Saturday, June 22, 2019

Jim Rickards Talks About the Potential for a "Perfect Storm"

In my recent interview with Jim Rickards to discuss his upcoming new book Aftermath, I asked him if he still predicts a new major crisis that will provide an impetus for major changes to our present monetary system. Jim offered this reply:

Q: For many years you have consistently forecast that we will some day another major crisis worse than the 2008-2009 crisis and that this could lead to major changes in the global monetary system. While working on "Aftermath", have you seen anything that would cause you to change that forecast?

A: "No. All of the trends not only confirm a coming crisis, but suggest it may be worse than I expected. Reaction functions not only include closed banks and exchanges and frozen accounts, but also social unrest possibly requiring martial law. There are also serious infrastructure threats that could involve a collapsed power grid or internet. On top of that, cyber threats are real and cyber wars have already begun. We cover all of these developments in Aftermath." (Amazon link to Aftermath)

Jim has now written some new articles that take a deeper dive into some of the events he says have the potential to come together ahead of the next US Presidential election and create a " Perfect Storm". Below are links to the articles with an excerpt from each for those who want to see what Jim has to say about this.

The Perfect Storm is Coming

"Do metaphorical perfect storms happen in politics and capital markets?

The answer is yes, provided the conditions of the perfect storm definition are satisfied. The multiple events that make up the true perfect storm must be independent and rare and come to converge in an almost impossible way.

. . . .

Today I’ll be discussing the components making up this perfect storm, and how I see them all coming together at the same time.  . . . . . 

. . . .

What are the three specific elements of the new perfect storm I see coming for markets? Read on  . . . ."            

  The Perfect Storm - Part II

"What are the three elements of the perfect political and market storm I see coming together this fall?

The first storm is impeachment.  ...

. . . .

The second storm is the 2020 election. ...

. . . 

But the third storm is the most dangerous and unpredictable storm of all: Spygate.

How do these three storms — impeachment, the 2020 election and Spygate — converge to create the perfect storm?"   . . . .   click here to read

Jim says these events in the political arena leading up to the 2020 Presidential election are important to follow and could have significant impact on the markets:

"The next six months will present unprecedented challenges for investors. Markets will have to wrestle with fights over impeachment, election attacks and Spygate. Trump will be trying to improve his odds with Fed appointments and an end to the trade wars. Democrats will be trying to derail Trump with investigations, accusations and leaks."

It does seem like if we are going to see anything arise that could disrupt the current system and prompt some kind of major change, it is more likely to come from the political arena. That is where most of the energy for change seems to reside these days.

A quick review of the situation suggests that there are two large groups (that combined comprise a majority of the public) that want to see major changes take place. 

One large group supports President Trump. They see him as the disrupter of the status quo that they feel has ignored their interests for a long time. Even though he represents the incumbent in the upcoming election, people still view him as a change agent trying to reshape the system they see as controlled by an elite establishment that looks down on them as inferior in various ways.

The other large group (now ascending in influence in the Democratic Party) also wants major change from the existing system. But the changes they want are almost exactly the opposite to the kind of change President Trump and his supporters want. 

From our perspective here, we watch for any kind of new major financial crisis that might arise in this highly combative political environment. While we don't make too many predictions here, it is possible to reasonably predict how each side might react to a new major financial crisis to try and gain leverage politically.

If we got a crisis of the magnitude Jim Rickards talks about:

We can be pretty sure President Trump will blame the Federal Reserve and say that it's policies were ill advised and created the crisis. His supporters will certainly buy into that as many of them are already skeptical of institutions like central banks. President Trump could use any crisis to call for major changes that would decrease the power of the Fed and "reset" the monetary system. Potential Fed nominee Dr. Judy Shelton has talked about the idea of a new Bretton Woods Conference at Mar a Lago in media interviews like this one at the Financial Times (here is a new Wasington Post interview that also mentions a Mar a Lago monetary conference).

On the flip side, we can be pretty sure the other major political group that opposes President Trump will fully blame his policies for the crisis. They will say that his tariffs, sanctions, and trade wars crippled the global and US economy and brought on the crisis. They will call on the public to get rid of President Trump and offer major change initiatives like Modern Monetary Theory (MMT) and other policies that return "power to the people" and disrupt a system they also see as controlled by an establishment that puts "profits over people".

Interestingly, both of these large groups see the present system as needing major reform and putting the interests of elites or "the 1%" over the interests of regular people. They just have completely opposite views of what to do about that. In this environment, a new major crisis would probably elevate this already heated political conflict into all out war to gain political power and push through major changes for their side. 

So, our analysis here remains unchanged. Without such a major crisis, the status quo in our monetary system and monetary policies likely prevails and change takes place gradually over time. In a new major crisis, the odds of more rapid major change increase and are most likely to come from the political arena. We'll continue to monitor things and report what actually happens.

Added note 6-24-19: Regarding Jim's 3rd "storm" (Spygate), Fox News releases this tonight quoting two members of Congress saying there will be significant news coming out soon. The article states that part of the current ongoing investigation will look "into the involvement of foreign intelligence services". If very high ranking former US intelligence officials are charged with crimes, we need to watch how the global markets react to that very closely. And if foreign intelligence services actions are called into question, it is all the more reason to monitor markets closely. As an example, it is possible the sharp rise in gold may be trying to tell us its possible something potentially unsettling is on the horizon. 

Added news note 6-25-19: The US Dept. of Justice issues this news release that Merrill Lynch Commodities, Inc. agreed to pay $25 million "to resolve the government's investigation into a multi year scheme to mislead the market for precious metals futures contracts" traded on the Comex. Things like this don't increase people's confidence that the markets are a fair and level playing field. Also, many in the precious metals community have alleged this kind of activity was taking place in those markets for a long time. Just before he passed away in April 2019, former CFTC Commissioner Bart Chilton gave this final interview where he talked about his efforts to expose market manipulation in the silver market back in the 2008-2012 time period. He does reveal some information in this interview that had not been made public before. 

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