Three Days Before Another Crisis?

  • The next banking crisis could start cranking up on Monday
  • How to achieve the lowest unemployment rate in nine years
  • What happened when pot activists showed up at Jeff Sessions’ office
  • The unhinged beliefs of “fake news” blacklisters
  • A few words for impatient gold investors

“There’s a real possibility of a banking and liquidity crisis in Europe between now and the end of the year,” says a note from Jim Rickards in London.
Jim is traipsing around London and Paris this week, promoting his new book, The Road to Ruin. The book tour has afforded him a chance to touch base with top portfolio managers and investors about the aftermath of Brexit… and the run-up to the Italian constitutional referendum this Sunday.
“Concern about the Italian referendum is palpable,” Jim tells us. “The consensus is that Italy will vote ‘no’ (we agree). From there, it seems highly likely that the Renzi government will resign and Italy will spend some weeks organizing elections and forming a new government. An interim government will exist, but it will have no mandate and no real power to resolve the Italian banking crisis.
“As the weeks drag on and the usual year-end balance sheet deleveraging occurs (so-called ‘window dressing’), liquidity will evaporate and the banks will be in even more distress.”
“There’s some possibility that a full-scale Italian panic emerges with potential to spill over into Germany,” Jim goes on, “where Deutsche Bank could once again be in the eye of the storm.
“Two big U.K. banks (RBS and Barclays) also just failed their regulatory ‘stress tests’ and will have to come back to the market for more capital as well.”
Put it all together and you have the recipe for a banking and liquidity crisis.
“We’re not saying that will definitely happen,” Jim says, “only that there’s a strong expectation that it might and investors need to be alert to that danger.”
But whatever shakes out… there’s one near-certainty that will emerge after Sunday. Jim and his team say it has the potential to take out a banking giant… and, for the nimble, deliver gains of 200% or better. You’d do well to check out Jim’s latest briefing right here — because it will be out of date by Monday morning.
In the meantime, traders appear whelmed by the latest job numbers.
The Dow is off fractionally, while the rest of the major U.S. stock indexes are up a quarter percent. The bond market rout is taking a breather today; Treasury yields are backing down, the 10-year at 2.39%.
Gold has bottomed for the moment, the bid up to $1,175. We’d be encouraged, but gold “ought” to be doing better considering how the dollar index has tumbled from 101.7 two days ago to 100.7 this morning.
Crude is steady at $51.38.
The “official” story about jobs is that the unemployment rate is down to 4.6%, the lowest in nine years. The reality is that the “NILF” figure stands at an all-time high.
[Ed. note: As we must always remind newcomers, NILF stands for “not in the labor force” rather than anything that might capture the lusty imagination of a 13-year-old boy.]
95.1 million Americans over age 16 are not in the labor force — neither working nor looking for work. It’s the number of people who are in the labor force that helps determine the unemployment rate.
If you count all the part-timers who want to work full time… and all the people who gave up looking for work, no matter how long ago… you get a real-world unemployment rate of 22.8%, according the latest figures from Shadow Government Statistics. On the one hand, that’s the lowest it’s been since February. On the other hand, the last time it was any lower was October of 2012.

Back to the official numbers: The wonks at the Bureau of Labor Statistics conjured 178,000 new jobs for the month. Not great, not awful. A steady and alarming drop in this figure earlier during 2016 appears to have been arrested.
Last, these numbers do nothing to alter the Federal Reserve’s calculus: Count on the first increase in the fed funds rate in a year come Dec. 14. Then brace yourself for what comes after.
Sure, now he tells us…

“I will have the opportunity as a private citizen to describe where I think we need to go,” the president tells Rolling Stone. “But in light of these referenda passing, including in California, I’ve already said… that it is untenable over the long term for the Justice Department or the DEA to be enforcing a patchwork of laws, where something that’s legal in one state could get you a 20-year prison sentence in another.”
Whatever. There’s a new sheriff coming in, and we’re much more mindful of what he plans to do… and the impact on “penny pot stocks.” On that score, there’ve been a couple of interesting developments this week.
For starters, the staff of the presumptive next attorney general gave a respectful hearing to pro-pot activists.
Ten days ago, we wrestled with the fact that Sen. Jeff Sessions is a hard-core drug warrior… and as Trump’s attorney general, he’d have considerable leeway to bigfoot all those state laws easing up on marijuana enforcement.
On Monday, the D.C. Cannabis Campaign showed up at Sessions’ office. They’d announced a “#smokesessions” protest would take place at “high noon.”
“We had to pretend we might smoke marijuana in your office to get your attention,” co-founder Adam Eidinger said.
It worked. And Sessions’ staff did not tell the protesters they were a bunch of dirty freaking hippies, either. “You’re being legitimate. We appreciate that,” said Sessions communications director Chris Jackson, according to an account at U.S. News & World Report.
“We were a bit surprised that they were meeting with us,” said Sondra Battle, a medical marijuana advocate. “I got the impression they were going to pass [our concerns] on to him.”
Meanwhile, we’re seeing more signs that Sessions is likely to give immigration a higher priority over weed.
That’s what we speculated last week. And this week, Politico had an article laying out the vast powers he could exercise over immigration matters. “As the nation’s top cop, Sessions would be able to direct limited department resources to pursuing immigration cases. He could launch federal investigations into what he perceives as discrimination against U.S. citizens caused by immigration. He would be in charge of drafting legal rationales for immigration policies under the Trump administration.”
And he might well sue so-called “sanctuary cities” where local cops don’t enforce federal immigration law. “I would not be surprised if they take that tack,” says Dan Cadman of the Center for Immigration Studies, which favors tighter immigration laws.
We’re still laying odds that Sessions will have to pick his battles with the blue states… and he’s more likely to go to the mat over immigration than over pot. We still see immense potential in “penny pot stocks”… and the next catalyst for the sector is less than a month away.
As the week winds down, a few more thoughts about “fake news” and The Washington Post’s smear of our own David Stockman and hundreds of others who dissent from establishment wisdom…
We’re starting to see some pushback within the elite media, by reporters and editors who recognize the Post piece as an embarrassment to their profession. Adrian Chen at The New Yorker had an interesting article yesterday delving into the murky origins of PropOrNot, the sketchy and still anonymous outfit that assembled the blacklist of 200 websites it says “echo Russian propaganda.”
Chen managed to get hold of someone from the organization. “The PropOrNot spokesman would speak to me only on the condition of anonymity and revealed only bare biographical details on background. ‘Are you familiar with the assassination of Jo Cox?’ he asked, when I asked why his group remained in the shadows, referring to the British MP murdered by a right-wing extremist. ‘Well, that is a big thing for us. Basically, Russia uses crazy people to kill its enemies.’”
So… Someone authorized to speak on behalf of PropOrNot believes Russian president Vladimir Putin engineered the murder of a pro-EU member of Britain’s Parliament.
This notion is, to use that uniquely British expression, barmy. Cox was murdered only days before the Brexit referendum last June, by someone who was screaming “Britain first!” As we said back then, the nature of the attack was such that you’d expect public opinion to turn against Brexit as a result. If Putin favored Brexit — publicly, he was adamant about taking no position — why in blazes would he want the murder carried out at that moment?
And one more thing, while we’re on a roll: Do the people peddling conspiracy theories about how “Russia hacked our election” believe their own rhetoric?
If they did, why aren’t they taking the next logical step and screaming bloody murder that the Kremlin is installing their puppet in the White House? Demanding a military coup to forestall the possibility?
At the very least, why didn’t they denounce Barack Obama when he went to an economic summit in Peru two weeks ago and met briefly with Putin? They talked about Ukraine, but “the issue of the elections did not come up,” Obama told reporters, “because that’s behind us.”
Maybe Obama’s in on the conspiracy too?
“I don’t see how anyone can trust any forecast in gold price when history shows the price is manipulated through the paper futures market,” a reader writes reacting to Jim Rickards’ latest gold outlook.
“As shown since Trump’s election, naked shorts dumped on the market have smashed the gold price down. So the future for gold appears to be a rinse and repeat of this process, so prevents it ever gaining traction.”
And another one: “Why doesn’t Rickards predict when gold will soar? Even a broken clock is correct twice per day. He spreads messages of fear, but who can really afford to sock away 10% of his portfolio in gold just for a rainy day?”
The 5: Our retort is, “Who can afford not to?” If you’re that obsessed with the short-term performance of every line item in your portfolio, you’re going to be miserable whether you have gold or not.
We could understand the question if someone had asked it, oh, a year ago when gold was still stuck in a four-year bear market.
But now? Yes, gold is down about 13% from its peak last summer. We get it. But if you can’t handle that kind of drawdown for a few months, you might want to have a talk with yourself about your investment objectives.
And yes, we understand the manipulations, too. But no market manipulation can go on forever. Market forces eventually assert themselves one way or another.
We’re still fond of citing the inimitable Marc Faber’s words on the subject. We’ve shared them many times over the years. In fact, we like them so much, we’re going to make a meme out of them. Print it out and tape it to your computer screen…

Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. That does it: Italy’s economy minister said in a newspaper interview today that there’s “no risk of a financial earthquake” from the referendum there on Sunday.
Jim Rickards believes otherwise. And even if he’s wrong, he’s found a way to play it for profit regardless. Give it look before the market opens Monday morning.

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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