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Four ways that Uncle Sam will respond to its $75 trillion insolvency

Four ways that Uncle Sam will respond to its $75 trillion insolvency

Last week I told you that the US government recently reported a negative net worth of MINUS $75 TRILLION.

That’s not a type-o. According to the Treasury Department’s annual financial report for Fiscal Year 2018 (which they just published last week), the US government is hopelessly bankrupt.

Now, I’m not talking about this trying to stoke fear and panic.

Quite the opposite– I’m hoping that this conversation results in calm optimism. But the point is that it’s an important conversation to have… because a number as large as $75 trillion absolutely has consequences.

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To believe that any nation can be so desperately insolvent without suffering any negative impact is just plain foolish.

Debts have to be paid. Obligations have to be met. So at some point, with numbers these gruesome, something has to break down.

This is not a dire prediction or wild conspiracy theory. It’s an arithmetic certainty.

Remember, this isn’t even my analysis. The government itself acknowledges its $75 trillion insolvency. The Social Security Administration acknowledges that its trust funds will run out of money in 15 years.

This is happening. So let’s take a look at the government’s very narrow playbook:

1) Ignore the problem

Politicians are already acting as if nothing is wrong.

Sure, occasionally you’ll hear someone complain about the debt, or there will be a debt ceiling showdown. But no serious alarm bells are ringing.

And because they don’t make a big deal over the debt, no one else does either. Everyone just goes along as if there’s not a problem.

 …click on the above link to read the rest of the article…

If Donald Trump is the King of Debt, these guys were the Kings of Inflation

If Donald Trump is the King of Debt, these guys were the Kings of Inflation

Maximilian Bern had saved up 100,000 German marks for what should have been a modest, but comfortable retirement.

But in 1923, he withdrew every last cent, and spent it all on one purchase: a subway ticket.

He rode around his city one last time before returning home, and locking himself in his home, where he died.

He didn’t kill himself. He starved to death… simply because he could no longer afford food. A single egg at the market would cost millions of marks, more than Maximilian Bern had saved over his entire life.

This was one of the most famous episodes of hyperinflation, certainly in modern history.

In the wake of World War One, Germany (known as the Weimar Republic) was completely broke.

The War to end all Wars had bankrupted them; and on top of losing the war, Germany was forced to make ‘reparation payments’ to the victors, including France, the UK, etc.

That took Germany’s overall war debt to impossible levels. So in a feeble attempt to keep the economy afloat and meet its war debt obligations, the German government printed massive amounts of paper money.

Prior to World War I, one US dollar was worth 4.2 German marks.

By 1923, a single US dollar was worth 4.2 TRILLION marks.

We’ve seen this in our own lifetime in places like Zimbabwe, and now Venezuela.

I remember the first time I went to Venezuela the official exchange rate was four bolivars to the US dollar—and the black market rate was eight to one.

 …click on the above link to read the rest of the article…

Europe is so weak it can’t even handle 0% interest rates

Europe is so weak it can’t even handle 0% interest rates

Europe’s leading economic policy makers have officially thrown in the towel.

Last week, the European Central Bank admitted economic conditions are so dire that it already has to reverse its monetary policy.

I’ll get back to that in a minute…

Following the Great Financial Crisis in 2008, central banks printed trillions of dollars and pushed interest rates to their lowest levels in human history. Low interest rates (and lots of new money sloshing around the system) mean people should go out and buy things that would otherwise be out of reach… new houses, new cars, businesses, etc.

And, in theory, all of that activity creates jobs and helps the economy grow… in theory.

Ten years into this monetary experiment, central banks did create growth…

US Gross Domestic Product (GDP) was about $15 trillion in 2008. Current GDP is about $22 trillion. That’s $7 trillion of economic growth.

Impressive… until you figure the cost of that growth.

Over the same period, the US national debt increased from $10 trillion to $22 trillion.

So, it took $12 trillion of debt to create $7 trillion of economic growth.  

The marginal utility of all of this new debt is decreasing (remember this point for later). And it’s the same story all over the world. 

The US economy is so dependent on cheap money, it can’t even handle 2% interest rates (the Fed hiked rates from 2.25% to 2.5% last December and stocks fell 20%).

But Europe is even worse. Europe has negative interest rates. And the European economy is so weak (it grew 0.2% in Q4), it can’t even handle ZERO percent interest rates.

Last week the ECB announced it would keep interest rates negative. And it’s starting its third round of cheap loans to banks (who, in turn, are supposed to lend to businesses and households).

 …click on the above link to read the rest of the article…

Reason #437 to own gold: The Fed wants Negative Interest Rates

Reason #437 to own gold: The Fed wants Negative Interest Rates

And just like that, it seems we’re headed back to quantitative easing…

After cutting interest rates to nearly zero following the 2008 crisis, the Federal Reserve starting raising rates near the end of 2015 (from 0.25% to 2.5% today).

Following the most recent hike in December 2018, Chairman Powell seemed hell bent on further tightening, saying “some further gradual increases” were in the cards.

Then the stock market promptly fell nearly 20%. 

Investors were in panic mode and calling for the end of the world.

The pain was too much…

Last month, the Fed left rates unchanged… and Powell removed any language about further hikes.

Already Powell is capitulating.

The new chief economist for the International Monetary Fund praised the move, saying she sees “considerable and rising risks” to the global economy.

And no surprise here, but Paul Krugman also supported the Fed’s policy. He’s also worried about a possible recession… but more worried the Fed won’t be able to cut rates low enough.

Central banks tried raising interest rates, but the market wouldn’t take it.

Now, the market is putting the likelihood of a rate hike this year at ZERO… and it’s expecting a rate cut next year.

Both the European Central Bank and the Bank of Japan were supposed to start tightening policy and raising rates… now, they are both considering cutting interest rates even deeper into negative territory.

And after a 20% drop in US stocks, the Fed has taken its foot off the pedal. But the people still want more…

The President of the Federal Reserve Bank of St. Louis thinks current interest rates are “too restrictive.” He too wants lower rates.

The San Francisco Fed agrees – they were singing the praises of negative interest rates in a recent research paper, saying they would have helped the economy recover even faster after 2008.

 …click on the above link to read the rest of the article…

Get Ready– they’re coming for your money

Get Ready– they’re coming for your money

Every so often throughout history, the peasants grab their pitchforks and come for the elite. It happens when the wealth gap grows too extreme… when people feel like they are getting left behind, with no opportunity to advance.

Central banks around the world have printed trillions of dollars over last decade, and pushed interest rates to zero, and sometimes below. And all of that stimulus went directly into the pockets of the wealthy.

Since 2009, the world’s billionaires more than DOUBLED their combined wealth. All the billionaires in the world had $3.4 trillion in 2009. By 2017, they amassed $8.9 trillion.

Mark Zuckerberg multiplied his wealth almost 20 times over, from $3 billion in 2009, to over $58 billion in 2019.

$8.9 trillion is a massive, almost incomprehensible amount of wealth.

But it really shouldn’t be that surprising if you think about it… these people are wealthy for a reason. Typically, they are pretty good at making money. And with the snowball effect, if you give them more time, they will probably make even more.

For the last ten years, we’ve seen a huge asset price inflation in everything from the stock market, to bonds and real estate, and even fine art and wine.

But if you’re a wage earner without assets, you’ve been left out. Wages andmedian household wealth have stagnated.

And this is a global issue…

The combined wealth of the poorest half of the world–3.8 billion people–fell by 11% just last year, according to Oxfam, a group working to alleviate poverty.

The New York Times claims the richest 8 people on the planet have more wealth than the poorest 3.8 billion.

 …click on the above link to read the rest of the article…

Yet another MAJOR reason to buy gold

Yet another MAJOR reason to buy gold

For almost a year now, I’ve been advising you that gold production is plunging…

By itself, declining gold production isn’t a huge deal.

It takes hundreds of millions of years for minerals to form deep in the earth’s crust… but humans only need a few decades to extract it.

That’s why mining companies need to constantly explore for new deposits.

And that’s where the problem comes in… mining companies haven’t been exploring.

Large mining companies have been cutting their exploration budgets for years. By the end of 2016, exploration budgets hit an 11-year low.

Part of the reason for the decline in exploration has been the stagnant gold price and general, investor disinterest toward the gold mining sector.

If you look at a chart of the Gold Miners ETF (GDX), the price hasn’t gone anywhere for five years.

And gold prices have likewise languished; today’s price of $1,290 per ounce is down 30% from the 2011.

To fight the tough times, miners slashed their exploration budgets.

That means, when the demand for gold picks up again (which I think we’re starting to see now), there won’t be enough gold supply.

You don’t have to just take my word for it…

Pierre Lassonde, the billionaire founder of gold royalty giant Franco-Nevada and former head of Newmont Mining –

If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million ounce deposits, and countless 5 to 10 million ounce deposits.

But if you look at the last 15 years, we found no 50-million-ounce deposit, no 30 million ounce deposit and only very few 15 million ounce deposits.

So where are those great big deposits we found in the past? How are they going to be replaced? We don’t know.

…click on the above link to read the rest of the article…

It’s official: the Federal Reserve is insolvent

It’s official: the Federal Reserve is insolvent

In the year 1157, the Republic of Venice was in the midst of war and in desperate need of funds.

It wasn’t the first time in history that a government needed to borrow money to fight a war. But the Venetians came up with an innovative idea:

Every citizen who loaned money to the government was to receive an official paper certificate guaranteeing that the state would make interest payments.

Those certificates could then be transferred to other people… and the government would make payments to whoever held the certificate at the time.

In this way, the loan that an investor made to the government essentially became an asset– one that he could sell to another investor in the future.

This was the first real government bond. And the idea ultimately created a robust market of investors who would buy and sell these securities.

When a government’s fortunes changed and its ability to make interest payments was in doubt, the price of the bond fell. When confidence was high, bond prices rose.

It’s not much different today. Governments still borrow money by issuing bonds, and those bonds trade in a robust marketplace where countless investors buy and sell on a daily basis.

Just like the price of Apple shares, the prices of government bonds rise and fall all the time.

One of the most important factors affecting bond prices is interest rates: when interest rates rise, bond prices fall. And when rates fall, bond prices rise.

And this law of bond prices and interest rates moving opposite to one another is as inviolable as the Laws of Gravity.

Back in the 12th century when Venice started issuing the first government bonds, interest rates were shockingly high by modern standards, fluctuating between 12% and 20%. In France and England rates would sometimes rise beyond even 80% during the Middle Ages.

…click on the above link to read the rest of the article…

Why buy gold now? Because I don’t know

Why buy gold now? Because I don’t know

From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.

Then, in 2013, gold took a nose dive, losing over 27% of its value.

It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.

As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).

And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.

So that begs the question, did the Swiss National Bank actually lose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, ismoney.

Plus, the SNB wasn’t holding gold to speculate…

Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.

And right now, banks are buying up gold hand over fist. Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.

And JPMorgan Chase says they’ll buy another 650 tons this year and next.

Why?

Gold is for the I don’t knows.

And right now, there are a LOT of I don’t knows.

Markets have been going crazy over the past few months.

After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.

…click on the above link to read the rest of the article…

Here are all the ways inflation is happening today

Here are all the ways inflation is happening today

Something strange happened in the markets last month that signals trouble ahead…

When stocks fell from their September highs, you would have expected investors to run for cover in the world’s safe-haven asset – US Treasurys.

But that’s not what happened.

While stocks were plunging, Treasurys also fell. Yields on 30-year Treasurys increased to 3.4% from 3.22% (and yields have already more than doubled from their 2016 lows).

It’s a sign that the market is worried about the US government’s ability to pay its exploding debts and that inflation is creeping back into the market. That makes me a bit nervous because we haven’t seen inflation in a decade.

We’ve seen an increase in oil prices, food prices, rent and many other things that eat into people’s savings. Unemployment is low and US wages increased 3.1% in September (the highest in nine years). And core inflation is already running above the Fed’s target of 2%.

In general, inflation is nothing to panic about. The Fed is supposed to raise rates when inflation heats up, which it’s been doing.

But as rates have moved higher, we’ve already seen stocks and real estate fall.

The entire financial system has been dependent on super low rates for the past ten years. The Fed held rates at zero for a decade and printed trillions of dollars.

The increase in prices and interest rates to date is only the beginning.

Just take a look at what’s happening in the economy right now…

Food companies like Coca-Cola, Mondelez, Hershey and Kellogg are all raising prices as both ingredient and transportation costs increase. Kellogg’s CEO recently said in an interview, “We think 2019 will be more inflationary than we have seen historically since the recession.”

McDonald’s and Chili’s both raised prices.

Airlines are paying 40% more for jet fuel than they were a year ago.

…click on the above link to read the rest of the article…

How the government uses its giant facial recognition database

How the government uses its giant facial recognition database

In July 1996, flight TWA 800 exploded in mid-air, 12 minutes after taking off from JFK International Airport in New York. All 230 passengers on board were killed.

It would be four years before an investigation concluded the likely cause of the explosion was a short circuit in the plane’s fuel tank.

But at the time, President Clinton felt the overwhelming need to do something.

People suspected terrorism. So Clinton issued new airport security rules.

From then on, identification was required to board an airplane.

Before that, you just needed a ticket.

After the attacks of September 11, 2001, airport security escalated.

The TSA (Transportation Security Administration) and DHS (Department of Homeland Security) were born.

Screening procedures intensified. Agents could now feel you up and down. Then came naked body scanners and the Real ID requirement.

Real ID standards were part of the post-9/11 security hysteria. But they are just now coming into full effect.

The federal guidelines require states to issue IDs that meet certain federal standards, or else the ID cannot be used for flying.

One of these standards is that the photo on the ID has to work with facial recognition systems.

CBP (Customs and Border Protection) has now completed a pilot program for using biometric data for boarding flights exiting the country. Biometric data includes unique identity markers like fingerprints, iris scans, and facial recognition.

The DHS audited the pilot program, and found that it was a success. They caught 1,300 people who had overstayed their visas.

Wait, what? I thought this was supposed to be about national security?

But that’s not what you get from the propaganda piece on the CBP’s website.

One of their “success stories” involved a Polish couple leaving the country. They were using fake documents. But the biometric data revealed they were ordered deported and hadn’t left.

…click on the above link to read the rest of the article…

The Return of the Inquisition: Do you confess?

The Return of the Inquisition: Do you confess?

In 279 BC, the vast army of King Pyrrhus of Epirus was met by Roman forces at the Battle of Asculum in southern Italy, in what would be one of the costliest military engagements of ancient history.

Pyrrhus fancied himself the second coming of Alexander the Great and believed that he was a descendant of Achilles.

Many of his peers and contemporaries believed Pyrrhus to be the greatest military commander of all time.

His exploits were legendary. And when he set sail for Italy in 280 BC, the Romans did not underestimate him.

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The Battle of Asculum was decisive. Pyrrhus actually won the battle; but in defeating the Romans, he lost so many of his men that his army was practically broken.

Pyrrhus purportedly said of his victory, “If we are victorious in one more battle with the Romans, we shall be utterly ruined. . .”

This gave rise to the term “Pyrrhic victory,” which refers to a win that’s incredibly costly.

Pyrrhus also tried his hand at diplomacy with Rome, sending one of his ablest statesmen to the capital to negotiate peace with the Roman Senate.

The emissary was not successful. But he reported back to Pyrrhus that Rome’s Senate was incredibly impressive– “an assembly of kings” comprised of its noblest citizens.

And he was right. In the early days when Rome was still a republic, its Senate was a highly revered institution that stood for wisdom, dignity, and virtue.

They were far from perfect. But the men who served in the Senate during the early republic were heavily responsible for building the most advanced civilization the world had ever seen up to that point.

…click on the above link to read the rest of the article…

Ten years after the crisis… they’re doing the same thing and expecting different results

Ten years after the crisis… they’re doing the same thing and expecting different results

“Holy Crap– turn on your TV! This is crazy!”

It was Sunday, September 14, 2008. Exactly 10 years ago to the day.

My friend Jeff called me and told me to turn on the television—where I saw dozens of people on the streets of Manhattan filing out of a skyscraper carrying boxes full of their office junk.

They were all employees of Lehman Brothers, one of the largest investment banks in the world.

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Lehman was hours away from filing bankruptcy in what would go down as THE biggest bankruptcy in US history.

The next day the US stock market tanked. And for most of the next several weeks, all global financial markets were a roller coaster of surreal panic and chaos.

I don’t know if you can remember the general mood back then. I can. It was fear.

People were terrified of what was happening in the economy. The real estate market had dried up. The stock market had crashed. Some of the most hallowed financial institutions in the world went bust in the blink of an eye.

It’s now officially been a decade since the collapse.

And the typical sentiment among economists, politicians, and central bankers is that the economy has come roaring back.

There’s certainly a lot of evidence to support this assertion—

Several financial markets around the world have hit all-time highs. Stocks. Real estate. Bonds. They’re all generally selling for record high prices.

Earlier this week the US Census Bureau announced that median household income in the Land of the Free had increased by 1.8% between 2016 and 2017.

(That’s hardly a life-changing pay raise for workers… but it’s better than nothing.)

…click on the above link to read the rest of the article…

These people lost one-third of their savings in a single week (not in crypto)

These people lost one-third of their savings in a single week (not in crypto)

It happens every year around this time when I hold the annual Liberty and Entrepreneurship Camp that I’ve been sponsoring for the past nine years.

The event is incredible: I bring in top entrepreneurs and business executives, plus students from all over the world– places like Ivory Coast, Brazil, Singapore, Russia and the United States.

It’s five days of mentorship that seemingly goes round-the-clock. It’s exhilarating… but exhausting.  And the Notes from the Field schedule always suffers as a result.

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I’ll tell you more about the event later this week.  But in the meantime, I thought it was more pressing to talk about the unbelievable situation currently unfolding in Turkey… because it’s pretty extraordinary what’s happening right now.

As you may know, Turkey has imprisoned a US pastor named Andrew Brunson for alleged terrorism and espionage.

Obviously the US government wants him back. So Uncle Sam has slammed Turkey with economic sanctions.

Turkey’s economy was already wobbly before the sanctions. The country is suffering the effects of debilitating debt and persistent recession.

Now the economy is getting absolutely destroyed.

Turkey’s currency, the lira, is down some 45% this year. Just yesterday the lira was down a whopping 7%.

If you don’t speculate in currencies very much, a 7% move in a single day is basically unprecedented. It almost never happens. So this is a pretty big deal.

…click on the above link to read the rest of the article…

The latest casualty in the global pension catastrophe is…

The latest casualty in the global pension catastrophe is…

In the year 6 AD, the Roman emperor Augustus set up a special trust fund known as the aerarium militare, or military treasury, to fund retirement pensions for Rome’s legionnaires.

Now, these military pensions had already existed for several centuries in Rome. But the money to pay them had always been mixed together in the government’s general treasury.

So for hundreds of years, mischievous senators could easily grab money that was earmarked for military pensions and redirect it elsewhere.

Augustus wanted to end this practice by setting up a special fund specifically for military pensions.

And to make sure there would be no meddling from any government officials, Augustus established a Board of Trustees, consisting of former military commanders, to oversee the fund’s operations.

Augustus really wanted this pension fund to last for the ages. And to keep a steady inflow of revenue, he established a 5% inheritance tax in Rome that would go directly to the aerarium militare.

He even capitalized the fund with 170,000,000 sesterces of his own money, worth about half a billion dollars in today’s money.

But as you can probably already guess, the money didn’t last.

Few subsequent governments and emperors ever bothered themselves with balancing the fund’s long-term fiscal health. And several found creative ways to plunder it for their own purposes.

Within a few centuries, the fund was gone.

This is a common theme throughout history… and still today: pension funds are almost invariably mismanaged to the point of catastrophe.

We’ve written about this topic frequently in the past. It’s one of the biggest financial catastrophes of our time.

Congress has even formed a committee that’s preparing for massive pension failures.

And here’s another, very recent example: the city of Wilkes-Barre, Pennsylvania is deep in the red with its police pension fund.

…click on the above link to read the rest of the article…

A Hard Rain’s a-Gonna Fall

A Hard Rain’s a-Gonna Fall

The prospects for the rest of the year are awful

Après moi, le déluge

~ King Louis XV of France

A hard rain’s a-gonna fall

~ Bob Dylan (the first)

As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response.

“The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?”

He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial makets.

Nine years later we see that Tepper was right, likely even more so than he realized at the time.

The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.

It has been an unprecedented forcefeeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:

Total Assets Of Majro Central Banks

In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.

And everyone learned to love the ‘Fed put’ and stop worrying.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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Olduvai II: Exodus
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