Jim Rickards Tells His Clients To Get Out Of Stocks And Discusses The Fed's Final "Golden" Bullet

Tyler Durden's picture

The increasingly more popular Jim Rickards once again takes center stage at King World News, this time focusing on the two ever-fascinating topics of market manipulation and hyperinflation. Kicking it off in fine form, Rickards notes that the "markets have ceased to function as they are intended - traditionally a place to exchange values, but more importantly to perform price discovery (people rely on markets to tell them what to do or to at least give them some guidance). What's happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value." The primary culprit in this distortion is, of course, the Fed which is now and has been for over a year, openly (and not so openly when it comes to stocks) manipulating the broader market: "I always like to say if a private sector person does it, it's manipulation, but if the government does it it's policy. So they call it policy and they would say they had reasons for it, but in fact it was massively distorting." And on the oh so obvious extension from this argument to the "$1 trillion+ cash on corporate balance sheets" theory, Rickards says that this is "not healthy at all, that's a very negative sign because it means that people are afraid to allocate capital because they can not get good information from the markets. In effect the US and policy intervention from homebuyer tax credit, cash for clunkers, quantitative easing, mortgage purchases have in effect destroyed our markets, they no longer give us valuable information." Obviously, today's most recent battery of micro fiscal stimuli announced by the administration will merely make the market even more irrelevant as a price discovery and a capital allocation deterministic mechanism: and the more administrative meddling, the more money will sit on the sidelines, and the more retail investors will withdraw capital from risky assets. If you no longer invest in stocks, you are not alone: "I don't even take the stock market seriously" says Rickards, "and I mean that in all seriousness.  Who's in the stock market right?  You have indexers and robots. Is anybody else trading the stock market?" Obviously, that is a rhetorical question.

Rickards continues by blasting the now prevalent, and well documented HFT feedback loops, that endow the market with a certain broken fractal quality: "the market has become self-referential, an algo playing itself out, almost the way you would run a self-recursive equation on a computer and you get very unpredictable results from very simple equations. It has degenerated into a joke. Everyone is looking around for the cause of the Flash Crash: what you find in complex systems is that the cause is almost irrelevant. What matters is that the autonomous agent, the participant, the elements of the system are prone to catastrophic collapse, so once you are in that mode, once you have that scale and that degree of complexity so that you are prone to collapse, the catalyst doesn't matter. If you have an avalanche who cares what snow flake started it, what you care about is the instability of the mountainside. The Flash Crash was the warning, I don't think the warning has not been taking very seriously. The markets are not reflecting fundamentals, because there are no more fundamental traders. It is an accident waiting to happen. I recommend to clients that they not be in stocks anymore.  I don't take the market very seriously up or down because it has no informational content."

In other words:

#REF!=Market Fail

Luckily more and more see through the charade with every passing day.

Rickards covers much more, including the Fed's empty bazooka and the only option left, the nuclear one, hyperinflation, as a function of money velocity exploding, and, of course, gold, on which topic he says the following:

Gold actually brings me to my second point about Fed policy, we said are they out of bullets. They don't think they are, they think they've got quantitative easing they can do in much larger size. I don't think quantitative easing is a bullet that's going to work. I think that chamber is empty. But the Fed does have a bullet that they may not even realize which I call 'The Golden Bullet.' Which would be basically conducting open market operations in gold in such a way as to devalue the dollar.

If you're worried about deflation and you want to cause inflation and you're printing money as fast as you can and the inflation is not happening, at some point you have to stop and ask yourself well what else can I do? Well the answer is that you can severely devalue the dollar against gold...So the Fed wakes up one day and as fiscal agent for the Treasury, we're a buyer at $1,495 and we are a seller at $1,505, and that represents a 20% depreciation in the value of the dollar.

And the arguably most interesting observation by Rickards, which follows logical from the prior statement:

You have to scare the American people into spending money. Right now the American people are more afraid of not having money, they are not afraid of inflation, but if you make them afraid, they will go out and start spending. So what better way than to devalue the dollar 20% against gold, and the way to do that is through open market operations...Well if that happens to be $2,000 an ounce what have you done? You've
depreciated the dollar by not quite 50%. Well that's pretty powerful
stuff if you are trying to get people to spend money and dump dollars.
So they are not out of bullets, they have what I call the golden
bullet
...They have that kind of ace in the hole if they really want to
trash the dollar.

As Kohn today said, it is all about expectations... Well, why not make people expect that the dollar they have today will be worth half as much tomorrow versus gold? Fascinating stuff, and one can be sure this is precisely what Alan Greenspan is whispering in the ear of his client John Paulson on a daily basis.

Full interview can be heard here.

 

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NOTW777's picture

"you want to cause inflation and you're printing money as fast as you can and the inflation is not happening"

but the fed knows the $ is primarily flowing only to the TBTF banks who recycle it.  its not like the fed doesnt know this.  doesnt seem like the fed is wondering why there is no inflation.  does the fed really wish to cause inflation?

dlmaniac's picture

With Fort Knox loaded with tungsten bars, perhaps they really do not have a golden bullet after all. What if China comes in with 1 trillion dollars asking gold at 1500/oz each?

"You want us to spend dollars? You have it here: a full trillion. Now get us the gold. No, we don't take tungsten bars."

DoChenRollingBearing's picture

dlmaniac, yes, the questions about our stockpiles of Gold keep getting asked and never adequately answered.

Why can't .gov and the Fed let some reporters, auditors and assayers in to have a little look around?  What's the harm in doing that?  

Unless there is no Gold...

dlmaniac's picture

I suspect that these open market actions were to bail the LBMA riggers out rather than solving any serious issues should Fed carry them out. And 1500/oz is not gonna cut it. Not even 2000. You'd be ripped off big time to sell it to Fed that cheap.

 

tmosley's picture

If it is too little, then they can throw up thier gold, if they have any, at 1505, or 2005 or whatever, until they are out and the dumb fucks collapse.  I'm all for that.

lemonobrien's picture

this shows what total nut jobs you guys are and why Ron Paul will never get elected. They don't have to show you shit; they can just take yours if they want; you have gold fever. lust for power, riches, etc. 

Victorio's picture

You're right about them not having to show us shit but you're wrong about them being able to just take ours "if they want". Wouldn't quite work that way.

lemonobrien's picture

you've never been arrested, or thrown in jail.

Victorio's picture

Unfortunately I have and I still dont think the gov has the ability to make confescation happen without initiating their own self destruction. 

Hephasteus's picture

You've never seen a world pulling a massive penal code 148.

hangemhigh's picture

Victorio:

nice avatar.....chiricahuan homeland security......fighting terrorism since 1492..................

Treeplanter's picture

When I lusted for Fed Reserve Notes I was a good person.  Now that I lust for gold, I realize I am a terrible person.  Thank you, Abu Lemon.  I'm lusting for silver now that the price is dropping.  Is there hope for me?

JonNadler's picture

Well, we don't know how much gold is in Ft. Knox, but as my other handle Suddendebt pointed out, there could be more gold than we expect in Ft. Knox. There could be 20,000 tonnes of gold in there instead of no gold, and then gold would drop to 200. Maybe presidents like Nixon, Carter, reagan, Clinton and Bush have been saving up gold for us to help future generations, you know and they don't want to tell us to surprise us.

So there's a new argument for gold going to 200.

 

The one about extracting gold from used electronic equipment and making gold go to 200, well...JP Morgan made me say that 

tamboo's picture

they turned ft. knox into a tungsten gold factory,

if there's anything left in there i'd guess it's fake.

http://www.shadowtraders.com/futuresblog/?p=2337

curbyourrisk's picture

The only way to create REAL INFLATION is to raise wages.  That ain;t gonna happen any time soon.

AccreditedEYE's picture

+100. On top of a stagnant wage, the middle class continues to have anything they own of worth stripped away and they don't even realize what is going on... pretty sad.  

TheJudge2012's picture

They do know why, so I don't know why Rickards put it that way. The fedgov doesn't want their TBTF buddies to fail and if the big banks went down suddenly, I guess the fedgov is afraid of the awareness that would bring of the true economic state.

hamurobby's picture

Then the Fed would actually have something of value on its balance sheet, a win win. I dont believe they could do it more than once without loosing complete credibility, like qe2, maybe this will be the new qe?

lemonobrien's picture

value is in the mind; if no one wants to buy your gold; it has no value. even if you want to spend your nights polishing it; most people want to have sex and party; and talk about their weird gun toting neighbor who stays up all night.

Bearster's picture

Interesting theory, that gold has no value... have to bothered to look at the facts to see if it holds up?

Just askin'...

Treeplanter's picture

Anybody ever polish their gold?  It comes pretty shiny already from the dealer.   I admit I like to clink silver bars together.  Now that's music.  Proud to be a Dead Head.  Proud to be a Silver Head.  Party on.

JonNadler's picture

lemonobrien:

Maybe you don't know the rules around here:

 

Any new anti-gold troll has to get my approval first and I don't remember you submitting the requisite paperwork.

 

Who do you think you ar JonnyBarvo? Well... maybe

tmosley's picture

I see, value is in the mind, and your mind is empty, therefore gold has no value!

Of course, to those with minds that are not empty...

Caviar Emptor's picture

And Spending like drunken sailors is what the government is doing tonight ($50 bill "infrastructure" job program, $200 bill capex tax cut, + new FHA underwater mortgage refis).

Imagine: if they bail out absolutely every one by removing any economic downside risks and plug every deflationary leak with price supports, then what do you have left?? HINT: it rhymes with LynnFlayshion. The killer kind, that is. Playing with fire.

Conrad Murray's picture

If we're going to go out like that, I want to see Helicopter Ben sack up and start droppin bundles of 100s on everyone.  $100k all around.  "It's rainin men. Hallelujah, it's raining old dead men".

system failure's picture

Gee golly gee maings, why does the Gov't need to spend money like this if the market is rallying on bad news.

Are they just blowing the money to make the market tank?

Or are they trying to show us how we need to be blowing money we don't have. Well, come to think of it. They are blowing money they don't have either.

Analysis: Population blew money we did not have to begin with from the housing bubble. Now the Gov't is blowing money on a bond bubble, which will lead to nobody having any money to blow. Everything seems to be okay. There are no issues, nothing here to see.

Saxxon's picture

I like the sound of $1,500 AU and $2,000; but how does that spur a public with no gold and no dollars to go out and spend?  You can't reverse the fear unless there are jobs.  I am compiling cash and day-trading DGP and just hoping to stay employed.  $2,000 AU at this stage probably works out to over $4/gallon gasoline.  That's going to send people out to spend? 

The peeps are branded with fear.  We're fucked for a long time. 

pitz's picture

The owners of gold and gold related assets (and other productive assets, generally), would have money to spend.  People who work in the mines, or for industries related to mining would also have money to spend.  Folks, this is middle America, basically, that has been starved over the past 20-30 years, that would finally get some purchasing power, if gold (and resources and manufactured goods more broadly) started going up and getting the respect they deserved. 

$2000 gold, or $5000 gold, or even $10k gold would also provide relatively full employment for engineers, who would then have the capital to start productive new businesses.

Rising commodity prices are the solution to the problem.  Supporting the banks is a dead-end. 

DoChenRollingBearing's picture

pitz, Gold goes up a lot, and you are right!  Those of us who are owners of Gold will deploy that value when the price of Gold is very high and we feel comfortable in the regulatory environment.

Neither condition has even been close to being met.  So capital hides, or even goes to Peru!

lemonobrien's picture

why would anyone do anything in america; after you come out of hiding; you're taxed. i like Ecuador/Colombia; friend owns surf hotel in peru. best to marry a native;

Treeplanter's picture

I kinda like Chile.  Except the teenagers down there use a lot of Italian words to show how cool they are.  That is so uncool.  But, yeah.  Unless you are gloriously rich, most countries don't want you unless you marry a legal resident.  Como estai?  Damn, I'm doing it now.

DoChenRollingBearing's picture

I did marry a native Peruvian!  She became a US citizen in Dec 2008, but we have a nice little bearing import business in Lima, run by her family.

A surf hotel in northern Peru...  Now there's a nice idea!

Seer's picture

Captial to start productive new businesses?  Did you miss the point that the "consumer" isn't there?

There's money out there, and the reason why new businesses aren't springing up is because they wouldn't have a market; doesn't matter what new whizbang product you come up with, you cannot push on a string!

pitz's picture

The newly wealthy gold-owners are the market.  And it grows from there, as firms go out and hire people, organically growing.

Its a huge paradigm shift, but demand wouldn't be a problem, especially if the ability to consume is put back into the hands of producers.

Look, the bankers have had all the consumptive power in this country for the past 30 years, yet the economy has crashed.  Don't you think that giving consumptive and investment power to a group that, collectively, has been starved for the past 30 years, would actually help to improve the economy?

pitz's picture

Might I add, gold (and gold mining equity) owners tend to have a longer term view than the next quarter (after all...owning gold has been, for the past few decades, pretty much a losing game overall).  So they're more likely to take a longer-term view when they eventually convert their gold ownership into other forms of investment at the top of the gold cycle.

 

This will be quite opposite the current paradigm which is to think short-term, a paradigm that has been driven by the bankers and their ill-fated focus on returns in nominal, rather than real dollars.

lemonobrien's picture

these people don't get that; they have gold fever.

Al Gorerhythm's picture

Here we go again! JB, can you inform this newbie where to look up your prior posts. It's been a struggle, but your last posts indicate that you are starting to grasp a few salient points about gold and currencies. Maybe this lemonbrain will pick up a few ideas.

hamurobby's picture

Thats just it, I do get it, and when the government cant pay its bills because of not enough revenue, because of no consumer, and the fed monetizes the debt, or the gov defaults. I hope to be able to buy what ever money we are using then, or hey, maybe I already have it. But please tell me how they are going to make everything great again like in 1997? How are they going to fix the little problems again? Dump gold on the market? yea that will fix everything! YES! Tell Timmay and Ben to bring it! Two hundred dollah gold! I will take it gladly, but meanwhile, I think I will have some just in case it doesnt go that way. Oh wait, lets walk in a circle, they will come and take it from me instead.

FranSix's picture

The ironic thing about gold backing bank deposits is that it can be leveraged 100X without risk, but the commercial sector is overwhelmingly short the very thing they should be hoarding by (anecdotally) 100X.

scatterbrains's picture

who's to say they're not short the paper driving the price down via dollars they know will soon be worthless while quitely accumulating the phsyical money at the same time..

groucho_marxist's picture

Actually, the problem is not that there aren't people willing to spend money, but that rising prices by devaluing the dollar doesn't work. That's what created this problem in the first place: the value of wages for 90%+ of Americans have less value today than they did in 1970, not quite by 50%, but close--and that's with two incomes for most households, when in 1970s 2 incomes was not the standard.

 

We've already had 40 years of dollar devaluation, where the slack was taken up first by a second income, then with credit cards. How many so-called middle class housholds need credit cards just to fill the gaps between paychecks for groceries & gas? When there's talk about dollar devaluation, etc. the focus is only on the large companies and getting them to dump their hoarded dollars, but this hoarding may be because their balance sheets are abysmal and they are, like the so-called middle class, holding vast debts that they can't pay either.

$2000 dollar gold isn't going to get people hired, its going to speed up the implosion of the economy because all the commodity prices will quickly follow suit. $4 gas had serious impacts throughout the production chain, and was even forcing companies like Walmart to rethink how they stock their stores; what happens when it's $10 gas or higher--as is the case in much of the "developing" world--in the US?

The concern in all this discussion is how to save the status quo, when it is in the process of system failure and reorganization towards something. Since there are so many individual moving pieces that determine what happens, I'm not sure anyone can really say (but I'm sure there are people who think they know--I'm just not willing to believe any of them).

 

hamurobby's picture

 Since there are so many individual moving pieces that determine what happens, I'm not sure anyone can really say (but I'm sure there are people who think they know--I'm just not willing to believe any of them).

 

Me neither, I have diversified a third each in re, paper, and pm, and a small gambling account as well. Those who come here belittling pm are missing an asset class, good luck to them.

Conrad Murray's picture

"but how does that spur a public with no gold and no dollars to go out and spend"

Bingo.  I live in a shithole surrounded by what I feel to be average people.  Nobody in this motherfucker has any money.  All the elders have maybe $100,000 saved and are relying on entitlements to get them through to death.  The 30-40s I know have diddly aside from a 401k and maybe an underwater mortgage.  The 20s just plain don't give a shit.  Most are collecting unemployment and student loans with no intention of doing anything other than drinking and smoking.  I can count on one hand the number of people I know who own gold and silver aside from jewelry.  There will be no spending until there are jobs.  There will be no jobs until there is serious change in government.

This country needs a hard, deep, fast bout of deflation to wipe out the malinvestment (a cat 5 hurricane slamming through NYC and DC wouldn't be bad either).  People are going to be hurt, times are going to be disgustingly tough.  But isn't it sort of an obligation to get it over with so future generations can at least have a chance?

DoChenRollingBearing's picture

Conrad, you may be right, all the way.  Only a less than handful of people I know hold Gold (non-jewelry).

It may take a real blitzkrieg on the American economy to destroy the bad so we can rebuild.  Those of us who have saved...

Conrad Murray's picture

It's not just the economy either.  Our whole culture needs a serious, grab-you by the throat and shake you senseless while punching your face in moment.  When I was in school I used to be a troublemaker and would have to do volunteer work at the old folks home.  I didn't mind too much at first because they had a pool table.  Then, as I got to know more people, I learned A LOT.  So many depression stories, and just general yarns about coming to America.  People living 4 or 5 families to a house, ethnic neighborhoods where everyone knew each other and there was a bakery and butcher shop on nearly every block.

These days every spoiled fuck in the country thinks it's their right to have their own McMansion in some yuppie development.  The thought of multi-generational households is abhorred.  Shopping local has been replaced with pajama parties at Wally World sponsored by Busch and Winston(thanks stagnant wages). And god forbid you have to meet your neighbors!

A ravaging of the economy is certainly needed in order for productive growth to be possible once again.  Hopefully it brings with it a social cleansing and reunification as well.

bretondog's picture

Yup.

A very strange and weird place this Country has become.

"Extend and Pretend" is a social phenom also.

I mean now that houses are kaput as an Investment Vehicle maybe folks will stay in a neighborhood long enough to actually come to know and rely on their neighbors....quaint idea, eh?

 

lynnybee's picture

Your posting shows you have great empathy, you are to be admired.    Your experiences have opened your heart to the weakest, elderly & children.    What the Federal Reserve has done to all of us is criminal; I'm so worried about everyone.

StychoKiller's picture

If I thought that worrying would help, I'd worry too -- alas!  Worrying doesn't help anything.

Aaron Burr's picture

Love to Lynnybee :) Remember in November baby and who ever gets in may we remain eternally vigilant on their collectively corrupt asses until we can hit the reset button and remove the chaff from the wheat!

andyupnorth's picture

If only we could have another "Great Flood", eh?

Damn! I don't own a boat...