Get Real, Jerome Powell!

The Real Interest Rate [The Daily Reckoning] September 08, 2022 [WEBSITE]( | [UNSUBSCRIBE]( Get Real, Jerome Powell! - A top Fed official warns the Fed’s war on inflation has merely begun… - Real interest rates and why they matter so much… - Then Jim Rickards shows you why gold shines in a negative real rate environment… [“There are no bad markets for successful traders.” – Larry Benedict]( [Click here for more...]( During the worst market in 50 years, those following his work saw the chance for double- and triple-digit growth. At long last, he is coming out from behind his eight-computer-screen trade station to help everyday folks learn to trade smartly. His new One Ticker Trader method is crushing the market… Because it’s a recession-proof strategy that works in bull and bear markets. It’s designed to show you how to make all the money you need… No matter what happens in the market. [Watch It Now]( Annapolis, Maryland September 8, 2022 [Brian Maher] BRIAN MAHER Dear Reader , Thomas Barkin, kingpin of the Federal Reserve’s Richmond redoubt: You do have to move to a level where inflation expectations come down in order to have enough restriction on the economy to bring inflation down. The destination is real rates in positive territory and my intent would be to maintain them there until such time as we really are convinced that we put inflation to bed. “The destination is real rates in positive territory” — did you catch it? If positive real rates is the destination the Federal Reserve is miles and miles away. Real interest rates: Interest rates that are “adjusted to remove the effects of inflation.” That is, the real rate is the nominal rate minus the inflation rate. Assume a 5% nominal interest rate — substantially higher than today’s. Now assume an 8% inflation rate. The nominal interest may read 5%. Yet when we subtract the 8% inflation rate we discover that the real interest rate is negative 3%. Let us then take today’s 3.29% 10-year Treasury yield. From it we subtract today’s (official) 8.5% inflation rate. We learn that the real rate is presently a deeply negative 5.21%. Negative rates are considered “stimulative.” Yet the Federal Reserve is presently de-stimulating. It is out to suction demand from the economy. Yet if “the destination is real rates in positive territory,” the Federal Reserve’s journey has merely begun. Meantime, the Federal Reserve’s destination is the economy’s destruction. The economy cannot withstand real positive rates. And so the Federal Reserve finds itself bottled in a pickle jar. We do not believe it will reach its destination. But this Barkin fellow’s comments indicate — powerfully — that the Federal Reserve has gotten some steel in its spine. It is out to scotch inflation… and will not buckle at the first signs of resistance. And if the stock market expects a near-term “pivot” it just might have another guess. We believe the Federal Reserve will pivot away from its present heading. It will buckle in time. But that time is not yet (we hazard later next year). Yet let us return our focus to the center stage. Let us “get real.” The real rate is the real rate for excellent reason. The real rate penetrates numerical mists. It scatters statistical fogs. It clarifies. Yet the difference between nominal rates and real rates scarcely rates a mention in the financial media. It should. As explains Jim Rickards, “Real rates are what determine investment decisions.” A 10-year Treasury bond yielding 7% might reel you in, for example. But what if inflation averaged 8% over the same period? Inflation would gobble your 7% yield — and a bit more into the bargain. You would require a 9% yield merely to paddle ahead of inflation. You are holding a sawdust asset. Meantime, you may thumb your nose at a 10-year Treasury bond yielding 3%. But if inflation runs at 2%… then your 3% Treasury yields you 1%. A slender gain, yes. But you escape with your skin — and a slight surplus. Your 3% 10-year Treasury, under these terms, infinitely bests a 7% Treasury if inflation is 8%. In reminder: Today’s real yield runs to negative 5.21%. Would you purchase a 10-year Treasury note… and keep it to maturity? If you are a maniac perhaps, a minion of the moon. What is an appealing asset under negative real rates? Gold, says Jim Rickards: That's an ideal environment for gold. When one thinks of gold as a monetary asset (as I do), then the price analysis quickly moves to competing forms of money. Gold has no yield. It’s not supposed to because it’s the purest form of money: a kind always accepted and always in demand, but not issued by a bank or broker. A dollar bill doesn’t offer any yield either. When other forms of money have high real yields, gold struggles except to the extent it is held as a precautionary or safe-haven asset. But when other forms of money have deeply negative real yields (as is the case today), gold shines. And gold can perform even better when the safe-haven aspect is contemporaneous with a high-inflation period that results in negative real yields. Is gold a commodity? An investment? Money? Below, Jim Rickards shows you why gold is really a chameleon. What does he mean? Read on. Regards, [Brian Maher] Brian Maher Managing editor, The Daily Reckoning Editor’s note: In Jim Rickards’ 2011 book Currency Wars… He warned that the U.S. was engaged in a special type of economic war. And that these wars: Degenerate into sequential bouts of inflation, recession, retaliation and actual violence as the scramble for resources leads to invasion and war. The historical precedents are sobering… Some version of the worst-case scenario is almost inevitable. Now with Putin invading Ukraine… Rising tensions with China… Inflation, recession, supply chain issues and the potential for greater violence breaking out all over the world… It seems as if Jim’s worst fears are coming true. [That’s why he recorded this short video message.]( Jim wants to advise you on exactly what you need to do to prepare for what he fears is coming next. Because if history is any indicator, there could be real trouble ahead. [Click here to view Jim’s urgent video message.]( [Click here for more...]( Look closely at this spring because it is the key to making a fortune with cryptocurrencies… … especially after the recent crash. One man has identified a unique strategy that takes advantage of this crash for the chance to make a fortune. He’s finally revealing where he’s putting his investments (and it’s NOT Bitcoin)… Why you should AVOID 95%+ of cryptocurrencies… … and how to best position yourself for the opportunity at an 8,788% gain by 2025. See this crypto strategy before the crash ends and it’s too late. [Click Here Now]( The Daily Reckoning Presents: “Gold actually isn’t good for anything except money”… ****************************** Gold Is a Chameleon By Jim Rickards [Jim Rickards] JIM RICKARDS Is gold a commodity, an investment or money? The answer is… Gold is a chameleon. It changes in response to the environment. At times, gold behaves like a commodity. The gold price tracks the ups and downs of commodity indexes. At other times, gold is viewed as a safe-haven investment. It competes with stocks and bonds for investor attention. And on occasion, gold assumes its role as the most stable long-term form of money the world has ever known. A real chameleon changes color based on the background on which it rests. When sitting on a dark-green leaf, the chameleon appears dark green to hide from predators. When the chameleon hops from the leaf to a tree trunk, it will change from green to brown to maintain its defenses. Gold also changes its nature depending on the background. Let’s first look at gold as a commodity… Gold does trade on commodity exchanges, and it tends to be included in commodity industries. The common understanding here is that gold is a commodity. But I don’t think that’s correct. The reason is that because a commodity is a generic substance. It could be agricultural or a mineral or come from various sources, but it’s a substance that’s input into something else. Copper is a commodity; we use it for pipes. Lumber is a commodity; we use it for construction. Iron ore is a commodity; we use it for making steel. Gold actually isn’t good for anything except money. People don’t dig up gold because they want to coat space helmets on astronauts or make ultra-thin wires. Gold is used for those purposes, but that’s a very small portion of its application. So I don’t really think of gold as a commodity. But nevertheless we have to understand that it does sometimes trade like a commodity. As far as being an investment, that’s probably gold’s most common usage. People say, “I’m investing in gold,” or, “I’m putting part of my investment toward bullion gold.” But I don’t really think of gold as an investment either. I understand that it’s priced in dollars, and its dollar value can go up. That will give you some return, but to me that’s more a function of the dollar than it is a function of gold. In other words, if the dollar gets weaker, sure the dollar price of gold is going to go up. If the dollar gets stronger, then the dollar price of gold may go down. We’ve seen that lately with the strong dollar. Well, I should say the seemingly strong dollar. Its strength is more a function of other currencies’ weaknesses than the dollar itself. So if you’re using the dollar as the measure of all things, then it looks like gold is going up or down. But I think of gold by weight. An ounce of gold is an ounce of gold. If I have an ounce of gold today, and I put it in a drawer, and I come back a year from now and take it out, I still have an ounce of gold. In other words it didn’t go up or down. The dollar price may have changed, but to me that’s the function of the dollar, not a function of gold. So again, I don’t really think of it as an investment. [Military Experts preparing for a “Pearl Harbor Style Attack” on Guam?]( [Click here for more...]( Putin invades Ukraine… China launches rockets over the straits of Taiwan… And as we speak, military experts are warning the US to “Prepare for a Pearl Harbor Style Attack” on Guam. Is the beginning of World War III? But more importantly, there is an exact playbook on what is playing out in the world and what you need to do to prepare. [Click Here To Claim Your Copy]( One of the criticisms of gold is that it has no yield. You hear it from Warren Buffett, you hear it from others, and that’s true. But gold is not supposed to have a yield because it’s money. Just reach into your wallet or your purse and pull out a dollar bill and hold it up in front of you, and ask yourself what’s the yield. There is no yield. The dollar bill doesn’t have any yield. It’s just a dollar bill, the way a gold coin is a gold coin. If you want yield, you have to take some risks. You can put that dollar in the bank, and the bank might pay you a little bit of interest, but now it’s not money anymore. People think of their money in a bank deposit as money, but it really isn’t money. It’s an unsecured liability of an occasionally insolvent financial institution. The risk may be low, but there’s some risk, and that’s why you get a return. Of course, you can take more risk in the stock market or the bonds market and get higher returns (or losses, as the stock market has proven this year). The point is, to get a return you have to take risk. Gold doesn’t have any risk. It’s just gold, and it doesn’t have any return. But again, it’s not supposed to. Gold’s role as money is difficult for investors to grasp because gold hasn’t been used as money for decades. But gold in recent times has been behaving more like money than a commodity or investment. When you understand that gold is money, and competes with other forms of money in a jumble of cross-rates with no monetary anchor, you’ll know why the monetary system is going wobbly. It’s important to take off your dollar blinders to see that the dollar is just one form of money. And not necessarily the best for all investors in all circumstances. But gold is a strong competitor in the horse race among various forms of money. Gold does not have a central bank. Gold always inspires confidence because it is scarce, tested by time and has no cre dit risk. Despite the recent price action, which is far more a function of the artificially strong dollar, this is great news for those with price exposure to gold. Confidence in currencies is dropping because investors are losing confidence in the central banks that print them. Lost confidence in fiat money starts slowly then builds rapidly to a crescendo. The end result is panic buying of gold and a price super-spike. We saw this behavior in the late 1970s. Gold moved from $35 per ounce in August 1971 to $800 per ounce in January 1980. That’s a 2,200% gain in less than nine years. We’re looking at the real possibility of a similar super-spike that could take gold to $10,000 per ounce or higher. When that happens there will be one important difference between the new super-spike and what happened in 1980. Back then, you could buy gold at $100, $200, or $500 per ounce and enjoy the ride. In the coming super-spike that I envision, you may not be able to get any gold at all. You’ll be watching the price go up on TV, but unable to buy any for yourself. Gold will be in such short supply that only the central banks, giant hedge funds and billionaires will be able to get their hands on any. The mint and your local dealer will be sold out. That physical scarcity will make the price super-spike even more extreme than in 1980. That may not seem realistic now, but the biggest market moves often blindside you. The time to buy gold is now, before the price spike happens and supplies dry up. The current price decline gives you an ideal opportunity to buy gold at a bargain basement price. It won’t last much longer. Regards, [Jim Rickards] Jim Rickards for The Daily Reckoning P.S. In my 2011 book Currency Wars, I warned that the U.S. was engaged in a special type of economic war. I said that these wars would: Degenerate into sequential bouts of inflation, recession, retaliation and actual violence as the scramble for resources leads to invasion and war. The historical precedents are sobering… Some version of the worst-case scenario is almost inevitable. Now with Putin invading Ukraine, rising tensions with China, inflation, recession, supply chain issues and the potential for greater violence breaking out all over the world… I’m afraid my worst fears are coming true, or at least some of them. [That’s why I recorded this short video message.]( I want to help you prepare for what U fear is coming next. Because if history is any indicator, there could be real trouble ahead. [Click here to view my urgent video message.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards] [James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here.]( Please read our [Privacy Statement](. For any further comments or concerns please [contact us.]( If you are having trouble receiving your The Daily Reckoning subscription, you can ensure its arrival in your mailbox [by whitelisting The Daily Reckoning.]( © 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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