Did Brexit Kill the Shanghai Accord?

  • The 5 explores an alternate universe in which Brexit failed: What’s different?
  • The Shanghai Accord: Still in effect, still serving up moneymaking opportunities
  • Miracle-Gro for marijuana: Another mainstream firm seeking pot profits
  • Just why are the feds going after Ashley Madison?
  • Trade deficit blows out… why the future of self-driving cars is even better than its advocates think… ignorance about personal finance, courtesy of the Gates Foundation… and more!

What!? You mean all of a sudden “Brexit” matters again? What about the epic four-day comeback U.S. stocks staged last week?
Well, that was last week, evidently. As we write this morning, markets look like so…

  • At 17,730, the Dow industrials have shed more than 100 points, on top of yesterday’s 100-point loss
  • Hot money continues to pour into gold. At $1,370, the bid is at another 2-year high
  • Hot money is also flooding the Treasury market, pushing yields to record lows yet again; earlier today, the 10-year yield fell to 1.34%, although it’s since recovered to 1.37%
  • The poor British pound sits at new multidecade lows at $1.28.

Indeed, the news from London looks a bit ominous: Two big asset managers have barred investors from pulling money out of their real estate funds.
To be fair, not all of the mainstream financial headlines attribute the return of the “risk-off” trade to Britain’s impending departure from the European Union. Some of them are falling back on that reliable old catchall, “global growth concerns.” Heh…
Here’s a wild proposition. Just hang with us for a moment. We know it sounds crazy, but… maybe if Brexit hadn’t come along, the safety trade would be in play right now for some other reason.

Perhaps in an alternate universe, the Brexit vote went the other way… but nothing else in the markets and the economy was much different. Confidence in politicians and central bankers was still evaporating worldwide. Dow 18,000 continued to look elusive.
Yeah, we know. Crazy stuff, right?
Which brings us to the following question: Whatever happened to the “Shanghai Accord”?
The short answer: It’s alive and well — and not in an alternate universe, but in this one. Brexit didn’t change a thing about the Shanghai Accord. And it’s still serving up profit opportunities left and right.
A quick refresher: The Shanghai Accord is a chewing gum-and-baling wire solution the global elites ginned up earlier this year to keep China’s economy from sliding into the abyss and taking the rest of the world with it.
No, you didn’t miss a big announcement about it. Jim Rickards says the International Monetary Fund brokered a deal, in secret, on the sidelines of a G-20 meeting in Shanghai last February. The terms of the deal were as follows…

  • The European Central Bank would act to strengthen the euro
  • The Bank of Japan would act to strengthen the yen
  • The Federal Reserve would act to weaken the dollar
  • The People’s Bank of China would do nothing.

Because the Chinese yuan is loosely pegged to the dollar, the yuan would weaken without a formal devaluation by the Chinese central bank. The effect would be to buy more time for China without throwing global markets into a tizzy — which is what happened when China formally devalued last August and last January.
“The Shanghai Accord is still intact, despite temporary dollar strength on the fear trade from Brexit,” says Jim Rickards with an update.
One key player in the Shanghai Accord stuck to the script despite Brexit: The Japanese yen proved to be a powerful safe haven in the aftermath of the vote, along with gold and government bonds. Look how the dollar continues to weaken relative to the yen…

A week ago, Jim told his Currency Wars Alert readers to “look for the yen to strengthen past 100 to the dollar.” At that time, it was trading around 103. This morning, it’s around 101.
Meanwhile, “Gold should resume its upward path as the result of renewed dovish action by the Fed,” Jim says, “mostly in the form of ‘forward guidance’ or jawboning in July and August.”
“The biggest surprise may be in European markets,” Jim goes on. “These were seen as the big losers from Brexit.”
Still are, for the moment. The euro has taken a substantial hit since the vote: It was trading near $1.14 the day of the referendum on June 23. This morning, it’s down near $1.106.
But that’s short-term noise, says Jim: “In reality, Europe is better off without the U.K.; it was never a good fit anyway.
“The European and U.K. systems of law and cultural attitudes were always incompatible. The U.K. Brexit vote came as a shock to Europe, but the result has been salutary in the sense that Europe is more determined than ever to keep the EU together and avoid further defections. Germany has been the de facto leader of Europe since the 1970s but was always reluctant to exercise that role in an overt way. Now, with so much at stake, German reticence is a thing of the past. Political leadership for Europe will now come from Berlin, not Brussels.
“Taken as a whole, a stronger euro and a stronger EU led by Germany is a tail wind for dollar-based investors in EU markets. Surprising strength in European markets may be the biggest surprise in the second half of 2016.”
Jim and his team have identified a superb trading opportunity as a result. Give it 18 months to play out and you could be looking at 310% gains — quadrupling your money. If the coming euro rally proves even stronger than Jim expects, the upside could be as high as 764%. The trade recommendation came out just yesterday, so it’s not too late to act. Start here.

The one economic number of the day does nothing to allay the aforementioned “global growth concerns.”
The U.S. trade deficit widened big-time in May, from $37.4 billion to $41.1 billion. Some of that is a function of higher prices for imported oil… but the big downer in the report is that exports of both goods and services fell for the month. And exports of the stuff that really matters — like capital goods and civilian aircraft — look especially weak.
First it was Microsoft, and now it’s Miracle-Gro — both seeing a future in legal marijuana.
As we mentioned last month, Microsoft plans to offer software to state and local governments, the better to track and tax pot-oriented businesses. The move amounted to Corporate America breaking its long-standing taboo on weed.
Meanwhile, Scotts Miracle-Gro is looking for a new growth catalyst — something that’s eluded it throughout the economic “recovery” of these last seven years. CEO Jim Hagedorn settled on pot in 2013 when he walked into a garden center in Yakima, Washington.
Voters there had legalized recreational weed the year before. Hydroponic gear was flying out the door — in contrast to his own firm’s goods languishing on the shelves across town at Home Depot.
“I came back, and I told everyone, ‘We’re doing it,’” Hagedorn says in the new issue of Forbes. “‘If you don’t like it, leave. We’re doing it. It’s beyond stopping. And we’re not getting into pot growing. We’re talking dirt, fertilizer, pesticides, growing systems, lights.’”
All told, Hagedorn is looking to invest $400 million into the pot business. He’s spent about half that sum already acquiring companies already operating in the weed space.
No, Scotts Miracle-Gro is not our recommended way to play legal pot. There are other, more lucrative players… and they’re positioned to profit the most when the federal government changes its tune on marijuana in the next few weeks. You might want to check out the details at this link before that happens.
And now perhaps the most sordid business story we’ve wrestled with all year. The part about extramarital affairs is all over the news. The part about a potential abuse of power by the feds, not so much.
Maybe you’ve heard of a website called Ashley Madison. It caters to people looking to cheat on their spouses. Maybe you also heard that last year it was subject to a massive hack attack — in which the personal information of some 30 million users was made public.
Yesterday, the website’s parent firm, Avid Life Media, disclosed it’s under investigation by the Federal Trade Commission. Executives say they don’t yet know what the focus of the investigation is.
That said, the FTC’s consumer protection unit is empowered to pursue cases in which consumers were told their information was secure only to have it handled recklessly.
It just happens that federal employees in sensitive positions were among the 30 million people whose information was compromised. Many were using government computers to access the site.
From an Associated Press story shortly after news of the hack broke last July: “The list includes at least two assistant U.S. attorneys, an information technology administrator in the White House’s support staff, a Justice Department investigator, a division chief, and a government hacker and counterterrorism employee at the Homeland Security Department. Hundreds of others visited from networks operated by the Pentagon.”
How many other epic hack attacks have compromised people’s personal information? There’s been JPMorgan Chase, Visa, MasterCard, Target, several health insurers…
But it’s Ashley Madison that comes into the feds’ cross hairs for “recklessly” handling customer information? (Assuming that’s indeed the nature of the investigation.)
We’re never going to endorse Ashley Madison’s business model around here… but we also can’t shake the thought the feds are circling the proverbial wagons to carry out a vendetta…
“First,” a reader writes after our discussion about the fatal crash of a self-driving car, “I am a car guy, and all of the news about autonomous cars at first glance causes me concern, because I like actually like driving and know how to use a manual transmission.
“However, I see the upside in the future, and those who hate the state may see the positives as well. With autonomous cars, there will be no reason why the police will have any reason to pull over any driver! Minorities can rejoice that profiling will really be abolished.
“We can all merrily ‘drive’ in our cars drunk or high or carry any contraband and feel freedom from ‘the man’ and being pulled over arbitrarily. There, of course, will be a corresponding drop in traffic fines paid to governments (aka tax), and the car insurance premiums will drop as well.
“Speed cameras and red light cameras will be superfluous as well, since the autonomous car won’t make these mistakes, either. Police departments will be freed from traffic enforcement (yippy!) and reassigned to real police work or cut back (yeah, in my dreams).
“Unfortunately, most body shops will close up because of fewer accidents.
“Yes, there will be teething problems like this first Tesla accident, but give it another decade and it will be like Demolition Man, with the cars driving themselves and more liberty to the individual.”
The 5: We cringe at the thought of how governments might seek to recoup the lost revenue.
“Economics 101 was a required course when I went to high school (late ’70’s) in true Northern California,” a reader writes as last week’s discussion of entrepreneurship has shifted this week to basic education about money.
“We were taught how to balance a checkbook, file a tax return and a number of other basic financial things like compounding interest.
“I agree it should be a required course that you have to pass before graduating from high school, but every year, they have to dumb down the curriculum more and more to be able to pass enough students. I know a few people my age that still can’t file their own 1040EZ.
“It’s a sad state of affairs especially because there are still a lot of people that would benefit from the old basic required curriculums. Thank the government again for screwing something up! Love The 5!”
The 5: There’s not enough time in the school day to teach kids how to balance a checkbook when they have to drill for the endless standardized tests that are the fetish of today’s education elites.
The relentless testing routine is even crowding out recess in many school districts — which surely contributes to the obesity epidemic among young Americans.
Many districts administer the relentless tests as a condition of the Common Core funding doled out by the Gates Foundation. The Gates Foundation is wrecking whatever vestige of “education” wasn’t destroyed a century ago by John D. Rockefeller and his General Education Board.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. As we get closer to virtual press time, gold has pulled back a tad to $1,365 — which is still more than $100 higher than it was at this time last month.
And moments ago, Jim Rickards literally doubled down on his bold gold forecast of $10,000 an ounce.
No, he’s not predicting $20,000. Instead, he’s showing you the way to claim double your fair share of gold coins he’s reserved just for Agora Financial readers like you.
Because you stuck around all the way to the end of today’s 5, you’ll be among the first to see Jim’s extraordinary new offer.
It’s open only for the next eight days — for reasons you’ll see when you click here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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