What do world-improvers do at the end of a busy day deciding how to improve the world?
If you’re a NATO foreign minister… weary from figuring out what to do about ISIS and Ukraine and refugees… you join in a rousing round of karaoke, singing “We Are the World.”
Hmmm… We see Secretary of State John Kerry is conspicuous by his absence. Bummer.
We plugged “NATO foreign ministers” into Google News. Nearly everything was about the singalong. Which appears to reflect how little the ministers accomplished during their meetings. Probably a good thing…
Speaking of powwows among global elites… Jim Rickards joins us this morning to open his notebook from last month’s gathering of the International Monetary Fund in Washington — or as he calls it, “Woodstock for the global financial elite.”
We already covered the official pronouncements when they were issued: The IMF worries about a “cascade of disruptive adjustments” whenever the Federal Reserve starts to lift the fed funds rate.
But what about the unofficial chatter? That’s what matters, right?
What really has these people worried?
“As with all such gatherings, the most important conversations are not the ones that take place onstage or in front of cameras,” says Jim, “but the ones that happen in private suites, dining rooms in Georgetown town houses and exclusive hotels. This is where the important business gets done.
“This year, there were three main topics in these secret sessions: the Greece debt crisis, the Chinese yuan as a new reserve currency and global financial stability.”
The German and Greek finance ministers met on the sidelines of the official gatherings. The outcome affirmed Jim’s outlook, which we shared on Wednesday: “While the situation remains tense, with Germany demanding more reforms and Greece pleading for more flexibility, the parties are coming together on a plan.
“There will be bad headlines and market volatility around Greece for months, but you should expect that Greece will remain in the euro and a major crisis will be averted despite the public acrimony.”
“The IMF also laid the groundwork for including the Chinese yuan in its reserve currency basket used to determine the value of its world money, the SDR,” Jim goes on.
“These off-the-record discussions included IMF head Christine Lagarde, U.S. Treasury Secretary Jack Lew and Chinese Finance Minister Lou Jiwei. On balance, the U.S. is willing to let the yuan join the SDR basket provided China acts responsibly and pegs the yuan to the dollar.
“China seems willing to go along for now in order to join the SDR club. This has important implications for global finance in 2015. The yuan may be stronger and Chinese growth slower than many expect due to this backroom deal.”
“The final secret topic was the fragility of the international monetary system,” says Jim, wrapping up our briefing.
“The private discussions are even more troubling than what is revealed publicly. The IMF is keeping the SDR in reserve in case a new global financial meltdown requires a massive dose of liquidity beyond the ability of tapped-out central banks to provide.
“This is why getting China in the SDR and keeping a lid on Greece are so important.
“If the IMF needs to break the glass and pull the emergency SDR switch, they want to make sure China is onboard. Solving the Greece situation reduces the likelihood that they will have to break the glass.
“It’s all connected and quite complex,” Jim adds with a bit of bemused understatement.
[Trading alert: As noted earlier this week, Jim’s proprietary IMPACT system points to a medium-term rally in the euro. His premium subscribers got a heads-up on Tuesday when the euro was trading just above $1.12. The next morning, it leaped past $1.13, and as we write this morning, it’s popped past $1.14.
It’s still not too late to act. Jim says the euro’s headed up to $1.20. And again, to play it for maximum gains, you don’t want to mess around in the forex market. Using the IMPACT system, you can parlay modest currency moves into big gains — for instance, 1,276% in 30 days. Jim gives you a behind-the-scenes look at how IMPACT works at this link.]
Stocks are taking a breather after a big rally yesterday. As we write, the S&P 500 sits at 2,119 — two points below yesterday’s record close.
The morning’s economic numbers point to more manufacturing mediocrity: Industrial production slipped 0.3% in April, according to the Federal Reserve. That’s five straight months of contraction. And the first read on May is weak: The Fed’s Empire State survey of factory activity in New York state has nudged back into positive territory, but only barely.
Little change to note in the commodity complex: Gold’s at $1,223, crude at $59.38.
China and India are stepping further away from the brink of war. We know this because we saw it on social media…
India’s Prime Minister Narendra Modi spent some quality time today in China with Premier Li Keqiang. Yesterday, Modi met with President Xi Jinping. The leaders have committed to a “fair resolution” of a border dispute that dates back a century and still touches off periodic skirmishes. They also signed 24 economic agreements worth $10 billion, dealing with education, railways and scientific research.
“Both these Asian giants are talking up the need for greater cooperation following decades of mistrust,” says the BBC’s Martin Patience. “And the economy is one area they can agree upon.”
That’s a good thing. As the expression goes, “When goods don’t cross borders, armies will.” (It’s often attributed to the 19th-century French economist Frederic Bastiat, but its provenance is fuzzy.) It’s an even better thing when we’re talking about two countries that account for three out of every eight people inhabiting the planet.
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“We’re now in the midst of a complete revamp of how we deal with cancer,” writes our Ray Blanco on the science-and-wealth beat.
As we’ve mentioned periodically, the transformation has been underway for four years — successful “immunotherapy” techniques that effectively teach your body’s own cells to seek out and destroy tumors.
“Harnessing the power of the immune system to fight off this deadly disease opens up new ways for us to beat it,” Ray explains. “Furthermore, it avoids many of the awful side effects of chemotherapy. These side effects can hurt our immune system’s ability to attack cancer.”
One immunotherapy treatment on Ray’s radar targets glioblastoma — the most common form of brain cancer. Existing treatments have a three-year survival rate of 6-18%. But Phase 2 trials of this new treatment boost that number to 26-33%. Even better, “the interim result means that its benefits can make themselves felt early on in a patient’s disease.”
Ray will keep us posted through the rest of the year.
“Dave, I’m not looking for ‘incredible gains,'” a reader writes after one of our recent solicitations. “Like a lot of people, I suspect, I am only looking to survive the gauntlet of a crooked system and get the deck a little less stacked against me.
“But I did bite on the $5 book offer from your friend Jim, who apparently knew the CIA from the inside. So now I’m supposed to believe he’s another Ed Snowden, looking for forgiveness from the little guy by helping him out.
“So I read through the 1984-style scenario he paints, made it all the way to Page 18, where he advocates ‘structural change,’ which ‘would include things like lower taxes, repeal of Obamacare, approval of the Keystone pipeline, expanded oil and gas production, fewer government regulations and an improved business climate in areas such as labor laws, litigation reform and the environment.’
“So is ‘lobbyist’ or ‘shill for Koch Industries’ on this guy’s resume? Sounds like the same old and tired Republican platform to me. Let’s start with the Keystone pipeline… seriously? More dirty oil will certainly improve the lives of everyone, right? Not just oil, but the dirtiest oil on the face of the Earth. Has this guy ever heard of clean, renewable energy? Maybe inside the CIA, you are too busy fighting for control of oil-producing resources (and damn the cost) to pay attention. Incidentally, clean, renewable energy means TRUE structural change.
“Labor laws? Who needs them when you can just ship the jobs overseas? What a winner that has been for…? Oh, that’s right, for the ‘job creators.’ Lower wages, unhealthy working conditions — great for the people, eh?
“No mention of the corrupt big banks, the giant corporations and their lobbyists, who along with their secret trade agreements are the real obstacles to structural change. Perhaps he gets to this eventually, but I don’t have much faith, and without it, no reason to read further.
“What a lost opportunity for someone who, with perhaps a different track record, might offer a perspective to see the path toward a true prosperity, a prosperity that does not necessarily stem from quick profits.
“The system is broken. A pipeline through the heart of the U.S. is not the fix — it is the death knell. Thanks for the $5 paperweight.”
The 5: Really? You’re going to dismiss Jim’s analysis wholesale because he holds a few positions that align with one of the mainstream political parties?
Allow me to share a passage from his second book, The Death of Money — discussing what should have been done in 2008.
“Most of the large banks — including Citibank, Morgan Stanley and Goldman Sachs — should have been temporarily nationalized, their stockholders wiped out and their bondholders subject to principal reductions as needed to restore capital. Nonperforming assets could have been stripped from these banks in receivership, then placed in a long-term government trust, to be liquidated for the taxpayers’ benefit as circumstances permitted. Management of the banks should have been fired, while enforcement actions and criminal prosecutions were pursued against them as the facts warranted.”
Yes, that would have set off a severe depression. But it would have cleansed the system. “These types of healthy, long-term structural adjustments would have been forced on the U.S. economy,” Jim wrote, “by a one-time liquidation of the excesses of debt and leverage and the grotesque overexpansion of finance.”
Now, does that sound like someone who’s thick as thieves with the power elite?
Didn’t think so. “My mission,” he said when he came on board with Agora Financial last year, “is to help everyday Americans not be ripped off by people who know better who won’t be honest with the American people. Bankers, government — both parties. There are enough people in positions of real power who see what I see and won’t be honest with people about it. And they’re perfectly prepared for all those people to lose all their money. I think that’s despicable.”
We’ll note as we did a few days ago that The Big Drop has drawn praise at the Daily Kos, of all places. The reviewer has the same qualms about “structural” changes you do… but he didn’t throw out the baby with the bath water. “I have always thought of [Rickards] as a conservative hack,” he wrote… but he “continued to the end with increasing fascination.”
You might wish to do likewise with your “$5 paperweight.”
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. “We’re going to go from five workers of working age supporting every elderly person to 2½ because of demographics,” says billionaire investor Stanley Druckenmiller. “We’re just using more and more of society’s resources to fend for the old people.”
He was speaking Wednesday night at a shindig in New York. From Bloomberg News: “Druckenmiller, 61, has argued for several years that the mushrooming costs of Social Security, Medicare and Medicaid will bankrupt the nation’s youth and eventually result in a crisis worse than the financial meltdown of 2008. The government will have to reduce payments to the elderly, he said at the event.”
Sounds like a compelling argument to piggyback Canada’s version of Social Security — which is managed by professional investors, runs a surplus and is set to quadruple its reserves by 2040.
You don’t have to be a Canadian citizen to piggyback on the program and collect “benefits.” Nor do you have to travel to Canada. But it’s possible to receive checks just like a retired trucker from Wyoming who receives checks averaging $3,650 per month. “Get started as soon as possible,” he advises. Here’s where to begin.
