Russia’s Financial Fortifications

  • Corporate media finally wake up to Russian “de-dollarization”
  • Why it’s time to hit the ATM, fuel up and charge your devices
  • Too soon to sound the all-clear for the stock market (two charts)
  • How safe are precious metals held at the Royal Canadian Mint?
  • Alibaba gives up on growth… the untold story about NBC’s miserable Olympic ratings… your last chance at Jim Rickards’ urgent Ukraine briefing… and more!

So it took an honest-to-God land war in Europe for the mainstream to finally wake up to “de-dollarization”…

Bloomberg

Joe Biden announced more sanctions as we went to virtual press yesterday. The aim is to cut exports to Russia, while targeting more Russian banks and “elite” Russian individuals.

If the aim was to make Vladimir Putin blink… uh, it didn’t work.

While the mainstream is only now waking up to how Russia has fortified its defenses against economic warfare… we began chronicling Russia’s (and China’s) moves to get out from under the U.S. dollar’s thumb in May 2014.

As of 2017, 40% of Russia’s foreign exchange reserves were held in dollars. Now? About 16%.

Time and again over the years, our Jim Rickards has told us how Russia’s gold stash, measured as a percentage of its economy, is the biggest in the world.

“It cannot be hacked or frozen by Western sanctions,” he points out. “Physical gold can be used to satisfy external financial obligations either with a simple transfer or by using it as collateral for hard currency loans.”

Yes, the financial fallout from a land war in Europe is well and truly upon us. And it’s not too late to fortify your own portfolio.

Click here to watch the replay of Jim’s exclusive briefing for our readers. While it was recorded shortly before Moscow launched its assault on Ukraine Wednesday night, the information is still fresh and actionable — for the moment. But with events moving so quickly now, we’re taking it down tonight at midnight. Watch while you can.

We’d be remiss if we overlooked Team Biden’s trial balloon, floated to NBC News, about launching offensive cyber-operations against Russia. What could possibly go wrong?

News

NBC’s deep-state lackey reporter Ken Dilanian — when he was at the Los Angeles Times, he’d run his finished articles by the CIA before publication — is citing four anonymous sources for the following: “No final decisions have been made, but they say U.S. intelligence and military cyber warriors are proposing the use of American cyberweapons on a scale never before contemplated.”

Said one of the sources: “You could do everything from slow the trains down to have them fall off the tracks.”

A few weeks ago, when “prepper” types were suggesting Moscow might try to knock out Americans’ electricity or internet, we said the notion was far-fetched. “Seems like a good way to galvanize everyday Americans to take sides in a conflict where currently they feel they have no dog in the fight.”

But if Washington actually goes through with this harebrained scheme? All bets are off.

No electricity? No credit/debit cards and no power to the gas pumps. Keep a wad of cash, your tank full and your battery-powered devices charged.

In the meantime, the mainstream has given up on making any connection between Ukraine and the movements in the markets.

CNBC has settled on language like this: “Stock futures erase earlier losses, turn positive as investors assess fighting in Ukraine.”

Coincidentally or not, markets reversed big-time after Biden announced the latest sanctions yesterday afternoon. The Nasdaq ended the day up 3.3%, while oil gave up most of its monster gains. But the nuttiest (most manipulated?) action was in precious metals, with gold tumbling $90 from its peak in nine hours.

The late-day stock rally is carrying into today: At last check, the Nasdaq is up another three-quarters of a percent… the Dow is up 1.5%… and the S&P 500 has added 1.3%, currently 4,344.

Among the more interesting movers today is the Chinese online retail colossus Alibaba — down 2.75% after posting its slowest sales growth since going public in 2014. BABA says it will no longer pursue user growth and focus instead on keeping the users it’s already got. Looks as if our George Gilder made a prescient call getting out of Chinese tech names earlier this month.

Gold languishes at $1,886 and silver’s about to break back below $24. Crude is down to $91.54.

Crypto got on the rally tracks yesterday afternoon, a move that continues today — Bitcoin approaching $39,600 and Ethereum close to $2,750.

But it’s probably too early to sound the all-clear for the stock market, judging by two revealing indicators.

One of them is the spread between the yields on risky junk bonds and (comparatively) safe U.S. Treasury debt. It’s the highest in over a year…

High Yield

“High-yield bond spreads are important to stock investors because they’re a key indicator of risk in the overall economy,” explains our Zach Scheidt.

After all, high yields are a reflection of the extra risk investors take on when they buy junky corporate debt — and that’s in good times. “When high-yield spreads rise, it means bond investors are sniffing out trouble in the economy. And they’re requiring a higher interest rate in exchange for their risk.

“So the higher this high-yield chart trades, the bigger the chance that companies start to default on loans. And if more companies are defaulting on their loans, that means stock investors have bigger risks as well.”

Another potentially worrisome sign is falling margin debt.

Margin debt is the debt investors take on to leverage their stock buys. Whenever it reaches record levels, you can count on internet screamers to go ballistic with MARGIN DEBT AT ALL-TIME HIGHS STOCKS ABOUT TO CRASH DURR!

The thinking is that when investors borrow against the stock they own so they can buy more shares, it’s the sign of a euphoric “stocks can only go up” mentality… and a certain precursor to a crash.

But as we’ve pointed out for years, record-high levels of margin debt can always go higher. It’s when margin debt starts to fall from record levels that you should start to worry.

And so we direct your attention to this chart from the Wolf Street blog…

Margin Debt

Note the previous falls preceding the corona-crash two years ago… and the stock market’s tantrum over tightening Federal Reserve policy in late 2018.

In addition, the wild intraday swings we’ve been seeing lately (like yesterday) tend not to happen when the stock market is rallying steadily higher (like the first half of last year).

In this environment, “the most important thing right now is to protect your capital,” Zach says.

“Energy stocks, bank stocks and even materials like steel companies and gold miners are great examples of defensive plays that should be in your account right now.

“Tech stocks can still be good opportunities. But I would steer toward legacy tech companies that have strong established businesses and generate reliable profits.

“The more speculative tech stocks just have too much risk. And if you really love these companies, you should be able to buy shares at much lower prices later this year.”

Before the news gets too old and moldy — hey, the week has been both short and busy — we’ll note that NBC’s ratings for the Winter Olympics were abysmal.

NBC began carrying the event exclusively in 2002 — long before General Electric sold the network to Comcast — and this year notched its smallest prime-time audience to date. Heck, it was down 42% from 2018, which was the previous low.

For most of the two weeks, NBC gave advertisers generous “make-goods” — additional commercial time to make up for the lower-than-promised number of eyeballs.

NBC Sports chairman Pete Bevacqua attributed the shrinkage to the lousy COVID-restricted atmosphere in Beijing — tiny crowds with no family and friends, and athletes masked up pretty much anytime they weren’t competing. (Mad respect for snowboarder Nick Baumgartner and freestyle skier David Wise, who flouted the mask rules during their post-medal interviews!)

But if our informal reader survey a few days ago is any indication… there’s a not-insignificant number of people who felt that watching the Games amounted to a tacit endorsement of the Chinese regime.

Which, frankly, we find rather concerning now that nearly everyone acknowledges the existence of a new Cold War with China; in 2019, we were outliers. But that’s a topic for another day…

To the mailbag, where Canadian readers weigh in on the aftermath of Canada’s now-lifted state of emergency.

“Two credible Canadian rumours,” writes the first…

“a) Senate would vote down invocation of the Emergencies Act and that would make everything the government did illegal

b) People transferring money out of Canada caused banks to tell the government to back down or face catastrophe (from a banking friend).”

Interesting on b) there. The rumored bank run a few days ago didn’t appear to materialize… but if you have just enough people moving their assets out of the country, who knows?

“Trudeau only lifted the Emergencies Act because he knew he was going to lose the vote in the Senate (the Senate had to pass it also or it was done),” another Canadian reader affirms.

“The damage has already been done. Imagine how much spying an up-and-coming fascist dictator could do in a week while no court orders were necessary for spying on the citizens.

“In a related story,” our reader continues, “not sure if you saw this.

“That is a link to a YouTube clip of Ya’ara Saks, Liberal MP from Ontario, saying that ‘Honk Honk’ is code for ‘Heil Hitler.’

“She calls it an acronym in the clip. I assume she doesn’t know the meaning of the word ‘acronym.’ No, you don’t have to be bright to be an MP in Canada, especially not a Liberal MP. You just have to be able to lie on command and regurgitate talking points.

“Like you guys always say, ‘You can’t make this stuff up.’”

The 5: Actually it’s the columnist Dave Barry who says that. Most of the time we give him credit. If we ever fail to do so, nostra culpa.

On to our promised mailbag discussion about Canada and gold: “I read a piece by Egon von Greyerz (guided to the link by Byron King in The Daily Proof) talking about the financial risk of investing in things under the influence of a fascist state (Canada under emergency rule).

“I wonder if you have any comments on the dangers of investing in Canada-based companies and trusts. In recent years I have been attracted to various Canadian mining companies, as well as the Sprott Physical Silver and Gold trusts (with physical metal storage at the Royal Canadian Mint, I believe).

“I do not want to panic, but I also want a clear-headed view of the risks there. I would appreciate thoughts from Jim Rickards and others of you on this question in coming days and months.”

Writes another: “With the Trudeau government’s arching overreach in its crackdown on the Canadian trucker protest how safe can Sprott gold and silver bullion funds domiciled at the Royal Canadian Mint now be considered?

“A leftist regime drunk on power likely won’t stop at just seizing bank accounts of rabble-rousers. Perhaps Sprott should consider moving its metals to vaults in Switzerland or Singapore.”

The 5: Sorry, no magic bullets we can offer. The sad reality is there are fewer and fewer choices for safe custody of precious metals within North America.

Of course, we’ve been down on storage in a bank’s safe-deposit box since, well, forever. As Jim Rickards has long reminded us, the moment you’d most want access to your metals is also the moment there’d most likely be a bank holiday.

Storage outside a bank has its own risks — as we learned last year with the case of U.S. Private Vaults. The feds indicted the owners of the firm for various acts of wrongdoing — and seized the contents of customers’ safe-deposit boxes. In the end, a federal judge slapped down the FBI for violating the terms of the search warrant… but as of last September, many of those customers were still awaiting the return of their goods, six months after the company was raided.

And so it’s totally understandable to wonder about metal held at the Royal Canadian Mint — whether or not you’ve committed an act of wrongthink in the eyes of Mr. Trudeau and Ms. Freeland.

At the risk of shameless self-promotion, we still like the arrangements offered by our friends at Hard Assets Alliance. They offer fully allocated storage, which means the metal’s “got your name on it.” Domestic vaults are in New York and Salt Lake City — and domestic storage is your only option if you want to hold your metal in an IRA.

Overseas vaults are in London as well as — highly relevant to the reader’s inquiry — Zurich and Singapore.

And of course, you can always opt to take delivery at the time of purchase or anytime thereafter.

And once your account is set up, buys and sells are no more difficult than you’d do with PHYS or similar vehicles in your plain-vanilla brokerage account.

You can get started with Hard Assets Alliance at this link. The usual disclaimer applies: Our firm owns a piece of HAA and will collect a small cut once you fund your account. Even so, the premiums you’ll pay are among the lowest in the business.

As for the mining stocks with Canadian management or Canadian locations, we’re not much concerned. Those firms will generate growing tax revenue for the Canadian government as precious metals prices rise. And it’s not as if Trudeau would nationalize the mines like some tinhorn despot in Latin America. Even he’s not that stupid…

Try to have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

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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