- Jim Rickards: The worst crisis is the one you don’t see coming
- Chris Campbell on Fidelity’s Ethereum endorsement
- Ray Blanco: Semiconductors are this era’s “black gold”
- Chinese workers escape workplace COVID lockdowns
- The first-ever NFT house sells in South Carolina… “Thank you and the whole Paradigm crew”… And more!
“Crisis survival is all about knowing which crisis is coming in advance,” says Paradigm’s macro expert Jim Rickards. “But what about the crises that people don’t see coming?
“Those can be the most dangerous of all because they’re upon you before you know it.”
Indeed, on this Halloween 2022, think about some of the scariest moments from the horror-movie genre. It’s the unanticipated “jump scares” that really get your heart pounding. And 2022 has been full of heart-pounding moments…
The Shining: A personal favorite…
So to minimize some economic and personal-finance “jump scares” as we move through the last quarter of the year…
Jim and his team believe: “The threat we see (and that others don’t) is a global liquidity crisis worse than 2008 or 1998.
“This threat can do more damage to your net worth and peace of mind than almost any natural disaster,” says Jim. “It’s worth exploring what happened in two cases and what could be coming…
“The 1998 liquidity crisis is best remembered for sequential financial failures in Russia followed by the collapse of hedge fund Long Term Capital Management (LTCM) and its rescue prompted by the Federal Reserve.
“I had a front-row seat to that crisis,” Jim says. “I negotiated the bailout plan, which involved a $4 billion all-cash rescue by the 14 largest Wall Street banks. We got the deal done over the course of five days (no one slept) with just hours to spare.
“If we had failed, there would have been a sequential closure of every major securities market in the world beginning in Tokyo and extending to the New York Stock Exchange.”
Jim continues: “The Financial Crisis of 2008 is still fresh in the memory of investors,” he says. “Market participants recall the sequential failures of Bear Stearns (March 2008), Fannie Mae and Freddie Mac (June 2008), Lehman Bros. (September 2008) and finally the collapse of AIG.
“The Fed finally intervened to bail out Morgan Stanley, Goldman Sachs and the rest of Wall Street.
“What many observers of these events don’t know is that the crises actually began over a year before the headlines,” Jim notes.
“The Russia-LTCM crisis came to a head in August-September 1998, but it actually began in July 1997 when Thailand broke the peg between the Thai baht and the U.S. dollar,” he says. “That started a run on the banks in Thailand, which quickly spread to Malaysia, Indonesia and South Korea.
“The Lehman Bros. bankruptcy of Sept. 15, 2008, was also the culmination of events that began more than a year earlier,” Jim adds. “The sequence started in March 2007 when HSBC warned of disappointing Q1 earnings due to increasing losses in its mortgage portfolios.
“The stress peaked with Jim Cramer’s infamous ‘They know nothing!’ rant to Erin Burnett on CNBC…
Image courtesy: CNBC
I’m not freaking out… you are!
“For most investors, these crises hit in September 1998 and September 2008. But more sophisticated observers could see the respective storms coming.
“In other words, these two historic crises sent up storm signals over a year in advance, but almost no one paid attention,” says Jim. “Are there warning signs today? Yes, and they portend a new crisis worse than 1998 or 2008…
“The first and most obvious sign is an inversion in the U.S. Treasury yield curve,” Jim says. The classic yield curve inversion happens when the yield on a 10-year Treasury drops lower than a 2-year T-note. But on Oct. 19, something even scarier happened. The yield on a 10-year Treasury note dropped lower than the yield on a 3-month T-bill.
“It signals that markets expect intermediate-to-long-term yields (controlled by the market) to fall over time in comparison with short-term yields (controlled by the Fed),” Jim says. Whenever this happens, a recession is a foregone conclusion. That is, a recession sets in no more than 24 months later.
“These inverted yield curves,” Jim says, “are not just signs of a recession. (There are plenty of those elsewhere.) These signal that banks are in a desperate search for liquidity.
“The most high-profile sign of this liquidity scarcity is the activation of the dollar swap lines between the U.S. Federal Reserve and the Swiss National Bank (their central bank),” Jim says. But it’s not just Switzerland: “The entire world from China to India and beyond is running out of dollars. A global run on the banks has started.
“This liquidity crisis will take a while to play out,” Jim says. “The Fed is relaxed and does not see it coming. Neither does Wall Street. It’s as if we’ve picked up a hurricane on our radar but no one else is looking.
“It appears that 2023 may be one of those years like 1998 and 2008 when the wheels come off the global financial system and investors can lose a substantial portion of their net worth,” he says.
“That means 2022 is like 1997 and 2007 when warning signs appear in time to save you from the disaster to come.
“Large-scale complex dynamic systems do collapse,” Jim warns. “But the collapse begins slowly at first and then gathers momentum. The key is to see the early warning signs and get out of the way before the hurricane engulfs you.”
To that end, in case you missed Jim’s emergency briefing Sunday evening, here’s a link to the rebroadcast; in it Jim outlines what to do before “Hurricane Lehman” makes landfall… which could happen as early as this Wednesday, Nov. 2 at 2 p.m. EDT.
To the market today, where the three major U.S. indexes are in the red. The Nasdaq is down the most by 0.60% to 11,030. At the same time, the S&P 500 is down 0.40% to 3,800 while the staid Dow is down 0.15% to 32,820.
Per commodities, oil is down 2.60% to $83.60 for a barrel of WTI. Precious metals? Gold is down 0.25% to $1,640.70 per ounce, and silver is barely hanging on to $19.
And our crypto expert Chris Campbell notes: “This week, Fidelity sent out an email to all of its customers letting them know that Ethereum purchases will come online THIS month (Oct. 28). This gives institutions a way to take a position in Ethereum…
Courtesy: Fidelity
“Keep in mind, Fidelity has $5 trillion in assets under management,” Chris says. “Also, Ethereum is seeing its first signs of deflation since the Merge. Although Ethereum is down, both of these things could be setting Ethereum up for a major move come next bull cycle.”
Checking in on the crypto market today, Bitcoin is down 1.30% to $20,400, and Ethereum is down 1.45% to $1,560.
“Similar to how oil reserves defined geopolitical relations for the past few decades, [the semiconductor supply chain] will define relations for decades to come,” says our tech-stock pro Ray Blanco.
“The last thing you want as a country is to be boxed out of the highly advanced products used in everything from consumer goods to health care and military technology,” he observes.
To wit? “The ability of any Chinese company looking to stay up to date with advances in chip manufacturing is kneecapped by its restricted access to the extremely advanced machines needed to make the smallest chips,” says Ray.
“To create chips smaller than the 7-nanometer generation, you would need access to an ultraviolet lithography machine seen here:
“With a price tag of around $150 million, there are only a handful of companies with the ability to purchase one,” he notes.
“Even so, the only manufacturer of these machines, ASML Holding N.V. (NASDAQ: ASML) — based in the Netherlands — has completely blocked exports to China.
“The restriction comes at the request of the U.S. government, further hindering China’s ability to manufacture the most advanced chips,” says Ray.
“The rebalancing of technology supply chains is a crucial defense measure as geopolitical tensions rise seemingly everywhere in the world.
“Right now, about 80% of global chip manufacturing capacity exists in China. If things work out the way the U.S. and Europe want, that number will be reduced to 50% by the end of this decade,” he says.
“With the redistribution of manufacturing capacity, the U.S. aims to take 30% with the remaining 20% going to allies in Europe.
“Even with the short-term shakiness of the semiconductor industry following the pandemic explosion, the long-term outlook appears very healthy,” Ray says.
“Workers have broken out of Apple’s largest iPhone assembly factory in China after a COVID outbreak forced staff to lockdown at the workplace,” says BBC.
Courtesy: CNN, YouTube
It’s unclear how many COVID cases were diagnosed at the Foxconn facility in the city of Zhengzhou; the company simply reports a “few.”
But to maintain “normal production” of the iPhone 14, Foxconn planned on a facilitywide lockdown, including workers being separated from their families for weeks — if not months — allegedly, with inadequate food and hygiene supplies.
A massive number of workers chose to escape on foot rather than being imprisoned at the Foxconn compound. “The Taiwan-based company claimed on Sunday that it would not stop workers from leaving,” BBC reports.
Outmaneuvering Chinese goon squads might be another matter…
Last week, digital real estate platform Roofstock facilitated the sale of a $175,000 South Carolina house via a nonfungible token (NFT); it’s reported to be the first transaction of its kind.
The buyer, Adam Slipakoff, says: “Instead of waiting months for underwriting, appraisals, title searches and preparing deeds, I was able to buy a fully title-insured, rent-ready property with one click. Best of all, I am no Web3 expert.”
“For the Roofstock team, the South Carolina transaction serves as a case study on what can be done, with the right research, elsewhere in the future,” says MarketWatch.
“The sale of the home also served as an example of what can be done with NFTs as the underlying technology to transfer physical assets.”
When it comes to DeFi, Paradigm’s Chris Campbell says of the real estate purchase (completed in crypto, by the way): “Not only are we seeing real-world use cases, but the benefits are becoming easier to understand and easier to use.”
“Just a note from a semi-longtime reader,” says a contributor today, “who will be sticking around, to thank you and the whole Paradigm crew for being one of the lights in the darkness perpetuated by the legacy media…
“By the way, I love that graphic with which you closed out Friday’s episode, and will be stealing it, as it is also where I fall on the spectrum.”
Thanks for the encouragement! We strive to keep you informed — and maybe entertained? — most every day. As far as our readers, we find they are some of the brightest in the biz.
We’ll be back at it tomorrow… Take care!
Best regards,
Emily Clancy
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