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Jim Rickards Tells His Clients To Get Out Of Stocks And Discusses The Fed's Final "Golden" Bullet
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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Gold is a proxy for the prices of all commodities, and ultimately, the price of the engineering that goes into the production of all commodities. Gold mining, for instance, competes with Apple and ExxonMobil, for engineering talent needed to produce, store, and supply it. Gold mining competes with oil mining in the worldwide market for mining and chemical processing equipment.
It would seem, at least to me, that a substantially higher gold price is very unlikely without a substantially higher oil price, food price, copper price, and even iPod price, etc. And obviously, 95% of Americans would definitely be exposed to the effects of higher energy prices.
Hey!--Rickards is a sharp cookie.
That said, I agree with your 1st paragraph.
Another poster may have been on to something refering to investors not roped down in the lower 48.
Most folks I know don't have metals on their radar right now. Many wouldn't have the means even if bogies did appear on the horizen.
Yup, most of the Canadian mutual funds that I track basically cover the entire Canadian stock market, excluding the gold component.
Historically, this has improved performance, since the gold sector has been a 25-year underperformer, but prices of the equities could very well explode, even if the metal doesn't go up very much in the next year.
100% agree, I came here to post this.
In response to pitz, if the government were to directly intervene in the gold market (which is extremely unlikely, for other reasons listed above, namely because it wouldn't make any difference in the overall economic picture) it would make gold prices shoot up immensely, but that's it. The government buying up gold does not devalue the dollar... it merely creates immense demand on a small amount of supply, driving the price up. Conversely, if the government devalued the dollar further, it would cause gold prices (along with the other commodities you describe) to skyrocket of course.
In other words, the government can cause the dollar to devalue and drive the price of everything up, but they cannot buy everything up and cause the dollar to devalue.
Yes, I concur that gold market intervention is extremely unlikely. The more likely scenario is that foreigners simply start to competitively unwind their long-term US dollar positions (ie: by way of selling 30-year US T-bonds), and that capital finds its way into gold, and ultimately, into gold equities. Gold/gold equities take off, and, just like the housing bubble, it self-perpetuates, with nobody bothering to ask whether or not it is useful to produce mountains of additional gold (a metal that has next to no industrial purpose, and for which large amounts of supply exists already-mined, above-ground!)
I am of the view that gold is currently in a bubble relative to the value of miners. So either gold drops by $300-$500 in the next year or two, *or* the (senior) miners basically double in price. Either way, the best position currently is in high quality senior miners.
The Fed isn't out of bullets. It's just that the bullets they have left do more harm than good.
Bullets, what an interesting medafore. With Bullets someone always gets killed and not the one shooting them.
on Mon, 09/06/2010 - 23:00
#566702
The Fed will never buy gold to devaluate the dollar. NEVER. This golden bullet will never happen.
******************
You're right-in fact when/if- Bankers/Central bankers buy Gold-it will be to strengthen currency's--not to weaken them-
When/if they do-it will be panic buying-squeezing the commercial shorts-at the same time-
The drool runs--at the thought--
Interesting thread. In fact, I thought it was against the law for the Fed to invest in gold. Perhaps I am wrong, not that the Fed gives a fuck anyway.
I am still in the bankruptcy camp. We shitcan the Fed, forbid it by law from ever returning. We file bankruptcy and pay back all debt holders principal only. What's not to like. If the Fed fuckers howl, and their bought and paid for Congressman scream, we hang them all and let God sort it out.
What's not to like?
To the point.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Your source:
Greenspan on Gold (1966)Available here: http://www.lewrockwell.com/north/north204.html
The Fed will cause inflation. I guarantee it. They hae the choice of budening the Baby Boomers, or their own Federal budget. Guess who will loose?
I wish I had the money to buy gold, but I am too busy buying food, gas and keeping a roof over my head. The Fed works on behalf of its shareholders, the banks, which now include investment banks, who have the other side of the trade - which actually means betting against America and its Citizens. If CNBC is telling folks to buy gold, you can be sure its getting close to dump it after all those suckers take out their reverse mortgages to buy indexed annuities. If GS calls a $1500 top... Well, its just another commodity like oil in 2007, or cell phone stocks in 1999, or pet rocks. You can't believe anything in the "news" anymore. Its either uninformed political propaganda written by some 20 something journalism grad, intentional market disinformation or you know some nugget of truthiness that counters everything in the human experience. The "markets" are destroyed in terms of price discovery, so go count your cans of beans and mags of .223. Until the Fed stops buying Treasuries and the 10 year actually floats a real risk metric, nothing and I mean nothing can be believed.
I am not buying gold.
I am planting a Freedom Garden and preping for Winter.
So, buy silver, you can afford that. With some junk silver on hand you have a great survival plan.
Great read: 2012 Election
http://www.bostonwealth.net/2010/09/06/12639/
Just get on with it, Powers That Be. Auger this flight into the mountain of unpayable debt.
All I want to do is to be able to have so much inflation that someday, I can ask myself;
"Should I pay off the mortgage or buy a Big Mac.
Hmmm, Mortgage... Big Mac.
Big Mac... Mortgage.
So Rickards is tuned into to what Ben shalom Bernanke is thinking? That's odd because Bernanke is clueless... at least unusually uncertain anyway.
I'm in the same camp as those saying that 2k/oz gold won't stimulate spending; in fact, it would simply stimulate an asset bubble in Gold. Rickards isn't stupid and he knows it as well. Have no idea what his motive is, but I suspect he’s merely using his stature to further foster the bubble creation for which he will no doubt profit handsomely by selling out his gold holdings while tulipmania-crazed pikers mortgage their children’s future for the promise of gold riches today.
No, if the country is going to put itself in hock for the next 50 years, they need to foster an economic environment where that future generation can pay it off. Therefore, to achieve that the gov't needs to craft some very unique and creative legislation that provides tax breaks for WS engineers and PHDs to leave (and not return to) the financial services industry and enter other unrelated industries. Additionally, the gov’t needs to provide tax breaks for charitable scholarship "investments" in engineering/math/science degrees conditioned on the requirement that scholarship recipients cannot enter the financial services for 5+ years.
On the face of it, this policy seems absolutely batty, but is it any more bizarre than any of the countless moral hazard encouraging programs this fed, WH, treasury, congress, etc., have introduced with absolutely no success?
Let’s think about it for a second. Unless the Millennials and their younger cohorts receive something of value from the selfish, greedy, me-first baby boom generation, they will happily let them perish in old age, at a minimum, by voting to reduce social security and medicare benefits. (Remember, when you’re 75, they won’t be 18, but 30-35 and will happily vote for politicians that will promise legislation reducing benefits and lower the Millenial’s income taxes.)
This is a pure quid pro quo -- you do something for us and we’ll do something for you. Even if the exchange (between baby boomers and Millenials) isn’t direct – e.g., promising not to cut benefits – a growing economy will lift all boats including the treasury’s coffers.
We are wasting our time conceiving cockamamie schemes to reflate the economy. The jackasses working on these schemes, of course, are financial services guys whose toolbox is limited to financial services schemes.
The reality, however, is that economies cannot have sustainable growth through financial innovation. STOLIs won’t increase GDP, nor will the countless other worthless securitization ideas circulating through WS product development groups.
Mr. Schumpeter’s creative destruction model is the only way to create sustainable future economic growth. The sooner the financial services guys (and I’m including financial economists here) accept this, the sooner we stop trying to pour a deep horizon’s worth of gasoline on a raging forest fire.
Knowing what the Fed "needs to do" is not at question. Getting them to do it is.
Ending the Fed is tough. How is the debt it carries handled?
It's not so simple as saying, "OK, no Fed. Move along."
Waving a magic wand is not the answer. I'd love to see the Fed reduced to a minor cabinet post, not a 4th branch of government. Make it accountable to US, not international bankers and the IMF, etc. The Fed was created not to create a flexible currency, it was created to finance the profligacy of Congress.
About Jim Rickards “Golden Bullet”
Altough it's an interesting thought it could have unintented concequences. I think the gold rally started by the government will be taken over by the other players and gold will end up much higher than intented. Not that I object to that in itself but it was not in the Jim Rickards game plan.
This could spread so much panic that a dollar dumping may be triggered which will skyrocket gold even more. Not a change in the world the FED would do that.
An other thing is that not only the dollar is depreciated as such but so are all the other coins. So where does that leave you? Not much further in my opinion.
The FED utilize and legitimize gold as a policy tool?! Not on your life Mr. 'saved the hostages' Rickards. Never would the CBs overtly justify gold as a policy tool, it would so compromise their fiat paper world of currencies as to destroy the system.
That said, gold will continue its bull march as certain CBs are owning gold reserves strategically.
I have no problem with a guy talking his book, but you should disclose that it is your intention to do so.
Their are many more more mainstream options for the FED to get inflation in the system, eg, stop paying interest on 1 trillion in reserves is much much more likely than a gold revaluation.
Building up a small gold and silver stock : CHECK!
NOW LET'S BRING DOWN THAT EAGLE AND MAKE A GOOD STEW OUT OF IT!!
DOLLAR COLLAPSE BITCHES!!!
WHOEHAHAHAHAHAHA!
Ha! Good rant. But, maybe you should look into getting that prescription refilled.
The risk is people will panic and go spend on 'bullets and butter' expecting full fledged collapse. This only helps a small sector of the economy as people hunker down waiting for the storm....which the Fed would have just accelerated to hyperinflation as confidence in the dollar collapses. It becomes something on the order of worthless confederate money and the underground economy becomes more mainstream with barter, silver and gold as the exchange.
Speaking of silver and gold...I see a bit of a dive going on..who is dumping their holdings?
Buying miners on the dip.
$1255.53?
$19.83?
No more headstands for you, one year.
I make it a habit to follow ZeroHedge, KingWorldNews and Jim Rickards. This particular call to exit the equity markets strikes me as disingenuous. I make my case here the the United States is No Country for Young Men: http://tradewithdave.com/?p=1997
This will change.
once confidence in fiat currencies is lost, it won't be restored with another fiat currency regardless of who issues the currency (IMF, BIS, Scrooge McDuck, etc)
in order to restore confidence, the banksters and their political lackeys will be forced to introduce a currency backed by something tangible
5000 years of human history has shown that gold is the 'something tangible' that will be most readily accepted by the majority of humans
so, in contrast to those on this thread who think the banksters / gov't would never back gold, IMO a gold backed currency is the only option they will have in the near future
unfortunately, 'gold backed' is just another flavor of the fiat currency game - the game only changes when we get a currency that is CONVERTIBLE to something tangible
the banksters don't care if gold goes to $54,000 per ounce as long as they can continue to play their fiat currency games
Actually Bronzie, you couldn't be more wrong.
I remember clearly that Scrooge McDuck only goes for the goldcoins.
http://upload.wikimedia.org/wikipedia/en/1/18/Scroogeswim.jpg
Estimated fortune 6 Obsquatumatillion!!:
http://upload.wikimedia.org/wikipedia/en/1/18/Scroogemoney.jpg
Also, I like the way he thinks. I also feel like that:
http://upload.wikimedia.org/wikipedia/en/a/a9/ScroogeFirst.jpg
and yes, the banksters are long gold via the 'short of gold derivatives' that Jim Sinclair has explained ad nauseum
when the banksters finance a precious metals mining company (especially the juniors), they require the miner to enter into a derivative contract where the miner is short gold and the bankster is long gold on the other side of the contract
when the gold and silver price suppression game ends, their prices will shoot up - the banksters will go to the miners and make a margin call on the short of gold derivatives - the miners won't have cash to make the margin call and the banksters aren't going to loan them any more money
in lieu of payment on the short of gold derivatives, the banksters will take over ownership of the mines
so, yes, the banksters are long gold in a very ingenious way
according to Stewart Thomas, the banksters are long $400 billion in gold derivatives vs their $20 billion short positions on the COMEX - ie, the massive short positions used to suppress the price of gold and silver is chump change relative to their long positions
Too long. Not credible. The miner hedging days are over. The derivatives paper is becoming irrelevant as real metal is increasingly hard to get. The short squeeze in silver is already getting started. I assume banksters have real metal stashed privately, but the institutions are at risk simply because they sold off the metal long ago.
Empty houses. Empty mines. Empty heads.
At least they're consistent.
I actually like a good joke...
Just saw a Monex Gold commercial on the TeeVee. You can buy with only 25% down.
Buying gold on margin -- what a concept. Is Monex owned by GS?
I'll bet the IRS and FBI have an eye on their sales records...
Why would the Fed buy gold?
It's the most efficient way to weaken the dollar. Inflation kills debt, public and private.
It also buys political support. The Fed doesn't like the heat. Watch that heat seep away after a controlled inflation, at least in the short run.
Ordinarily a government has to suppress the price of gold - as it did quite overtly in the 19th and 20th centuries - to maintain the purchasing power. This would be less really buying gold as it would be easing on the shorts.
Gold is a barometer for inflation. Central banks own gold because it's a sort of trump card. It's like a defensive shield. It enables the banks to sell gold to protect their currency and vice versa.
With the Fed, you really have to understand that they hold all the cards. They control the money supply and the banking system. This is their system. Not yours. There may be laws, but they make the laws, and they can break them.
Another one clueless "hedge fund manager" does not know how to play markets. ZH staff has repeatedly shown to all fellow members how its done : 0.8 correlation of S&P contituents with S&P index. What´s so difficult to undertstand, Mr. Rickards ? Consult your algo team ( if you have one at all ) - if in desperate need call GS Execution and Clearing, they will provide it to you for free and here you go ! ;=)
Just because your relative value strategies do not work anymore, doesn´t mean anything "else" is not working. Adapt ! Learn ! Crybaby !
Bite that fishhook!
Might not produce spending at all but a shift in savings to hard assets including gold. It might not take as much from the fed to move the needle if the savers dump $ assets for hard assets.......but that doesn't mean nor could the consumer support additional spending
Comment erased. Didn't post where I put it after logging in.
Ain't that a bitch? You gotta be quick on the trigger.
I think I am going to summarize the article and all of the comments on this thread.
NO ONE has any confidence it the FED or the Government. They do not have any confidence in their Money.
Oh, spare me, Richards.
Take a look at the Dow seasonality charts and kindly explain why this year we are on a most respectable correlation.
Shut up and trade.
What does it matter if my dollar buys 50% less gold? If prices of the goods I buy every day are not rising along with gold, there is no practical inflation.
Who in their right mind would sell their actual physical gold to the Fed? The Crimex paper gold doesn't exist. Its an illusion; a game played by the banks and commercials. As for Fort Knox. Who knows? BoobusAmericanus has no FRNs to buy gold; he only has debt and depriciating assets. Devaluing the dollar by 50% against the price of gold would scare the bejeebus out of a lot of people. It would not entice people to spend IMHO. It would confirm that the Fed was terrified and impotent. I tend to agree with Conrad. We need for the market to liquidate itself of all the malinvestments made over the past 30+ years. Keep your physical PMs and try to buy without leaving a trail. Things are going to get a lot uglier before they get better.
Quote of the month: "If you have an avalanche who cares what snow flake started it, what you care about is the instability of the mountainside."
(Deleted Dup)
DOW/S&P500/FTSE/EURO short signal continues:
http://stockmarket618.wordpress.com
It's all a version of the Marxist-Maoist/Chicago School/Command and Control Stalinist new economic freedom paradigm, Created by the Chinese Central Bank, Arthur Lafler and Ben. Bottom line Print, Print, Print to the Communist Utopia!!!
This is clearly evident by the new Mandelbrot Market Model -let Chaos rule!