A Reason for Confidence in the Chinese Economy
At the end of June, the Morgan Stanly Capital International (MSCI) global equity index gave investors a little more confidence to put their money in the Chinese economy. Starting in June of 2018, over 200 of China’s A Shares will be scaled into the MSCI index over a span of two years.
This process has been talked about for some time. Many in the investing world, rightfully so, question the authenticity of some Chinese companies and their accounting practices. Being added to the MSCI index will add credibility to these investments. With a large backing from Black Rock, this deal was pushed through.
Investment funds tracking this index will need to have some exposure to the newly added shares. For the average investor, now is the time to do your homework on the Chinese economy. As an example, there is an ecommerce company JD.com Inc. It put Wal-Mart out of business when it tried to compete in the same space. When Wal-Mart closed up shop, they actually took a 5.9% stake in JD. In October of 2016 it doubled its stake to 10.8%.
Steve Sjuggerud, a highly respected financial newsletter writer, has been pounding the table on the Chinese markets for some time. His previous calls on gold and silver, treasury prices, and the overall market have been extremely accurate. If he is looking at equities in China, the average investor should be too. One of his newsletters is “True Wealth China Opportunities” This is the best way I know to get up to speed on what is happening in Chinese markets. http://stansberryresearch.com/products/stansberrys-china-opportunities/
Since the beginning of the year, China A shares have steadily trended to the upside. In the past couple of weeks this acceleration has intensified.
The greatest generation and baby boomers could have gained an incredible amount of wealth by saving and investing in all American stocks. It’s my opinion, for the generations that follow, it makes a lot of sense to spread your wealth in the US and internationally.
China has a high savings rate, a population who is self-dependent, and a silk road project that will connect it to Russia in the future. Guys like Jim Rogers are ahead of the curve. I think there is a strong probability that the Chinese economy will be the economic engine of growth for the next 100 years.
What Does the Rise in Crypto Currencies Mean
Edward Karr was a guest on the Frank Curzio podcast. The discussion at hand was Bitcoin and the rest of the crypto currencies. Mr. Karr stated the rise of the crypto currencies is the canary in the coal mine for a major economic event to unfold in the future. Edward stated the rise in Bitcoin was a put on the Chinese economy. Wealthy Chinese people have bid up other assets like Vancouver real estate as well as many crypto currencies.
Japan and Korea have put a vast amount of wealth in bitcoin and other blockchain currencies. Investors in Japan, with good reason, are nervous about the undertakings of the Bank of Japan. The BOJ owns more than 40% of government bonds and has been buying stocks for some time. There are days where no bonds are traded in Japan. If the Japanese currency rapidly begins to lose value like in Venezuela, people holding bitcoin will maintain some form of wealth, while those holding the yen will have much less.
The block chain technology is what makes these currencies so intriguing. Mr. Karr gave the example of settling trades. It takes three trading days to transfer funds from one account and put it into ownership in another. With the rise of financial technology, these transactions will occur instantaneously.
Reggie Middleton, the creator of Veritaseum, went to Jamaica at the end of June. He presented the blockchain technology to the leaders in business and those employed in the financial industry. If Veritaseum was to be successfully implemented in a small market, companies like Euroclear, that settle trillions of dollars in transactions everyday are in trouble.
He also pointed out block chain currencies are extremely clean and transparent. That is completely opposite of how central banks, fiat money, and fractional reserve banking operate.
Frank Curzio and Edward Karr both felt governments pose a huge threat to the crypto currencies in the future. At the moment they can’t be taxed. I think there will be day where the central banks and governments are going to take a bold stance against crypto currencies. For a speculative investor this might be the time to buy.
Contrary to that opinion, Nevada is leading the way for blockchain startups to become the new Silicon Valley of block chain technology. Bill 398 was passed 41-0 to make sure local governments can’t tax or impose any other requirements that would stop blockchain use.
To hear this interview go the Frank Curzio Show and listen to the June 14th podcast.
The Rules of the Game are beginning to Change
Decades ago, investors began to put their money to work to have a comfortable retirement. There was little worry their accounts could be tampered with or frozen. The United States was a free market, where any financial vehicle could be bought and sold with ease. Individuals with an IRA, 401K, or any other investment vehicle should be conscious of the new rules put into place by the Securities and Exchange Commission (SEC).
Money market reform was implemented on Friday October 14th. In times of financial crisis or low liquidity, the SEC ruled investors can be penalized or in extreme cases be denied the right to remove their funds. Some good questions would be what constitutes a crisis, how costly are the penalties, and how much liquidity is needed to draw money out safely. In the not too distant future, it sounds like similar regulations will be put in place for mutual funds. You can now buy assets whenever you want, and sell them with the blessing of the SEC. Those collecting social security might not even need to draw from those accounts. In 2017 social security recipients will receive a whopping $3.92 more on their monthly check. Don’t spend it all in one place.
Consumer prices are up 1.5% and if you include food and energy prices rose 2.2%. The social security cost of living allowance only amounted to an increase of three tenths of one percent. Today 66 million people are collecting social security as retires, widows, orphans, or through disability. Over the next ten years, another 75 million retirees will be added to the program.
Not to worry, in fiscal year 2016 the treasury department collected $3.27 trillion dollars in taxes; a new world record. The problem is the government spent $4.3 trillion. Year over year receipts rose $18 billion while spending increased $166 billion. At this point, there are two ways to solve the entitlement programs. Default on the obligation, which means a reduced payout for those who qualify. The second option is print the money and pay the recipients with depreciating dollars. With the politicians we have in public office, option two is where we are headed. When the topic of social security, Medicare, and Medicaid came up during the presidential debates; both candidates did their best to deflect the question.
The infrastructure is being put into place for the next major economic shake up. The world is getting fed up with the dollar world reserve currency game. Starting in July, China and Saudi Arabia began to dump billions of dollars worth of US treasuries. The rules of the financial game are changing.
The Most Important Story is not the Election
We are four weeks away from electing the next President of The United States. If you turn on the television or radio that is all the hype. The main stream media, with a six percent trust rating, wants you to believe the latest political scandal of the day is important topic at hand. Keep your eye on what is happening around the world.
Tensions between Russia and the United States are on the rise. Vladimir Putin would like to have a Russian military presence in Cuba, and be 90 miles off the Florida coast. In response, the US Air Force dropped two test nukes in the Nevada dessert.
These drills were kept out of the public eye. It should be noted; the State Department has cut negotiations with Russia over the cease fire in Syria, and put a no fly zone into effect. This means aircraft can be shot down for trespassing. Last week, the Russian Military took part in emergency evacuation exercises. Its purpose is to prepare the people in case of floods, earthquakes, or major power outages. This drill has taken place every year since 2012 and involved 200,000 rescuers and 40 million civilians. In the middle of September, Russia and China had a joint training exercise in the South China Sea. This is all happening while the United States is losing its stronghold in the region.
The President of the Philippines, Rodrigo Duterte, has told the US military to get out of the country. This is a location where the US military has been present for the last 65 years. US armed forces planned to set up shop to keep the Chinese neutralized in the South China Sea. That strategy is now in limbo. In the last few weeks President Duterte has dared the CIA to overthrow him and mocked President Obama. The Philippines will now be aligning itself with Russia and China.
Looking back, I understand why the image of the little boy from Aleppo was plastered all over the news. This was nothing more than propaganda against Russia. Its sad images like this happen every day around the world. They only make the headlines when it is deemed accommodating to the powers at be. What the media does report is Russia is responsible for the email hacks. If that is provable is yet to be seen. Mikhail Gorbachev, the former General Secretary of the Communist Party of the Soviet Union, made remarks indicating the world has reached a dangerous point.
Don’t be the person who posts five presidential memes a day on your Facebook wall. Keep your head on a swivel because geopolitical changes are happening at a rapid clip. Know what the most important news of the day is, and inform those around you.
The Worlds Financial Stage is Changing Rapidly
We have now entered October, historically a volatile month for the markets. Current events are ramping up around the world. The Chinese proverb, “May you live in interesting times” is an accurate assessment of where we are today.
Obama’s veto of the 9/11 bill was overridden by the senate and congress. This decision would give family members of 9/11 the right to sue the Saudi Arabia for its involvement. These voting bodies ignored the Justice Against Sponsors of Terrorism Act (JASTA). The senate voted it down by a count of 97-1. Harry Reid was the only member to vote against it. The congress vote count to override the bill was 348-77. Obama vetoed the bill because he does not want the US to open itself up to the same kinds of lawsuits from overseas. Saudi Arabia threatened earlier in the year, if they were sued for 9/11, they would dump all of their US Treasury holdings. If ties are broken with the Saudi Government it will destroy the petro dollar and cause a tremendous amount of upheaval in the oil markets.
The US Justice Department initially sued Deutsche Bank for 14 billion dollars for mortgage fraud. As of Friday, that figure was between 5 to 6 billion dollars, which helped push their stock price up 14%. Janet Yellen came out and indicated banks will need to have better capitalization requirements, which is a shot across the bow to Germany’s largest bank. Deutsche Bank is the world’s largest holder of derivatives, holding somewhere around 70 trillion dollars. If they go bust, everyone goes bust. Warren Buffet famously coined the phrase “Instruments of mass financial destruction” when referencing derivatives. The FDIC has it set up where derivatives get paid first if financial institutions go insolvent. Those who actually put there hard earned money in those accounts need to wait in line. German Commerce Bank, Germany’s second largest bank, is now in the process of laying off twenty percent of their employees. All is not well in the German financial sector.
The Chinese Yuan has now entered into the IMF basket of currencies. As of midnight on Friday, the Chinese will now be included in the Standard Drawing Rights (SDR) One SDR will equal just under $1.40 US dollars. China continues to build their economic empire one block at a time. First the Silk Road project was developed, then the Asian Infrastructure Investment Bank (AIIB) was formed, and now the Yuan has been declared a world reserve currency. The Chinese government and its people continue to look long term to establish their economic presence on the world stage.
At the close of business on Friday, fiscal year 2016 ended for the United States Government. The 2017 budget has not been presented or hardly talked about. Debt ceilings and tough talk of going to Washington and cutting spending are nowhere to be found. The world economy is on the cusp of something big. If you don’t have your financial house in order, you might want to take a closer look sooner than later. Warren Buffett has 70 billion dollars on the sideline waiting for a correction to occur. If he is liquid, with plenty of dry powder, it makes sense for the common investor to do the same.
We are witnessing Nationalism vs Globalism around the World
This is defiantly the most polarizing vote in the history of this country. I believe Donald Trump will win, because around the world, nationalism is on the rise. Nigel Farage led the charge to have Britain leave the European Union in the Brexit vote. It sounds like other EU countries, like France, may do the same. The people of Britain were tired of unelected bearcats dictating their future. In Brazil, Dilma Rousseff, a liberal leaning president was impeached at the end of August. Angela Merkel, the German Prime Minister, is probably serving her last term in office, and in Greece the Golden Dawn party is pushing for a nationalist state.
The republican primary was a vote against the establishment. That is why Trump is on the ticket and not Jeb Bush or Ted Cruz. On the flip side, the votes cast for Bernie Sanders are a statement to the rank and file Democratic Party. Bernie was a well-received candidate, who like it or not, spoke exactly what he felt. For that he got railroaded by the establishment. Had Bernie Sanders been the presidential nominee I think he would have won.
Hillary Clinton isn’t a likeable candidate. She recently had a book release and in the first week only 2,900 books sold. That’s a horrible number for the most well-known women on the planet. According to WND.com, Amazon deleted hundreds of critical comments and 85 percent of the customer reviews gave it a one star rating. I don’t see many yard signs, bumper stickers, or general excitement about her candidacy. Then you have the private email server scandal, Benghazi, and The Clinton Foundation that only gives 5 percent of the money it collects. At a recent Trump rally, a Haitian representative stood up and asked him to question Hillary about the money donated after the earthquake in Hatti. A fraction of the amount raised made it to the Haitian people.
Trump is more appealing by the enemies he has made. George H.W. Bush, Mr. “New World Order”, plans on voting for Hillary. Goldman Sachs has banned all of its partners from making donations to Trump. World aristocrats like Lynn Forester de Rothschild hosted a $100,000 dollar a plate dinner to fund Hillary’s campaign. The Federal Reserve not hiking interest rates at all this year to keep markets propped up is another example. Even the Koch brothers have given him the cold shoulder. I have never seen a nominee be so hated by his own party. This is exciting to see, because in times like this gridlock is good.
Donald Trump isn’t part of the club. Besides Ron Paul, he is the only candidate to declare the United States economy a bubble and call out the Federal Reserve. If he does win there is a good chance Fed Funds rates will be raised, and he will be scapegoated as the reason the economy has fallen back into recession. This will be the punishment from the establishment for not putting their candidate in control.
The Wells Fargo’s Swindle
Wells Fargo has been extremely busy so far this year, so maybe it’s a good idea they decided to cut their sales goals for the coming quarter. It seems they have been a little too ambitious. It takes a lot of work to set up 2 million unauthorized bank and credit card accounts.
Yes, all these accounts were being set up and money was being transferred without customer consent. You would think fraud on this level would require some consequences, and someone should go to jail. Today this is just business as usual. Make a pile of money fraudulently, cut a few bad apples, and pay a small fine.
As a result of these obscene banking practices, Wells Fargo was fined $185 million dollars. Probably a fraction of what they made. Over 5300 “rouge” employees were let go for inadequate business practices. Only one member of upper management was let go. In fact, here is the best part of the story.
Carrie Tolstedt, the head of the division in question, conveniently retired from Wells Fargo, but don’t worry, she will be able to take care of herself. Ms. Tolstedt got a $124 million dollar payout. Otherwise she would have disclosed everyone involved in the unethical scam. The company claimed she was planning on retiring at the end of this year and made no public comments about her very generous compensation.
On Tuesday September 20th, John Stumpf, the CEO of Wells Fargo was questioned by the Senate Banking Committee. Since this hearing is over, little to nothing will come of it. The inquiry was to make it appear to the public that something is being done. Berkshire Hathway is one of the largest shareholders of this stock. If you follow the markets closely, you know the media will never speak ill of Warren Buffet or his holdings. This is just the latest example of unethical business practices by the large banks and the swindles they continue to run on the American public.
Does the Dollar Hold the Same Fate as the Reich’s Bank Note
Sitting on the table next to me is $50,000, 1922 Reichs bank note. The man with his face on the note looks a little grumpy. Maybe it’s his bad haircut, or the goofy hat, or maybe he knows the currency with his face on it is going to be valued as nothing.
What would the person holding this note in 1922 have to share with the people around the world today? Was this one of the Reichs bank notes stacked next to a fireplace to keep a home warm? Did the wheelbarrow this currency was sitting in get stolen, or did it just end up in the street when it was deemed utterly worthless?
This is what the end of fiat currency looks like. At least back then, the money had to physically be printed. “When Money Dies” by Adam Fergusson, gives insight on what an economy goes through when monetary policy is out of control. Today there are trillions of dollars on computers screens. Zeros can be added at warp speed. Most of the currency from the bailouts is still sitting on bank balance sheets. When these dollars start to move into the US economy, prices will start to rise. This may signal the beginning of the end.
In 1792, the death penalty was issued to those who counterfeited money. The founding fathers lived through the collapse of the continental dollar, and did not want their heirs to experience the same problem. When a country debases its money, and goes to a paper currency, the currency always goes to zero. Bill Bonner asked Addison Wiggin to list all of the fiat currencies throughout history, and what happened to each of them. As he got through the letter A and half way through the letter B, Addison discovered the first 600 fiat currencies all went to zero. Fiat currencies going to zero is the norm, not the exception.
Things are good today and will continue to be good for the short term. When economies begin to head south, it’s important the people understand these problems were not caused by government officials, the rich, or capitalism. Undoubtedly, this is where the media will try to place the blame. The real culprit is having a money supply backed by nothing, otherwise known as fiat currency.
As Time Marches on Gold Holds its Value
In recent weeks, I had the opportunity to page through a Sears Catalog from 1902. This phone book sized piece of history was an eye opener. From the items that no longer exist, to the cheap price tags attached to everything, this was the Amazon of its day.
Who wouldn’t want a cheap buggy for twenty two dollars? If you were big timer, you could roll down the street in one worth thirty five, and have a cover over your head. A couple items in particular that caught my attention were men’s suits and guns.
In 1902 you could buy a fine men’s suit for five dollars. With one twenty dollar gold piece, you could buy four of them. Keep in mind; a twenty dollar gold piece (1oz of gold) and a twenty dollar bill were interchangeable. Today that piece of gold would be valued at $1350. If you walk into Men’s Warehouse, and are looking to buy a suit of some quality, purchasing a three hundred and forty dollar suit would be the equivalent of buying the five dollar suit when measured in gold. The same goes for gun purchases.
A single barrel shot gun was priced at six dollars. Again, when priced in gold, that would buy you the equivalent of something worth four hundred dollars today. I’m sure you could walk into a big box store and buy a gun at that price. The same was true with hundreds of items listed throughout the catalog.
Gold holds its value, and will continue to do so in the future. I understand why “traditional” money managers steer clear of it, as there is no monetary incentive for them to hold gold. I believe that will change if negative interest rates begin to set it. It’s ironic, that central banks around the world continue to hold and add more gold as this paper currency experiment for the past forty five years continues to unravel.
The War on Cash Continues
Last Week, in The Wall Street Journal, there was a picture of a man wearing a trench coat. He was holding the coat open and tucked inside was cash. Yes, US legal tender was the conspicuous item. Included with this image was an article by Ken Rogoff.
The Harvard professor and ex chief economist at the International Monetary Fund is now calling for the ban on $20, $50, and $100 bills. He explained cash fuels crime, leads to tax evasion, and terrorism. This echoes the remarks made by the European Central Bank President, Mario Draghi to get rid of the $500 euro in February. Two weeks later, Larry Summers made a statement implying the United States should ban the $100 dollar bill.
These economists and bankers realize that printing money and reducing interest rates is not going to work forever. The only way to keep the system going is to make all currencies go digital. The cover to use digital money will be all the reasons Ken Rogoff listed. The real push for block chain currencies have mostly to do with the leverage in the banking system and unfunded liabilities that governments can’t deliver on. The FDIC only has 25 billion dollars to cover trillions of liabilities.
In early 2015, Blyth Masters, the former head of commodities at JPMorgan Chase, went to work for Digital Asset Holdings. This company is using Bitcoin’s technology for financial transactions. In April of 2016, Larry Summers became a senior advisor to Bitcoin. The big players in the financial community are making their moves.
If you want no privacy, continued war, and a higher cost of living hop on the digital currency train. If you don’t, educate yourself on the importance of sound money. Let’s get back to a semblance of Capitalism instead of the Alice in Wonderland economy we are stuck in.