- The tattered credibility of central bankers
- After Jim Rickards nailed his no rate hike forecast for 2015…
- What does he say the Fed will do in 2016?
- Fake-out or breakout? What’s up with the gold miners
- Fight the (TPP) power… in defense of David Stockman… Jim Rickards and Agora Financial as “petty peddlers”… and more!
It’s not always easy mocking financial and economic folly as we try to do here at The 5. It comes with the territory of daily deadlines: Some days the global elites simply don’t deliver the necessary grist for the comedic/ironic mill.
But on other days, the establishment media make your editor’s job too easy…
The online summary of The Wall Street Journal’s big story this morning says, “Officials who gathered in Lima, Peru, for the IMF’s annual meeting delivered a message to their American counterparts: Please stop dithering and raise rates.”
Had my jaw dropped any further, I’d need orthognathic surgery.
Because for months, the International Monetary Fund has been saying the exact opposite. On June 4, we cited IMF chief Christine Lagarde: “The inflation rate is not progressing at a rate that would warrant, without risk, a rate hike in the next few months.”
The message was repeated only last week in the IMF’s Global Financial Stability Report — issued to coincide with the Lima conference. “Policy missteps and adverse shocks could result in prolonged global market turmoil that would ultimately stall the economic recovery,” said IMF financial counselor Jose Vinals.
To be sure, the “get it over with” crowd don’t speak for the IMF proper. But they were in attendance in Lima, and they represented a diverse contingent of central bankers from both developing and developed economies — Malaysia, Singapore, Germany.
But why are they so nervous? The quotes the Journal got were mealy-mouthed.
Said the deputy governor of Malaysia’s central bank, “If it is a case that the emerging markets have taken on too much debt, there will be a day of reckoning. Delaying an interest rate hike does not necessarily address that issue.”
Well, yeah. But the real answer to the question turns up in a Financial Times Op-Ed this morning by Richard Madigan, the chief investment officer at JPMorgan Global Wealth Management.
“It does not matter when the Fed moves to raise interest rates as long as it moves this year,” he writes. “This is not because the macro landscape demands it, but because the Fed keeps saying it intends to raise. If the Fed does not lift off this year, markets will doubt further a still constructive global outlook. That is exactly what is happening currently.”
Ah-ha — so it’s “the credibility thing.” Janet Yellen has talked herself into a corner. All year, she’s been forecasting the economy would be stout enough to swallow a tiny interest rate increase… but she still hasn’t followed through. The rest of the globe’s central bankers know their own credibility rides on hers.
Back in January — days after the Swiss broke the franc’s peg to the euro with no warning — we ventured that 2015 would be “the year faith was lost in central bankers.”
And on Nov. 20 of last year, Jim Rickards told CNBC the Fed would not raise rates during 2015 — that, in fact, the economy was too weak to swallow even one rate increase. So far, that forecast has borne out.
And Jim isn’t waiting for the last two Fed meetings of the year to issue his 2016 forecast: The Fed will move in the opposite direction, toward easier money once again.
We’ve mentioned Jim’s outlook in passing the last few days. Today, we share it in a more systematic way. You can tuck this email away in a folder on your desktop and check it out every so often next year to see if he’s right.
“The economy will remain weak,” says Jim. “We’re probably heading into a global recession in 2016, and the U.S. economy is certainly not immune from the effects of that. The Fed will continue to talk tough about raising interest rates based on their flawed models. This tough talk will keep the dollar strong, which just makes the Fed’s problems worse. A strong dollar turns the U.S. into a sponge for all of the deflation in the world.
“This counterproductive combination of weak data and tough talk will continue for a few more months.”
“Eventually, even the Fed will see the light. By early 2016, we expect the Fed to throw in the towel on rate hikes and begin to talk about easing. This will probably take the form of reinstating forward guidance in FOMC policy statements.
“Forward guidance was abandoned in March 2015 when the Fed removed the word ‘patient’ from their statements. They can put the word ‘patient’ back in, or maybe an equally evocative synonym like ‘forbearing.’ The exact word doesn’t matter. Fed insiders will call The Wall Street Journal and explain what they mean and the Journal will tell the world what to think. The important thing is that the Fed will have blinked.
“After that, we’ll be into election season, and the Fed will probably be on hold until December 2016 to avoid getting caught in the political crossfire. If the Fed’s easing moves in mid-2016 produce stronger growth and some inflation, perhaps we’ll see a rate increase in late 2016 after the election. Still, if the global recession is worse than expected, even late 2016 may be too soon for rate hike.”
[Ed. note: How did Jim get it right last year — when everyone else said the Fed would raise rates in March, er, rather, June, oops, they meant September, and so on? And how can you use his new forecast to generate maximum profits?
It’s something Jim calls “intelligence triggers.” All this year, a small group of our readers have been putting these triggers to the test with a series of experimental trades. The results include 41% gains in three months… 150% gains in less than a month… and 162% in less than six months.
That’s enough evidence to convince us to open up these trades to a wider audience and launch our newest Jim Rickards service, Rickards’ Intelligence Triggers.
Still, we can’t let everyone in who might want to sign up. We must limit access to only 1% of our readership, for reasons you’ll understand when you click here.]
To the markets — which are mostly a snooze. None of the major indexes has moved more than a quarter percent as we write this morning. The Dow stands at 17,131, the S&P 500 at 2,017.
Treasuries are rallying, the yield on a 10-year at 2.09%. Gold is also rallying, the bid $1,162 — that’s another high last seen in late August.
Crude is pulling back after rallying past $50 on Friday. At last check, a barrel of West Texas Intermediate fetches $48.46.
The bombed-out, beaten-to-a-pulp, left-for-dead gold miners are starting to show signs of life.
The HUI — one of the big indexes of gold mining stocks — is up nearly 24% in the last two weeks.
Granted, that’s a bounce off miserable lows last seen in 2002. Still, “Finally, we may be on the precipice of a change in the sentiment for gold miners (and, frankly, for the whole global mining complex),” says Matt Insley of our natural resources team.
“Over the past few years, gold miners were considered uneconomic ‘cost monsters’ — with costs spiraling out of control. At the same time, the miners were facing free-falling commodity prices. So costs were up and revenue was down. It’s been ugly out there.
“After three years of pressure on prices, gold and gold miners may have finally found a short-term bottom and look poised to head higher. Instead of seeing higher costs and lower commodity prices, gold miners are seeing the exact opposite: lowered costs and the potential for a breakout move in gold.
“Add it all up and we could be in the beginning stages of a big shift in market sentiment for miners.”
“In the case of TPP, contacting your representative and senators is not enough,” writes one of our regulars in response to Friday’s mailbag.
“Contact all representatives and senators who look like they might support TPP. Even though you may not be in the congressman’s state or district, make it clear that while you can’t vote against them if they support TPP, you can contribute to their opposition at the next election.
“If each of the idiots who might support TPP knows that they are going to add tens if not hundreds of thousands of supporters to their opposition, it’s possible that even the crony-controlled elected
‘representatives’ will vote it down.
“Unfortunately, contacting a congressman outside of your district or state is difficult, since most will not accept a call or email from out of state or district. If someone (listening, 5?) were to step up a phoning system that would spoof an incoming call with an appropriate area code, the call would be answered by the congressional office. This has been done before.
“Of course, if there are not enough intelligent votes/voters out there to make a difference, then figure on voting with your feet.”
The 5: Hmmm…
“Regarding David Stockman,” a reader writes of the newest high-profile addition to our team, “I would think your readers should prefer the advice of someone who understands the inner workings of government policy and bankruptcy law.
“Having gone through a bankruptcy is an asset to utilize, not something that should scare investors. Anyone ever heard of learning from mistakes? Show me the millionaire that doesn’t have direct knowledge of bankruptcy in this country and I’ll show you a trust fund baby.”
“I like Jim Rickards and David Stockman and find their insights valuable and informative,” writes another. “However, the poke at ‘some jamoke with a laptop and a copy of Mises’ Human Action’ was uncalled-for. If more people read and understood it, we would be better off.”
The 5: Agreed. All we’re saying is there’s a proliferation of people who’ve read Human Action, who have a platform to express themselves on the Interwebz and who’ve handed out some horrific investing advice even though they understand what Mises wrote in his magnum opus. Just because you know the Austrian School canon doesn’t make you an investing genius.
“Would you please tell us how many times and with how many publications you are going to milk us with Jim Rickards?” a reader entreaties us. Strategic Intelligence… IMPACT… and now Intelligence Triggers.
“Please have some dignity and don’t be like petty peddlers!”
The 5: It’s not just “more Jim Rickards.” If that’s all we could offer, we wouldn’t create a separate service.
“When I partnered with Agora Financial last year,” Jim explained in The Daily Reckoning on Friday, “we outlined three distinct analytic services to help you understand the behavior and direction of markets and show you how to profit.
“Each uses techniques not employed by Wall Street economists or government policymakers. That’s why their forecasts are so often wrong… and why we’ve been right… You can think of each service as three parts of one project.
“Strategic Intelligence helps you understand the world around you and preserve the wealth you’ve already built. That’s why we employ complexity theory, which is the most useful for risk management and behavioral economics and key to estimating the response function of consumers and investors to various government policies
“Currency wars create strong, profit-generating dynamics that can last 10… 15 and 20 years. My IMPACT System in Currency Wars Alert is designed to let you tap into those gains
“The inverse probability method we use in Intelligence Triggers is the most effective tool for forecasting the economy and markets when faced with incomplete or uncertain data.”
If that still sounds “petty,” we’re not sure what else we can add…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Here we go again: Federal Reserve Vice Chairman Stanley Fischer — by some accounts, the real power behind Janet Yellen’s throne — said this morning that raising rates this year is “an expectation, not a commitment.”
Ignore the incessant Fed chatter: “Where you can believe the Fed is when the say they’re ‘data dependent,’” explains Jim Rickards. “The Fed may have obsolete models and bad forecasts, but they’re not stupid. They watch the data like the rest of us.
“Still, the problem with bad forecasts and data dependence is that you’re always surprised. You never see it coming. That’s the Fed’s biggest problem these days. The Fed keeps talking tough on rate hikes (based on bad forecasts), but then backs away from raising rates (based on weak data). It’s no wonder investors are confused and markets are volatile. Worst of all, the Fed’s credibility is now in shreds.”
Which makes now the ideal time to jump on our newest Jim Rickards service, Rickards’ Intelligence Triggers. It’s based on the “indications and warnings” that come to Jim’s attention — the kind of cues that let Jim confidently forecast last year that the Fed would not raise rates this year.
It has nine months of proven results for a group of readers who “beta-tested” the service. Now we’re ready to open it up to you. Check it out at this link.
