Summary
➡ The article discusses the possibility of a rate cut by the Federal Reserve and the impact of inflation on this decision. It suggests that despite market predictions of a rate cut, the author believes this is unlikely due to persistent inflation. The article also criticizes the use of certain metrics, like the ‘supercore’ which excludes energy, food, and housing costs, arguing they don’t reflect the reality of most people’s expenses. Lastly, it questions the accuracy of job surveys, suggesting that the household survey is more reliable than the employer survey.
➡ The article discusses the Phillips curve, which suggests that unemployment and inflation are inversely related. However, the author argues that there’s no evidence for this, citing periods where both were high or low. The author also suggests that the Federal Reserve’s belief in the Phillips curve may lead to incorrect assumptions about inflation. The article ends with a discussion on the value of gold as a measure of dollar strength, arguing that a high gold price indicates a weak dollar, not a strong gold market.
➡ The text discusses the economic state of the U.S., suggesting it has been in a depression since 2007, with periods of slow growth and occasional recessions. It highlights the potential for hyperinflation and the increasing value of gold as the dollar weakens. The text also warns about the vulnerability of certain banks, particularly those with assets between $200 billion and $900 billion and a low ratio of insured to total deposits. Lastly, it advises investing in gold now before its value significantly increases.
➡ Several banks, including Silicon Valley Bank and Credit Suisse, faced failure but were saved by the Federal Reserve and the FDIC, who guaranteed all deposits and offered loans against US treasury securities. This action, however, could lead to nationalizing banks and wiping out stockholders. In politics, Biden dropped out of the race, endorsing Kamala Harris. Despite not having run in a primary, Harris is now the Democratic nominee, raising questions about the democratic process.
➡ The text discusses the potential of Kamala Harris taking over the Biden administration, suggesting it would be more extreme in terms of policies. It also questions the reliability of early polls and emphasizes the importance of considering likely voters. The text predicts a Trump victory and discusses potential economic impacts, including a possible short-term inflation surge. It also outlines Trump’s economic plan, dubbed “American System 2.0”, which promotes protectionism and job creation.
Transcript
And what I want to kick it off with, Mister Rickards, is the Fed. If you recall, when we were in Watergate together at the whiskey bar, I said they were going to cut June and you said I was crazy and you were correct. And besides being annoyed about that, if you’ll indulge me just for a second, wouldn’t it have been so much easier if Jay Powell just cut that and then he’s out of the conversation until the inauguration. Now the Fed is expected to do something even if they do nothing between now and November, and the markets are looking a little bit generous over it.
What’s your take on that? Well, that’s a nice five part compound question. So let me, let me deconstruct it a little bit. We’ll see what we can make of that. The first thing is, yeah, I think as an analyst, Sean, you always have to separate what the Fed should do from what they will do because they’re always wrong. So if you can have a really acute astute analysis on what they should do, I would say they should have cut rates maybe a year ago or at least stop raising it. Well, they stop raising them, but maybe should have begun cutting them last fall, if not sooner because the US economy is very clearly heading into a recession.
But that’s my view. I can defend it, but it’s not my forecast. My forecast is you have to put yourself in the other guys shoes. You have to basically act like Jay Powell or think like Jay Powell and use that as the basis of saying what is he going to do? So on that basis, it was very clear to me that they were not going to cut rates in June. I can promise you they’re not going to cut rates in July. So that’s a foregone conclusion. The July 31 FOMC announcement will be no change. So what we’re really talking about in terms of forecasting is September.
The Fed has a crazy schedule. They meet eight times a year. Not twelve, not four, not two, just eight times. Doesn’t sync up with any. Maybe the lunar calendar, I don’t know, but that’s what they do. So as a result, there are certain months with no meetings, and there is no meeting in August. They have this July 31 meeting. The next meeting is at the end of September. I don’t have the exact date in front of me. It’s around September 19 or 20th, right around there. Then there’s no meeting in October, and then they have meetings in November and December.
But importantly, the November meeting comes after the election. So if you want to put a political twist on this or introduce that as a factor, and I think that’s a good idea, you can say, hey, the election is November 5. The next FOMC meeting is early November, and then this one in mid December. At that point, the Fed’s in the clear. The election is over. Whoever won, they won. Nobody can accuse the fed of electoral interference. No meeting in August, no meeting in October. So you get a buy on those two months. So it all boils down to the September meeting.
The problem with the September meeting, it is exactly, approximately five weeks, maybe even close to six weeks before the election. That’s really close to the election. Whatever the arguments are, whatever the macroeconomic condition, absent a crisis, if there’s a crisis, or stock market falls 30% in the first two weeks of September, which you can’t rule out, okay, they’ll cut rates and they’ll do what they have to do. But absent that kind of extreme market action, the Fed runs the risk of cutting rates just weeks before the election, which will be viewed as very favorable to Kamala Harris, the presumptive democratic nominee, very favorable to the Democratic Party, Trump has already said, don’t do it, don’t go there.
Now, Trump’s not the chairman of the Fed, although maybe he gets decided who the next chairman of the Fed actually is. Well, he does if he wins. But Trump has already said, don’t go there. That’s tilting the playing field. That’s political bias. That’s political interference. Leave it alone. Call me in November. And several powerful committee chairs in the House of Representatives, which, of course, are controlled by the Republicans, have said the same thing like, don’t do it. The Fed claims to be non political. That’s nonsense. I mean, they claim it. They put on a very good show of it.
They say the right things. They keep, if you ask Jay Powell, point a question about politics. So that’s not it’s. Not my job. It’s not what we do. That’s not sense. They’re highly political, always have been. I’m not saying this is the main driver or the only driver, but certainly one driver. One thing you have to factor in. On the one hand, the signs of a recession. I’ve been calling for a long time, as have others. This is a slow motion recession. The signs are ample, whether it’s some other fairly technical, but yield curves are uninverting, which is interesting because they invert, meaning short term rates are higher than long term rates.
That’s the opposite of a normal year curve. Normal year curve. Long term rates are higher than short term rates. The yield curve goes like this. And the idea is, hey, if Im going to lend you money for a month or a year, I might want to certain interest rates, but if Im going to rate, but if Im going to lend you money for ten years, I want a higher rate because theres more risk and inflation and default, etcetera, etcetera. But sometimes yield curves invert, meaning the short term rates are, they go like this, which is, it happens, but its not normal.
And so what is the yield curve telling you when it inverts? Its telling you that the smart money, the big money, expect a recession, or at best a slowdown, at worst recession, maybe something worse than that. You can get 5.5%, until recently, on a six month treasury bill, which is a very safe instrument, versus maybe four and three quarters on a ten year treasury note. Well, why would you take the lower rate on the treasury note? Well, the answer is that a year from now that the yield to maturity on a newly issued treasury note might be 2%.
But why would that happen? What would happen if you were in a severe recession? Unemployment went up to six or 7%, so that four and a half percent or four and three quarters percent could look really smart. A year from now, if the market was at 2%, not only would you have that higher coupon locked in for ten years, but you’d have a huge capital gain on the instrument if you felt like selling it. Meanwhile, in the very short run, short term inflation is still a problem. So that’s where you get these averted yokers, where inflation is a problem, but looks like recession is on the way.
And so it actually slows down. Just to take that a step further, if everyone is still with me. But when you get closer to the actual recession, or when you’re actually in it, you get what’s called a bull steepener, what happens then? The ten year note doesn’t move a lot, but the short term rate starts to come down a lot. And actually the yield curve gets uninverted, gets a normal slope at a much lower level on the short end, that’s a sign that you’re actually in the recession. Now, the forecast, the rates were going to come down has actually started to play out.
The rates actually are coming down. There are a lot of other indicators, negative swap stress and so forth. But what it all means is that the economy is weakening, maybe in recession already, maybe that’s highly likely. And Powell should cut rates, should have cut them already. I put a lot more weight on this political factor than most others. I mean, the Fed does think long term, I don’t mean in terms of interest rate policy, that second overnight rate, but they don’t want to be politicized internally. They’re political, but they don’t want to be on the political radar screen inside the beltway and in the media.
And so they’ll likely, I think, duck this one and not try to do something that would just bring the wrath of Khan down on them. I mean, do they really want to be the center of a political debate for the last six weeks before the election led by Trump and his spokespeople, versus just waiting another month and then cutting the race after the election? That’s the decision they have to make. There’s even a little more to it than that, which is inflation has not gone away. Everyone thinks it has. Every one of these Fed meetings, the eight times a year I do a pre Fed report and a post action report.
We sent out the Fed meeting today, we sent out a bulletin a couple of days ago, said the Fed is not going to cut rates. Thats an easy one. But I dont expect a rate cut in September either for the political reasons. But I also gave an inflation chart and everyone was very excited. So the most recent inflation data we have was for June. We got that number in early July. We dont have the July number yet. Well get that next week or the week after in early August. But we had the June number and it was 3% and that was down from May.
By the way, I’m talking about headline CPI. I don’t really look at all these other things. I know what they are, I understand them. But you’ll say, well, forget headline. What about Core? Well, core, core CPI takes out energy and food, the two things most people spend most of the money on, takes them out and then somehow invented what they call supercore. Well, what’s supercore? Supercore takes out energy, food and housing. So if you live in a tent and drink water from a stream and pick berries, maybe that’s for you. But for normal people, almost 100% of their income, maybe more of their going into debt goes for energy.
Food now is the home, eating gas in the car and everything else. I say the people who invent those things don’t have enough to do. That’s where we get them. But again, I understand them, I understand the statistics, I understand seasonal adjustment, and I’m aware of them, but I don’t give them any weight in terms of evaluating the fed and certainly not the voters and certainly not consumer attitudes, because CPI headline is as close as we get to what people actually pay. Now, nobody buys the whole basket every month. I understand that. But that’s as close as you can get to a real world inflation.
That’s what people know. So that’s what I look at when I’m doing forecasting. So it went from 3.1% in May to 3% in June, and everyone’s like, hey, how inflation is under control, it’s coming down. Some of these other metrics I mentioned are a little lower than that. But go look at June 2020, 313 prints ago it was three. In other words, inflation hasn’t moved in 13 months. Now it’s going up and down, but it’s in a range. The high part of the range was August, September 2023. It hit 7%, but even as early as earlier this year it was 3.43.5%.
Okay, now it’s 3%, but thats exactly where it was 13. Well, twelve months ago, but 13 data points counting the beginning and the end. So inflation hasnt budged at all. So this is like that. Remember in the Iraq war, Bush went to that aircraft carrier in the Gulf and had the big banner mission accomplished. It turns out the greatest massacres of hundreds of thousands of Iraqis had just begun and we had to start the war over with the surge to get things a little bit under control. So this is like the Fed or the market putting up a mission accomplished sign.
One more data point, Sean, which is there is a Fed funds futures contract traded on the CME. Its legitimate, I mean it reflects the market consensus and you can look at it and basically derive a probability of a Fed rate cut in September. So right now the market, based on the Fed fund futures, is giving the probability of a rate cut in September about 100%. I think it’s like 99 whatever. But the other day it was actually 100%. So like, hey, wait a second, Jim. The market, meaning all these future traders, et cetera, are saying there’s 100% chance of a rate cut in September, and you’re saying no.
And my rebuttal to that is, okay, take the two month forward fed funds futures curve every month, two months forward for the last three years. And compared to the following FOMC meeting, it has been wrong every time. Every single time. So whats up with the futures contract? The futures contract is what it is. Knock yourself out. But its predictive analytic value is pretty close to zero, even though its forecast is 100% chance of a rate cut. There are reasons for that. John Mander Kane said, when youre judging a beauty contest, dont, don’t pick the prettiest contestant.
Pick the one that everyone else thinks is going to be the prettiest contestant, and you’ll more likely be right. You’re more likely to be right. So the Fed funds futures contract, who’s that? Well, a lot of institutions and dealers and hedge funds and individuals, etcetera, but they’re all following the Wall street narrative. Well, what’s the Wall street narrative? Soft landing, goldilocks, perfect world. The Fed gets it, and they’re going to cut rates in September. Well, okay, when did that narrative start? Started in the late summer 2022. Remember, the Fed started hiking rates, raising rates in March 2022.
It was only about six months later, around September, October 2022, that they said, okay, the Fed’s going to pivot, pivot. And then they were going to pivot in early 2023. We get to January. Well, they’re going to pivot in the middle of 2023. We get to that. They’re going to pivot at the end of 2023. And they kept extending, moving the goalposts. That was going to be 2024. Here we are in the summer of 2024, and they’re still talking about fed rate cuts. They’ve been wrong for two years. The Fed funds futures curve has been wrong for two years.
So it’s not as if I don’t listen to them or don’t pay attention. I do. I factor it in. But when you’re wrong for two years, I’m guessing you might be wrong again in September. So thats part of how I think about it. To me, the key driver, almost the only driver, except for the political twist I imagine, is inflation and headline CPA is just not going down. It went down month over month. But whats happened before. But its exactly where it was 13 months ago. And so the fed, if you actually listen to Jay Powell, because they always have buzzwords.
I know the guy who writes the buzzwords, by the way. Hes not on the board of governors. Hes a real insider. But hes the guy. He’s not a pr guy actually. He’s an economist. Actually writes these things. Only an economist could, yeah, only an economist could write. And I have some insight into his thinking. I did talk to him. I know him. And his PhD thesis advisor was George Akerloff, who’s Janet Yellen’s husband. Akerloff won a Nobel prize for figuring out that used car salesmen know more about the cars than the customers. Thanks, George. We’ve been thinking that for 100 years.
You proved it. He’s a big brain. I’m not big fan of him, but that’s how he rolls in Nobel prizes in economics, as this inflation is not under control, unemployment has ticked up a little bit, but job creation, at least under the employer survey, employer survey is still strong. It’s over 200,000 a month. That doesn’t sound like a recession. That gets into another quirk, which is there are two surveys. There’s the employer survey and the household survey. The household survey has shown huge job losses. The employment survey shows job gains, as you see, at 200,000 plus.
Shouldn’t they be the same? I mean, you’re asking two different sets of, you’re asking the companies versus the calling individuals and say, did you lose your job this month or get a job this month? They should be the same. Now, of course there are going to be differences and obviously it’s a survey, not the 100% database, but they should be the same. And when they diverge this greatly, this is an interesting thing. When they diverge to this extent, go back in history and say, well, when have they diverged before? You can find those and what happened next? Meaning which one of them is wrong? But which one, which one converged to the other? The answer is that the household survey tends to be much more accurate and the employer survey converges to the household survey over time.
And so what that means is that the employer survey should be ready to drop off a cliff and converge with the household survey. They use a lot of games. I’m not saying they’re outright lying, but you can tweet, you can play with the seasonal adjustments, you can hang up the phone if you don’t like the answer, who knows? Financial media, the financial press, the policymakers, the White House, all shout that employer survey number, that 200,000 plus. Powell knows better. The good thing about Powell is he’s not an economist. He’s actually a lawyer. So lawyers are trained to look at both sides of any issue inside the Fed.
They know that there’s less there that meets the eye, but it has not shown up in the inflation numbers, which is another problem because they cling desperately to the Phillips curve. So what does the Phillips curve say? The Phillips curve says if unemployment is going up, inflation is coming down, and if unemployment is going down, inflation is going up. They’re just inversely related. There is zero evidence for that. Zero just proven in the seventies. Yeah, late seventies. Yeah, I remember that. We had 15% yields on the 30 year treasury note and 12% unemployment. Where’s your inverse correlation? They were both high, but I can show you periods where they were both low and one was high, one was low, and then the opposite was true.
If you have to think of it as a quad chart, high, low, high, low, low, high, high, you can find evidence for all four, which means that there is no PhILLIPS curve. Last time I looked at one chart, it was a flat line. It wasnt much of a curve, but the fed believes it. So when they see these high numbers and job losses from the household survey, they get there, even though they don’t talk about it. They presume that inflation must be coming down. But inflation is not coming down. We already discussed that. And that tells you it’s not mission accomplished.
It also tells you that you may be in the worst of all possible worlds, which is stagflation. You could have a world where the economy is slowing, the recession is coming, unemployment is going up, but inflation is stubbornly high. You could be in that world, lived through it in the late 1970s. So the Fed is just a mess. In my most recent report, I listed data for both sides. Here’s a bunch of data that would say the Fed should cut rate. Gasoline prices have come down a little bit, oil prices have come down a little bit, job growth has slowed even though it hasn’t cratered.
Unemployment’s ticked up a little bit. But I also listed a long list of factors that say that inflation is nothing under control and the Fed should not cut rates, including some of the ones weve discussed. When you have that much conflicting data, the feds reflexes to do nothing. Just say, hey, im going to wait till I see its all on one side or the other or something. That may be the inflation I mentioned. The CPI headline went down from 3.1 to three in June. Between May and June. Well, okay. The Fed would like to see that three months in a row, theyd like to see it go down to 2.8 and then 2.5.
Maybe at that point even I would say, okay, you broke in the back of it, but I haven’t seen it yet. The Fed hasn’t seen it yet. I say you’re entitled to your own opinion. You’re not entitled to your own data. We’re all looking at the same information. So I think the case for a rate cut is strong if you believe we’re in a recession, which I do, but it’s weak if you’re solely looking at inflation and you believe in the Phillips curve, which the fed does. So again, you got to put yourself in the Fed shoes and then throw in the political twist.
I would expect no rate cut in September. Look, if there’s new information between now and late September, it’s a long time away. I’ll revise that forecast, but that’s where I am right now. That’s fair enough. And this dovetail with dovetails, pardon me, with another prediction you made, which is correct, that we have a bull, nice, real big fat rally gold, which we have, but weve kind of stalled a little bit now, but we upped straight through 2000, bounced on it a little bit, headed practically unimpeded to 2400. And again, this is without that cut that everyone was waiting for.
So what happens when they finally, or if they finally wake up and they go, all right, weve slayed the inflation bull, lets cut rates, we’ll save the banks. That’s another thing we’ll talk about in a second. What do you see gold going by the end of the year? Well, to your point, Sean, pardon me, the ticker changes all the time. But I just took a glance at it. It’s actually 24 70. You’re right, it got to the 2400 level and sustained that. You’re absolutely right, it was 24 70, which is, I think, a tick from the all time high.
It might actually be the all time high if it’s a closing price, I think it was an intraday, it might have been 24 71. That’s basically an all time high. My view is that tells you almost nothing about gold and it tells you a lot about the dollar. When I see a higher dollar price for gold, I don’t say, oh gee, gold’s going up. What I say is, hey, the dollar is crashing now. You don’t see that in cross rates. You don’t see it against the euro, the swiss franc, japanese yen, Chinese Yuanhe, the Bloomberg dollar index, DXY, which the Wall Street Journal uses.
You look at every single one of those, and the dollar is very strong. The yen I debate internally, the yen will never get to 150. It hit 160. Remind people, when I started the banking business, the yen was 400. So I’ve seen this movie before. The double digit yen is not in stone, so to speak. So yen 160 didnt surprise me. But they said, well, Jim, isnt the dollar strong? The indices are up. The other currencies are down. The cross rates favor the dollar, et cetera, et cetera. The answer is yes, if thats your measuring stick.
But all youre doing is comparing one central bank currency to another central bank currency. But think of them all as survivors in a lifeboat with no food or water. I mean, theyre all going down together. The point is, thats not the best way to measure your dollar strength because, yeah, I can see a preference for the dollar over the euro. I can think, given a war in Ukraine, I can think of 100 reasons why that’s true. Same thing with yuan. The chinese economy is imploding. I could favor dollars, every one. But those are all cross rates, currency to currency.
They don’t tell you very much to the extent that there are common factors in all central bank currencies. If you want to know what the dollar is doing, look at gold. Gold, I’ll say silver, but silver is kind of a tag along. So let’s talk about gold. Silver are the only forms of money that are not also forms of debt. Take a $20 bill out of your wallet and read it. Its actually a contract between the government and the people. I know in law school, they always said, read the contract. So read the contract. It says at the top Federal reserve note, note is debt.
And go to the Fed website, look at the balance sheet. Wheres m one or m zero or any currency. It’s on the liability side, which is a form of debt. And that’s like an earth shaking revolution. But most people think of it as an asset. Well, it might be your asset, but it’s their debt. It’s government debt. Treasury knows government debt, even though they’re very liquid, and you can sell them and you can sell them to the fed and get cash. So all forms of money are forms of debt. And debt and credit, two sides of the same coin, are the key to commerce and mercantile success, etcetera.
But gold is not. Gold is a form of money. The best form in my view. But its not a form of debt. So it has that purity, no pun intended, as a yardstick, as a measuring rod, because youre not measuring with the same thing. Youre using something different to measure the object. And so again, gold at an all time high. I say fine dollars at an all time low. And thats kind of a wake up call for people who keep talking about strong dollar, strong dollar. Because, you know, there’s an old 1969 live performance in Montreux jazz festival.
The song was called compared to what? And great song. When people say, is the dollar stronger? How’s the dollar doing? I say compared to what? Against the euro. Against the yuan. Yen very strong. Against gold, not so much. So I would expect gold to go higher because I would expect the dollar to continue to weakendeze as the us debt exceeds $35 trillion. As the us debt to GDP ratio exceeds 130%, highest in history. If you say 130%. Debt to GDP ratio, government debts enumerator GDP is the denominator over 130%? Who’s at that lunch table? The answer is Lebanon, Greece, and our friends in Italy.
It’s basically the biggest super debtors in the world. And Japan of course, is, is in detention. They’re like 300% or something. Sorry, over 200%. Everyone says, does that mean the dollar collapses tomorrow? The answer is no. It doesn’t mean the dollar collapses tomorrow. It doesn’t mean the treasury market collapses tomorrow. I said what if the Chinese stop buying? No big deal. Just call Jamie diamond and say, jamie, shoot them. And the banks will do what they’re told. They’ve been trained. It doesn’t mean the end of the dollar, the end of the treasury market, but it is indicative of much slower growth at best.
Again, you can still have your technical recessions within a long, whats called a long depression. I would say and others agree that Japan has been in a recession. Sorry, a depression, has been in a depression since 1989. Now theyve had nine technical recessions. They cant get out of it. They can’t get out of the rut. They’ve had nine technical recessions over those 30 years. 30 plus years, sorry, I guess 35 years at this .9 technical recession, but one very long depression. I would say the United states has been in a depression since 2007. Now we’ve had one severe technical recession in 2008 2009 we had a recession.
Thats not a recession. Dont call it a recession, said Johnny Yellen in the first two quarters of 2022. We had two consecutive quarters of declining GDP in the first half of 2022. Why was that not a recession? Because Johnny Ellis said Dont call it a recession. The National Bureau of Economic Research, which are the umpires they call the balls of strike. They havent said so. Okay, I guess it never happened. But the data is GDP went down two quarters in a row. So count that as a mild mini recession. But its been one long depression. Particularly the episode from 2009 to 2019 when compound annual growth over that eleven year period was 2.2%.
This is an economy that has potential to grow 3.5%. When you grow 2.2% in a world of 3.5% potential, thats depressed growth. By the way that delta between three and a half and 2.2 its approaching $9 trillion of lost wealth. If we had had policies including lower deficits that would have allowed that to happen. So were trying to borrow out of a debt trap. It never works. The long term result probably will be hyperinflation but were not there yet. But what we should expect is exactly what we’re getting, which is slow growth at best and periodic recessions at worst.
And I think we’re probably in a recession right now. So what does that mean for gold? Well, weaker dollar measured in gold means a higher dollar price for gold. Central banks are net buyers, have been since 2010. That’s continuing. Americans don’t get gold. They we’re now into a third generation of people who have been taught nothing about gold in the monetary context. I always tell people if you know anything about gold, you either went to mining college or your self taught, but we stopped teaching it. So it’s not surprising that even well educated Americans don’t understand gold.
It’s routinely ridiculed on financial tv and elsewhere, but meanwhile it goes its own way and I think it’s higher. And 2500 is just a Mick Jagger said this is just a shot away, but I would expect it to be on its way to 3000 sooner than later. The other thing, quick piece of I always try to keep the math at the 6th grade level. There’s rarely any need to go higher in terms of calculus or whatever, but people focus on the dollar increases in the price of gold. It went up dollar 100 an ounce, or over time it went up dollar 500 an ounce, etcetera.
And that’s fine and that’s real money and that’s your game. But as the dollar price gets higher, each dollar increase represents a smaller percentage gain. So for example, if gold goes from two thousand dollars to three thousand dollars an ounce, that’s a 50% increase. But if it goes from nine thousand dollars to ten thousand dollars an ounce, that’s an 11% increase. Still $1,000. You made a $1,000 an ounce on your gold stash or your gold position or whatever, it’s real money, but it gets easier because the percentage gain is smaller as the denominator of the fraction increases.
So what that means is this is how you get bubbles were nowhere near a bubble in gold, but if it gets to the blow off bubble stage and, well, kind of keep an eye out for that down the road. But going to 30 00, 40, 00, 50 00, $6,000 an ounce, each thousand dollar jump is easier than the one before because it’s a smaller percentage jump. It goes from 50% to 30% to 20%, down to 10% or less. And so the time to get the gold is now. Before the rocketship really takes off. Exactly. Well, and that’s fantastic advice, and I hope all of our listeners are doing that.
But dovetailing with that. So dollar is getting weaker. We’re probably in a recession. Gold’s rocketing. You also made a great prediction about how the bank failures will continue. I just want to get a couple ideas on that as well, because some of those bank stocks have been pretty steadily increasing. They look all right, even though their equity would be wiped out if they were marking those treasury losses to market. So I think about that, Ed. Yeah, I think with banks, you have to take a three tiered approach. There are small community banks that are actually very sound.
I do some of my banking with a bank that was founded in 1877. I figured, all right, you made it through the panic of 1907, the panic of 1898, the Great Depression, the keeling crisis, long term capital, Russia, continental Illinois. You made it through all that. So you must be doing something right. And look at the balance sheet. Do your homework. But some of those banks are just fine. Then there are the banks that are absolutely, positively too big to fail. I mean, the technical term is globally systemic. Important GSI institutions, and we know who they are.
It’s JPMorgan, Chase City, Morgan Stanley, Goldman Sachs, Wells Fargo, truest. He’s a dopey name, a truest. And there are a couple of others on the list, and they’re absolutely too big to fail, which doesn’t mean the stock price can’t go down. See, that’s the thing. If you’re a depositor, yeah, you care about bank failures, you care about FDIC insurance and so forth. If you’re a creditor note holder, you care about all this stuff. But if you’re a stockholder, you can lose a lot of money in a bank that does not fail just because the equity takes a beating.
But the real vulnerability is in between, not the little guys who have been around and who pass by the way, a ratio that very few people look at, that has become very important in determining the soundness of a bank. Look at the ratio of insured deposits to total deposits, because deposits over $250,000 are not insured. Now theres a whole bunch of technical you can have two accounts and you and your wife can have separate accounts, and you can go to separate banks. There are ways to get that insured balance up into the millions if you read the fine print on the FDIC website.
But its a lot of work, and do read the fine print. But as a heuristic, as a rule of thumb, $250,000 per account in the same bank is the ceiling on deposit insurance. Well, Silicon Valley bank, which failed in March 2023, their insured deposits were 3%, they were 97% uninsured deposits, including all the Silicon Valley startups, but some big companies as well. Cisco had an account there, one of the big bitcoin custodians had an account there, they kept their cash there. Some of these accounts were in the billions of dollars, they were not insured. And so if there’s a run on a bank, and before the regulators even get out of bed, depositors are taking their money out, and it’s not.
We all remember Grady, black and white pictures from the 1930s of guys in overcoats and fedoras lined up around the bank trying to get their money before the doors closed. And usually they didnt. But the 21st century equivalent of that is someone, I dont have a cell phone with a cell phone, doing an online withdrawal, sending it to another account, and then texting their friends, hey, get your money out now. Happening at the speed of light and with exponential impact, a little faster than word of mouth. Its like word of text. Bonds happen faster than anyone can contemplate.
Now what did, so the vulnerabilities in the in between, who are they? These are banks that have between roughly 200 billion and 900 billion of assets. So it’s not JPMorgan, but it’s not my local bank either. I actually don’t want to mention names. They’re pretty easy to find the list, but everyone knows who they are. I don’t want to start around on any banks, but I would look at a double metric, I would look at 200 billion to 900 billion in total assets, and a insured deposit to total deposit ratio of under 30%. If that’s who you are, you are extremely vulnerable, and those are the banks.
I would get my money out of, even though they’re not technically too big to fail, they’re not classified as GSI is globally, systemically important. The Fed’s not going to let them fail in terms of depositors, but they will let them crash and burn in terms of stockholders, and that stock can go to zero, even if the depositors will bail it. What actually happened in Silicon Valley bank? It wasn’t just Silicon Valley bank. It was Silvergate Bank, Silicon Valley Signature bank, with Barney Frank on the board, by the way, Brendan Brank, regulator from the House of Representatives at the time, and then Credit Suisse, one of the largest, oldest banks in the world, and First Republic, which is one of the largest asset managers, they failed in pretty close sequence for them within three weeks or less, and then the fifth one fell about a month and a half later.
But what did the Fed and the FDIC do to stop that cascade of bank failures? They guaranteed every deposit in the system. They said, forget about the $250,000. We’re guaranteeing everybody. They didn’t do that at first, by the way, with Silicon Valley Friday night, they said 250 is the limit. If youre over that, were giving you as a certificate, basically, the bank had been taken over, placed in custodianship, and well give you a custodian certificate and well get back to you on what its worth. Weve got to sell the assets first or do a merger, something.
Well get back to you. But it was illiquid. You didnt know what it was worth, and you didnt know when you were going to get paid, but your deposit was gone. That was what the g seven said in Brisbane in 2014. That was the bail in, not the bailout. 48 hours later, they said, just kidding. All the deposits are insured, no limit Bill Ackman. All the Silicon Valley crybabies ran to the White House, and they got what they wanted, but they did something else. The Fed created a facility that said to every bank, if you own US treasury securities, you can borrow the face value from us, give us the securities as collateral, we’ll give you the cash, a one year loan.
I’m sure the interest rate was like 1% or something like that, regardless of the fact that the securities were only worth $0.70 on the dollar, because a lot of the securities had been bought when interest rates were 1.52%, and in the meantime, interest rates had gone to 5.5%. Those bonds were way underwater, depending on the maturity, down 20% to 30%. And if you marched into market, those banks would clearly have been insolventhe. The Fed said again, never mind, we’ll give you 100 cents on the dollar, even if the bonds are only worth $0.70 on the dollar.
I tried to find someone at the Fed. I could call and see if they would take my used car on the same math, but it was unsuccessful. That facility got to be several hundred billion dollars in a very short period of time, which shows how illiquid a lot of these banks were. Here’s my question, Sean, when the bank crisis comes back, and I would say it never really went away, but were in a timeout halftime, were in the locker rooms that were going to get back on the field. When this reemerges, there will be some catalysts for it and could be a lot of things.
What else have they got in their bag of tricks? Once youve guaranteed every treasury bond regardless of market value, and youve guaranteed every bank deposit regardless of the deposit amount and the deposit insurance, what else can you do? Well, the answer is you can nationalize the banks, but that means wiping out the stockholders. Again. If youre a depositor, I personally wouldnt take chances, but you may get by as they did in Silicon Valley bank. If youre a bondholder, get ready for a haircut. And if youre a stockholder, get ready to be wiped out, because thats whatll happen.
Preston wow. Incredible stuff. Lets turn to politics because one of your big, big predictions was Biden would drop out. He did. I just want to get this straight. A couple thousand miles across the pond here. So George Clooney basically hosts a fundraiser in LA, raised $30 million for Joe Biden, and then Biden has a disastrous debate, at which point Barack Obama asked Clooney to write a New York Times article saying, could you please drop out? And then he does and endorses Kamala Harris, of all people, straight away, which I’m not so sure Barack Obama wanted him to do.
And now today, which I just cracked up, I was just watching this, or is it yesterday when he basically said that Speaker Mike Johnson is dead on arrival, not the bill to reform the Supreme Court. He’s just the gift that keeps giving. I call him the abracadabra now. So he drops out and now it’s Kamala. Do you think she has a chance in November? Well, she has a chance. I mean, my prediction, well, by the way, I wrote in September 2023, so ten, over ten months ago, and it was the October issue, but we actually released it in September 2023 of Strategic Intelligence, which is our flagship newsletter.
I said the Democrats would get rid of Biden. So our readers were among those who were unsurprised by what happened. We told them ten months ago that this was going to happen. So in a dig now, Obama, a bit of a coward. I expect Obama would have no difficulty whatsoever getting an op ed in the New York Times. If he wanted to see his person, he called the editor. They would be glad to publish. Instead, he gets George Clooney out there as a cats paw, a little bit of a pawn. Cluny makes a good tequila, Casamigos, but he’s obviously being used as a puppet of the neo Marxists in Obama’s Kalorama mansion.
But, okay, so it plays out. That came as no surprise. The timing was fascinating because they had to wait until, first of all, query whether they knew. I don’t have any hard evidence for this, but to query whether they knew that Biden would do exactly what he did in the June 27 debate. They knew that he couldn’t string two sentences together, but they put him out there with no teleprompter, no notes, no, help me out here, candy Obama and knowing he would fail. But that was the setup for what came next. That’s how it played out.
Whether that syndical or not, we’ll have to wait to find out. But then we had the Trump attempted assassination, which obviously, you know, you’re not going to. Biden’s not going to step out of the race in the middle of that. Then on to the republican convention and JD Vance. So they couldn’t really start the coup d’etat. And it was a coup d’etat. I know enough history. I work for the CIA. I know a coup d’etat when I see it. That’s what this was. It was nonviolent, but. Well, except for the assassination. But it was a coup d’etat.
But they had to wait until the republican convention was over. But they had to do it before August 1. So the window was really kind of July 19 to July 31, first and republican convention. Why do I say July 31? The democratic convention starts August 19 in Chicago. That’ll be a spectacle. By the way, 100,000 pro terrorist Hamas demonstrations are going to show up. But. So the democratic convention starts August 19. Well, why couldn’t you wait another week or so? Well, the answer is that the Democrats cooked up the scheme where they’re not going to vote for the nominee at the convention.
They’re going to do a virtual digital roll call vote starting August 1. We’re doing this on July 31, basically, starting tomorrow the reason for it is, like, lost in the clouds of time. It had to do with an October 7, sorry, an August 7 deadline on the state of Ohio. If you didn’t have your nominee by August 7, you weren’t on the ballot in November. And so who figured August 19 was a good time to have a convention? They thought they could get Ohio to change it. They didn’t at first, and they did. But all that’s sort of forgotten.
That was the ostensible reason for doing the virtual roll call August 1 so they could beat the August 7 deadline. But it kind of morphed in the sense that, oh, gee, here’s a chance. Now that we’re doing this, now that we kind of set it up, here’s a chance to get Kamala in nominated. We don’t even have to wait till August. We don’t even have to wait till the convention. I love the fact that the Democrats are running around calling Trump a threat to democracy when Democrats are going to have a nominee who never ran in a primary, not one, in 2020 and 2024.
She never got to a primary. She never got one vote, but she’s going to be the nominee. Vote schmozen. It’s like, you know, who cares that these are your democrats for you? So she’s in. The media can now go full cover up, kind of promote, Kamala’s on fire. Kamala’s a ball. Fire, high energy, getting the youth vote out on the campaign trail. Okay, she’s doing all those things, but she’s still a dunce. I mean, her problem is that she’s a very low iq, not very likable person. Who. I read one statistic. Of her 71 original east wing White House staffers, only four are still with her.
The other 67 that quit or quit or fire. She’s a screamer. Terrorist pounds the table. Not a literal terrorist, but a terrorist to work for. Terroristic, I guess, pounds the table, screams, curses, whatever. So that’s who she really is. People said, what would Harris administration look like? I was a more Biden than Biden. It would be all the Biden policies, but worse, carried to a greater extreme. You name it. Climate, immigration, open border, high taxes, more regulation, weaponizing the Justice Department, censorship, all of it. List keeps going. That’s Kamala. She’ll be Biden on steroids. Biden could probably use some steroids.
So that’s what you’re getting. Now the question is, will she win? My forecast is still that Trump will win. The latest polls, you gotta wait a week or two after these things happen, to really look at the polls in the sense that the polls lag. And a lot of these instant Kamala polls, you always have to look at the press release and the crosstabs. They were, a lot of them were registered voters. Well, that’s not a reliable poll. You need what are called likely voters. If it’s adults, that’s garbage. If it’s registered voters, 50% of people don’t vote.
So you got a big skew there. People who don’t care. You have to look at likely voters. Number one, you have to look at the democratic republican breakdown. That’s another skew. You have to look at the sample size. If it’s less than 1300, your margin of error goes way up. So I don’t put much weight on those early polls, but the latest ones where they do meet the criteria I’m describing, and it’s a poll poll, real clear politics. So poll polls kind of filters out noise at both extremes. It shows Trump ahead in every battleground state and ahead overall.
Margins narrowed a little bit. This may all come down to Pennsylvania, and Trump’s got a healthy 2.5% lead in Pennsylvania. So I would still say Trump’s going to win. It is a little closer than it was, but maybe that’s just to be expected. But from here, I think Trump can open up the gap again, running not against Biden, but against Kamala. And I’m particularly intrigued by the prospect of a debate because she can’t think on her feet. I mean, give her a teleprompter, even there, she’s not that good. But give her a teleprompter, she gets by.
Give her softball questions that are prearranged and rearranged answers she gets by, but extemporaneous, on her feet. No teleprompter, no notes, no, help me out here. Get it to me. I, as they say, as they say, get your popcorn and enjoy. Because I think the smartest thing Trump could do would be say as little as possible. Just let her talk. We’ll see how it goes. But right now, I would still say that Trump’s going to win, but he can take nothing for granted. They got to retool the campaign. It’ll be a little closer than it would have been.
But again, he’s still ahead in this battleground states. Okay, final question. With the Trump victory, we need to see God. He’s going to have basically a blank check from build back, better money that hasn’t been spent. Do we see inflation actually tick up and do the markets follow it up or down? There may be a short run surge of inflation that may even happen between now and the election. That will have basically nothing to do with Trump. You always get blamed for whatever happens on your watch, starting on day one or sooner. But it really had very little to do with Trump and everything to do with Biden’s fiscal stimulus, the deficits we’re talking about, and some of the legislation you mentioned now, the economists who get everything wrong, but they’re forecasting much higher inflation under Trump because he’s going to throw tariffs on a lot of people, which he is.
But I just wrote an article on this, a pretty long one. It’ll be in the reader Q and a section of our next issue of strategic intelligence. So if our listeners are subscribers to strategic intelligence, they’ll have it in their inboxes in a day or two. We’re just doing the final editing right now, but I basically describe the Trump economic plan in detail, and I’m calling it the american system 2.0. And that’s a reference. That reference goes back to Alexander Hamilton, John Quincy Adams, Henry Clay, and Abraham Lincoln, and then later on, William McKinley, Ronald Reagan, and Donald Trump’s first term, where your policy is protectionism, which is a good thing.
I mean, the neoliberal globalist consensus that has prevailed, really, since the 1920s and on steroids, so to speak, since Bretton woods and the Trade Reform act of 1962 and the mission of China, the World Trade Organization, in 2001. That’s the globalist agenda promoted by, really starts with Thomas Jefferson, James Madison, Andrew Jackson, and the jacksonian presidents, Martin van Buren, James Knox Polk, and then carrying on through most of the modern presidents. By the way, I would exclude Dwight Eisenhower. He was more hamiltonian, if you will. But that debate has been going on in us economic policy and politics for 235 years, never went away.
But the globalists have prevailed, and now that’s about to turn 180 degrees. But you say, well, gee, aren’t tariffs bad? Don’t they impede free trade? Well, first of all, free trade doesn’t exist. There is no free trade. Give me a break. Even Ricardo recognized that comparative advantage is portable. The idea was, well, England’s good at woolens and Portugal’s good at making wine. So England shouldn’t make wine and Portugal shouldn’t make wool. They should trade wine for woollens. Each has a comparative advantage, and everybody’s better off. Well, that’s true. Assuming you can’t grow grapes in England and you can’t sort of mill in Portugal.
Maybe you can. But most input factors are completely portable brains, intellectual property. If you steal intellectual property and attract foreign capital, what good does the US comparative advantage and finance and technology do when China just steals it and the US and Blackrock puts the money in, wheres your comparative advantage? It moved to the other guy. So you can create comparative advantage out of thin air and knock the heck out of somebody’s domestic industries. And the answer to that is protectionism. But with a, with a point, with a point of creating jobs, creating industry and what Trump is going to say to the world.
And by the way, the big brains behind this are Robert Lighthizer and Peter Navarro. Peter just got out of jail. He’ll be back in the west wing in a few months. So nice segue. But what they’re saying to the world is, hey, if you want to sell something on states, that’s just fine, but build it here, put your money here, create jobs here and build it here and you can sell all you want. That may involve training and education. Those are good things. Those are good things to invest in. So I expect this, its not just protectionists, this mercantilist, but its a very good system.
The fall of the British Empire began with the repeal of the corn laws. The problem is they thought they were rich enough to be free traders and turned out to be wrong. By the way, I recommend Peter Navarro’s book the new Maga deal. The new MAGA deal. I haven’t read it yet. I’m still waiting for my copy. It was kind of backordered on Amazon, but get it, read it if you want to understand what the Trump policy is going to look like. Jim all right, it was a lot longer than a half an hour, but thank you so much as always.
I can listen to you all day. That’s why I never stop yet. Folks, that was the magnificent Jim Rickords. Subscribe to Strategic Intelligence if you haven’t already, and if you like what you’ve heard here, give us a like and a subscribe and we’ll see you next time. Thank you very much.
[tr:tra].
See more of Paradigm Press on their Public Channel and the MPN Paradigm Press channel.
Author
