Rickards: I Predicted This

But It’s Just Getting Started Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] It’s come to our attention that you might be missing out on extra benefits exclusively for The Daily Reckoning subscribers. Check out our website where you can find archives, updates, and everything else included in your subscription. You can access it by [clicking here now](. Rickards: I Predicted This - “The problem for investors is this crash is just getting started”… - It’s about much more than just rate hikes… - Then shows you why gold has been lacklusterJim Rickards of late, but also why it’s poised for a fast turnaround… Recommended Link [Attention! Before You Read Any Further…]( Before you read any further in today’s issue, an urgent situation needs your immediate attention. If you don’t plan on claiming this new upgrade to your Strategic Intelligence subscription, you’re missing out on a huge opportunity. Right now is your chance to grab one of the biggest (and most valuable) upgrades our company has ever made to a newsletter. I’m taking Strategic Intelligence to an entirely new level and I’d hate to see you left behind. [Click Here Now]( Portsmouth, New Hampshire May 23, 2022 [Jim Rickards]Dear Reader, I predicted that the Fed’s fight against inflation would lead instead to a recession and market crash. I predicted this before the Fed began hiking rates last March and it has played out exactly as expected. But in all honesty, the prediction wasn’t that hard. It was based on detailed market history when the Fed undergoes a tightening cycle. The Fed raised interest rates 0.25% on March 16 and another 0.50% on May 4. The Fed has also led markets to expect a further 0.50% rate hike on June 15. I agree with that market view. That means rates will have gone from zero to 1.25% in just 91 days with more rate hikes on the way. How have markets done since the March 16 liftoff? The Dow has finished down for eight-straight weeks. The S&P 500 briefly dipped into bear market territory last Friday (down 20% or more from recent highs). And the NASDAQ Composite has been mired in an official bear market. The problem for investors is this crash is just getting started. All of the major indices and the individual stocks included in those indices have much further to fall as the Fed keeps hiking rates ([go here]( to see the list of 153 companies I recommend you sell immediately if they’re in your portfolio). But, there’s more to the monetary tightening than just rate hikes, and that spells even bigger trouble. The Fed also announced on May 4 that they are starting a policy of quantitative tightening, QT, which means that the money supply is being reduced. Don’t listen to your friends and talking heads who yell about Fed “money printing.” The Fed’s not printing money now, they’re burning it. The rate of money supply decline is about $80 billion per month or $1 trillion per year. It's hard to quantify precisely, but the best estimates are that every $500 billion reduction in the Fed’s balance sheet is roughly equivalent to a 1% hike in interest rates. So, you’re looking at the equivalent of another 2% in interest rate hikes in terms of its impact on the economy, on top of the rate hikes. We haven’t seen this much monetary tightening this quickly since the days of Paul Volcker. And the Fed is not backing off despite the weak stock market performance. In fact, the Fed is doubling down. In an interview on May 17, Fed Chair Jay Powell said, “We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down. We’ll go to that point. There won’t be any hesitation about that.” The problem with Powell’s manifesto is that if you want to fight inflation of 8% you have to raise rates to 10% in order to achieve a real rate of 2%, which is close to neutral. That won’t happen. Stock markets will crater long before Powell can get the job done even by his own definition. The Fed’s efforts are too little, too late. But what about gold? Why has the yellow metal had such a hard time lately in the face of surging inflation? Below, I show you the answers — but also why the factors suppressing gold prices won’t last. Read on. Regards, Jim Rickards for The Daily Reckoning P.S. The stock market rallied today, but that’s not important. The greater trend is important. Stocks are crashing. That’s why I just went live with a [kill list of 153 stocks]( that I recommend you remove from your portfolio immediately. I’ve even taken the extra step of recording everything you need to know via Zoom right here. [Click Here to Access My Zoom Recording]( I give away the entire list in the first two–three minutes of the call, so this should not take much of your time. (That said, there is some important additional information you may want to stick around for at the end of the call.) But you don’t have long to act. Again, I believe these stocks should be sold immediately. My team and I moved heaven and earth to get this information to you as soon as possible, so I hope you take the time to see it.. [Go here immediately to see the kill list of 153 stocks I recommend you get rid of now.]( Recommended Link [Strange 2021 Prophecy Rapidly Coming True]( [Read more here...]( America’s #1 Futurist George Gilder is telling American’s to “brace yourself” for the coming $16.8 trillion revolution. This same revolution could redefine millions of jobs and radically transform the way just about every major corporation does business. It could even change the way you get paid, save and invest for retirement. And, says George, it could make you exceedingly rich... [Click Here To See Why]( The Daily Reckoning Presents: The market’s got it all wrong on gold right now… ****************************** Gold’s Headwinds Will Become Tailwinds By Jim Rickards [Jim Rickards]It has been a rough ride for gold lately. On March 8, gold was $2,043 per ounce (higher on an intra-day basis), close to its all-time high of $2,069 in August 2021. That March 8 interim high was, in part, a reaction to the February 24 invasion of Ukraine by Russia. The immediate aftermath of the invasion brought a high degree of uncertainty and fear for the economic repercussions. Buying gold seemed like a natural response to the uncertainty. The war is far from over, and uncertainty remains, but markets quickly decided the Russian military was not as potent as feared, U.S. and EU sanctions would wear Russia down, and the economy could continue to grow despite supply chain disruptions. Gold beat a retreat based on happy talk from economists and intense pro-Ukrainian propaganda from both Ukrainian and western sources. Gold fell to $1,909 per ounce by March 16, then after a brief rally to $1,986 by mid-April, resumed its slide to today’s level around $1,855 per ounce as of today. That’s quite a fall in just a little over two months. The following is a summary of the key drivers of the gold price decline. Consider this your cheat sheet on why gold prices are down. But also, why they may rally sooner than later: Interest rates and inflation: The real interest rate is the single most important variable for gold prices. The real rate is simply the nominal rate (the one on your screen) minus inflation. Right now, real rates are around negative 7% if you use 1% as an interest rate benchmark and 8% as your inflation measure. On its face, that’s an extremely favorable environment for gold. The problem is that interest rates are going up fast. They could be 2.25% (or higher) by the end of this year. Markets also expect that inflation will decline over the course of this year. We can debate whether that’s true or not, but the debate doesn’t matter. What matters is the market perception, and right now the view is that inflation may drop to 5% by the third quarter (partly because of Fed tightening). If that happens, real interest rates will be negative 2.75%. That’s still negative, but it’s much higher than negative 7% today. That increase in real rates is a headwind for gold. The Dollar: The dollar price of gold generally moves inversely to the strength of the dollar. A strong dollar means a lower dollar price for gold, while a weak dollar means a higher dollar price for gold. Lately, that rule has not held. We see a consistently stronger dollar, and until recently, stronger gold. In the past month, gold has lagged while the dollar has continued its march higher. Any correlation between the dollar and the dollar price of gold has broken down. One reason for this is that the “strong” dollar is really based on the DXY or the Bloomberg dollar index, both of which are composed entirely of currencies, with no reference to gold at all. The strong dollar is being driven by global liquidity fears and a shortage of dollar-denominated collateral (mostly Treasury bills) that banks use to leverage their balance sheets. Again, gold is not really in the picture when it comes to bank collateral. In the short run, dollar valuations won’t tell us much about gold prices one way or the other. The War in Ukraine: The war has evolved from an expected blitzkrieg to the heart of Kyiv into a long, slow, and violent slog through cities on the Sea of Azov, at the mouth of the Dnieper River, and in the Donbass region along a line from Kharkiv to Crimea. It’s difficult to get reliable battlefield information, although the expectation in western markets is that Russia is losing, the sanctions are working, and global trade will muddle through despite disruptions. That positive outlook is a headwind for gold. Recommended Link [Man Who Predicted Bitcoin Warns: “Don’t Buy Bitcoin!”]( [Read more here...]( James Altucher first predicted Bitcoin all the way back in 2013… And ever since, he’s been one of the biggest advocates for it. But now, he’s warning Americans that buying Bitcoin could be a big mistake… [Click Here To Learn More]( The Global Economy: Again, the news is not all good, but it’s not bad enough to be a driver of higher gold prices. The Atlanta Fed forecast for second quarter growth is 2.5% annualized. We won’t have official numbers until late July. Still, this projected gain offsets the negative 1.4% growth in the first quarter and suggests the U.S. has narrowly avoided a recession for now. China, Japan, the UK, and EU are all slowing noticeably, but can probably keep their heads just far enough above water to avoid a global recession (a rare event). This slowing phase is already priced into markets so its evolution is not expected to drive gold prices much one way or the other. So, that’s the rundown. Trends in interest rates and inflation are a mild headwind. The dollar is not highly relevant because it’s being driven by exogenous forces that do not involve gold. Both the war and the global economy are neutral because, while challenging in some ways, they are not out of control and are already priced into gold markets. Is there anything that will drive the price of gold higher in the months ahead? Yes. The driver is the likelihood that every one of the above forecasts is dead wrong. All of the factors noted above are densely interconnected. Interest rates, inflation, the dollar, the war, and the global economy do not move in isolation – they all affect each other. Here’s how we expect events to play out in the real world: Interest rates will go up, but there’s no assurance that inflation will come down much at all. Even as energy and auto prices level out, housing prices and food prices are still skyrocketing and consumer durables are beginning to take off. There’s a serious danger that cost-push inflation (from the supply side) will morph into demand-pull inflation (from labor and consumers). If that happens, real rates will remain steeply negative; the Fed will not be able to raise rates fast enough to tame inflation without causing a recession. The dollar may be King of the currency hill for now, but it’s losing out to commodities across the board. Major powers such as Russia, China, India, Brazil, Turkey, Saudi Arabia and others are working overtime to replace the dollar as a payment currency (if not yet as a reserve currency) to avoid future U.S. sanctions implemented through the payment system. This loss of confidence in the dollar has not been seen since the 1970s and will have a similar impact – much higher dollar prices for gold. As for the war, Russia is winning and the sanctions are not working. You won’t hear that on mainstream media or from the White House, but the facts support those conclusions. Russia has almost secured about one-third of Ukraine including Donbass, Crimea, the Sea of Azov coast, Kherson, and has its sights on Odessa. Ukrainian forces are being badly depleted and are mostly surrounded. U.S. weapons won’t do any good if they can’t make it to the battlefield or if there’s no one trained to use them if they do. Meanwhile, the sanctions have mostly enriched Putin because he’s still collecting higher dollar prices on oil and natural gas. Confiscation of oligarch properties is a favor to Putin because he detests the oligarchs and is happy to let the U.S. do his dirty work. The real impact of the sanctions will fall on the West and won’t be felt until this fall when grain exports disappear, shortages of strategic metals bring factories to a halt, and millions begin to starve. Finally, the global economy is headed for a global recession. COVID lockdowns in China have immobilized 50 million people in Shanghai and Beijing. Chinese exports are dropping not only because of COVID lockdowns, but because of crashing foreign demand. Europe faces energy shortages if they proceed with their plans to stop importing energy from Russia. The U.S. economy will sink fast as consumers spend more on gas and therefore less on everything else. This outlook is a prescription for stagflation – weak growth and strong inflation. When that happened in the 1970s, gold went up 2,100% in less than nine years. Get ready for the sequel. Regards, Jim Rickards for The Daily Reckoning P.S. The stock market rallied today, but that’s not important. The greater trend is important. Stocks are crashing. That’s why I just went live with a [kill list of 153 stocks]( that I recommend you remove from your portfolio immediately. I’ve even taken the extra step of recording everything you need to know via Zoom right here. [Click Here to Access My Zoom Recording]( I give away the entire list in the first two–three minutes of the call, so this should not take much of your time. (That said, there is some important additional information you may want to stick around for at the end of the call.) But you don’t have long to act. Again, I believe these stocks should be sold immediately. My team and I moved heaven and earth to get this information to you as soon as possible, so I hope you take the time to see it.. [Go here immediately to see the kill list of 153 stocks I recommend you get rid of now.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. 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