- The media try — and fail — to make sense of China and “world money”
- What really happens at 4:00 p.m. EDT tomorrow — and what exactly you should expect
- Did Congress just guarantee Saudi Arabia will unleash a financial “bloodbath”?
- The world’s most dangerous hot spot, and it’s not Syria or Ukraine
- Forget the feds: Cannabis-based epilepsy treatment passes a crucial test
- Gold and bad timing… a little more post-Soviet history worth revisiting… The 5 accused of being in the tank for Trump… and more!
Never trust the establishment media to wrap their arms around a complicated story about global finance. Especially when the story involves the machinations of elites.
So it goes with the event Jim Rickards has taken to calling “D-Day” for the U.S. dollar — scheduled shortly after the markets close tomorrow afternoon.
At that time, the Chinese yuan will be included in the International Monetary Fund’s special drawing rights. SDRs are a form of “world money” exchanged among governments and central banks.
So what’s it to you?
With the date looming, Bloomberg decided to take a stab this week: “The yuan’s ascent is a validation of the importance of the world’s second-biggest economy and the work policymakers have done to allow freer access to the nation’s markets.”
Well yes. Paging Captain Obvious.
Hey Barron’s, you want to give it a try?
“From a reform perspective, the renminbi’s SDR status confirms the recognition by the international community of China’s economic ascendency and structural reform efforts.”
Also true. But this change is far more than Western elites patting Chinese leaders on the head for playing by their rules.
And so we return to some points we first made 45 days ago, when Jim first rolled out the “D-Day” theme…
Consider “D-Day” another milestone on the dollar’s long march to oblivion — akin to when President Nixon cut the dollar’s last tie to gold in 1971.
He made the announcement on a Sunday night. Life didn’t change much on Monday morning. Not right away. The event doesn’t even show up dramatically on the chart below. But it was still an essential move in the dollar’s long-term trajectory…
As outrageous as that chart is, it’s ancient history in the context of the dollars you hold in your pocket now. After all, you still use them to purchase goods and services… and the adjustment to the SDR doesn’t change that.
But the adjustment does ensure the purchasing power of those dollars will weaken at an accelerating pace. The dollar of 1913 that’s worth only 4 cents now will soon be worth only 3 cents… then 2… then 1… and so on.
“Everything will cost more to pick, ship or stock,” says Jim. “Soon you’ll pay a little extra for apples at the fruit stand. At the coffee shop, they’ll tack another quarter on the price of a latte.
“Online prices will go up when you buy anything tech, because all that’s imported. And it costs more to get it out for delivery.”
[This is already happening; recall our item a few days ago about UPS and FedEx raising rates despite a weakening economy.]
“On Wall Street, all kinds of ledgers will start to ooze red,” Jim goes on. “The multinationals will get hit first.
“And that’s where the crisis will accelerate: As dollars lose clout, paying an overseas workforce will lose luster. Sweetheart import deals will dry up… and so will international tax treaties… until ‘cheap’ goods no longer exist for Americans.”
Again, it all starts tomorrow after the market closes for the week. Life on Saturday won’t feel much different. And unlike 1971, no one will interrupt prime-time TV to let you know. That’s why Jim’s been banging the drum these last six weeks.
As a practical matter, it won’t make so much difference if you start making plans today or next week or even sometime before year-end. But you do need to prepare. If you aren’t up to speed yet, we urge you to check out Jim’s D-Day expose before it’s overtaken by events tomorrow.
The markets are treading water on an early-autumn Thursday.
The Dow has barely budged, at 18,341. Treasury rates are inching up, the 10-year at 1.58%. Gold is steady as she goes at $1,319. The Commerce Department issued its third and final guess on second-quarter GDP — up an annualized 1.4%, slightly better than expected but still lame.
Stocks rallied after we went to virtual press yesterday, driven largely by crude. OPEC announced a production cut, the first since 2008. But — and it’s a big but — the cut won’t go into effect until November, and the details won’t be worked out until then.
Nonetheless, West Texas Intermediate shot up from less than $45 to more than $47, where it remains as we write.
Meanwhile, the market “bloodbath” Jim Rickards has been talking about is one step closer to reality.
As you might’ve seen yesterday, Congress carried out its first override of a veto by President Obama. Thus, 9/11 families and survivors can now sue the government of Saudi Arabia for its links to the hijackers.
The president and his aides huffed and puffed about how the bill would open up American officials to similar lawsuits overseas. (Frankly, we wouldn’t mind grabbing the popcorn and watching Dick Cheney get sued for torture, or Barack Obama for drone strikes. But that’s just us.) Still, it’s a done deal now.
The override comes at a delicate time for the Saudi regime. The small bump in oil prices yesterday won’t be enough to shore up the government’s finances.
For months, many foreign workers have gone unpaid. Hundreds of them who work in hospitals went on strike this week in defiance of a ban on strikes.
And now the money crunch is hitting Saudi citizens too. Those on the government payroll got word this week their bonuses and overtime will be reduced, according to Patrick Cockburn of the London Independent.
“There are political dangers in this move,” he reports. “In the oil states of the Middle East, there is a trade-off between the spectacular wealth of a corrupt and autocratic elite and an extensive patronage system through which much of the rest of the native population plugs into oil revenues.”
The regime still has options — not the least of which is the one Jim Rickards has discussed all year. The devaluation of the Saudi riyal might be closer than ever. When it happens, expect a “bloodbath.”
As long as we’re surveying global hot spots, events are heating up in a place veteran foreign correspondent Eric Margolis calls “the world’s most dangerous crisis.”
Kashmir is a majority-Muslim territory. Two-thirds of it sits in Hindu-majority India. The other third lies in Muslim-majority Pakistan. India and Pakistan have argued over it ever since they won independence from Great Britain in 1947. It wouldn’t be a big deal except both countries are armed with nukes.
Recent days have brought murky “border clashes” near the disputed border. In the latest incident today, two Pakistani soldiers have been killed.
“Shooting is a daily event on the Line of Control,” writes Margolis — who’s come under fire there twice over the years. “Fanatical hatred between India and Pakistan remains a constant. Nuclear war is more likely to start between India and Pakistan than anywhere else.
“Another border clash in Kashmir,” he goes on, “could ignite serious fighting between old enemies India and Pakistan, raising the risk of full-scale war and even intervention by China to rescue its old ally, Pakistan.”
What’s the financial angle, you ask? None, really. But CNN is too busy covering bogus campaign “controversies” to tell you about this, so it’s left to us…
Nothing like a 60% gain as part of “protecting the downside.”
In late spring, Ray Blanco of our science-and-wealth team forecast the federal Drug Enforcement Agency would take marijuana off its Schedule I blacklist — opening the way to a host of cannabis-related medical treatments.
The forecast didn’t pan out… but the two companies he recommended are both solidly in the green. This week, one of them got results back on Phase 3 trials treating a form of epilepsy called Lennox-Gastaut syndrome. “Patients enjoyed a 42% reduction in seizures,” says Ray, “a big improvement over the 17% decline in the placebo group.
“Despite the fact that the DEA did not change the scheduling for marijuana, we’re still up a nice 60% in just over four months.”
And Ray sees the potential for more. The results are so good the company plans to file a New Drug Application for a drug it’s working on that treats a different form of epilepsy. “The drug,” Ray tells us, “could be on the market as soon as early 2018.”
“Dave, thanks for the feedback — did not realize my last email would make the top of The 5 Min. Forecast!” a reader writes after yesterday’s episode.
“Sounds like it hit a few nerves, which was not the intention. Yes, gold is up overall, and I have made money in my core positions I bought in January, but it depends on when you received the recommendations based on when you subscribed to Rickards’ Gold Speculator. All my positions are down right now.
“My questions were not meant to be sarcastic. But an update and explanation when gold is going down and up, and on the forces that cause its movements, goes a long way for new readers even if you have to repeat the message every once in a while. These are all questions subscribers may have concerning losses in your recommendations and can reinforce positive results given time.
“I understand gold is somewhat a long-term play. But I am also smart enough to understand if you have a better buy-in option because the Fed’s hawkish jibber-jabber on interest rate increases tends to drive down the price, then you should be patient and wait.
“Anyway, thanks for the detailed explanation that was given — I can tell you I am sure it has helped others that had the same thoughts going through their minds!”
The 5: We’re happy to oblige. We’re blessed to have what might be the most informed, aware and engaged readership of any financial e-letter… and reader feedback is often a jumping-off point for either gaining new insights or reinforcing old ones. Just know that sometimes we can’t resist the temptation to snark a bit!
“Dave, good for you — the American people have been spoon-fed the idea that we are the white hats and everyone else wears the black hats,” a reader writes after we were compelled to defend our honor yesterday. Or something like that.
“Maybe,” another writes, “it should also have been mentioned that in 1989, an agreement was struck by Shevardnadze on behalf of the USSR and Baker on behalf of the USA that if the USSR withdrew their troops from Germany, allowing East Berlin and West Berlin to unite, NATO would not expand one inch to the east. This agreement was broken by Bill Clinton, and the eastward expansion continues.
“I too have an aversion to nuclear war and just wish that Washington would lose its hatred of Russia. There are bigger threats to deal with.”
The 5: Thanks for the reminder. It’s a point we’ve made before and should’ve made again. It’s the main reason the trust level on the part of Russian leaders is so low.
“As a subscriber, I never would have felt The 5 would sink to ridiculous political propaganda in favor of Trump,” a reader writes after our musings about Russia and cybersecurity on Monday.
“Your conclusions are such garbage with no proof whatsoever. You’re propagandizing nothing but garbage! I’ll lay odds that the worst of Hillary can outdo the best of Trump.”
The 5: Uh… We drew no conclusions at all about who’s behind the hacks on the Democratic National Committee. That was the point.
If you want to believe we’re in the tank for Trump, there’s probably nothing we can say to demonstrate otherwise.
But for the record, we stand with the delightfully cranky economic historian Robert Higgs: The choice between Clinton and Trump “is so indescribably horrendous that it actually tears asunder the laws of logic,” he wrote last May: “each of these candidates is so vile, so utterly reprehensible, so rock-bottom bad that each is worse than the other.
“Thus, the voting in November becomes a sort of Schrödinger’s-cat contest between two office seekers, each of whom will be the loser until the ballot box is opened and the votes are counted — albeit, in a deeper sense, each of them will be forever a loser.”
The only saving grace we can see is that each is so thoroughly reviled by large numbers of the populace as to check the winner’s boundless power-lust.
At least that’s our hope. Then again, we remember how many people hated Bush 43 in late 2000. Nine months later came Sept. 11, and despite his administration’s abject failure to detect the warning signs, he had a 90% approval rating.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. One more time: The world won’t come to an end tomorrow. But your world will be changed forever in ways not one in a million people will understand.
If you want that understanding — and unique tools, beyond just gold, to preserve your wealth as the dollar begins its final stage of destruction — please check out Jim Rickards’ presentation right away.
