Category: Financial System

There has been a stunning rally within US stock prices.

The US S&P 500 index is up 12.5% since the September low.

Thats a good thing, right?

Everyone wants stocks to go up.

Thats true. In a way. But not things are as clear as it appears.

Its great when stocks go upbut only if its for the right reason. And right now, stocks arent going up for the right reason.

That makes this rally a dangerous rally. Well explain why

As weve explained many times before, two things move stock prices: earnings and rates of interest.

Everything in the market stems from that.

In an ideal world, you should be able to look at a particular company and forecast its earnings potential. At the same time, you should be able to forecast future interest rate levels.

You could connect those numbers into a fundamental spreadsheet, and it would give you a good idea about the value of a regular.

But its not a perfect world. A person cant just look at company earnings. And its almost impossible to predict long term interest rate levels.

But investors arent basing buying decisions on future earnings or interest rates. Theyre basing their buying decisions on what they think the US Federal Reserve will do next.

Thats what makes this current stock rally so harmful. Because if the Fed says something the market doesnt like, stock prices can soon shift the other way

Confusion from latest market action

For evidence, take this headline through Bloomberg, Yellen Rate Remarks Halt U.S. Stock Rally as Dollar Strengthens.

The Dow Jones Commercial Average closed down 0.28%. The S&P 500 catalog closed down 0.35%.

It doesnt consider much to move the market these days.

However, heres something that muddies the waters.

The marketplace fell last night, supposedly on the prospect of a US interest rate rise in December.

But, heres an example of traders reacting one way one day, and the other way another day.

Below is a chart showing the probability of a US rate of interest change at the December meeting:

Source: Bloomberg

The probability of an interest rate change has climbed from below 30% within mid-October to 58% today.

And what has happened to US stocks over the same timeframe? Check out this chart:

Source: Bloomberg

The S&P 500 index has continued to climb.

This may all sound confusing. How can stocks fall upon news of a potential rate of interest rise after spending the previous fourteen days risingon the potential for an interest rate rise?

It all comes down to different investor perceptionand a dose of reality for which an interest rate rise would really imply.

Investors cant look past this chart

Most people think that stock markets fall as soon as a central bank begins raising interest rates.

The reality is frequently different. In most instances, stock prices rise. Thats because the central bank is actually raising interest rates due to a booming economy and a stock market thats already rising.

In that scenario, traders are willing to look past the higher cost to service debt because they figure businesses can still grow income and profits.

But heres a chart that should have bullish investors at least pausing for believed, if not outright ducking for cover:

Source: Bloomberg

The graph shows actual earnings per share with regard to stocks in the S&P Five hundred index. The chart dates back to 2006.

What should difficulty investors the most is what seems to be a new downward trend with regard to earnings. Its a reasonably subtle alternation in the trend, but its definitely presently there.

In the past investors were pleased to overlook rate rises due to growing earnings. But based on this chart, if traders try to look past an interest rate rise, they wont see rising earnings. Theyll see lower earnings.

Will traders and traders still be therefore keen to buy stocks?

Well see.

Regards,

Kris

China cut the central financial institution interest rate last week.

For the 6th time this year.

In addition, the center Kingdom lowered the amount of money banks must keep in reserves.

The Peoples Bank of China (PBoC) is attempting to jump start their slowing economy.

To put this in perspective, these are the most intense monetary policy measures through China since 2008. During the financial crisis, China pumped a massive 4 trillion yuan (AU$867 billion) into its economy.

As an Aussie, you remember the benefits of which.

The thing is, the rate reduce isnt the news you should be paying attention to.

This is the in your face information that many mainstream analysts will crow regarding over the next week or two.

However the real news for China, is hardly getting a mention.

As the investing world was digesting the rate cut, Bloomberg dropped this nugget of information:

International Monetary Fund representatives have told China that the yuan is likely to join the actual funds basket of reserve currencies soon, according to Chinese officials with knowledge of the matter, a move that may make more countries comfortable using the unit or even including it in their foreign-exchange holdings.

The IMF has given Chinese officials powerful signals in meetings that the yuan is likely to win inclusion in the present review of the Special Sketching Rights, the funds unit associated with account, said three individuals who asked not to be recognized because the talks were private. Chinese officials are so assured of winning approval that they have begun preparing statements to celebrate the decision, according to two people.

If you havent heard of Special Sketching Rights before, let me explain.

Special Drawing Rights (SDRs), are a global form of money created by the actual International Monetary Fund. SDRs derive their value from a weighted average of a basket of major currencies.

With SDRs, its important to remember they arent an actual currency. Rather theyre the claim on freely useable currencies for members of the International Monetary Fund (IMF).

The idea of SDRs would be to supplement currencies reserves of a particular country. Or they can be used to provide additional liquidity if needed.

But there are two key things you need to know about SDRs.

First, they were created by the IMF in 1969, as a direct response to the limitations of gold as well as US dollar when having to pay international accounts.

And second, they’re backed by nothing. Absolutely no bullion, no assets and no promise of the first born.

SDRs are nothing more than a creation of powerful elites wanting to prop up the monetary program.

Including the yuan in the SDR basket, means the yuans become a credible, international currency.

And China, desperately really wants to be invited to sit in the grown-ups table.

Even though its just a rumour right now, Bank of America Merrill Lynch estimates the actual yuan could have a potential weighting of 13%.

At the final IMF review in December This year, the weighting share was split unevenly between four major foreign currencies: euro 37.4%, Japanese pound 9.4%, pound sterling 11.3% as well as US dollar 41.9%.

The possible 13% yuan weighting would likely mean both the US dollar and the pound sterling lose a significant portion of their reveal.

China tried to have the yuan included in the last IMF meeting. But the IMF knocked them back, explaining the yuan didnt satisfy the test of being freely useable.

Freely useable can have two meanings. To some, freely useable means fully convertible. That is, a currency which is highly liquid and free from state controls. Based on that definition, the actual yuan isnt freely useable.

China places tight controls on how its citizens use their money. Theres caps how much citizens can take out of the country. International companies must total extensive paperwork before getting any cash in. And people from other countries are restricted, or restricted to strict quotas when it comes to the countrys capital markets.

These factors havent changed within much five years.

But theres another meaning of freely usable. The IMF consider freely useable based on the utilization of a currency in worldwide transactions. And whether its broadly traded on global marketplaces. So broadly speaking, the yuan now meets the criteria. Being a completely convertible currency is only an advantage to be considered for SDRs.

The thing is actually, the use of the yuan and state regulates over the currency havent changed much in five years.

Adding the yuan to the SDR basket gives the currency the credibility its leaders so desperately want.

Earlier in this year, there was some noise about China being added to the SDR basket. But the talk disappeared. After which China spent the better a part of 2015 devaluing its yuan against the US dollar.

Jim Rickards the strategist of Currency Wars Trader stated many in the markets mistook this action as retaliation for not being added to the SDR basket.

According to Jim thats not the case.

Its a matter of when China will be allowed in the SDR basket. He reckons the process has been elongated. Telling subscribers:

Chinas devaluation was not retaliation, however a necessary adjustment to the Feds disastrous strong dollar policy. These policy moves are of the most importance to the functioning of the international monetary system.

They dont happen out of spite. These moves may surprise markets, but they are carefully worked out behind the scenes. The actual elites see it coming; the everyday investor does not.

Jim says investors must be aware China will be included to the SDR basket at the IMFs Dec meeting this year.

For investors, the end result is this:

The implications for investors are profound. From right now until next March, China has a free hand in order to weaken the yuan somewhat further. That will put more deflationary pressure on the US, make the US dollar stronger, and result in added turmoil in US equity markets as earnings suffer due to the strong dollar.

The move to add the yuan into the SDR container will create more market disturbance in the US. Dont think Australia is immune from this either. These types of behind the scenes movements are all area of the currency wars Jim analyses on a weekly basis. To discover how to capitalise on it, go here.

Regards,

Shae Russell

Editor, Strategic Intelligence

From the Port Phillip Posting Library

Special Report: If you want to get ahead nowadays, it pays to have powerful buddies in high places. With this new advisory, youll make one. A portfolio manager at the West Shore Group, and adviser on international economics and financial threats to the US Department of Defense. Jim Rickards is no ordinary financial newsletter writer.?And Strategic Intelligence is no ordinary newsletter (more)

On 14th January this year, one of the greatest battles in the long running worldwide currency wars broke out.

It took most investors by surprise.

And for many investors, not only made it happen take them by surprise, but it ended up costing them millions, and perhaps, billions of dollars in losses.

That event, that major battle, was when the Swiss National Bank ended its peg to the euro in January this season.

The Swiss had maintained a peg to the euro for three many years. Why would they do that? It had been all due to the European Main Banks (ECB) policy of devaluing the dinar through money printing.

The ECB desired to devalue the euro in order to help boost exports. Its the same reason why the US wanted to devalue the united states dollar by printing more.

The trouble for Switzerland is that a devalued euro would mean an increase in value for the Swiss franc. The Swiss feared that would result in a drop in exports and harm the Swiss economy.

So the SNB pegged the actual Swiss franc to the euro. This meant that as the ECB printed pounds to devalue its currency, the SNB would have to actively sell Swiss francs in the foreign exchange market, to push down the value of the franc.

That too would involve printing money.

But suddenly, in The month of january this year, the SNB gave up. The actual ECB announced that it planned to open up a new money printing program, and the SNB realised it simply couldnt keep pace.

So they decided to unpeg the Swiss franc from the dinar. The impact on the currency markets had been huge. As Business Insider reported at that time:

Hedge fund manager Marko Dimitrijevic is shutting his largest hedge account, Everest Capitals Global Fund, having lost almost all its money following the Swiss National Bank (SNB) scrapped its three-year-old cap on the Swiss franc against eh euro, Bloomberg news documented on Saturday.

Citing a person acquainted with the firm, Bloomberg said the actual fund had been betting that the Swiss franc would decline. The actual fund had about $US830 million in asset at the end of 2014, according to a client report cited by Bloomberg.

The chart below gives you an idea to when the SNB abandoned the peg. See if you can spot it

Source: Bloomberg

The Swiss franc appreciated by 23% over the euro within 24 hours.

It was a stunning move. As the report above illustrates, some funds lost a bundle on it.

But, not everyone lost. There were plenty of savvy investors as well as institutions that made a eliminating on the SNB move.

As Fortune noted simply two weeks later:

Banks are finding their own way around the Volcker Rule in some unexpected ways. JPMorgans recent windfall off the Swiss franc and Citis loss is testament to that fact.

Earlier this month, traders at the nations biggest financial institution made $300 million in one day time, following news that the Switzerland central bank was taking its cap off the franc. Which caused the currency in order to soar, and JPMorgan traders took the move, literally, to the bank.

Why did the Switzerland franc move this way? Because of the global currency wars.

Now, events of this particular extreme nature are abnormal. They dont happen all the time. However other events, mostly of a smaller nature, do happenand these people happen more often than you may think.

And not only to the currency markets either.

Look in the following chart. Its of the precious metal price in US dollars.

From past due December to mid-January, it moved nearly 11%.

Source: Bloomberg

Why did gold proceed ballistic like this? Because of the global currency wars.

Cop a look at another graph, this time of the Brazilian actual. It moved 27.8% in only two months:

Source: Bloomberg

Why did this occur? Because of the global currency conflicts.

From March to April this year, Brazils IBovespa index gained 20.2%.

Source: Bloomberg

Why did it do that? Because of the global currency wars.

In 2013, Indonesias main stock index fell 23.6% within three months. Why? Because of the global currency wars.

Source: Bloomberg

Look at any of the charts Ive shown you and youll see big price movements more than relatively short periods of time. A number of these are a result of the global currency wars.

Its these price movements, related to the currency wars, which were targeting with a brand new trading consultant, Currency Wars Trader.

Just note one thing. Even if this service aims to help folks profit from (or protect their own wealth from) the global currency wars, it doesnt involve forex trading.

This new service aims to help investors and traders profit from the actual currency wars without actually trading in currencies themselves.

Its a distinctive trading service. It doesnt involve technical analysis. And if you so choose, it doesnt have to involve leverage either (although if you want to sensibly employ influence, well show you how).

And its not fundamental analysis in the traditional method either. Our strategist and experts arent looking at company balance sheets and profit and loss statements as youd expect.

This is what I call macro-fundamental analysis. Its exploring the big economic news and events, looking for hidden triggers within the market, using our strategists unique approach.

After the strategist offers identified these triggers and signals, its then up to the analysts to apply that to some specific investment idea.

That calls for buying or selling a particular type of investment that they believe is best positioned to profit the most from an expected move.

Its sure to be controversial. This is a strategy that until now has been unavailable to the ordinary investor. But now, as the global currency wars gain maintain, and have an ever greater influence on the markets, its only right that we make this strategy available to you now.

Cheers,

Kris

You may be surprised to learn exactly what Im about to tell you.

But the globes most connected financial insiders lately signalled that the markets are on the brink of disaster.

Many of these global elites are already making plans to prepare for the worst. Fortunately, its not too late for you to consider concrete steps to protect your personal wealth ahead of time.

Theres an old stating in the stock market that when costs are about to collapse nobody rings a bell. In other words, its up to you to be alert to important turning points in markets.

No analyst or advisor is going to tell you exactly when the bull market is over. Actually, they probably dont know themselves; the experts will be taken as much by surprise as everyday investors.

Yet sometimes, the global power elites do ring a bell.

But they ring this for the wealthiest and most powerful individuals only. Everyday traders like you are not meant to hear this. One of these insider warnings had been sounded recently

On 29 June 2014, the financial institution for International Settlements (BIS) released its annual report, that said markets had become euphoric. That report went on to say that Time and again seemingly strong balance sheets have turned out to mask unsuspected vulnerabilities.

The BIS, based in Switzerland, is a private meetinghouse for the most powerful central bankers in the world. It exists under a distinctive legal structure that is not responsible to any government.

During the Second World War, the BIS, under the direction of an United states CEO, fenced Nazi gold to help the Germans fight the Allies. The BIS is also the key institution for central bank gold manipulation today.

No institution in the world keeps more central bank secrets than the BIS. Once they warn about market pockets, you should take heed. However they werent the only ones

Three months later, on 20 September 2014, the G-20 finance?ministers met in Australia. The G-20 is a group of 20 economies such as rich countries such as the US and emerging markets for example Brazil, China and India.

Since the crisis of 2008, the G-20 has been the most important forum for directing global economic policy.

The final statement of their September meeting stated, We are mindful of the potential for a build up of excessive risk within financial markets, particularly in an environment associated with low interest rates and low resource price volatility.

A few days after the G-20 conference, a private think tank located in Switzerland called the International Center for Monetary and Financial Studies, ICMB, with strong links to major banks as well as government regulators, issued it’s so-called Geneva Report on the world economy, which it has done since 1999.

The latest Geneva Report said, Contrary to widely held beliefs, six many years on from the beginning of the financial crisis the global economy is not however on a deleveraging path. Indeed, the ratio of global total debt over GDP offers kept increasing and breaking brand new highs.

The report then procedes to warn about the poisonous impact of this debt today.

On 11 Oct, shortly after the Geneva Report release, the International Monetary Fund (IMF) issued its own warnings.

The mind of the IMFs most powerful policy panel said capital markets are vulnerable to financial Ebolas that are bound to happen

The IMFs final pr release said, Downside risks arise from elevated risk-taking amidst low volatility in financial markets and heightened geopolitical tensions.

Finally, while attending the same IMF meeting in Washington, the vice chairman of the Federal Reserve, Stan Fischer, cautioned that world growth may be weaker than expected, which could delay the Feds next transfer toward raising interest rates.

Put everything information together, the message doesn’t seem possible to ignore.

The worlds most powerful financial institutions as well as think tanks, the BIS, G-20, ICMB, IMF and the Fed are all warning about extreme leverage, asset bubbles, sluggish growth and systemic danger.

They are doing this publicly, as well as seemingly in a coordinated fashion, since all of these warnings were issued within 100 days from late June to early October 2014.

As if upon cue, the Dow Johnson index peaked on Nineteen September and then began the 700-point nose dive that ongoing through 10 October at the start of the IMF meeting.

The market briefly bounced back, but the volatility and nervousness has continued via today.

Are the global financial elites attempting to tell you something?

Actually, no.

All from the reports and press releases noted above are written in highly technical language and were read only by a fairly small number of expert analysts.

Some of these reports may have been picked up and mentioned briefly in the push, but they didnt make the front pages.

For you, such pronouncements are just much more financial noise in a flood of information that washes more than you every day on TV, stereo, the Web, in newspapers as well as in other publications.

The power elite were not signalling you they were signalling one another.

Have you noticed that government authorities, billionaires and major CEOs rarely seem to suffer when the economic climate collapses, as it does from time to time?

Its not a coincidence that its daily investors and middle-class savers that see their 401(k) company accounts and stock portfolios take a beating during collapses.

This is because the elites have inside info. They see the catastrophe arriving and warn each other to get out of the way in advance.

Not every millionaire is a full-time financial expert. A few made their money in telecommunications, social media, Hollywood or other endeavours.

But they do share tips as well as inside information at personal conclaves in Davos, Sun Valley, Aspen, Jackson Hole and other hangouts of the rich and famous.

They see trouble coming as well as scramble out of the broad stock exchange and into hard assets, art, cash, land along with other safe havens.

When the collapse arrives, they emerge from their financial bunkers to snap upward valuable companies that small investors have been panicked into selling at bargain-basement prices.

As soon as top notch institutions like the BIS and IMF start sounding the alarm, the actual smart money knows where you can hide.

These elite warnings function another purpose in addition to giving fellow elites a heads-up.

They insulate political figures and officials from fault after the crash.

When the fall comes, you can be sure the BIS, G-20, IMF and the rest will point to the statements I just told you about as well as say, in effect, See, we told you it was coming. Dont blame us if you didnt take action.

The warning continues to be sounded. The time for defensive action is now.

Regards,

Jim Rickards

Strategist, Strategic Intelligence

From the Port Phillip Publishing Library

Special Report: If you want to get ahead in this world, it pays to have powerful buddies in high places. With this particular new advisory, youll make one. The portfolio manager at the West Shore Group, and advisor on international economics as well as financial threats to the US Department of Defense. Jim Rickards is no ordinary financial newsletter writer.?And Strategic Intelligence is no ordinary newsletter (more)

In July 2014 Brazil was web host to the biggest sports event in the world, the FIFA World Cup.

A big event like this costs money. And lots of it.

All in Brazil expected around US$15 billion to host the event. On stadiums alone these people spent around US$3.9 billion. For 12 stadiums thats about US$316 million on average each. Could Brazil afford to pay for this particular? Of course not. The taxpayer had to foot the bill.

But not even the actual taxpayer could afford it.

In 2014 South america collected about US$288 billion in tax revenues. A deficiency of US$28 billion. That shortfall is if you allocate all the money to the event. Dont forget those tax receipts are money for running the country as well. Things like health, education and infrastructure. Its actually likely the taxpayer will foot the bill for decades to come.

This tournament was supposed to reinvigorate Brazils economy. The government was hoping it would spur growth and attract investment. Put Brazil properly on the world stage.

It didnt.

It feels like this might have been Brazils last roll of the dice. A way to arise the economy from its emerging economy peers. But they didnt realise is that theyll always be an emerging economy. At least, when you compare them to the actual might of the US or China

But Brazil bet the house. And even chose to host the other biggest event in the world, the 2016 Olympics.

Tommy Andersson in his 2008 paper, Impact of Mega-Events on the Economy estimates on average the economic benefit of an Olympic games is below US$10 billion. Estimates are the Olympics will cost around US$16 billion.

To complicate matters, since 2011 the Brazilian real is over 59% weaker against the US dollar.

Thats great if youre heading to the games from the US on holiday. Its not so great when youre trying to host the two biggest events in the world consecutive. Its thrown the Brazilian economy into a tailspin.

So why is the real therefore weak? What did South america do, aside from maybe be considered a little overambitious? How come now the actual is up there with the worst performing currencies in the world? Well as Jim Rickards, Strategist for Strategic Intelligence explains within todays essay its all down to the Forex Wars playing out amongst the worlds Big Four C All of us, China, Japan and European countries.

Of course its not just Brazil. Because youll see Jim highlights the plight of Korea also. In fact these wars effect all emerging economies. You see when the Big Four engage in their Currency Wars, they play to win, and everyone else loses. Especially the rising economies like Brazil and Korea.

Regards,

Sam

Who Wins the Forex War: Emerging Markets Vs the Big Four?

By Jim Rickards, Strategist, Strategic Intelligence

For better or worse, emerging marketplaces have become roadkill in the currency conflicts.

Perhaps collateral damage is a better term for it, since collateral damage is used to describe innocent victims of battling among hostile adversaries.

All wars produce collateral damage, and the currency wars are no exclusion.

The major adversaries in the forex wars are the US, China, Europe and Japan.

Each of those four economic powers is actually confronted with the same dilemma. There is too much debt in the world, and never enough growth.

If growth were strong, the debt would be workable and countries wouldnt care a lot if one player tried to adjust its currency. But development is not strong; its weak. And getting weaker all over the world.

And sovereign debt just keeps growing.

Its easy to make fun of nations like Japan that have debt-to-GDP percentages over 200%, but the US and China are not that much behind and are catching up quick.

The whole world is beginning to look such as Greece.

The key to solving the sovereign debt problem is nominal growth, which consists of real growth in addition inflation.

If nominal growth is booming faster than your deficit, then the debt-to-GDP ratio goes down as well as your sovereign debt is viewed as sustainable.

The reverse is happening.

Deficits persist in the main economies, but nominal development is weak. In fact, minimal growth in some countries, including the US and Japan occasionally, is actually negative, in part because rising cost of living has turned to deflation.

Real growth is essential, but when it comes to paying the money you owe, nominal growth is what counts, because debt is paid in nominal dollars. In a world of deflation, nominal growth is actually?lower?than real growth. The world of sovereign debt management has been turned upside down.

The main economic powers are battling deflation by devaluing their currencies.

A devaluation raises the price of imports such as energy, commodities and manufactured goods.

These greater import prices feed with the supply chain and put upward cost pressure on finished items and competing products.

The issue is that not everyone can devalue at the same time; countries have to take turns.

China were built with a weak yuan policy in 2009. By 2011, the US had engineered a weak dollar. Beginning in late 2012, Japan orchestrated the fragile yen with Abenomics.

By mid-2014, it was time for that weak euro, which was achieved by the ECB using negative rates of interest and quantitative easing. The major financial systems keep passing the forex wars canteen, hoping that everyone could possibly get just enough relief to keep the game going.

Still, robust global growth is nowhere in sight.

Where performs this leave emerging markets?

Unfortunately on their behalf, emerging markets are simply not big enough or important enough to factor into the calculations of the major economic powers.

Its not too the big central banks dont treatment; its just that there are limits as to the they can do. The US, The far east, Japan and Europe, the actual Big Four, account for almost two-thirds of global Gross domestic product. All of the other developed economies and also the emerging markets combined account for the remaining third. As far as the Big Four are concerned, the rest of the globe are just along for the ride.

When the Big Four fight the currency wars, sometimes these people win and sometimes they lose.

But the emerging markets always shed. The emerging markets have been painted into a corner and can’t escape the room.

Heres why.

When a good emerging-market currency weakens, capital leaves the nation and heads for strong-currency areas such as the US. This capital flight causes declines in asset markets such as stocks and real estate.

A weak forex in an emerging-market economy also causes it to be harder to pay off dollar-denominated corporate debt. This can lead to debt defaults and much more capital flight.

In a worst of all, you can have a full-blown emerging-market meltdown of the kind that happened in 1997C98.

But when an emerging-market currency strengthens, its exporters suffer, and its tourism sector can be hurt also. This really is happening in Korea today.

The relatively strong won has the Korean economy on the brink of recession because they are losing export competition to Japan, Taiwan and other competitors.

So a weak currency causes funds flight and asset accidents, and a strong currency causes recession and hurts exports.

Emerging financial markets are between a rock and a hard place, and they will stay there so long as the Big Four are battling the currency wars.

One solution to this dilemma is a resumption of strong economic growth in the Big Four. In a world of strong growth and stable exchange rates, emerging markets can prosper with exports of commodities as well as manufactured goods as well as tourism as well as services.

But strong growth isn’t in sight.

Another solution is capital controls. But capital controls are discouraged by the IMF and are considered a sign of desperation.

Neither strong growth nor capital controls are on the horizon right now, therefore emerging markets will remain within this heads you win, tails I lose posture relative to the Big Four.

Emerging market financial systems dont have the right type of weaponry to defend themselves in currency wars.

The emerging markets are in position to lose both ways.

Regards,

Jim Rickards,

Strategist, Strategic Intelligence

Ed Note: the over article first appeared as a Strategic Intelligence weekly update

Its pretty obvious theres no such thing as being able to see the near future. Or is there? From what I can gather there is no Grays Sports activities Almanac like in Back to the Future Part II, with the outcomes of events later on.

But some extraordinary people have an uncanny ability to predict what will happen in the future. Currency Wars author as well as Strategic Intelligence Strategist Jim Rickards is one such individual.

And what Jims uncanny ability seems to be is predicting whats going to happen in world economies. Sometimes I believe Jim might even have a secret copy of Grays Economic Almanac and hes simply not letting on

While the world was with the US to hike rates in September Jim suggested they wouldnt. And below youll observe exactly why he made that call and was right.

Furthermore youll also see Jims long term strategic view of the actual Feds actions, and the five options he thinks theyre going to have. And then whatever the Fed does end up doing will be a tradeoff between their credibility or catastrophe.

Regards,

Sam

The Cost of Interest Rate Manipulation

By Shae Russell, Editor, Strategic Intelligence

The Fed won’t raise interest rates. Thats something Ive said for a long time.

This statement is acquainted to subscribers of Strategic Intelligence. It sounds exactly like something, their own strategist, Jim Rickards would say.

In reality, its exactly what he said to the Mastening numbers on the Monday night before the actual Liberal party changed leaders.

As most Aussies were tweeting libspill memes, Jim was chatting to The Business concerning the implications of the looming Federal Reverse Bank meeting now.

I highly recommend you watch the interview.

Now, this interview took place before the September Federal Open Marketplaces Committee. When you watch the job interview, its clear that Jim was confident thered be no rate increase from the Fed which month.

However, he did discuss something called the October Surprise.

Now the Fed meets eight times annually. But they only hold the press conference four times annually. As a general rule, the Fed has a tendency to raise rates at the same time a press conference is planned.

After this last meeting, the actual Fed wont have another push conference until December this year.

Yet, as Jim explains in the interview, last year the Fed had a teleconference practice run during the Northern hemisphere spring.

The marketplaces and most in the mainstream for that matter wouldnt expect it because theres absolutely no scheduled press conference. Therefore, the October surprise.

At the time, Jim felt the Given may risk saving face and dump an Oct Surprise on the US market.

In saying that, he believes any kind of rate rise this year is unlikely. 2016 is still a possibility, however, as Jim explained to subscribers associated with Strategic Intelligence on Wednesday, the Given have until March 2016 in the event that its dependent on economic data.

While Jims suggesting to look out for the unexpected, he or she reckons the Fed missed the actual boat to raise rates.

They could have done so gradually over This year and 2011. If the main bankers had used this opportunity to raise rates, thered be room in the US economy to tighten monetary policy today.

The fact is, they didnt.

Today the US is faced with frail economic numbers. Jim states the, Employment rate has come lower, but labour force participation is lousy. The labour force declined last month as well as real wages are going nowhere. In fact, monthly job creation is going nowhere. If you look in the data behind the pleased talk, the [economic] data is very fragile in the US.

As a result, Jim believes the Fed has five choices.

1. Fire up those printing presses and start printing money once again.
2. Establish negative interest rates. Although Jim thinks this move is highly unlikely.
3. Helicopter money. This is where the united states runs bigger budget deficits and the Fed buys the bonds. Money printing having a purpose, Jim calls this.
4. The Fed changes its forward guidance. Since spring the government Reserve has put the market upon notice that a rate rise could happen at any moment. Jims says the Fed could change the speak with being data dependent rather than this difficult talk we get now.
5. And the ultimate tool currency wars. That is, cheapen the dollar at all costs. The problem as Jim explains within the interview is that this move may put pressure on countries like Australia and China that are trying to weaken their own currencies.

In saying that, the Given might have these choices, however Jim doesnt see the Fed with them at this point.

However, the biggest take away from the ABC interview is what occurs if the Fed doesnt raise rates after all the tough talk.

Jim views it coming down to either causing a meltdown in the US and rising markets by raising rates, or accepting that they shed their credibility.

The Fed need to choose between their credibility or a catastrophe. People are saying if they dont raise rates, when theyve been talking it up for so long, theyll lose their credibility. However the data is weak so if they do raise rates theyll cause a catastrophe.

Pushed on the point further, Jim tells the ABC: They will need to leave their credibility in shreds to avoid a catastrophe.?This is the price of manipulation.

Regards,

Shae Russell

Editor, Strategic Intelligence

Ed Note: the over article first appeared like a Strategic Intelligence weekly update (16 September 2015)

Ever since the markets collapsed within 2008, folks have predicted the collapse of the US dollar.

Some thought it might collapse that very 12 months.

In hindsight, the thought of that may seem ridiculous. However at the time, it was a real concern.

There were also those who believed the US dollar would fall, but that it would have a long timeyears, perhaps decades.

But there was another school of thought. They believed that while the US dollar might collapse, it wouldnt be the very first paper currency to collapse.

They believed that before the US dollar collapsed, all other paper currencies might collapse first.

Its an interesting idea. Every time there is a monetary panic, the knee-jerk reaction is perfect for investors to migrate to the All of us dollar and US ties.

So in the event of a total financial fall, maybe that will happen. Individuals will ditch Aussie dollars, lbs, euros and yen, as well as instead theyll hoard US dollars.

Only then, after the destruction of all additional paper currencies, will people realise that the US dollar doesn’t have value either. Then, precious metal (and silver) will go back to their rightful place as units of money.

But what most people dont realise, is that the value of paper cash has already collapsed. The US buck has lost 98.3% of its value since 1920.

How do I realize that? You just need to look at the value of the US dollar relative to the precious metal price. Most people look at the gold price and see that it has gone up in value.

To see the wear and tear of the US dollar, you need to invert the chart. The chart below shows how many oz . of gold you could get with regard to US$1 in 1920, versus how many ounces of gold you can get for US$1 today:

Click to enlarge Source: Bloomberg

 

In 1920, you could get 0.05 ounces of gold for US$1.

Today, US$1 will only get you 0.00085 ounces of gold.

Thats the destruction of the purchasing power of document money by more than 98%.

So right now we ask you, is it truly so crazy to think that certain day the US dollar will finally die?

More on the end of the US dollar from Jim Rickards today

Cheers,

Kris

The same force that made the US dollar the worlds reserve forex is working to dethrone it.

22 This summer 1944 marked the official conclusion of the Bretton Woods Conference in Nh. There, 730 delegates from Forty four nations met at the Attach Washington Hotel in the final days of the Second World War to devise a new international monetary system.

The associates there were acutely aware that the actual failures of the international monetary system after the First Globe War had contributed to the outbreak of the Second World War. They were determined to create a more stable system that would avoid beggar-thy-neighbour forex wars, trade wars along with other dysfunctions that could lead to capturing wars.

It was at Bretton Woods the dollar was officially designated the worlds leading reserve currency a position that it still holds today. Under the Bretton Woods system, all major currencies had been pegged to the dollar in a fixed exchange rate. The actual dollar itself was pegged to gold at the rate of US$35.00 per ounce. Indirectly, the other currencies had a fixed gold value due to their peg to the dollar.

Other currencies could devalue against the dollar, and for that reason against gold, if they obtained permission from the International Financial Fund (IMF). However, the dollar could not devalue, at least theoretically. It was the keystone of the entire system intended to be permanently moored to gold.

From 1950C1970 the Bretton Forest system worked fairly well. Trading partners of the US that earned dollars could cash those dollars in to the All of us Treasury and be paid in gold at the fixed rate.

Trading partners of america who earned dollars could cash those dollars in to the US Treasury and be paid in gold at the fixed rate.

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

The UK pound sterling had previously held the dominant reserve forex role starting in 1816, following the end of the Napoleonic Wars and the official adoption of the gold standard through the UK Many observers presume the 1944 Bretton Woods conference was the moment the US dollar replaced sterling as the worlds leading reserve currency. In fact, that replacement of sterling through the dollar as the worlds leading reserve currency was a process that required 30 years, from 1914 to 1944.

The real turning point was the period JulyCNovember 1914, whenever a financial panic caused by the start of the First World War led to the closures of the London and New York stock markets and a mad scramble around the world to obtain gold to meet obligations. At first, the US was really short of gold. The New You are able to Stock Exchange was closed so that Europeans could not sell All of us stocks and convert the actual dollar sales proceeds in to gold.

But within a few months, massive US exports of cotton along with other agricultural produce to the United kingdom produced huge trade surpluses. Precious metal began to flow the other method, from Europe back to the US Wall Street banks began to underwrite massive war loans for the UK and France. By the end of the First World War, the US had become a major creditor nation and a major gold power. The dollars percentage of total global reserves began to soar.

Scholar Barry Eichengreen has documented how the dollar as well as sterling seesawed over the 20 years following the Very first World War, with 1 taking the lead from the additional as the leading reserve forex and in turn giving back charge. In fact, the period from 1919C1939 was really one in which the world experienced two major reserve currencies dollars and sterling operating side by side.

Finally, in 1939, England suspended gold shipments in order to fight the Second World War and the role of sterling like a reliable store of value was greatly diminished apart from the UKs unique trading zone of Australia, Canada and other Commonwealth countries. The 1944 Bretton Woods conference was merely recognition of a process of dollar reserve dominance that had started in 1914.

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

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

It is equally obvious that the major creditor nation is emerging to challenge the united states today just as the US emerged to challenge the UK in 1914. That power is The far east. The US had massive precious metal inflows from 1914C1944. China has huge gold inflows today.

Officially, China reviews that it has 1,658 metric tonnes of gold in the reserves. However, China has acquired thousands of metric lots since without reporting these types of acquisitions to the IMF or World Gold Council.

Based on available data on imports and the creation of Chinese mines, it is possible to estimate that actual Chinese government and private gold holdings exceed Eight,500 metric tonnes, as shown in the chart below.

Click to enlarge

 

Assuming half of this is government owned, with the other half in private hands, then the real Chinese government gold placement exceeds 4,250 metric tonnes, an increase of over 300%. Of course, these figures are only estimations, because China operates through secret channels and does not officially report its gold assets except at rare times.

Chinas gold acquisition is not the consequence of a formal gold standard, but is going on by stealth acquisitions on the market. Theyre using intelligence and military assets, covert operations and market manipulation. But the result is the same. Gold is moving to China today, just like gold flowed to the All of us before Bretton Woods.

China is not on your own in its efforts to achieve creditor status and to acquire precious metal. Russia has doubled its gold reserves in the past five years and has little external financial debt. Iran has also imported massive levels of gold, mostly through Turkey and Dubai, although no one knows the exact amount, because Iranian precious metal imports are a state secret.

Other countries, including BRICS members Brazil, India and South Africa, have became a member of Russia and China to construct institutions that could replace the stability of payments lending of the International Monetary Fund (IMF) and the development lending of the World Bank. All of these countries are clear about their desire to break free of US dollar dominance.

Sterling faced a single competitor in 1914, the US dollar. These days, the dollar faces a host of rivals China, Russia, India, Brazil, South Africa, Iran and many others. Additionally, there is the world super-money, the special drawing right (SDR), which I anticipate will also be used to diminish the role of the dollar. The US is actually playing into the hands of those rivals by running industry deficits, budget deficits and a huge external debt.

What would be the implications for your portfolio? Once more, history is highly instructive.

During the glory years of sterling as a global reserve currency, the trade value of sterling was remarkably steady. In 2006, the UK House of Commons produced a 255-year price index for sterling that covered the period 1750C2005.

Click to enlarge

 

The index were built with a value of 5.1 in 1751. There have been fluctuations due to the Napoleonic Wars and the First World War, but even as late as 1934, the actual index was at only Fifteen.8, meaning that prices had only tripled in 185 years.

But once the sterling lost its lead reserve currency role to the buck, inflation exploded. The catalog hit 757.3 by 2005.

In other words, during the 255 years of the index, prices increased through 200% in the first 185 years while the sterling was the lead reserve forex, but went up?5,000%?in the Seventy years that followed.

Price stability appears to be the norm for money with reserve currency status, but once which status is lost, inflation is actually dominant.

The decline of the dollar as a reserve currency started in 2000 with the advent of the actual euro and accelerated in 2010 with the beginning of a new currency war. That decline is now being amplified by Chinas emergence as a major creditor and gold power. Not to mention the actions of a new anti-dollar alliance composed of the BRICS, Iran and others. If history is a guide, inflation within US dollar prices can come next.

In his 1925 poem?The Hollowed out Men, T. S. Eliot writes: This may be the way the world ends/ Not with the bang but a whimper. Individuals waiting for a sudden, spontaneous collapse of the dollar may be missing out on the dollars less dramatic, however equally important slow, steady decrease.

The dollar collapse has already started. The time to acquire inflation insurance is now.

Regards,

Jim Rickards,

Strategist, Strategic Intelligence

Ed note: The above essay first appeared in the US Daily Reckoning 28 May 2015. It has been up-to-date to include Chinas current gold supplies.

The United States the worlds dominant superpower is lying on its deathbed.

For a long time, the US was a good friend around the world. After the Second World War it opened up its arms to freedom. Former US President, Ronald Regan famously said to the world, tear down this particular wall from West Berlin.

Years later on, Germany was reunited. Communism failed and capitalism exploded.

US geopolitical, economic, financial, and military power was completely unchallenged. And it would remain that way for years.

Unfortunately, the times possess changed.

The US economy is actually weakening. Its debt amounts are high. And its interest rates are hovering around historical lows.

Soon, within this decade, the united states will no longer hold the reserve forex status. And this means that substantial changes are on the horizon

The very first change will be geopolitical

Its really unfortunate that All of us politicians dont listen to their beginning fathers. George Washington stated in 1796 at his farewell speech:

The great rule associated with conduct for us in regard to foreign nations is in extending the commercial relations, to have together as little political connection as possible. So far as we have already formed engagements, let them be fulfilled with perfect good belief. Here let us stop.

Of program, the political religion associated with?US President Barack Obama and most from the?political class? is that its Americas?moral duty?to be involved in other nations business.

Today, the US remains the worlds leading military power. But its prominence is rapidly being chipped away. Its my way or the highway mindset has frustrated many nations. Especially countries in the Middle East

Historically, US involvement in the Middle East is finished in disaster. The past year has proven no different

In the last 12 months, US forces have conducted over 7,000 airstrikes in Iraq and Syria. The official mission has been to wipe out Islamic State (Is actually).

Awkwardly, this hasnt happened.

Instead, US airstrikes possess caused more harm than good. With bombs and missiles flying everywhere, the Syrian refugee crisis was born a situation thats gone from bad to worse.

Unfortunately, theres been no official response to this humanitarian crisis. Other than to keep bombing Syria, that is

And no doubt, this course of action will lead to more mayhem.

Especially now that Russian warplanes are involved in Syria.

Russia started bombing Islamic State on 30 Sept. And while US officials possess accused Moscow of acting wrongly, it only took the Russians 24 hours to do what they couldnt. A minimum of according to Russian Major Common Igor Konashenkov, as reported by RT:

Our aviation group in the last day has destroyed 2 militant command centers, 29 field camps, 23 fortified facilities and several troop positions with military hardware.

Theres only one goal within Syria

The US wants to topple Syrian Leader Bashar Hafez al-Assad. This plan wont change. The US really wants to install its own puppet politician in Syria. Other Western leaders have rose on board with this policy.

And surprise the mainstream media is actually backing the official political story. A story that accuses Assad of attacking his own citizens with chemical weapons.

Thats despite the fact that theres no proof that this ever happened. The actual evidence points towards the terrorist attack. This is why Russia, a key ally of Assad, along with China have opposed military intervention inside Syria.

With this barrier in place, Barrack Obama has had absolutely no choice but to impose his no boots on the ground policy. Of course, this policy goes against the wishes of the US government and Obama himself. In time, theres without doubt in my mind that it will change.

In the meantime, theres been no shortage associated with tough talk by Traditional western leaders. And to stir the pot, US officials have been forced to come up with other ideas. Such as spending nearly US$500 million training Syrian rebels to fight IS.

Unfortunately, this didnt turn out as planned.

General Lloyd Austin, who leads the US military’s Central Command, recently informed the US Senate Armed Services Committee:?The [number of Syrian rebels] that are in the fight, were talking four or five.

What an absolute stuff upward. For the price of half a billion US dollars, there are four or five Syrian rebels fighting Islamic State.

Following the large quantity of attention on this poor policy, and Russias effective military procedure, the US recently suspended this program.

Instead, it will airdrop ammunition in the middle of the desert. And it just fallen 50 tonnes of ammo out of the sky. (Which you wish gets in the hands of the right individuals.)

According to the Whitehouse, it was a successful mission. Anti-Islamic State coalition spokesman Colonel Steve Warren informed the ABC:

[The airdrop reached] Syrian Arab groups whose leaders appropriately were vetted by the United States and also have been fighting to remove ISIL.

Dont flash an eye

While Im not sure what will occur next, one fact is guaranteed this story is not more than.

In fact, its likely that the worst is yet to come.

Times are changing. The old structure in the world a system dominated by the US government, US banks, and the US buck is coming to an end.

The US Kingdom and economy are decreasing. If history is dependable, their leaders will do whatever it takes in which to stay power.

And typically, when an economy turns down politicians 03 their people off to war. I dont want a world battle to happen any more than you do, were talking about politicians that are detached from the modern day world.

Ill be talking about this story in additional depth next week in Resource Speculator. There are fortunes to be made for people who comprehend these trends and are able to get out in front of them. Ill suggest one or two Aussie stocks which you can use to do exactly that. When this battle takes a turn for the even worse, these companies should profit hugely.

If you want to know more, you can start right here.

Jason Stevenson,

Resources Analyst, Resource Speculator

From the Port Phillip Publishing Library

Special Statement: If you want to get ahead in this world, it pays to have powerful friends in high places. With this brand new advisory, youll make one. A profile manager at the West Shore Group, and adviser upon international economics and financial threats to the US Dod. Jim Rickards is no ordinary monetary newsletter writer.?And Strategic Intelligence is no ordinary newsletter (more)

What more is there to say? Gold is money.

It always has been, and it usually will be.

The fact that gold is actually money is why central banks hate it so much.

Central banking institutions succeeded in creating national monopolies on currencies. Only the Bank of England can printing English bank notes. Only the US Federal Reserve can printing US dollar bills. Only the Reserve Bank of Australia can print Aussie dollars.

(Rare exceptions to this are Scottish and Northern Irish retail banks. They retain the right to print their own notes. However, there is an suggested backing from the Bank of England for these notes.)

However, even though central banks have succeeded in imposing legal tender laws, by outlawing just about all competing currencies, one thing is apparent.

As much as they may like to, main banks and governments cant abolish gold. They can try. The doyen from the progressive movement, the tyrant, Franklin Delano Roosevelt, signed an executive order in 1933 to confiscate privately held gold in america.

And Part IV of the 1959 Banking Act in Australia gives the governor general the power to demand the actual relinquishment of all private gold. Part IV is currently suspended, but the governor general could invoke this at any time.

Governments and central banking institutions may try to take private gold again. They detest gold because it gives individuals a way to protect against the wear and tear of paper money rising cost of living.

In todays Money Morning, my colleague, global strategist Jim Rickards, provides more background around the relationship between central banking institutions and gold, and where the actual gold price could mind next.

Read on below with regard to details

Cheers,

Kris

Gold the Once and Future Currency

Jim Rickards, Strategist, Strategic Intelligence

Is gold off the bottom?

Its unfortunate that markets are now decreased to reading Janet Yellens mind. But thats what happens after seven years of market intervention and central planning by the Federal Reserve.

Using my system, which combines complex dynamic systems analysis with unique access to relevant info, were able to draw some useful inferences about the future road to gold prices. Our estimation is that gold has now discovered a bottom and is ready to move steadily upward from current levels.

For those who are completely allocated in physical precious metal (I recommend about 10% of investible property), theres nothing more to do on that front. You can just sit tight and enjoy the ride.

For those who do not have the actual recommended allocation to physical gold, this is an attractive entry point and a chance to top up your allocation at the best prices in six years.

Its certainly already been a long and volatile ride for gold investors. Starting from a low of about US$250 per ounce in mid-1999, gold staged a spectacular rally of over 600% to about US$1,Nine hundred per ounce by July 2011. Unfortunately, that move looked increasingly unstable towards the end.

Gold was about US$1,400 for each ounce as late because January 2011. Almost US$500 for each ounce of the overall move occurred in just the last 7 months before the peak. That kind of hyperbolic growth is almost always nonsustainable.

Sure enough, gold fell dramatically from that peak to below US$1,100 per oz by July 2015. The 15-year chart still shows a gain of approximately 350%, but the four-year chart shows a loss of revenue of over 40%.

Those who invested during the 2011 rally are underwater, and many have given up on precious metal in disgust. For long time observers of gold markets, sentiment is the worst theyve seen.

Click to enlarge Gold in dollars for each ounce, Sept. 2010-Sept. 2015 Source:?Wall Street Journal

At?Strategic Intelligence, we glance behind the charts as well as sentiment and try to discern the actual systemic dynamics driving the price. Once those dynamics are specified, forecasting becomes much more reliable.

Weve identified three elements that well explain the gold price dynamics. These 3 factors are real interest rates, dollar strength and central bank intervention. Looking at the current status and likely path of these factors is the greatest guide to the future price of precious metal.

Real interest rates are one of the best predictors from the nominal dollar price of precious metal. When real interest rates are low (or negative), that provides gold a boost. When actual interest rates are high, which puts downward pressure upon gold.

The correlation is not perfect, but its much stronger than other correlations such as the stock market or economic growth. The reason for the actual correlation is easy to understand. Gold has no yield. Golds valuation needs to compete with other asset classes such as stocks and bonds that do possess yields. When yields upon competing asset classes are higher, the gold price tends to suffer, and?vice versa.

What matters for this function is not the?nominal?rate of interest however the?real?rate. Real rates of interest are defined as the nominal interest rate minus inflation. For instance, if the nominal interest rate is actually 5%, but inflation is 3%, then your real rate is only 2% (5% minus 3%). That sounds simple enough, but there are complications.

In selecting minimal interest rates, you have to specify the maturity. Rates on 2-year Treasury information are much lower than rates upon 10-year Treasury notes. We use the 10-year note rate for our analyses because its a good proxy for mortgage rates and corporate bond rates, which represent the cost of financing long-term investments in housing and fixed property by individuals and companies. It makes more sense to consider gold as a long-term core keeping than as a short-term trading instrument.

The other complication arises once the rate of inflation is larger than the nominal rate of interest. In that case, the real rate is negative. This might happen when the 10-year note rates are 1% and inflation is 2%.

In that position, the real rate is negative 1% (1% without 2%). That is the ideal environment for gold. A zero yield on gold is actually greater than the negative real deliver on notes.

Wall Street analysts keep talking about how low interest are. Its true that nominal minute rates are low, but real minute rates are quite high by historic standards. For the past several years, 10-year nominal rates have mostly been more than 2%, but inflation has been about 1%, sometimes lower.

This means that the real rate on 10-year notes has been over 1%. Compare this to the situation in 1980 (when gold strike a new high of $800 per oz). Back then, Treasury bonds yielded 13%, however inflation was 15%, so the real rate was?negative 2%.?Dont end up being misled by low minimal interest rates. Focus on the real prices instead and youll have better insight into the future price of precious metal.

The second factor is buck strength. There the relationship is even more striking. Should you consider gold to be a form of money or currency?(that we do? thats why we cover it in?Strategic Intelligence), then its easy to see that the strong dollar signals an inadequate dollar price of gold, along with a weak dollar signals a powerful dollar price of gold.

The greatest measure of dollar strength (apart from gold itself) is the Price-Adjusted Broad Dollar Index maintained through the Federal Reserve Board.

The all-time low for this dollar index was 80.5001 in July 2011, the time of which corresponds exactly using the all-time high dollar price for gold.

Conversely, that index today reads 95.595. Thats the highest studying in over six years. Not surprisingly, just as the dollar reaches a six-year high, gold is actually near a six-year low. Once again, the correlation is not ideal, but it is surprisingly robust.

Wall Street analysts have tended to select the wrong dollar indexes in performing their analysis.

The Wall Road indexes are heavily heavy toward the euro and yen, whereas the Feds catalog looks at emerging markets such as China. At?Strategic Intelligence, weve used the Fed index all along. A glance at Page 253 associated with my book?The Death associated with Money?confirms that weve always used the right index tool.

The 3rd factor is central financial institution intervention.

Here the case is straightforward: a simple matter of supply and demand. Mining result has been remarkably constant over recent decades: about 2,Thousand tons per year.

Gold has not many industrial uses.

I consider jewellery to be wearable wealth, so I do not distinguish between jewellery demand and bullion demand both are types of wealth preservation. So along with constant output and variable demand for gold as a shop of wealth, it has been relatively easy for central banks to control the price of gold by throwing gold reserves on the physical market at critical junctures.

There have been three major waves associated with central bank manipulation within the physical market.

The first had been the London Gold Swimming pool of the 1960s, which collapsed in 1968.

The second would be a covert effort by the U.S. and IMF to dump 1,700 tons of precious metal on the market from 1975C79 to conceal the real impact of rising cost of living. This collapsed in 1980 whenever both inflation and the cost of gold spun out of control.

The third effort was the Washington-inspired Central Financial institution Gold Agreement (CBGA), which formed the sellers cartel of 11 national central banks (not?including the Ough.S.).

The CBGA was created in 2000 and renewed in 2004 and 2009. The largest seller under CBGA was Switzerland. This particular agreement has now failed, and there have been no sales by any of the signatories since 2010.

Since after that, central banks have moved from being net sellers to net buyers the very first time in decades. With couple of official sellers and many recognized and nonofficial buyers, gold need now exceeds gold supply from mines, putting pressure on scrap gold and other fragile hands to fill the gap.

The importance?of this?analysis is that it doesnt focus on where we are. This focuses on where were going. Central banks cannot tolerate higher real interest rates, because they load consumption and investment.

The Federal Reserve cannot tolerate a strong buck because it imports deflation (in the form of lower import prices) from around the world. Physical financial markets are skewed toward excess need because China, Russia, Iran along with other countries continue to demand precious metal to diversify reserves away from dollars while output is flat and official product sales by the West have stopped.

All three factors real rates, the strong dollar and official sales are pointing towards a reversal of recent developments and momentum toward problems that favour higher gold costs.

Gold can move in either path, but it is much more likely to move upward than down given present conditions.

All the best,

Jim Rickards,

Strategist, Strategic Intelligence

For two years, financial markets have repeated the same error predicting that US interest rates will rise within about six months, simply to see the horizon recede. This particular serial misjudgment is the result not really of unforeseeable events, but of a failure to grasp the force and global nature of the deflationary forces now shaping the actual economy.

We are caught in a trap where debt problems do not fall, but simply change among sectors and nations, and where monetary policies on your own are inadequate to promote global demand, rather than merely redistribute it.

These two opening paragraphs came from an article on Project Syndicate. It calls itself the worlds viewpoint page.

Whether it is I dont know in the end, theres a whole internet for that!

But I reckon it summed up the global economy better than any popular article Ive read recently.

In under 100 words, the opening paragraph explains the three key economic problems were facing: interest rates, a deflationary period and the shifting of debt.

The author goes on to point out that no matter what the Fed along with other central banks try, they simply cant stimulate demand to grow the worldwide economy. Pumping up markets with quantitative easing isnt working.

The truth is that QE alone cannot promote enough demand in a world where other major financial systems are facing the same challenges. By boosting asset prices, QE is meant to spur investment as well as consumption. But its effectiveness in stimulating domestic demand continues to be uncertain.

Seven years after 08, global leverage is greater than ever, and aggregate worldwide demand is still insufficient they are driving robust growth. More radical policies C such as major debt write-downs or increased fiscal deficits financed by permanent money making C will be required to increase worldwide demand, rather than simply change it around.

After reading this article, Jim Rickards summed it up on his Twitter feed: Peoples QE is another form of helicopter money. Technical name is permanent monetization.

Seven years after the market accident started and emergency steps were introduced, it looks like those emergency measures are actually the brand new normal.

Less than a decade ago, it was impossible to think the actual American economy would end up with permanent monetisation.

The permanent part means its merely in case of emergency to keep the actual economy humming. It means government will continue to create debt for the central bank to buy, in the belief it will stimulate economic demand.

Continuing to monetise the governments debt all comes down to the rising cost of living outlook.

In the US, inflation information has run below 2% for 40 consecutive months.

So it makes sense that permanent monetisation would be considered.

You see, if inflation is actually running to target, or going back to targeted levels, permanent monetisation have a dangerously stimulative effective on the economic climate.

Right now, theres no chance of that happening. The Wall Street Journal wrote throughout the week that even Given staffers estimate inflation wouldnt hit the 2% goal after 2018.

Why is the Fed so hell bent on inflation?

Simple. It reduces the governments debt burden.

As Rick explained in his book The Book Drop exclusive to subscribers of Strategic Intelligence:

There is a stated reason and unstated reason.

The stated reason is that the Given occasionally needs to cut prices to stimulate the economic climate. The unstated reason is that rising cost of living reduces the real value of the actual U.S. debt. At this time the US has about $18 billion of Treasury debt outstanding. When the Fed can achieve, say, 3% rising cost of living for about 20 years, the real worth of the debt is cut in fifty percent, to about $9 trillion in todays bucks.

Of course, this slow, steady kind is a form of unseen theft from investors.

Its not really Inflation its deflation

They keep trying, but the US hasnt been able to manufacture inflation. However.

As the article above points out, theres a failure to grasp the strength and worldwide nature of the deflationary forces now shaping the economy.

Jim reckons it makes perfect sense. The way he views it, the US is in the depression, so its natural to be experiencing a deflationary period.

The problem is, few people under the age of 90 actually have lived through a sustained period of deflation.

Until inflation takes control such as Jim predicts over the subsequent few years in times of deflation it pays in order to load up on hard property. Think cash, land, art work and bullion.

These hard property are all part of Jim barbell technique. The idea is to prepare your portfolio to protect you from either a good inflationary or deflationary environment. You can click the link to learn more.

Regards,

Shae Russell,

Editor, Strategic Intelligence

From the Port Phillip Publishing Library

Special Report: The End of Australia Vern Gowdies new book is known as The End of Australia: The actual Story Behind Australias Economic Fall and What You Can do to Survive It. We are mailing free copies of this guide to anyone who requests one online. It does not make for cheerful reading. But the idea is that youll be safer (and much wealthier) in 10 years time through receiving a more sober as well as realistic analysis of whats heading onwhat happens nextand what you should be doing about it now (more)

The last six months saw the double crash on the market.

Now theres a double bounce.

The double crash lasted longer than most people expected.

The question now is whether the double bounce will last so long too, or whether this is just a blip before the double accident resumes

From the end of April through to past due September, the Aussie S&P/ASX 200 index fell from 5,982 points to 4,918.

Over the same time-frame, the Aussie dollar dropped from 80 US pennies to 69.9 pennies.

Since then, both have bounced. The stock index is up 7.4%, and the Aussie dollar is up 4.8%.

The good times are back, correct?

Not so fast. Its not so much because of some thing good thats happened to the Aussie economy, its because of something that hasnt happened to the US economy.

What does this double bounce imply?

Heres a chart showing how the index and the currency possess performed over the past six months.

Source: Bloomberg

You can see the slump and the rebound.

Theres no difficulty understanding the reason why. One of the biggest reasons is that for many of this year, markets possess assumed that the US Federal Reserve would raise interest rates.

That place downward pressure on the Foreign dollar. Thats because the interest rate differential between your Aussie dollar and the All of us dollar would have shrunk.

As for that stock market, falling commodity prices and the fear of a recession pressed the Aussie market lower.

But since the end of September, the Aussie market and Aussie dollar have reversed course. Both are up.

After worse-than-expected work numbers in the US, the markets started to downplay the chances of a US Federal Reserve interest rate rise this year.

For instance, bond futures markets now only factor in the 10% chance of the Fed raising rates this month. Even as August, the marketplaces had priced in a 50% opportunity.

As for the Feds December meeting, the chance of a rate rise has fallen to 38.8%. Thats down from a near 50% chance as recently as August.

So, does this mean an american rate increase is off the cards?

Not so fast

Do it!

As this particular report from Bloomberg notes:

Federal Reserve Vice Chairman Stanley Fischer said the U.S. economy might be strong enough to merit a good interest-rate increase by year finish, while cautioning that policy makers are monitoring slower domestic job growth and worldwide developments in deciding the precise time of liftoff.

What does that mean?

It indicates the Fed is ready (almost) to raise interest ratesperhaps!

And thats just it isnt it?

Regardless of the situation, whether the market is feeling bullish or even bearish, confusion continues.

As Joyce Chang, global head of research from JPMorgan Chase & Co told Bloomberg, the actual Fed should get it over with.

Shes correct. But it goes to show just how anxious the Fed is to do anything whatsoever. It wants a lower marketplace, so it has the excuse in order to restart its bond-buying and money-printing program.

However, after witnessing the crashing markets over the past few weeks, the Fed may now be less eager to engineer a crash. In the event that move was the markets response without an interest rate rise, exactly what could the market do when the Fed does increase rates?

The Fed wants a lower market, however it doesnt want it to go too low.

As for which this means for the Aussie market, well, its anyones guess. Were certainly not about to give up on our crash protection strategy.

In fact, with uncertainty and instability set to continue through to a minimum of the end of the year, now is precisely the time when you should think clearly about protecting your investment portfolio.

The Aussie market has bounced properly. It would be great if it continued higher. But something tells us which investors shouldnt get too excited about a new bull market however.

Bottom line: stay invested, however stay cautious.

Cheers,

Kris.

PS: You can find out the facts of our crash protection strategy here.