- Two Jim Rickards forecasts from months ago, unfolding now…
- … And no, it’s still not too late to act
- National debt reaches a(nother) milestone
- Paying tribute to a newsletter giant
- An alternative theory why the Fed might raise next month… lobbing electronic spitballs at Rickards… last chance to seize on the “ultimate retirement loophole”… and more!
“Stocks Lower as Downed Russian Jet Underlines Geopolitical Worries,” says a headline at MarketWatch.
Ah yes, the elite media must always reach for a “reason” the Dow drops a half-percent in the first hour of trading.
If the Turks hadn’t shot down a Russian jet near the Turkey-Syria border, “reporters” would attribute the move to the latest third-quarter GDP estimate (2.1% — weak, but better than the previous guess of 1.5%)… or perhaps the news that Mars’ moon Phobos is set to disintegrate and turn into rings around Mars. (Don’t fret — it won’t be for another 30 million years or so.)
Meanwhile, we’re experiencing deja vu looking at the less urgent — and more important — financial stories making news today. In fact, we’re watching two of Jim Rickards’ big forecasts from months ago unfolding now in real-time…
Corporate debt defaults in 2015 have already notched their highest total since 2009… and we still have 37 days remaining in the year.
The total is 99 worldwide — including 62 in the United States. Of the U.S. defaults, three out of every five are in the energy and natural resource sectors.
“The heart of the storm has been in commodities, but it hasn’t been limited to just that,” Raman Srivastava of Standish Mellon Asset Management tells the Financial Times. “It feels like every week there’s another company in the headlines. You hope it’s isolated, but you don’t know.”
Isolated? No, it’s the leading edge of a $14 trillion debt tsunami Jim Rickards first tipped us off to in January.
“The next financial collapse,” he said, “will come from junk bonds, especially energy-related and emerging-market corporate debt.”
Between 2009-2014, emerging market companies issued $9 trillion in dollar-denominated debt — a bet the global economy would stay strong and the dollar weak. That’s not working out.
Meanwhile, energy firms issued another $5 trillion in debt, figuring oil would remain in the $80-110 range. That too isn’t working out; West Texas Intermediate trades this morning for $43.07.
“The result,” said Jim, “is a $14 trillion pile of corporate debt that cannot possibly be repaid or rolled over under current economic conditions.
“If default rates are only 10% — a conservative assumption — this corporate debt fiasco will be six times larger than the subprime losses in 2007.”
“This debt will not default right away and not all at once,” Jim said 10 months ago, “but look for a tsunami of bad debts beginning in late 2015 and into early 2016.”
That would be, uhh, now. If you didn’t follow Jim’s guidance then, better get on the stick: “You should scour your portfolios and sell any bond funds that are stuffed with junk debt. Then use the proceeds to build cash positions and buy high-quality U.S. Treasury notes. The cash will preserve wealth, and the notes will produce gains in the deflationary times ahead.”
Meanwhile, the bond market stresses Jim warned us about in May are now showing up in the pages of the Financial Times.
“As dealers step back from facilitating the buying and selling of U.S. Treasury debt,” says the salmon-colored rag, “a key measure of market liquidity has deteriorated sharply and plumbed a level not seen since the bond rout of 2013, when investors anticipated that the Federal Reserve would start tapering its quantitative easing policy.”
It’s at this moment we recall the chilling remark of a mover and shaker in the bond market — Jim won’t even tell us who it is — who told him last spring, “Jim, it’s worse than you know… Liquidity in many issues is almost nonexistent. We used to be able to move $50 million for a customer in a matter of minutes. Now it can take us days or weeks, depending on the type of securities involved.”
We told you then about the cause — new ham-fisted regulations imposed after the Panic of 2008 that were supposed to make the market less risky but instead have done the opposite.
Today’s FT describes the predictable result: “Faced with capital constraints, primary dealers, who are responsible for underwriting the U.S. government’s debt, have struggled in their traditional role of being middlemen for investors.” As a result, older Treasury issues trade cheaper than newer ones — a typical sign of bond market tension.
The result could easily be a rerun of the “flash crash” in the bond market on Oct. 15, 2014 — when the yield on a 10-year Treasury note tumbled a third of a percentage point in minutes… and prices spiked correspondingly. That’s a massive move.
“There will be more flash crashes,” Jim said last May. “Eventually, there would be a flash crash that would not bounce back and would be the beginning of a global contagion and financial panic worse than what the world went through in 2008.
“This panic might not happen tomorrow, but then again it could. The solution for investors is to have some assets outside the traditional markets and outside the banking system. These assets could be physical gold, silver, land, fine art, private equity or other assets that don’t rely on traditional stock and bond markets for their valuation.”
[Ed. note: If you’re wondering whether there’s a way to make big gains in a short amount of time from illiquid bond markets and corporate debt defaults, there is. It’s Jim’s revolutionary “Kissinger Cross” tool that readers like you have already used this year to make gains including …
- 41% in 3 months
- 102% in 4 months
- 150% in less than a month
- 162% in under 6 months.
At least three more Kissinger Cross trades are setting up right now: You can jump on them before Thanksgiving and start doubling or tripling your money by next March. Jim walks you through the Kissinger Cross technique right here.]
As we continue to write, the Dow has turned positive on the day — even though that Russian jet still lies in a smoldering wreck, wouldn’t you know. It’s a shade below 17,800.
Gold dipped overnight, but it’s still below the $1,068 level that’s proven to be support for the last week. The bid at last check was $1,075.
For the record: It took only 15 days for Uncle Sam to rack up another $100 billion in debt.
We’ve been keeping an eye on the national debt all this month — ever since Congress and the White House agreed to suspend the debt ceiling (again) until March 2017.
It didn’t much surprise us that the national debt grew from $18.15 trillion to $18.49 trillion between Oct. 30 and Nov. 2. It did surprise us when the total leaped $100 billion in the following three days, to $18.61 trillion.
And only 15 days since crossing the $18.6 trillion mark — the most recent figure is last Friday — we’re now past $18.7 trillion.
The figure would be even higher were it not for an anonymous donor who sent the Treasury a check for $2.2 million recently. We’re hard-pressed to think of a worse way to pour $2.2 million down the toilet than that.
We bid a fond farewell to a true giant in the world of financial newsletters.
Richard Russell launched his Dow Theory Letters in 1958 — sending issues by U.S. mail every 10 days to three weeks as events dictated.
In 1991 — years before many people had their first Internet account — Russell began publishing online and writing daily. And so he continued… until only eight days ago.
Three days ago, last Saturday, Mr. Russell died at home in La Jolla, California, at age 91.
“Richard had gone to the hospital a week earlier with abdominal pain,” says a statement from the family. “He was diagnosed with blood clots in the leg and lungs and other untreatable ailments, but was able to return home under hospice care. He spent his last days surrounded by family and visited by close friends.”
It’s not hyperbole to say every one of us in the newsletter biz stands on the shoulders of Richard Russell. “We’ve lost a voice, folks,” wrote EverBank’s Chuck Butler in this morning’s Daily Pfennig — “a voice that was not influenced by the government, a voice that always said what was on his mind regarding the markets, and a voice that influenced my way of thinking through the years.”
“I have a theory about a force the Fed is reacting to when it considers a rate increase,” a reader writes.
“Could it be that their analysts (and they have a lot of them) have projected the baby boomer’s investment income stream forward 20 years and have come to realize that if the lending rate doesn’t go up a little now, it will have to go up a lot later — just to keep a large part of the retiring middle class from becoming homeless? Just a thought.”
The 5: Hmmm… We know this much: The Fed will come up with anything after the fact to justify what it does in the present.
Only yesterday, chairwoman Janet Yellen echoed her predecessor last spring: If it weren’t for the relentless punishment of savers these last seven years, we’d all be starving in the streets.
“Many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed grandchildren),” Yellen wrote in response to an open letter from Ralph Nader. Ugh…
“It would seem the wily Jim Rickards is indeed a silly goose after all!” reads an email we figured someone would write after yesterday’s episode.
“After spouting off all year that there would be no Fed rate change, Jimbo has changed his tune — done a complete about-face, he did — and now proclaims that there will be an increase in rates in December — under the protective proviso that ‘When the facts change, I change my mind.’
“Bravo, Jim, Bravo!”
The 5: You’d rather he ignore those changed facts and not alert his readers accordingly?
Sorry, it’s more important to Jim that he look out for the interest of his readers than to “be right.” We expect the same of all our editors.
And Jim was still more right than the pundits who figured on an increase in March, or June, or September.
But feel free to lob electronic spitballs our way if it makes you feel better…
“So the market keeps going up and up,” writes one of our regulars, also taking issue with Jim. “Profits are actually up and the engine keeps chugging along. The U.S. dollar may lose its reserve currency status, but maybe it won’t.
“I keep waiting for the big blowout. The only thing that gives me gut rot is you were right about the banking blowout, and things really changed.
“The one thing about your letters I find irritating is there is a warning that it’s not personal advice. A small investor is really on his own. No, he doesn’t know what’s good for him and he gets enough information to ruin himself. Especially if he becomes handicapped.”
The 5: In the first place, there’s a reason (aside from the legal ones) we include that disclaimer: Everyone’s situation is different. The size of their nest egg is different. Their level of risk tolerance is different. Their financial obligations are different.
We can’t possibly know or account for those differences in making recommendations — so yes, we do leave it up to the reader to place those recommendations in the context of their own situation.
That said… Jim Rickards has heard the pleas for simpler and more actionable guidance to act on his forecasts. And he’s taken those concerns to heart in the latest issue of his entry-level newsletter Jim Rickards’ Strategic Intelligence.
He’s spotlighted a one-click method to invest in the coming “world money” — the SDRs he’s written so extensively about. He also shows you a one-click method to invest in his recommendations to protect yourself against both inflation and deflation.
Current subscribers got this monster 19-page special edition on Friday. New subscribers can join up here for immediate access.
The 5 Min. Forecast
P.S. Absolute last chance: Our publisher’s unprecedented guarantee — try Zach Scheidt’s “ultimate retirement loophole” just once and if you somehow lose money, we’ll cut a check to cover your loss — expires tonight at midnight.
Only this morning, Zach laid on another recommendation — good for an instant $220 payout. That’s $1,250 so far this month… and $31,774 so far this year.
We will not send you another reminder email this afternoon (you’re welcome), so if you want to take advantage, click here now.