📬A Thursday Mailbag

What if Biden wins again? Italy’s Belt and Road Conundrum? Disagreements [The Rude Awakening] August 24, 2023 [WEBSITE]( | [UNSUBSCRIBE]( 📬A Thursday Mailbag - What if Joke Biden wins again? - The Belt and Road Initiative and Italy. - A reader from the other team! I’m pleasantly surprised. [There is MASSIVE change happening within our company.]( And I want you to [hear about this – from me]( – otherwise this new policy could blindside you. This has gone into effect immeditaly, so I want you to understand exactly what it will mean for you. [So please, watch this video for my full announcement.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from a lovely Brussels. We’ll be heading home tomorrow, and honestly, I need this holiday to end. I look forward to getting back to La Bella Asti. Since it’s August, the mailbag is smaller. But it’s nonetheless important to answer. Today’s the day. Here we go. Italy’s Belt and Road Blunder Sean, Since this hits you close to home, so to speak, what is your take on Italy saying they now want to pull out of the Belt and Road Initiative if they can only figure out how to do it without pissing off China? William B. Hi William! Thanks for writing in. This is easily Giorgia Meloni’s most significant foreign policy blunder yet. Her other one is supporting Taiwan to gain favor with the United States. It’s silly, but she felt the need to cozy up to Biden after he extended a hand to her despite her political party’s neo-fascist roots. From [The Diplomat]( Meloni’s resolve to leave the BRI can be better explained by geopolitical interests than by the economic pitfalls. Her victory in the Italian elections last year was a serious concern for Europe and the United States due to her party’s extreme right tendencies and neo-fascist roots. Even Biden himself called her victory “a warning for democrats.” Despite that, Meloni won an invitation from Biden to visit the United States, highlighting the broader share of Italy in the foreign policy realm. It may seem strange for Biden and the Democrats in the United States to welcome a far-right politician, but Meloni’s vociferous support for increasing military aid to Ukraine has prompted her acceptance on the international stage. By the same token, positioning Italy as a bulwark against Chinese BRI can win U.S. goodwill for her government. It continues: That said, even while disengaging itself from the BRI, Meloni’s administration does not want to antagonize China. Crosetto in his interview also noted the vitality of economic relations and partnership with Beijing. “The issue today is: how to walk back [from the BRI] without damaging relations. Because China is indeed a competitor, but it is also a partner,” the defense minister noted. It’s not prudent for Italy to “decouple” from the world’s second-largest economy, especially when the European Union does not intend to. The EU’s balanced approach of launching a “de-risking” strategy rather than “decoupling” will ensure supply chains for chemicals, electric vehicle batteries, and semiconductors. China’s coming, no matter what. And China can have an enormously beneficial impact on Italy’s economy. This would be almost an exact replay of the Silk Road/Marco Polo trade era. Italy is trying to remain loyal to Western interests while engaging the rest of the world. It’s a tricky balancing act. [Over 62 And Collect Social Security? Take Action Immediately!]( [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( Capital Requirements Hi Sean, Why do we never hear anything about raising the Capital Reserve Requirements for the banks? I would think that this would be the single most effective method to reduce the money supply and shore up the resiliency of the financial industry. Is this the unwanted stepchild of the financial toolbox, or is it just a bad idea for some unknown reason? Thanks, Ken B. P.S. Might it have to do with the ability for unlimited fractional multipliers of each dollar w/in the system, or am I missing something? Hi Ken! Thanks for writing in with such a good question. When I first researched this question decades ago, Peter Bernstein, author of many financial books, wrote that capital requirements, or required reserves, were too blunt an instrument to use efficiently within the US financial system. That is, every bank in the US system works differently and to raise all capital requirements on every bank simultaneously without taking into account the type of bank it was would be inefficient at best and detrimental at worst. Anecdotally speaking, the Basel Accords, soon to be Basel IV, concentrate on risk-weighted assets (similar to required reserves) and have proven to be an abject failure to detect when banks will go down. Remember, Credit Suisse went down because of a deposit flight, not because it didn’t have enough in reserves. Actually, it was a very well-capitalized bank indeed. Finally, US bank CEOs, led by JPM’s Jamie Dimon, have vigorously opposed tightening bank requirements. [He actually called the Basel Accords “unAmerican.”]( I think the problem is the Fed hitting CTRL-P whenever there’s a problem and then not turning off the printer when the problem passes. The Naked Emperor Hi Sean, Although I am 77 and have been investing for years, I am new to Rude Awakening and the rest. I look forward to reading your opinions and stories daily, especially when they are peppered with wit. As a professional actor I sometimes watch a movie more than a few times, and yesterday I saw Danny Kaye in Hans Christian Andersen again. I never tire of watching him in anything, but I especially liked him in this wonderfully warm, charming role. Of course, one of Mr. Andersen's most famous stories was about the Emperor flattered into buying a nonexistent new set of clothes. All of the townspeople go along with it until a little boy points out the obvious and says "The Emperor is naked". In our current world and climate, we are being asked not to believe our own eyes or hear what we know we heard. Thank you, Mr. Andersen, for setting us straight once again. Suzanne B. Hi Suzanne! Thanks for the kind words. Yes, no one wants to point out the naked Emperor right now. I don’t even know if we’re close to that moment. Between “The Big Guy” and his son, they’ve done an incredible amount of damage to US affairs both domestically and internationally. But still, some think Trump is somehow worse. This leads me to the next contributor, who has a different opinion. Dear Sean, I really enjoy reading your column. I disagree with just about everything you say on the subject of politics, climate change, and Ukraine but I welcome the challenge to my own opinions. You and I have very different political beliefs, and I hope you will take this following question for what it is; a genuine request for information, not an attempt to criticize anyone's political beliefs. I consider the most likely outcome of the 2024 US presidential elections to be a narrow Biden victory. I am confident that Mr. Trump unites most of the Republican party, but I am certain that he unites all of the Democrats against him (note the lack of non-batshit-insane challengers to Mr Biden). I believe that if Mr. Biden wins by a small margin, a proportion of the estimated 12 million Americans who believe that violence would be justified to put Mr. Trump back into power will rise up. I do not believe that either the military or the police will be willing to shoot American citizens, and I think that parts of the country will be paralyzed for some time, in effect Jan 6, 2021, writ large. Such events would have a deleterious (always wanted to use that word) effect on the confidence, the political system, and the economy of the US. My question is this: how can I practically capitalize on this? Is there a particular class of assets that are likely to do well in the event of a partial breakdown of law and order in the US? To trot out my old joke about Brexit, I suppose I could buy shares in the makers of dog food, wrist-mounted crossbows, and arseless chaps… Sincerely, Ned S. SR: First, I must disclose Ned is one of my very best friends and is probably angry about my spellcheck changing his British English into “Microsoft English.” We’ve known each other for over twenty years and worked together in London at the Swiss bank that just went belly-up. My dear fellow, Joe Biden is indeed likely to get re-elected because 1) he is the incumbent, and Americans are historically allergic to one-term presidents, and 2) no one seems to care how unbelievably corrupt he and his family are as long as it keeps one Donald J. Trump out of the Oval Office. To be fair, however, incumbent Presidents usually have zero primary challengers. Biden has two. Marianne Williamson is indeed batshit crazy. RFK, Jr. is not. But RFK, Jr. will lose because his Dad and Uncle would be Republicans today. The Left doesn’t care about the Kennedys or Camelot anymore. Regarding violence, here’s what I think. The 2A guys are the biggest wimps in America. All they do is polish their guns. They never use them. They never even threaten to use their weapons. I wouldn’t worry about them one bit. Surveys and practice are two completely different things, and never more so than with regard to 2A guys. What can you do to take advantage of this? [My complete treatment is here]( but I’ll narrow it down for you. - Move from a high-cost location to a low-cost area. In your case, I know you’re stuck in the UK’s Southeast because that’s where Mrs. S is from. So instead of moving, I’d be like Captain Ramius when he turned his sub into Tupolev’s torpedo’s path. Pay off your mortgage as soon as you can. The Bank of England is the dumbest central bank in the world. If you get caught with a bad mortgage reset, it’ll cost you thousands of pounds. - Hire an accountant, a lawyer, and a virtual assistant. A good accountant will coach you on what’s deductible and what’s not. You’ll be shocked at what’s legal. A good lawyer will coach you on how to use your company (next item) to your greatest advantage. A virtual assistant completes stuff you don’t want to do for $15-$20 per hour. That frees you up for the business-building you need to do. - Start a company. Even if you don’t have a viable business yet, you can use the company to shield your assets. Putting your house inside a company may or may not be the best move. That’s why you hire a lawyer. But just getting used to owning a company changes your mindset. And get a side hustle going. Extra income is the best protection you can offer yourself. - Minimize your healthcare costs. No idea how you can do this with the national religion of England being the NHS. Try, though. - Minimize your taxes. Although I wrote #1 from a consumption-cost standpoint, one of your most considerable costs is your taxes. Don’t just let your company take care of your taxes. Get an accountant to measure every pond so it gets managed. Every pound you send to HMRC is a pound not sent to your daughters. - Offshore some of your assets. If you’ve got the wealth that merits it, try to offshore some of it. That can be as simple as taking cash from one of your accounts and buying a lovely apartment in Lisbon. Her Majesty’s government can’t confiscate an apartment in Portugal. Or Spain. Or Italy. Or anywhere outside the UK. And for my original ones: - Get a second passport. You’re as English as they come, so this isn’t an option for you. - Start an online business. Here’s a secret I haven’t told you yet. ChatGPT, Open AI’s artificial intelligence interface, is a gift from God… to entrepreneurs. The advantages of running a business from your laptop are self-evident. But having a machine run it for you is even better. - Own a bit of crypto. Ok, only Bitcoin. And only a little bit. No more than 5% of your net worth. Perform this act only to get familiar with it, not to swing for the fences. - Get in great shape. You have your health, or you have nothing. Make sure no government will ever try to stick a needle in you again. Live long enough to act on your accumulated experience and get wealthier doing it. Then leave it to your children. And you’ll look fabulous in arseless chaps! The only asset classes in America that will survive the coming onslaught will be aerospace and defense, and healthcare. But they’ll get hit first. Your solutions are closer to home. I hope that helps. Wrap Up A special mention goes to Marjan S. Next time you drive through Asti, hopefully I’ll be there to buy you lunch! Have a wonderful day. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( In Case You Missed It… Gold, BRICS, and What’s Next… [Sean Ring] SEAN RING Good morning from cool Brussels. I was going to write about traveling, but I’ll leave that until I’ve had some rest this weekend. As the BRICS countries get together in South Africa, this is the perfect article to reprint while on holiday. And, what’s more, it comes from you. To wit… Rude reader Damon wrote in with another stimulating question just as I was running out of ideas for the end of the week. He writes: Although gold went up a little on crypto woes, it still seems unreasonably low given the market. Is this due to false enthusiasm on the inflation/recession front, or perhaps Russia and China are now using their stockpiles to avoid US Dollar sanctions, and flooding the market? On a similar note, what is the current situation on the alignment of Russia, China, India, Brazil, Iran, et al., to create an alternate banking exchange and break US control of “petrodollars”? My frustrations are Damon’s frustrations. I will break down his query into smaller questions and address each. But first, we’ll do a tiny bit of theory. The Theoretical Price of a Commodity Hedging with futures simply means “taking the opposite of your physical position.” Let’s say I’m Cadbury’s chocolate bar maker. I need cocoa to make my chocolate. There are two smart ways to acquire that cocoa, as I’m worried prices will rise. I can buy the cocoa now and store it. Or I can buy a 3-month cocoa future. (I don’t want to wait three months to buy it because of the price risk I’d incur.) Theoretically, both alternatives should cost the same amount. Why? If I buy the cocoa now, I’ll have to pay the cash price immediately, plus storage and insurance costs and any foregone interest I’d have earned by keeping the money in the bank. If I buy a three-month cocoa future, someone else will do precisely the same, not for free! They’d charge me the same amount: cash plus storage, insurance, and foregone interest. Using simple mathematics, the cash price, or present value adjusted for costs over time - that is, we put our costs in the “r” - gives me my future value. PV x (1 + r) t = FV If we rearrange the equation to figure out our cash price, we get the following: PV = FV / (1 + r) t Looking at this formula, it’s easy to see if rates, the “r,” increases, then the price or “PV” will decrease. Another word for rate is yield. That means our rate will be derived from the corresponding yield in the market. And what has Chairman Pow done to our yields? Raised them like a madman! As those yields go up, any asset valued this way will fall. Let’s face it: most assets are priced this way. [Man Who Predicted Bitcoin Warns: “Don’t Buy Bitcoin!”]( 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 now to see why](. [Click Here To Learn More]( Using Real Estate to See Why the Fed Hikes Hurt Gold An oversimple way to value a real estate investment is to take the Net Operating Income and divide it by the capitalization rate. That will give you an idea of how much a piece of property is worth. NOI / r = property value It looks like our futures equation, but the denominator differs because we assume perpetual cash flows. (That is, the building doesn’t collapse or deteriorate to the point of disuse. As I said, it’s oversimplified.) I show you this because [Jeroen Blokland on LinkedIn]( presented the below chart: [6-month US Treasuries are way less risky than real estate] He writes: The chart [above] is from Nicholas Gerli, founder of Reventure Consulting. It shows that the 6-month US Treasury offers more yield than the ‘average’ real estate investment. Adding the fact that 6-month US Treasuries are way less risky than real estate investments, the former brings the superior investment alternative. If you can earn a higher yield in government securities than by managing property, why would you own property? Likewise, if you can earn a good yield in government securities, why would you own an asset that doesn’t produce income, like gold? And this is why gold isn’t rallying to the moon. The Fed has made it better to stick your money in Treasuries. The Same Applies to Bitcoin Now, if you bought your gold at $252/oz when that imbecile Gordon Brown announced the Bank of England was selling its gold holdings, you’re still money good. You're still laughing if you bought your Bitcoin for under $100. After all, you’d be up at least 160x. The point is you needed to be in early to have made any money. But to get in now is to take an enormous risk. When Should You Load Up on Gold? I agree with my friend and colleague Dan Amoss. When the Fed pivots and genuinely starts to cut rates, back up the truck. As the “r” gets smaller, the PV (or price) will rise. All moves up before that will be reversed. Chairman Pow must relent on his hiking strategy before we see the real rally in gold. [10-year yield minus the 3-year yield] This chart above is the 10-year yield minus the 3-year yield. When this turns positive again may be the starting gun on a gold rally. Russia, China, and the BRICs Here are the top 10 Countries with the largest gold reserves (in tons): - United States — 8,133 - Germany — 3,359 - Italy — 2,452 - France — 2,436 - Russia — 2,299 - China — 1,948 - Switzerland — 1,040 - Japan — 846 - India — 754 - Netherlands — 612 It’s improbable that Russia and China are selling any of their gold. In fact, I’d say they were acquiring large amounts of the barbaric relic. Since the beginning of the Russia-Ukraine War, the West has barred Russia from selling its gold. That doesn’t mean Russia has complied, of course. But I don’t think Russia is the marginal seller bringing down the gold price. Gold just isn’t attractive with yields where they are right now. As for the petrodollar, its days are numbered. Here are Saudi Arabia’s most significant oil buyers: [pub] Credit: [OEC]( The United States matters but isn’t the biggest buyer by a long shot. We know the Saudis work with the Russians through OPEC+ to keep oil prices high. And its largest oil buyer is China. The world will look very different over the next ten years as the BRICs fully emerge as a power bloc. Wrap Up A big thanks to Damon for his thought-provoking question. Alas, a conspiracy isn’t holding the gold price down. A privately owned cartel is. That’s the Federal Reserve. But this story will end… with a pivot. When this story ends is a mystery. But when the Fed pivots, back up the truck and load it with gold. But not before. In the meantime, have a wonderful Wednesday! You deserve it! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [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. 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