Rickards: I Know the Fed’s Next Move EXACTLY

Here’s How [The Daily Reckoning] January 30, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Rickards: I Know the Fed’s Next Move EXACTLY - The Fed is telegraphing exactly what it’s going to do next… - It’s not just a global slowdown we’re facing… - Then Jim Rickards shows you why one developing economic crisis will make recession look like a walk in the park… [SECRET: You won’t see this on Youtube or any government website]( I just released a hidden video that you won’t find on YouTube or any government website… A video that will reveal secrets shared by one of the U.S. Government's most legendary insiders… A secret that I’ve used to predict terrorist attacks on behalf of the CIA… [Watch This Video Before It's Taken Offline]( Portsmouth, New Hampshire January 30, 2023 [Jim Rickards] JIM RICKARDS Dear Reader, I’ve explained for a long time that forecasting Fed rate hikes (or cuts) is straightforward. The difficult part of Fed analysis is forecasting what comes next, and what damage the Fed will cause by its blunders. But calling the rate hikes themselves is not complicated. The current Fed led by Jay Powell is the “no drama” Fed. That means they don’t want surprises. They don’t want to upset markets. To achieve this the Fed leaks their plans in advance. All you have to do is know this, anticipate the timing and know the name of the particular journalist who gets the leaks. The favored journalist does change every few years, but right now the key name is Nick Timiraos of The Wall Street Journal. The timing of the leak is about 10 days ahead of the Fed meeting. The Fed doesn’t want to leak too early (because data can change), and doesn’t want to wait too long (because the market might be surprised). So with regard to a Feb. 1 Fed meeting, we should have expected an article around Jan. 21 from Nick Timiraos. And it was right on time! Timiraos is not one to bury the lede. In the first paragraph he writes, “Federal Reserve officials are preparing to slow interest-rate increases for the second straight meeting and debate how much higher to raise them after gaining more confidence inflation will ease further.” He then goes on to report, “Fed officials have said slowing the pace of rate increases to a more traditional quarter percentage point would give them more time to assess the impact of their rate increases so far as they determine where to stop.” This requires little translation. Reference to the “second straight meeting” refers to the decline from 0.75% in November to 0.50% in December. That means the rate hike will drop again from 0.50% in December to 0.25% in February. He then makes the “quarter percentage point” reference explicit. Finally the reference to “time to asses” suggests the Fed is getting closer to ending the rate hikes but they’re not quite there yet. So the Feb. 1 rate hike will be 0.25% and a similar rate hike is planned for March 22. I’ll see where things go from there. But the Fed has made it clear repeatedly that it will not stop raising rates until it achieves what it calls the terminal rate of about 5.25%. This requires three more rate hikes of 0.25% each at FOMC meetings in February, March and May. So the Fed is not even close to cutting rates, although they are certainly causing a recession in the meantime. But we won’t be taken by surprise thanks to Jay Powell’s leaks and Nick Timiraos’ reporting. This doesn’t mean the Fed is getting things right. Again, they’re probably overtightening and the economy is almost certainly already in a recession. You hear about the low unemployment rate. But both Wall Street analysts and the Fed place too much reliance on a low unemployment rate (which is a lagging indicator in business cycles). Besides, the current slowdown is global and the Fed won’t have much of an impact. The U.K. and EU are still reeling from higher energy prices (even though prices have come down in recent months) and the fallout from the war in Ukraine. Fewer exports of energy, agricultural produce and strategic metals from Russia because of sanctions have negatively impacted EU output. Meanwhile, China is also straining under the weight of its decision to flip from its zero-COVID policy (extreme lockdowns) to “let it rip” in terms of allowing the virus to spread widely. Both choices have adverse economic impacts. Actually, the China “reopening” from COVID is a myth. In reality, China’s health care system is breaking under the weight of new cases. Millions are dying. It’s absolutely devastating. The current Lunar New Year’s celebrations mean millions of people will leave the cities to visit relatives in their native villages. That will be sure to spread the virus more widely and lead to another explosion of cases. Also, Japan is suffering from lost export orders to China, South Korea, and the U.S. Besides all that, Latin America is feeling the stress of civil unrest in Brazil and near civil war conditions in Peru and Mexico. In short, we’re facing a global slowdown, and not one confined to the U.S. For those attuned to industrial output, new orders, the collapse in Chinese exports to the U.S., disinflation and the geopolitical situation, it’s increasingly clear that the U.S. economy entered a new recession in late December. So, don’t expect things to improve for the better because the Fed is taking its foot off the brake a bit. But below, I show you why there’s a much larger threat developing than a recession. It could actually make recession look like a walk in the park. What is it? And why is it so ominous? Read on. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. I have an urgent notice for you. I’m putting the finishing touches on a [new CIA-based timing tool]( and I want to make sure you don’t miss your opportunity to give it a “test-run.” You can [click here for all the details.]( You won't find this video on YouTube or any government website. But please do not hesitate to watch it because it could be taken down at any moment. I can pretty much guarantee that once you see [this interview]( your view of the stock market… will never be the same… No matter if the markets are booming… or crashing like we’ve seen the past year. What you’re about to see might sound unbelievable, but it’s 100% based on facts… my connections a controversial government insider… and my work at the CIA. At the end of this short interview, you’ll see exactly what you need to do to get your account properly upgraded. 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I’ve recorded a short 2 minute message that explains everything… [Click Here To Watch It Now]( The Daily Reckoning Presents: The global house of cards is teetering… ****************************** On the Cusp of a Global Liquidity Crisis By Jim Rickards [Jim Rickards] JIM RICKARDS Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is yes and it’s coming quickly. That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it’s critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle. It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses and declining asset prices in stocks and real estate. The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now). Sometimes an external supply shock occurs that causes a recessionary reaction. This happened after the Arab oil embargo of 1973, which caused a severe recession from November 1973 to March 1975. Recessions can also arise when asset bubbles pop such as the stock market crash in 1929 or the bursting of a real estate bubble caused by the savings and loan crisis in 1990. Whatever the cause, the course of a recession is somewhat standard. Eventually asset prices bottom, those with cash go shopping for bargains in stocks, inventory liquidations end and consumers resume some discretionary spending. These tentative steps eventually lead to a recovery and new expansion often with help from fiscal policy. Global liquidity crises are entirely different. They emerge suddenly and unexpectedly to most market participants, although there are always warning signs for those who know where to look. They usually become known to the public and regulators through the failure of a major institution, which could be a bank, hedge fund, money market fund or commodity trader. While the initial failure makes headlines, the greater danger lies ahead in the form of contagion. Capital markets are densely connected. Banks lend to hedge funds. Hedge funds speculate in markets for stocks, bonds, currencies and commodities both directly and in derivative form. Money market funds buy government debt. Banks guarantee some instruments held by those funds. Primary dealers (big banks) underwrite government debt issues but finance those activities in repo markets where the purchased securities are pledged for more cash to buy more securities in long chains of rehypothecated collateral. You get the point. The linkages go on and on. The Federal Reserve has printed $6 trillion as part of its monetary base (M0). But the total notional value of the derivatives of all banks in the world is estimated at $1 quadrillion. For those unfamiliar, $1 quadrillion = $1,000 trillion. This means the total value of derivatives is 167 times all of the money printed by the Fed. And the Fed money supply is itself leveraged on a small sliver of only $60 billion of capital. So the Fed’s balance sheet is leveraged 100-to-1, and the derivatives market is leveraged 167-to-1 to the Fed money supply, which means the derivatives market is leveraged 16,700-to-1 in terms of Fed capital. Nervous yet? [Biden’s “Hush-Hush” Plot Uncovered]( [Click here for more...]( Right now, Joe Biden – along with 9 of the world’s largest banks – have initiated a disturbing new experiment with YOUR cash. It’s called “Project Cedar” – and up to now it’s been kept fairly “hush-hush”… But in this urgent new exposé, you’ll discover critical details behind Project Cedar and what Biden’s master plan really is. Get the critical details before it impacts your money… [Click Here To Learn More]( Experts say so what? These numbers are not new and have been even more stretched at certain times in the past. Simply because the financial system is highly leveraged and densely connected does not mean it’s ready to collapse. That’s true. Still, it does mean the system could collapse catastrophically and unexpectedly at any time. All it takes to collapse the system is a shock failure leading quickly to panic. Margin calls are issued on losing positions and immediate payment is demanded. Overnight repos are not rolled over. Overnight deposits are not renewed, and repayment is required. Everyone wants his money back at once. Assets are dumped to meet repayment obligations, which causes collapses in stock and bond markets, which causes even more losses and liquidations among banks and traders. Suddenly all eyes are on the Fed for easy money and on Congress for bailouts, guarantees and more spending. We’ve seen this pattern in 1994 (Mexico’s Tequila Crisis), 1998 (Russia and LTCM crisis) and 2008 (Lehman Bros.-AIG crisis). Note that two of those three most recent financial crises were not accompanied by a recession. There was no recession in 1994 and none in 1998. Only the 2008 global financial crisis happened to coincide with a severe recession. The point is that recessions and liquidity crises are both bad, but they are different and do not always come together. When they do, as in 2008, stocks can easily decline 50% or more. We may be looking at such a situation today. This brings us to the key question: If financial markets are almost always highly leveraged but financial crises occur once every eight years on average, what signs can investors look for that indicate a crisis is coming and conditions are not just business as usual for financial markets? One of the most powerful warning signs is an inverted yield curve. This signal was last seen in 2007 just ahead of the 2008 financial crisis. A normal yield curve slopes upward from left to right reflecting higher interest rates at longer maturities. That makes sense. If I lend you money for 10 years, I want a higher interest rate than if I lend it for two years to compensate me for added risks from the longer maturity such as inflation, policy changes, default and more. When a yield curve is inverted, that means that longer maturities have lower interest rates. That happens, but it’s rare. It means that market participants are expecting economic adversity in the form of recession or liquidity risk. They want to lock in long-term yields even if they’re lower than short-term yields because they expect yields will be even lower in the future. In a nutshell, investors see trouble ahead. Other ominous signs include sharp declines in the dollar-denominated reserve positions in U.S. Treasury securities of China, Japan, India and other major economies. Naïve observers take this as a sign that those countries are trying to “dump dollars” and dislike the role of the dollar as the leading global reserve currency. In reality, the opposite is true. They’re desperately short of dollars and are selling Treasuries as a way to get cash to prop up their own banking systems. These are some of the many signs pointing to a global liquidity crisis. As we’ve learned in the past, these liquidity crises seem to emerge overnight, but that’s not true. They actually take a year or more to develop until they hit a critical stage at which point they burst into the headlines. The 1998 Russia-LTCM crisis started in June 1997 in Thailand. The 2008 Lehman Bros. crisis started in the spring of 2007 with reported mortgage losses by HSBC. The warning signs are always there in advance. Most observers either don’t know what the signs are or are simply not looking. Well, I am looking and what I see is a rare convergence of a severe recession and a liquidity crisis at the same time as happened in 2008. It’s coming. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. I have an urgent notice for you. I’m putting the finishing touches on a [new CIA-based timing tool]( and I want to make sure you don’t miss your opportunity to give it a “test-run.” You can [click here for all the details.]( You won't find this video on YouTube or any government website. But please do not hesitate to watch it because it could be taken down at any moment. I can pretty much guarantee that once you see [this interview]( your view of the stock market… will never be the same… No matter if the markets are booming… or crashing like we’ve seen the past year. What you’re about to see might sound unbelievable, but it’s 100% based on facts… my connections a controversial government insider… and my work at the CIA. At the end of this short interview, you’ll see exactly what you need to do to get your account properly upgraded. [Click here now to watch before this video is taken off the internet.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Jim 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]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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 note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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