- The president gets a “crash course in survival techniques”…
- … on the first day of National Preparedness Month
- And the Dow is sliding 300 points!
- The deflationary “rope-a-dope” central banks are helpless to stop
- Chris Mayer in a parched California, seeking ag-related investments
- Why it’s worth paying a premium for U.S. Gold Eagles
Welcome to September…
The Department of Homeland Security’s ready.gov website is decked out accordingly. “This month,” said President Obama in a proclamation issued yesterday, “I encourage all Americans to bolster their readiness in the event of a crisis.”
Hmmm….
In a completely unrelated development, Mr. Obama about to become “the first U.S. president to receive a crash course in survival techniques from Bear Grylls,” says a press release from NBC, also issued yesterday.
The president is in Alaska this week… and as part of his sojourn, he’ll record an installment of the reality TV show Running Wild With Bear Grylls. Exactly what survival techniques he’ll learn today, no one’s saying — we’ll have to wait until the program is broadcast later this year. Yeah, that’s real appointment viewing.
We mean it when we say this development is completely unrelated. We looked for “Bear Grylls” and “National Preparedness Month” on Google News and nothing came up that included both of those search terms.
Evidently, no one in the White House managed to put two and two together to give National Preparedness Month an extra publicity boost. That’s how huge and ungainly the federal government has become.
In still another completely unrelated development, the Dow slid more than 300 points during the first hour of trading this morning.
So much for the index climbing out of “correction” territory last week. At last check, it sits a hair above 16,200 — 11.4% below its record close on May 19.
The VIX, the market’s “fear gauge,” has popped back above 30 — validating technician Jonas Elmerraji’s observation here yesterday: The VIX measures the perception of volatility… and while it pulled back last week, a separate measure of actual volatility in the market remained elevated. The VIX is playing catch-up now.
The “risk-off” trade is benefiting Treasuries: The yield on a 10-year note sits at 2.17%. Gold is up a skootch at $1,139.
Crude? Talk about volatile. After running up 25% the last three trading days, it’s off more than 5% as we write — $46.58.
The proximate event surrounding today’s market swoon is a slew of sickly manufacturing numbers.
These numbers usually come out on the first of the month. Numbers greater than 50 indicate growth in manufacturing. Lower than 50 mean a shrinking factory sector…
- China: The official government figure for August rings in at 49.7 — the weakest reading in three years. A similar measure maintained by HSBC registers 47.3 — the weakest since March 2009
- United States: Guuuh! The August ISM manufacturing index clocks in at 51.1. Yes, that’s growth, but the number’s lower than even the most pessimistic guess among dozens of economists polled by Bloomberg. And the internals of the report stunk. New orders and hiring? Weak. Backlog orders and export orders? Weaker — contracting three straight months now
- Eurozone: At 52.3, eurozone manufacturing looks strongest among the globe’s big three economies. But the August number is still lower than expected, “adding to the European Central Bank’s woes as it battles to spur expansion and inflation,” says a Reuters summary.
That’s the rub, isn’t it? Central banks are trying their damnedest to generate inflation. They’re pushing buttons and pulling levers… but economies consist of real human beings who don’t operate like machines and don’t always cooperate with the designs of central bankers.
“The global economy today can be understood as an exercise in rope-a-dope by forces of deflation versus the forecasts and policy experiments of central bankers,” says our Jim Rickards.
“Rope-a-dope” was the boxing technique perfected by Muhammad Ali. “Ali would lean back on the ropes and absorb punishment from his opponent, even pretending to be weakened,” Jim reminds us. “Then he would bounce off the ropes, strike back and inflict a powerful combination of painful blows on his opponent.”
Deflation is demonstrating Ali-like resilience in 2015. “Deflation is caused by a combination punch of demographics, debt, deleveraging and technology,” says Jim. “It weakens real growth, and it reduces nominal growth even more. In recent years, both the U.S. and Japan have periodically shown negative real growth, but nominal growth has been even lower because of the impact of deflation…
“Meanwhile, the global monetary elites — central bankers, the IMF, finance ministers and professors — keep predicting higher growth, and they keep printing money to get it. They continually expect better growth in the next quarter, the next half or the next year.
“Every time the monetary elites are ready to declare victory, deflation bounces off the ropes, charges to the center of the ring and hits their policies with vicious GDP punches,” Jim goes on. “What is amazing about this pattern is not that it happened at all but that it keeps happening.”
Indeed, it does. Here’s a chart of U.S. GDP. Look how the economy stalls out — or even contracts — time and again in the last four years. Mid-2011… late 2012… the first quarter of 2014… the first quarter of 2015.
“Every time growth picks up due to money printing, interest rates cuts and currency wars,” Jim sums up, “deflation just bides its time.
“Deflationary and disinflationary tendencies persist because the problem with the global economy is not cyclical, it’s structural. This means that monetary remedies can at best produce temporary results but will not permanently fix the problem…
“What is needed is not more money but smart infrastructure investment, lower taxes and smart regulation (which means more regulation for banks and less for businesses and entrepreneurs), among other structural remedies. Unfortunately, none of these policies is on the political horizon.”
And now the deflationary whirlwind is once again picking up speed — with U.S. manufacturing at its weakest since May 2013.
Here’s the problem. The Fed rode to the rescue when deflationary forces threatened to take down the global banks during the Panic of 2008. “To most people,” says Jim, “the Federal Reserve saved the entire world financial system.”
What happens whenever the next crisis rolls around? “Now the Federal Reserve itself is the one in big, big trouble,” Jim explains.
“Imagine a sudden drop in housing prices,” he goes on. “Everyone in your neighborhood decides to put a ‘For Sale’ sign in their yard at exactly the same time. This, of course, will drive down the value of your home.
“So you devise a plan… You decide to take out loans and buy up all the houses on your block for inflated prices, all to try to prop up the value of your home.
“When you do this, home prices in your neighborhood will look fine on the surface. But when you look under the hood at your financial situation, you now have enormous loans for houses that don’t have much value in the real marketplace.
“This is the same thing that’s happening at our Federal Reserve bank, right now.”
You won’t hear about it from the elite media — not until the crisis is well underway and it’s too late to act.
The time to act is now — while the factories are still (more or less) humming and the president is working the reality TV circuit. Check out Jim’s research and action plan right here.
“You’re in the San Joaquin Valley now,” said the gentleman hosting Chris Mayer on an investment-hunting trip to California last week.
“It was over 100 degrees every day for the four days we were here, topping out at 107,” says Chris. During that time, he and his intrepid analyst “Yoda” covered 1,000 miles and six counties.
“This region is an agricultural powerhouse. And right away, as we zipped along the road from the airport, we saw rows and rows of lemon trees and then almonds and then raisins and then pistachios and on and on for miles and miles.”
Drought, you ask? “Water is a big political issue out here,” says Chris. “We saw signs everywhere. ‘Stop the Congress-Created Dust Bowl!’ ‘No Water = No Jobs!’ ‘Solve the Water Crisis!’”
Then again, “You can see how the drought is really killing us here,” said a farmer, surrounded by lush fields of alfalfa. “What’s going on now is nothing that hasn’t gone on before. Most years, there is drought.
“The dry conditions actually make for great farming,” Chris elaborates.
“The farmer can control the application of water to his crops instead of relying on the rain. (And we saw lots of drip tape around — used in drip irrigation — as farmers prepared fields for new plants after harvesting.) In this way, they achieve much higher yields.
“But then again, it was weird to drive over bridges of this river and that river and see them dry as a bone. Not a drop. It was almost funny.
“There are many companies out here and ways to play — fertilizer companies, irrigation companies, seed companies — and they all have the wind at their back. But there is also exciting stuff happening in genetics and technology.
“Growing populations continue to drive the need for more food. No one argues that point, no matter one’s view on politics.” Readers of Mayer’s 100x Club will be first to learn who’s best positioned to profit.
“OK, I have to ask!” writes a reader who’s thinking about preparedness or a market crash or something. “If I have an interest in owning physical gold or silver, why should I should I chose legal tender coin over basic bullion bars?
“The legal tender face value stamped on the coin does not reflect the true melt value. Also, the premium for a coin is stupidly excessive compared with that of basic bullion bars. The bars, by the way, can be easily found in 1/10th-ounce weight.
“Now let me clarify a bit further. I’m thinking of a real SHTF scenario (EMP, WWIII, dollar crash, etc.) and not an investment one. Why should I overpay for a freaking coin of the same weight in anticipation of that?
“Of course, in a true long-term SHTF scenario, gold and silver won’t mean squat. You cannot eat metal no matter how pretty it is. If it gets bad enough, only fools will accept metal for food, water, weapons, ammunition or medical supplies and care.
“Where is your recommendation for an ‘Oh, crap, I have to liquidate in 24-48 hours or less with minimal loss’ investment strategy? No one here wants to end up as a victim of a Cyprus or Greece handcuff situation.”
The 5: Yowza.
As we said late last year, if we expected a Mad Max scenario was about to unfold, we’d be selling body armor instead of investment advisories.
We’re rather partial to Gold Eagles. Yes, they sell for a higher premium… but that’s because they have that U.S. government “stamp of approval” on them. That might not matter to you or me… but it might matter very much to someone you’re trying to transact with during a time of, shall we say, societal stress.
“Store the coins in a reliable, insured, nonbank vault near your home or in a home safe,” advises Jim Rickards. “The best security is not to let anyone know you have the coins in the first place.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Jim’s also hip to a little-known gold investment that’s crushed the performance of the metal itself over the last 15 years.
If gold is set to prosper once the Federal Reserve’s own solvency comes into question… this investment could “go parabolic,” says Jim.
It’s all part of the action plan he’s drawn up to help you prepare for the day when faith in the Fed vanishes forever. Details here — no lengthy video to watch.
