflation or
Disinflation the answer is that you have to look at the yield of maturity on the 10year treasury note that’s our Benchmark security um a lot of people look at liore but I’m like no if you’re making investment decisions you’re buying a house you’re doing Capital investing these are all 5 10 sometimes
20e decisions the 10e note is the right benchmark Mar for those large long-term Investments um well that’s an alternative place to put money you can buy gold or you can buy a 10e treasury note so what’s been true since last summer is as the yield of maturity on
The 10e Note goes up that strengthens the dollar and gold prices have gone down because the dollar price of gold is just another cross rate just another cross exchange rate so a stronger dollar means a lower dollar price for gold but if the Y of maturity in the 10e note
Goes down then that weakens the dollar and the dollar price of gold goes up because a weaker dollar means a higher dollar price for gold so curiously the price of gold is being driven not by inflation in the abstract but by the strength of the dollar which is
Reciprocal to the interest rate on the 10year treasury notes but here’s what has changed I talk about gold bull markets and gold bare markets and I start my analysis in 1971 and I don’t have to go through all all that data but that’s that’s how I think about it and
You’re like well Jim why 1971 why not before that and of course 1971 it was when Nixon stopped redeeming dollars for gold Americans couldn’t even own gold in 1971 it was Contraband it was like drugs or you know machine guns or something but foreign trading partners could
Redeem dollars for gold up until 1971 then Nixon said no more and then that was the final decoupling but prior to that gold was actually money in other words uh with under Breton Woods gold was pegged to $35 an ounce Breton Woods it was pegged at
$20.67 an ounce it going back to the 1920s earlier through most of the 19th century for the United States and Sterling I think it was 475 it could be off a little bit on that but you know four four pounds and and change and as
Late as World War I say 1913 if you were a Brit and you were getting on the steamer from London to you know at the time Bombay today Mumbai you took a purse of the British sburns British sovereign is it’s about uh about a grams
A little bit less you know it’s not an ounce it’s quarter ounce because an ounce is almost too much even even today what are you going to do with a 1 ounce coin that’s worth you know almost $2,000 uh you know you’re not going to
Use that for to buy a pack of gum but in the day there was the quarter ounce which today would be you know like a $500 bill so it’s still a significant amount of money uh but you could get on the steamer in Southampton and get off
In Bombay at the time and it was money good you could take that British sovereign and spend it anywhere and same thing as Singapore and Hong Kong and Japan or all around the world so gold was actually money so it wasn’t a question of oh what’s the exchange rate
It was the gold was the money and people thought about it by weight they said oh was Sovereign that’s eight grams of gold so that’s worth you know that’ll get you whatever so uh and that was true throughout history and so it’s really only since 1971 when we decoupled completely in
Terms of an exchange rate that you have to think about you know well what’s the dollar price of gold because it’s not fix fixed but okay well what happened to the memory what happened to the 3,000 years I just talked about well the answer is it happened in stages and it
Actually took it took about 75 years so it began in 1914 1914 was the outbreak of World War I everybody needed gold there was a was a run on gold um and countries needed gold because they knew they would need gold to pay for the war
To try to win the war well it didn’t matter if you’re Germany UK or whoever and remember the United States was neutral the United States did not get in the war until 1917 the started in 1914 so for those first two and a half years
New York was a money center to all of Europe to to all the belligerant um so everyone scrambled for gold so if you were a citizen they asked you to bring your gold to the bank and they gave you paper money and but people did it out of
A patriotic it’s existential war is not a normal Market you’re gonna if you lose the war you got bigger problems than your gold and so people put the gold in the banks what did the banks do they melted it down and made 400 o bars and they said don’t worry your money’s back
By the gold but keep using that paper money uh but it’s redeemable for gold but oh by the way they’re 400 o bars nobody walks around with a 400 ounce bar in her purse I’m sure you’ve seen one and I have as well they’re they’re heavy they weigh about 35 pounds you don’t
Walk around with them so all of a sudden the the gold was still there and the paper money was backed by gold in theory but the gold had disappeared into the banks that’s step one step two and this happened in the 1930s the central banks took the gold from the Commercial Bank
So first the commercial Banks took the gold from the people then the central banks took the gold from the commercial Banks and the Federal Reserve System sold all the banks hey send your send your gold to the Regional Federal Reserve Bank and of course most went to
The Federal Reserve Bank of New York so now it’s not even in the banks anymore right but you’re still walking around thinking your paper money somehow attached gold but people haven’t seen gold for a while unless you’re a collector step three uh the United States Treasury and the finance
Ministries took it from the Central Bank the 1934 the United the United States Treasury seiz the gold of the Federal Reserve System bearing in mind the Federal Reserve System is privately owned and they gave them a gold certificate and you go to the Federal Reserve System website today and you
Know hunt around a little bit on the links and find the balance sheet of the Federal Reserve and it’s there and look on the look in the assets and the first line item is gold certificate and it’s valued at 11 billion but that’s because they value the gold of $42 an hour
If you and I’ve revalued it the answer is that today’s market that that 11 billion is actually worth 470 billion so the FED has a hidden asset of 450 odd billion that’s not on the balance sheet represented by a gold certificate but it’s not the gold the
Treasury has the gold and by the way where do we keep our gold I’m talking about the United States the treasury owns the gold the FED has a paper certificate the gold is on two Army BAS is West Point and Fort Knox so I would
Say the Army has the gold gold has gone from citizens walking around having it in in your purse to commercial Banks to central banks to finance Ministries held on an army base it’s still there the gold didn’t disappear um but nobody talks about it and everyone pretends
It’s not money but of course it’s money um but but meanwhile what’s happened to this the the civilian population the citizens we stopped talking about it we stopped saying it we stopped learning about it I remind people you know I just showing my age but my I got a graduate
Degree in international economics and I was class of 74 but that was the year the IMF demonetized go but I was the last class that was taught gold in an academic setting as a monetary asset uh if you know if you’re younger than I am and you know anything about gold you’re
Either selftaught or you went to Mining College because they just stopped teaching it so now we have two generations of Scholars who never learned a thing about gold so they they hid it they took it they buried it they stopped teaching it they stopped talking about it and they pretended it’s not
There meanwhile it is there and Russia is a good example of someone who takes it seriously in the US we still have our 8,000 tons 8,133 tons we haven’t given it away we haven’t sold any gold since 1980 by the way we got the British to do
It we got everyone else to do our Dirty Work the British sold more than half seriously the British sold more than half their gold the Swiss sold 1,000 tons the IMF sold uh 400 tons in 2010 that was the less significant sell by a you know a monetary institution uh
Australia sold most of theirs Canada sold most of theirs if I were one of these other countries I would say to the US say why don’t you sell some of your gold but the US doesn’t we haven’t sold it an now since 1980 I’d rather be the US than China
China’s an even worse shap for different reasons um it’s not so much interest rate policy although they’re they’re subject to Global interest rate policy and exchange rates coming from the FED but uh you can see it in real estate it’s a fullscale collapse uh they’re they’re propping it up but um the the
The buyers aren’t interested in other words the the Chinese government is telling the banks to lend money to real estate developers who can’t finish housing well that sounds good it’s like okay here’s some money finish the housing but the buyers are not in the buyers have been burned they’re
Shying away from that asset class they want to increase cash they’re looking at other asset classes they don’t have a lot of choices because China has very strict Capital controls they’re trying to get their money out by means legal and illegal uh they’re buying gold when they
Can um but uh as I said they may not have a lot of choices but even money in the bank looks pretty good compared to what’s going on in real estate the problem is too big the bubble is too large it’s going on for too long we
Don’t hear about it the same way we did about the Japanese real estate bubble in 1989 1990 that was an epic crash Japan is still not recovered I remember in the 90s early 2000s they talked about the Lost decade well try three lost decades that’s going into a fourth uh that’s
Japan you know eight or lost count actually eight or nine recessions since 1989 but really just one long depression that’s the way to understand the Japanese economy China’s going into something like that we don’t hear much about it because they’re not transparent they lie about their numbers you you
Need to look at private sources and other use other analytic tools to understand what going on there uh but they’ve got um you drops in consumption industrial output real estate’s collapsing uh their price indices are collapsing all this in Fe of inflation it’s been around it’s real but it’s now
Turning around very quickly and you can see that in China China’s going through something that the world has never seen uh it is a they’re going to lose 600 million people in the next 50 to 70 years this is a demographic implosion this is worse than the Black Death of
Course the Black Death uh killed somewhere between a third and half the population of Europe in the 14th century um uh it was good time for uh for labor by the way uh the you know the labor was so scarce it returns to labor went up versus returns to Capital uh because
There weren’t enough workers uh but that’s the only thing uh that can come close even the U you know the Spanish Flu of 1919 killed about no no one’s certain of the number but but between 100 million and maybe over 200 million people the 30 Years War was certainly
You know in the early 17th century was certainly highly destructive but what’s going on in China now is is worse than any of those things um you know has to do with Ma you know simple demographic math the key number is 2.1 two people have to produce 2.1 children a man and
Woman or you can say per woman if you if you want uh have to produce 2.1 children to keep the population constant why not two why not two producing two the answer is INF mortality and those who don’t make it to uh adulthood and can continue
The uh repopulation of the planet uh if you will but they’re not even close to that they’re well below two and by the way so is so is the rest of the world so is Australia and the US and Western Europe a lot of other places this is a
Global phenomenon but it’s particularly acute in China may be the case that China’s uh replacement rate is uh or or birth rate is actually one uh it has to be 2.1 to maintain it could be one or lower uh this is a demographic implosion unlike anything ever seen anyone’s ever
Seen it also has a dynamic you can’t reverse it very quickly it it feeds on itself as I was talking about inflation earlier so uh this is going to continue for 50 to 75 years uh they’re going to lose 600 million people there are a lot of definitions of GDP a four or
Five-part definition they’re more complex calculations but there’s one really simple definition only has two factors population and productivity how many people people are working and how productive are they that’s nominal GDP it’s that’s one definition of gross GDP uh or nominal GDP well if your population is dropping from 1.4 billion
To 800 million you’re losing 600 million people uh and then what about productivity well the other thing that’s going on is China’s population is aging very quickly so you get a population set people in the 70s ‘ 80s and ’90s uh with very large amounts of um cognitive
Decline dementia uh obviously there’s no productivity there but it’s worse than that because then you look at the shrinking population between the ages of 25 and 54 it’s called their Prime working age more and more of those people are going to have to be involved in Elder Care they’re going to have to
Be basically caretakers or Caregivers for the older population I describ a very worthy job but not one that lends of self to productivity gains um bathing hasn’t changed in about 5,000 years robots don’t do best um the only real innovation in bathing in between 1870 and 1940 we did see the
Rise of indoor plumbing and hot water that’s good um I I enjoy both but um but that’s it we I can’t think of any other bathing Innovations u in the last several Millennia so if you have a shrinking working age population a rising older population High degree of
Cognitive decline and a Big Slice of the working age population having to provide elder care or be Caregivers for the older population tell me where your industrial output’s coming from tell me where your productivity is coming from and uh sorry if I mentioned this already but 50% of the water in China is
Poisoned uh because of you know just their industrial practices you know they they uh if you’re a gold mineer in Australia invest in gold mines around the world I know that places like Canada the US and uh Australia if you use cyanide to leech the gold and that’s a
Very common technique you have to account for every you know micro program you you know whatever you put in you got to take out weigh it dispose of it properly in China they just dump it into the rivers and so the rivers are poison um so China is uh uh an economic
Demographic industrial moral religious uh Wasteland and uh will suffer it’s it’s already in a recession just just a cut to the chase again they lie about their statistics so so here you have the two largest economies in the world us and China us is slowly going into I
Expect will be a severe recession China is in a century long decline uh unlike one that the world has ever seen um that could eventually lead to social unrest and a regime change but let’s not count on that in the short run just expect China to um to shrink and
Become more aaric decoupled from the Western World and uh certainly not be a source of growth taiwan’s semiconductor Manufacturing Company the largest and most sophisticated semic conductor Manufacturing in the world and semiconductors are in everything it’s not just computers there are, 1400 semiconductors in an automobile there’s
A semiconductor or more in your your dishwasher refrigerator your washing machine they’re everywhere Internet of Things We all understand that um So tsmc based in Taiwan uh the United States has a military Doctrine called the broken Nest Theory and what it says is that if China well it comes from a Chinese proverb
Ironically and it says if The Nest is broken how can the eggs survive um and what it means is that if China invades Taiwan and I’m not forecasting Invasion Could Happen though um we or the Taiwanese will very quickly destroy all the semiconductor manufacturers in Taiwan we just blow
Them up and China won’t get anything they’ll have the broken Nest Taiwan semiconductor knows this um they talk to the US intelligence and Military yeah that’s a pretty good summary um I started Ed uh my career as a lawyer in the late 70s but before I
Went to law school I got a graduate degree in international economics so I had that you know that macroeconomic uh background uh if you will even before law and then after getting out of law school I worked I started my career as uh International tax Council for City
Bank so that’s about as broad a um platform as you can have uh and then along the way um swi into Securities derivatives law worked for an investment Bank major dealer in US government securities that gave me a pretty good background of federal Finance um and
Then switched to the hedge fund World um and was there from start to finish at long-term Capital Management uh made a few headlines in 1998 and I was the principal negotiator of that rescue by people say I was rescued by the Federal Reserve that’s not exactly right the
Federal Reserve did convene a meeting of the banks to organize the rescue but said to the bank you have to do this we’re they were sitting in the boardroom at the FED kind of hard to say no but they adjourned over to Marl Lynch’s boardroom a few blocks away on Liberty
Street and we took it from there and uh it was one of those deals you know five days no sleep everyone’s nobody shaving first the jackets come off then the ties come off then the shirts are unbuttoned and everyone’s got a beard nobody slept
But we got it done brought in for a soft Landing um after that I ran an electronic stock exchange for a while uh but was by the CIA to help them with counterterrorist Finance after 911 and work for them for 10 years um doing this
What we did we invented a new branch of intelligence called Mark in for Market intelligence basically getting actionable intelligence from Capital markets information uh which had never been done before there’s uh the in is stands for intelligence so human is human intelligence Sig is signals intelligence uh we invented a Mark or
Market intelligence um then took on life of its own uh and then but along the way um was uh just got literally a cold call from the top literary agent she heard an interview I did on oh NPR’s Planet Money she’s an NPR fan uh and introduced
Herself and said how would you like to write a book and so I said I hadn’t really thought about it but let’s talk and we had lunch hit it off and then that led to book projects and now um you know seven books and 10 years later here
We are so either uh you can other say I had an Eclectic career or I didn’t what I want to be when I grew up but I’ve done uh a little bit of everything from banking Capital markets hedge funds um National Security intelligence work with the defense department um and written a
Bunch of books well it’s great to have you here the first book which came out 2011 was currency Wars the making of the next Global crisis and you certainly touch on a lot of currency Dynamics DCS which are certainly preent to what’s going on today in the latest book the
New Great Depression here when did you start writing this book it’s just come out in the past week but it just seems so relevant and timely I mean you must have had some pretty fast turnaround on this thing right we did uh I I got the
Call from uh my agent my my publisher um late April and of course then we were in the thick of uh the the first wave of infections and fatality sadly and quarantine and lockdown and all that but and the stock market had just dropped 30% over 30% from um February 24th to
March 23rd um and so they said we we we really want to book on this it’s really important um there’s going to be huge interest in this uh and can we do this I said sure uh and our original Target day was July 15 we’re trying to come out on
July 15th and that’s what we work towards so um I said to I so basically given the target length and the outline I was going to write it in about 40 days 45 days um if you do 2,000 words a day you can get there but that’s a lot of
Writing so I said to my wife well good news bad news that the bad news is for the next 30 days I’m going to be the most antisocial person you ever met the good news is we’ll have a book behind us and and we’ll get that done and that’s
Pretty much what we did I worked really hard straight through and kind of writing in the morning and reading at night and it almost like researching uh uh you know doing the research at night then waking up the next morning writing up the research and and other observations and it was all happening
Very quickly I mean obviously the disease was expanding the economy was collapsing uh but the amount of uh academic literature on the subject was you get we getting 10 papers a day coming from all over the place and and that was good but it was enormous amount
But the um but when I first discussed with my publisher they said well you know Jim we we think you’re great on the economy and capital markets and Central Banking and all that’s really important and that’s what we want you to write about but keep away from the you know
The epidemiology and the Immunology because you’re not um you’re not a scientist you’re not a doctor and I said hold on um that’s like asking someone to write about property damage in New Orleans in 2005 and not mention Hurricane Katrina I said you can’t do that you you obviously the pandemic is
The Catalyst or the cause of the depression and you can’t understand one without and the other so I said I’m going to do both I I teased her a little bit I said well you know I do I do have two degrees from John Hopkins so I’m not
I’m not intimidated by natural science I’m not a doctor of course but um I it’s I’m comfortable in the field and when I approached it when I started doing the research so so by the way Alex this is the first book that deals with both the
Pandemic and the what I call the new Great Depression or the economy uh there will be lots of books written on the pandemic doctors have already written some they’re out there uh there’ll be books written on the economic crash and what’s going on although it’s a funny thing economists
Actually don’t write that many books there are some other than textbooks textbooks can be huge money makers kind of boring but uh there are few economists who write books Paul Krugman does and Barak and green and a few others but generally economists prefer to write papers Journal articles monographs and things because it’s
Because they’re usually wrong and they’re changing it so you write a paper and you’re wrong well just write another paper you know um writing a you go out on the limb a little bit because if it’s going to have any kind of shelf life you
Have to lean forward and and do a little forecasting and and I have ways of doing that that are better than what Wall Street and and Washington do but um but you’re still at you’re you know you’re out on the out on the limb a little bit
Um but I’m comfortable and and I’ve done that before uh but on the uh on the medical side of it um there were I read over a hundred peer-reviewed Journal articles uh obviously you know top Publications like the Lancet and the New England Journal of Medicine and others
But others that they were top tier maybe less wellknown more specialized but these papers were coming out uh left and right and other evidence was coming out and when I started doing the research I said well this is going to be straightforward there’s a bunch of conspiracy theories and Fringe theories
And just wacky you know speculation over here and there’s a lot of good science by reputable uh clinicians and and phds over here and just kind of discard this and focus on this and that’s what I did but what I discovered it was easy to discard the junk but when I got into
What I’ll call real science I discovered quickly that the scientists don’t agree with each other um I can show you papers that say um you’re you’re a fool to go out without a mask masks are the key to this whole thing everybody mask up that’s the way we get a handle on the
Pandemic I can show you other papers by equally qualified people phds and vir ology and epidemiology who say no MK don’t work the virus is too small it goes through the weave um they’re improperly constructed we don’t wear them correctly uh and they don’t do much good it’s kind of virtue signaling and
And and so but my point is without even taking sides in that just as a writer um uh and I did present both views and and all that information is in the endnotes um the book has over 200 endnotes and they’re all fairly technical so I tell
People if you don’t like something I said don’t with me go to the go to the foot footnotes or the endnotes and argue with the uh the scientists but I tried to when there were divisions like that I tried to represent both sides fairly but
I I usually do come down on one side or the other based on my own view uh of the evidence um so that made it more challenging and then you also have this whole you know where did the virus come from I have a chapter on that well
There’s the the wet Market Theory which I thought at the time I thought last spring was um a lie basically Chinese propaganda that’s even more apparent today you have the laboratory theory that it came from a laboratory particularly the Wuhan Institute of biology good evidence that that was the
Case last spring that’s much stronger today a ton of stuff has come in literally in the last couple weeks bearing that out uh so uh but I that’s how I came out in the book I said it did come from the laboratory but that’s another area where again I can I can
Find a top scientists with both points of view I I did learn in reading the scientific journal article you know there’s always an abstract the authors their affiliations the abstract and then the main paper I would go right to the last page and look at who paid them uh
Because they’re you know modern practices you disclosure sources of research Grant I saw you were paid by the Chinese I I discounted you about 50% I might have included it but I I certainly took that into account we’re seeing something globally we’ve never seen before and it is the best single
Indicator of a recession the last time we saw anything like this was 2007 just ahead of the 2008 financial catastrophe so the stock market’s saying it’s all good Goldilocks soft Landing fed’s going to get the memo they’re going to cut rates the pivot and buy stocks the bond
Market is saying no this is bad and it’s going to get worse and it’s actually too late for the FED to do anything about it but what happens is as you get closer to the actual thing you’re worried about the inversion gets nearer and nearer now
It is literally a month away or less interest rates are a lagging indicator everyone’s like well how could interest rates going up if we’re in a recession the answer is as you get close to recession who figures it out first well the FED figures it out last they’re
Usually the last to know Wall Street is second last to know the people who figure it out first are actual business people entrepreneurs restaurant owners dry clingers taxi drivers or even medium-sized business businesses they see it a lot of business people are living in the real world in real time
They know what’s happening now and the St stock market tends to figure it out later but as far as Banking and credit is concerned what happens is if you’re a business person and you see business heading down through your customers whatever you go out and borrow while you
Can you’re like hey this is a really bad recession coming if I got lines of credit I’m going to use them up now I don’t want my bank changing the terms I don’t want material average change Clauses kicking in and said I’m going to borrow everything I can and that creates
A demand for funds and interest rates go up and then the recession hits and the bankers go what’s going on credit losses start going up and then they just turn off the spigots and they raise standards they stop doing loss and then interest rates will start to come down but
Interest rates Peak after the recession has already begun so stock market is telling us Goldilocks Bond markets telling us here comes hurricane Mitch or whatever and then there’s what I call the reality what I see is kind of a hybrid the fed’s doing what they’re doing right or or wrong okay they’re
Doing what they’re doing the market has their own interpretation I agree with the market certainly the bond market that the FED is probably overtightened they’re going to keep going for reasons I explained that means they’re going to make it worse they’re going to make the recession even worse we’ve seen this
Movie before this is exactly what happened in 2018 I don’t know attention spans seemed to be short these days but it was not long ago go back and look at a chart any stock index chart from October 1st 2018 to December 24 2018 the stock market dropped 20% I mean it’s
Like 19.9 or something on the Dow so maybe not technically a bare Market but yeah what’s the difference it dropped 20% culminating in the Christmas Eve Massacre December 24th 2018 when I think NASDAQ dropped like 3% in one day day now here’s the point the Fed was tightening into that collapse the FED
Tightened on December 16th 2018 only like 8 days before the Christmas Eve Massacre and after most of the 20% collapse that already happened they tightened one last time so what it shows you is that when the feds on a mission they actually don’t care about the stock market this whole banki put and
Greenspan put and all that that’s not how it works they don’t care that much about the stock market level here’s what they do care about they care about disorderly markets and that’s the key word stocks are going down but it’s kind of half a percent a day 1% a day
Trending down lower highs lower lows trending down the FED doesn’t care about that they’re not going to bail out the stock market they do care if it’s disorderly when was it disorderly well March 2020 at the worst part of the pandemic it dropped like 30% in like 2
Or 3 weeks the fall of 2008 I mean it was like somebody opened a trap door the FED does care about that because that kind of disorderly Behavior can feed on itself and end up in a 1929 type scenario so the FED will get the memo as
I put it stop raising rates and begin cuts when the markets are disorderly but but not just because they’re going down now here’s what the FED is missing or maybe everybody’s missing when you hear these layoff announcements people are like well if they’re laying off why isn’t the unemployment rate going up
Unemployment lags the business cycle unemployment is a lagging indicator when you’re an employer entrepreneur and you’re in any kind of no not as many customers walking in the door you’ll do everything you can to avoid laying people off be late on the rent you’ll turn down the lights find a cheaper
Laundry whatever it takes and then by the time you get around to firing people you run out of options I’ve done everything I can now my business is in Jeopardy I have to fire some people and then combine that with what I just said about Severance and rolling terminations Etc it’s a lagging
Indicator we know enough right now to know that numers going up this spring but that’s not inconsistent with the fact that we’re already in a recession it’s exactly what you would expect that unemployment is a lagging indicator now having said that what else is the Fed missing
Well wages are up 5% on annualized basis 5.2% on an annualized basis I’m like yeah and inflation is 7% or 6% so your real wage just went down one or two points because when the Bureau of Labor Statistics reports those wage numbers those are nominal numbers I’m not saying
They’re fake but you have to know that they’re nominal and you have to subtract inflation to find out what’s happening to real wages and the answer is real wages have been going down for a couple of years because it runs around 5% annualized give or take sounds like 5%
Rise what do you want well yeah but with 8 % inflation or even 6% inflation your real wage is going down so that’s not a robust number at all by the way the FED wants to make it worse the FED agrees that those wage gains are too high but
My point is in real terms they’re actually going down but the FED wants them to go down more that would be one way to put it if you get inflation down and wages are constant then the real wage goes up relative to where it was before but if you’re unemployed you have
No wage so that’s another issue now what the FED is missing and it’s a long list but there’s something called the labor force participation rate now the labor force participation rate you just take the number of people working divided by the total working age population that’s all you do it’s not sophisticated and
That number today is around 612 giv or take percent but as recently as 2000 that number was over 70% and has come down ever since and it dropped like a stone during 2020 during the pandemic lockdown came back a little bit but not much the reason it got first of all it’s
Never 100% it shouldn’t be there are legitimate reasons to be working age population not working you’re a homemaker you’re a student there’s a bunch of perfectly good reasons so it’s never 100% not even close but 70 is pretty high and 60s pretty low and the trend has been down so that leaves
Relative to kind of a normalized number that leaves about 8 to 10 million people between the ages of 25 and 54 who are not in the workforce there’s a big untapped labor pool but if you took that group and threw it into the unemployment numbers the way the Bureau of Labor
Statistics calculates it unemployment would be about 9% and that’s the depression level of unemployment notably in 1980 and 1981 regrettably analysts anticipate that the recession will surpass expectation with the bottom potentially falling lower than predicted perhaps a 30% to 50% decline in the S&P around 22,100 while we had a brief respit
Between 2020 and 2023 the situation is worsening in 2023 due to the concurrent financial crisis the financial crisis is currently Brewing causing Widespread Panic if it materializes the impact will be severe marking A Dark Day for America and the world it’s important important to note that each financial crisis
Carries its unique level of impact ranging from substantial to less significant losses predicting the scale and duration of a crisis is challenging as evidenced by the subprime mortgage crisis from 2007 to 2008 which coincided with a recession resulting in a disastrous outcome the expansion of mortgage credit triggered this crisis
Enabling widespread borrowing and mortgage acquisition this mistake led to the collapse of the US housing market causing many to lose their homes savings and jobs the repercussions extended globally given America’s pivotal role in world trade discussions on recession inflation and deflation aside one aspect yet to be addressed referenced earlier
Is the possibility of a global liquidity crisis in 1998 despite the absence of a recession the financial World faced a near collapse such crises can coincide with recessions resulting in severe consequences a notable instance is the subprime mortgage crisis from 2007 to 2008 there’s speculation that 2023 might
Witness a collision between a financial crisis and recession resembling the 20072 2008 scenario Financial experts including Jim Rickards highlight signs indicating such a development these signs include a diminishing World Trade daily declines in industrial output coupled with Rising unemployment and historically High interest rates for the past 15 years aimed at combating
Inflation but failing to curb inflated prices if there are lingering doubts about the recession and financial crisis examining the recent state of American Banks provides Clarity in just a month five major banks have faced setbacks such as bankruptcy etic takeovers and collapses the combined losses of credit and stockholders from these events
Surpass $200 billion sending a clear signal of systemic issues efforts by the ftic to reassure the public include unconventional measures such as guaranteeing depositor sums exceeding $200 billion for Silicon Valley Bank and Signature Bank these unprecedented actions while seemingly Noble are predicted by Jim Rickards to deplete the ftic Insurance Fund ultimately affecting
Consumers moreover the federal reserve’s decision to extend more loans to member banks through the bank term funding program btfp is causing significant turmoil in the US banking system these moves have intensified public anxiety particular among depositors concerns arise regarding whether these actions aim to implement new policies or if they
Are motivated by the interests of a few affected entities the parallels to the 2008 crisis where the fic guaranteed all Bank deposits echo in current events as the government faces unrealized losses exceeding $700 billion in US Bank portfolios the continued cash provision to depositors raises concerns about the sustainability of the banking system
Blooming question is whether the crisis is truly over or if the Panic is just beginning drawing parallels with the 2008 financial crisis which started a year and 6 months before reaching a critical stage the current crisis only a month old has already led to the downfall of five banks addressing the
Broader economic situation the fdic’s guaranteeing of all depositors and the Federal Reserves offer of additional loans through btfp signify pervasive issues the fed’s guaranteeing of all Bank deposits surpassing the $250,000 Insurance limit ekko’s actions taken in 2008 to avert Bank runs however such measures May strain the ftic Insurance Fund with potential
Consequences for consumers as the government grapples with increasing unrealized losses in US Bank portfolios the fear is that continuous cash provision to depositors will hasten the collapse of the banking system despite attempts to reassure the public public it remains uncertain whether the crisis is truly averted the interconnectedness
Of the banking system and the broader economy becomes evident reflecting a situation that extends Beyond individual instances the fed’s unusual actions coupled with the fdic’s Extraordinary Measures intensify the prevalent challenges considering the gravity of the situation the looming question is what should one do how does one respond
To the panic and secure oneself against the impending crisis while the inevitable cannot be avoided taking proactive steps to preserve wealth becomes crucial According to Jim Rickards the first step is acquiring goal down 20% in three months getting close to crashing this so what happens next first week of January pal comes out
Okay we’re not going to raise interest rates anymore we’re going to be patient they use all these code words we’re going to be patient then he starts cutting rates then he starts QE I forget it was eight or nine whatever l l track he starts Q8 let’s say and then that
Takes you into to 2020 and here comes the pandemic and rates go down to zero and the balance sheet goes to $7 trillion they were back where they were in May of 2013 except worse because now the balance sheet was even bigger than it was then a complete failure so who
Thinks they’re going to be more successful this time they’re doing the same thing it’s going to happen faster this time because the market saw that whole seven-year Fiasco from May to 2013 to May 2020 a 7-year roundtrip failure the same thing’s going to happen but it’s going to happen faster this time
Because like the market knows that the FED doesn’t know what they’re doing so the fed’s tightening into weakness one of two things is going to happen it’s not clear which but it’s going to be one or the other they’re going to keep tightening and keep tightening and keep
Tightening try to get a handle on inflation and crash the stock market or they’re going to lose their nerve back off on the tightening and then inflation is just going to rip which will also crash the stock market so take your pick but um it’s going to be one or the other
But this idea of a self Landing is nonsense the 2021 thesis was that you know inflation grew part of it was base effects because you know the the way the government calculates inflation it’s monthly data compared to the year before so it’s year-over-year monthly then annualized uh and so one could easily
Explain inflation in April May June 2021 because you were comparing it to 2020 which was the worst recession since 1946 but the base effects would run off uh in September October November but the inflation persisted even though the Bas effect were gone so now it’s like okay
This is real inflation it’s coming from somewhere else and was coming from the supply chain which the FED can’t do anything about either because the FED doesn’t drill for oil they don’t build pipelines and they don’t grow wheat the FED can’t do anything about any of those
Things and that’s where um the war and the sanctions and the continuation of covid played a role so you know I say you can you can have your own uh views but you can’t have your own data the data is clear the inflation is here the renowned Economist Jim Rickards
Continued her spee as follows the supply chains are deteriorating but these disruptions in the supply chain did not originate with the conflict they didn’t even commence with the pandemic they initiated with the trade war led by Trump in 2018 I discovered an excellent book on this topic authored by Luan
Loroko what’s intriguing about her book is that she completed it in late 2019 serving almost as a control experiment it predates the pandemic it’s convenient to attribute the disruption in the supply chain to the pmic which indeed played a role and the conflict also had its impact however we have a meticulous
Examination of the supply chains condition before either event and the conclusion is it was chaotic it was chaotic back then due to tariffs on China and China redirecting soybean purchase orders from the United States to Brazil that may seem straightforward because Brazil cultivates soybeans well guess what you have to transport the
Ships to Brazilian ports you have to reorganize all the logistical Lanes that was already happening the pandemic exacerbated it and now the conflict exacerbates it even more yes the world is fragmenting we’re disengaging globalization is concluding there will be a new iteration of it it’s not the
Termination of World Trade but you might witness perhaps the five eyes UK US Canada Australia New Zealand and allies in Western Europe forming a new trading block while excluding China and Russia it will resemble somewhat the Cold War I discussed this with B however in the 70s something similar occurred it commenced
With cost push inflation it was the Arab oil embargo in 1973 after the Israel Arab War then the Arabs imposed the Embargo on us quadrupling the price of oil from $3 a barrel to $12 a barrel it might sound inexpensive but that’s a 300% increase subsequently we experienced a severe stock market crash
And recession in 1974 the most severe since the Great Depression at that time we’ve encountered more severe ones since but back then it was the worst recession since the Great Depression following that the fed intervened and Nixon abandoned the gold standard Nixon implemented an accommodating monetary
Policy in 72 a bit earlier for his reelection effort Etc so here comes inflation but along the way and then there was another Oil Embargo actually an Iranian oil embargo in 1979 after the Ayatollah took over so there were dual oil shocks it was a supply driven cost push inflation however it transformed
Into demand pole it evolved into a demand side scenario that I lived through I was a young upand cominging lawyer at City Bank a senior officer living in New York City that was a time when if you desired anything new furniture TV set vacation anything you rushed out you dropped everything rushed
Out and did it because the price was escalating so rapidly this is instructive in two ways firstly it illustrates that the FED is consistently behind the curve it shows that these issues can persist much longer than anticipated but more crucially because I believe things will happen more swiftly now it demonstrates inflation shifting
From cost push to demand pole transitioning from a supply side matter to a psychological shift on the consumer side vulker managed to suppress it but at a substantial cost unemployment reached approximately 11% he elevated interest rates to 20% how does that feel mortgage holders student loan holders
And others 20% we’re talking about 40% on credit cards in that era people tend to forget well doesn’t inflation mean you have high growth or whatever at least low unemployment no we had stagflation we had inflation and high unemployment there were three recessions between 1974 and 1982 we experienced
Three in 1974 1980 and 1981 which persisted until 1982 by the way people lost confidence in the dollar in the late 7s Jimmy Carter’s treasury issued what they call Carter bonds the US Treasury issued debt in Swiss Franks now it was treasury uh slowing industrial output uh slowing retail sales and
Importantly uh for investors uh a very sharp decline in inflation so this is one of the kind of mystifying points about the US Stock Market I mean it seems straightforward to me but Market has theirown Dynamic they’re saying well um If the Fed raises rates the way I’ve
Described and they cause a Rec the fed’s going to have to cut rates that’s called the pivot the FED pivot and lower rates are good for tech stocks or buy stocks but think about that for a second what if inflation comes down faster than the
FED thinks and I think it may by the way I I’ll return to that what if inflation comes down really fast uh and they get to the Target rate sooner than they think um does that mean they might have to cut well it it might but what’s good
About that for socks I mean if that happens no one ever says why did that happen they just say well inflation may come down interest rates may come down so buy stocks say well inflation may come down interest rates may come down but if it does it’s because we’re in a
Very severe recession exactly what I’m forecasting and so if that’s the case stocks are going to plunge me 30 40 50% so don’t root for lower rates or if you’re forecasting lower rates understand what that means it doesn’t mean the FED chickened out doesn’t mean life is wonderful when you should buy
Tech stocks it means that we’re in the very recession that I described and I think we will end up there uh and therefore stocks are going to plunge so uh you know be careful what you wish for as they say um my forecast is yeah they are going to raise rates uh they’re
Going to overtighten they’re going to cause a very severe recession um and when they do they may pivot at that time but it won’t be for good reasons it’ll be for very bad reasons meaning we’re in a recession and stocks have plunged so don’t don’t buy into the Wall Street
Chatter as far as uh as far as that’s concerned because I said the fed’s going to overtighten now why isn’t the Federal Reserve aware of this well because they never are because they have the poorest forecasting record of any institution I can think of their entire history since
1913 is one mistake after another and this will just be the latest in the long Series so just to kind of recap the FED is on a trajectory we know precisely what it is because they informed us all you have to do is listen to them and believe them they’re going to increase
Rates let High rates do their work and observe the inflation come down and maybe in 2024 decrease rates what I anticipate is they are going to raise rates for the next couple of meetings exactly as I’ve outlined but they’re going to overtighten the signs of recession are already present the fed’s
Not looking at them I’ll come back to what they are by the way and we’ll be in a very severe recession for a lot of reasons and that’s going to mean a Plunge in stock prices so if the FED Cuts rates don’t cheer too loudly because it’ll be in a world where severe
Recession higher unemployment and crashing stock prices are the norm I’d like to conclude on a can’t call it a joyful note but a global liquidity crisis now I talked about a global recession and people go well isn’t that like a liquidity crisis no a recession or a depression is very different than a
Liquidity crisis or a financial Panic they’re two different things they can and do happen separately in 2008 we had both in 2008 the recession or depression and a financial Panic converged so they can happen together but they don’t have to they can happen individually what we’re in for visually looks like a
Global financial crisis and a global recession at the same time coming sooner than later now why do I say that there’s a global dollar shortage people go wait a second the FED printed $9 trillion which they did in 2020 it’s come down since then but they did print that much
Money how could there be a global dollar shortage what people don’t understand is that behind the curtain off balance sheet this is off-balance sheet you’ve got to go read the footnotes and understand what you’re reading there are one quadrillion dollar of derivatives and for those not familiar with
Quadrillion one quadrillion is a th000 trillion so I just said the FED printed $9 trillion maybe it’s down to 7 trillion but you have a quadrillion dollars of derivatives and they have to be supported with collateral not 100% not even 10% I mean 1% or 2% is an
Enough but when you’re in a liquidity crisis banks are extremely choosy about which collateral they’ll accept to support this quadrillion dollar inverted pyramid of derivatives and right now what they’re saying because this evolves it gets worse it doesn’t happen overnight it can become acute overnight
But it happens over the course of a year or longer what we see the banks are saying I don’t want corporate bonds as collateral I don’t want your mortgages as collateral I don’t even want 10-year treasuries as collateral the only collateral I want are short-term us treasury bills treasury bills have a
Maximum maturity of 1 year 360 days but there can be 4-we bills 8we bills 6-month bills Etc that’s the only that’s the best form of collateral it’s the most liquid easily traded low volatility easy to repledge is by far the best form of collateral that’s all the banks want
Right now but if you’re a foreign Bank you need dollars to buy the dollar-based collateral if you want treasury bills that are Den dominated in dollars you need dollars to buy the bills that’s why the US dollar is so strong people go wait a second the us. has a multi-trillion dollar annual budget
Deficit a massive trade deficit 132% debt to GDP ratio $31 trillion in debt you’re going into a recession how can the dollar be so strong the answer is everything I just said has nothing to do with the demand for dollars in international foreign exchange markets