Ahead of the Herd newsletter, aheadoftheherd.com, hereafter known as AOTH. The way we see it, buying gold or silver bullion is one of the best ways to take a defensive position during what could be the beginning of an all-encompassing trade war and a truly global, and a round of highly competitive currency devaluations, wherein the winner is the biggest loser. Share on Facebook. The division within the Dems has been evident since the first debates last summer, as a slew of candidates duked it out over how far the party should migrate to the left, to win back the White House. The shocking black swan plunge of the financial markets during the February 2020 coronavirus outbreak has us looking at a lesser-known Virgo economist, Hyman Minsky and “Minsky moment” astrology. We urge you to turn off your ad blocker for The Telegraph website so that you can continue to access our quality content in the future. What will it take to push it over the edge? Subscribe . Riding on one of the biggest technology shifts in decades, the Cloud applications market is expected to post a 10% growth rate annually over … Facebook. Please read the entire Disclaimer carefully before you use this website or read the newsletter. A yield curve inversion, when short-term yields push higher than long-term yields, is a predictable recession indicator. A Minsky Moment is coming for gold 2020.02.20 “Minsky Moment” refers to the idea that periods of bullish speculation will eventually lead to a crisis, wherein a sudden decline in optimism causes a spectacular market crash. There are times when we should expect the system to reach a tipping point – the “Minsky Moment” – when a boom and a bubble turn into a crash and a bust. According to Hellenic Shipping News, rates for Capesize bulk vessels are less than a third of breakeven and the BDI is fast approaching the 290 points of February 2016 - the worst of all time. January 23, 2020, 4:40 PM EST Updated on January 23, 2020, 4:42 PM EST Authers’ Notes: The Magic of Minsky Moments By ... That led to the Minsky moment to end all Minsky moments… One way to look at “leverage,” as it relates to the financial markets, is through “margin debt,” and in particular, the level of “free cash” investors have to deploy. Ray Dhirani, Head of Sustainable Finance at WWF-UK, said: “We can’t ignore the warnings from science when they’re flashing red. Quarantines, done to contain the outbreak, have had an impact on global supply chains including mined commodities. Twitter. A "Minsky Moment" crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken on by both retail and … In 2007, I was at a conference where Paul McCulley, who was with PIMCO at the time, was discussing the idea of a “Minsky Moment.” At that time, this idea fell on “deaf ears” as the markets, and economy, were in full swing. Again, this likely won’t become an issue until the next recession—a full-blown one, not just of the earnings and industrial variety. This can’t go on forever. The current arms buildup between the US, China and Russia, precipitated by the US pulling out of the 1987 INF Treaty due to Russia breaking its terms, could easily trigger a war especially if China is pushed into a corner due to economic weakness and is looking for a scapegoat. That is the moment when asset … Instead, we know that prices are really now set by central banks, on the model of the Politburo in the old Soviet Union. Named after economist Hyman Minsky, the theory centers around the inherent instability of stock markets, especially bull markets such as the current one that has been in place for over a decade. By Albert Pang-August 5, 2016. Indeed holders of dollars would find their once-powerful greenback reduced to monopoly money. Leave a Reply . Email. In a new film by the World Wildlife Foundation (WWF), the … Paul Krugman once uttered the phrase “We are all Minskyites now” on the basis of the Great Recession of 2008–9 appearing to have been caused by occurrences in the financial sector. There is no way paper can be "improved" as money. In 1997 buybacks surpassed dividends as the main way companies redistribute funds to investors. The budget deficit is also likely to rise, nearly tripling from 2.9% of GDP to 9.8% in 2047. And while there are grounds for optimism regarding a trade war resolution, the coronavirus has thrown a spanner into the Phase 1 trade agreement signed on Jan. 15. There is still a danger of a “Minsky moment” hitting China’s economy. Tech Stocks Once Again Driving Gains. "In terminology, it would be a climate ‘Minsky’ moment; a sudden realisation that enormous change needs to happen in a short period of time. But instead of selling Treasuries and converting dollars into renminbi, causing the latter to rise, choking off Chinese exports, Roubini points out the Chinese could instead convert their dollars into gold. Asset prices could be on the cusp of a sharp collapse known as a “Minsky moment,” and may retest lows last seen in March, according to Ron William, market strategist and founder of RW Advisory. As investors, the best way to protect ourselves against a global (or regional, depending on where you live) calamity that even a large cache of US dollars could fail to provide, is to own gold. A “Minsky Moment” crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken on by both retail and institutional investors. If the US election descends into partisan rancor, chaos, disputed vote tallies, and accusations of “rigged” elections, so much the better for America’s rivals. These are solely personal thoughts and opinions about finance and/or investments – no information posted on this site is to be considered investment advice or a recommendation to do anything involving finance or money aside from performing your own due diligence and consulting with your personal registered broker/financial advisor. White swans include the US rivalries with China, Russia, Iran and North Korea: These countries all have an interest in challenging the US-led global order, and 2020 could be a critical year for them, owing to the US presidential election and the potential change in US global policies that could follow. The IHS Markit PMI in January fell to a three-month low - from 52.4 in December to 51.7 - barely holding above 50; any reading below 50 indicates poor economic conditions. email. In the first quarter of 2019, world debt hit $246.5 trillion, reversing a trend that started in the beginning of 2018, of reducing debt burdens, when global debt reached its highest on record, $248 trillion. Turns out much of this is “fake news”. According to the World Gold Council “Global gold-backed ETFs and similar products added 61 tonnes(t), or net inflows of US$3.1bn, in January across nearly all regions, boosting holdings to new, all-time highs of 2,947t.”. For example, spending on new equipment, offices, software etc. Consider what happened to gold when Iran countered the assassination of its top military commander with missile strikes against two Iraqi bases housing US troops.Gold futures jumped to a six-year high of $1,613.30 an ounce, as fear and uncertainty over what comes next had investors piling into the precious metal. It’s vital that the sector moves away from short-term interests and towards long-term value creation and sustainable recovery which benefits people, the economy, and the planet.”. Last year the Treasury Department came out with a report that recommended 21 trading partners should face scrutiny over their currencies - they include China, Germany, Japan, South Korea, Ireland, Italy, Malaysia, Vietnam and Singapore. So far, China and Russia’s shift into gold has occurred slowly, leaving Treasury yields unaffected. Information in AOTH/Richard Mills articles is not an offer to sell or a solicitation of an offer to buy any security. During the 2008-2009 global economic and financial market crisis, we painfully learned about a Minsky moment. “The impact of the virus on the global economy is going to be significantly more than what people are expecting, and when the global economy goes south, the Fed steps in,” BNN Bloomberg quoted Tony Farren, managing director at broker-dealer Mischler Financial in Stamford, Connecticut. Facebook. The former Bank of England governor has made an intervention on climate change, Secondary schools to extend Christmas holidays by a week to enable rollout of mass testing, 'We would have finished the job': Putin denies Russia involvement in Navalny poisoning, Have you had a treatment or operation cancelled due to Covid? Under President Donald Trump, the US is trying to contain or even trigger regime change in these four countries through economic sanctions and other means. This is the final stage before a blow-up. The four may also gang up Western financial systems such as the SWIFT platform - used by banks and financial institutions to clear international monetary transactions. A breakdown of the US political system would weaken American power abroad. Print Friendly. Purchasing company stock generally inflates the share price and boosts earnings per share – a key metric on which CEO bonuses are calculated. We have an unpredictable president in the White House that has already done much damage to the world economy, hurt the relationship between the US and China, and now appears heading towards a global currency/ trade war wherein everybody dukes it out over who can devalue and out-export the other. Although coronavirus is mostly confined to Hubei province and Wuhan, the city of 11 million people known to be the epicenter, medical experts are not ruling out the virus fanning out beyond the 24 countries currently affected. Unemployment is at its lowest in 50 years, wages last year grew by 3.1%, on average, and stock markets keep rolling along. If you do not agree to all the AOTH/Richard Mills Disclaimer, do not access/read this website/newsletter/article, or any of its pages. As a general rule, the most successful man in life is the man who has the best information. • A Minsky moment is the point when the crash happens • Most analysts do not see a Minsky moment in a large developed economy as imminent • However, the US could see a Minsky moment before other economies, because of expected rate rises . Minsky’s name usually surfaces when the markets suffer reversals, the largest of these eponymously termed a “Minsky moment.” For most of the 20th century they were illegal because they were considered to be a form of stock market manipulation. All eyes are on the coronavirus and its economic repercussions, particularly on the Chinese economy and the economies of China’s closest trading partners. The movie, which also features David Attenborough and Richard Curtis, argues that the world's economies need to rapidly adjust to become more sustainable, and build back in a more climate-friendly way after the pandemic. If something were to happen to stop, or restrict the practice, the Minsky Moment would almost certainly come about via a stock market crash the likes of which we may not care to envision. This Minsky Moment, however, was more a Marx Moment than anything. Similarly, the four revisionists want to undercut American hard and soft power abroad by destabilizing the US from within through asymmetric warfare. Will Stock Markets See A Minsky Moment In 2020? We predict that the Fed will lower interest rates another 50 basis degrees in an attempt to lessen the consequences of the the catastrophic selloff. The loss of these workers/ shoppers has dented China’s increasingly consumer-oriented economy. Rising interest rates compound the problem. In 2019 the government had to put aside $376 billion in debt interest, a third of the real defense budget, and more than spending on education, agriculture, transportation and housing combined. So, what might be the hair trigger that causes the US stock market bubble to pop and gold to soar? Written by Lance Roberts | Feb 7, 2020. Roubini thinks conflict between the US and Russia, China, Iran or North Korea could occur through some form of cyberwarfare. The possibility of moving forward on a Phase 2 agreement also seems unlikely, in light of all the supply chain interruptions caused by the pandemic. Twitter. In our recent article we said we believe the global economy has reached an inflection point. Hyman Minsky, if he were still alive, would have some interesting observations about Australia in 2020. Bloomberg ran a story saying it could infect a shocking two-thirds of the globe. After the SEC changed the rules to allow buybacks, hundreds of companies starting using them. Fast forward to January 2020, and we are seeing the same phenomenon. In 2008 interest on the national debt was $253 billion, and consumed 8.5% of the federal budget. AOTH/Richard Mills is not suggesting the transacting of any financial instruments but does suggest consulting your own registered broker/financial advisor with regards to any such transactions, To contact us please email rick@aheadoftheherd.com, Ahead of the Herd The same thing could happen again in 2020 - possibly from China as retribution for the US being a trade irritant. Richard (Rick) Mills fiat currencies - fails. The outcome is a gradual race to worthless and America’s trading partners punting the dollar and replacing it with a basket of currencies, likely (remember all that Central Bank gold buying) backed by gold. 2878. subscribe to my free newsletter Markets have experienced a broad bullish period in recent months as investors bet on further stimulus from governments and central banks, and the prospect of a coronavirus vaccine. We have written before on how this extreme polarization is killing America. This would cause the dollar to crash, and interest rates would go through the roof, choking consumer and business borrowing. According to a blog by Evergreen Gavekal, a registered investment advisor (RIA), while there is nothing inherently wrong with share repurchases (reducing a company’s outstanding shares makes each dollar of earnings more valuable on a per share basis, which is good for investors), the problem is that companies are borrowing at an alarming rate in order to repurchase their own shares. Business confidence would plummet, mass layoffs would occur, growth would stop, and the US would enter a recession. By reading/using this AOTH/Richard Mills website/newsletter/article, and whether or not you actually read this Disclaimer, you are deemed to have accepted it. Although US stocks dropped Tuesday and Apple’s shares took a 2% hit owing to coronavirus-related production problems, the Dow, S&P 500 and Nasdaq are all up significantly, year to date. LinkedIn. Minsky, who was widely regarded as a fringe figure at the time, didn’t live to see his moment. That’s what we need to avoid, which is why we need to start moving today.”. In its January update, the IMF lowered its 2020 global growth forecast by one-tenth of a percentage point to 3.3% - following last year’s 2.9%, the lowest in a decade. Other potential catalysts, aka Minsky moment, for gold are geopolitical. Taiwan, Hong Kong, Vietnam and US naval positions in the East and South China Seas are all potential hot spots that could lead to military confrontation, Roubini writes. Central banks, worried about economies cooling and low inflation, were buying gold by the truckload and pursuing monetary stimulus, in the form of interest rate cuts and/or massive bond-buying programs like we went through with quantitative easing in the US, Europe and Japan. “Minsky Moment” refers to the idea that periods of bullish speculation will eventually lead to a crisis, wherein a sudden decline in optimism causes a spectacular market crash. www.aheadoftheherd.com, US companies are currently sitting on nearly $10 trillion in debt, China’s copper buyers asked Chilean miners to delay shipments, the IMF lowered its 2020 global growth forecast, the cost of shipping is one-sixth what it was 5 months ago, 21 trading partners should face scrutiny over their currencies, how this extreme polarization is killing America, evident since the first debates last summer, growing debt burden is not just a US phenomenon, Euphoria – extended credit to evermore dubious buyers, Profit taking – insider/ trader aka ‘smart money’ cashes out. During the twenty-teens, the Fed has created $4 trillion of – to be blunt – “Bogus Bucks”, or BBs, and those BBs have been used to fund $4 trillion of other BBs, as in buybacks, and yet another $4 trillion has been taken out in additional corporate debt (a third BB, Bubble Bonds?). As Investopedia defines it, “A Minsky Moment crisis follows a prolonged period of bullish speculation, which is also associated with high amounts of debt taken on by both retail and institutional investors.”. This time is different. In a new film by the World Wildlife Foundation (WWF), the former Bank of England governor has warned that the finance sector is not doing enough to combat the mounting problem and that we need to take swift action. Additionally, I’ve included articles on the origins and development of ratings agencies. The growing debt burden is not just a US phenomenon; it’s global. Import prices would skyrocket too, the result of a low dollar, hitting consumers in the pocket-book for everything not made in the USA. Things aren’t much better with the Democratic Party, though. Whenever governments are granted power to purchase their own debt, they never fail to do so, eventually destroying the value of the currency.”Ron Paul, The Case for Gold. AOTH/Richard Mills is not a registered broker/financial advisor and does not hold any licenses. But that all changed in 1982 when the SEC legalized them. aheadoftheherd.com Expressions of opinion are those of AOTH/Richard Mills only and are subject to change without notice. In 2007, I was at a conference where Paul McCulley, who was with PIMCO at the time, was discussing the idea of a “Minsky Moment.” At that time, this idea fell on “deaf ears” as the markets, and economy, were in full swing. A dysfunctional polarity of views that has become the norm in US politics. Notify of . As we have written, share buybacks are a relatively new phenomenon. Global growth has slowed, compounded by trade wars, the slowdown in China, and the latest threat – the coronavirus. We’ve noticed the partisanship, the bickering, the impasses, the sheer hatred of the other side, is worse under Trump, who certainly fanned the flames of discord to get elected, and continues to blow on them, knowing that divide and conquer is his best path to re-election in 2020. AOTH/Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified. This of course is a likely scenario to gold enthusiasts who invest and believe in gold for its utility as a store of value when everything else - ie. Not only is shareholder value being destroyed through copious share buybacks, there is also record insider selling going on. “The big picture view of this situation is that we have companies repurchasing their shares at a fever pitch while insiders are dumping said shares at an equally feverish rate,” states the blog, adding that the “death-knell of buybacks” could be the high corporate debt levels compared to the rest of the economy (US companies are currently sitting on nearly $10 trillion in debt, close to half (47%) the value of the rest of the economy). Notably, the coronavirus was not a factor in the dismal figure, meaning the outbreak could take an even worse toll on the world’s third-largest economy. Gold’s Minsky Moment will come when everyone realizes that the paper monetary system, and its reserve currency the US dollar, has no intrinsicvalue, and therefore can no longer be trusted - when money is worth nothing but the paper it’s printed on, and previously rejected … So, what could cause the Minsky Moment in 2020? By Paul Hodges of The pH Report Sunday, January 5, 2020 10:26 AM EDT Few investors now remember the days when price discovery was thought to be the key role of stock markets. If the coronavirus continues to be a problem, many are expecting the Fed will step into lower interest rates. Private equity is undergoing what the great theorist Hyman Minsky pointed out is the Ponzi stage of the credit cycle in capitalist financial systems. But if this diversification strategy accelerates, as is likely, it could trigger a shock in the US Treasuries market, possibly leading to a sharp economic slowdown in the US. As Minsky observed, a period of placidity starts with firms borrowing money but being able to cover their borrowing with cash flow. All the countries that sold their Treasuries would then face a major slump in demand for their products from American consumers, their largest market. The Trump administration is going down a very dangerous road with its new Currency Rule that imbues the US Commerce Department with incredibly strong powers to invoke across-the-board trade protectionism from countries all the way down to individual companies. An oil price shock caused by a geopolitical event … Right, so now that we have a good base understanding of ‘Minsky Moments’ and the ‘Kindleberger-Minsky’ model, we’ll dive into a set of links focusing on examples of these theories in history. Furthermore, AOTH/Richard Mills assumes no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this AOTH/Richard Mills Report. High US stock market performance is masking another economic indicator, that has fallen to its lowest level since 2016 - the purchasing managers index. Yet you wouldn’t know there’s anything wrong, judging from the US economy. BY Trey Reik | Tuesday, August 20, 2019 pdf version. Updated Sep 9, 2020 What Is a Minsky Moment? Ocean freight carriers are refusing to dock in China, same as airlines have canceled flights. A Minsky Moment is coming for gold Richard (Rick) Mills, Ahead of the herd via Gold Seek “Minsky Moment” refers to the idea that periods of bullish speculation will eventually lead to a crisis, wherein a sudden decline in optimism causes a spectacular market crash. From Lance Roberts at realinvestmentadvice.com:. Meanwhile in November, total US debt surpassed $23 trillion for the first time, with just under $17 trillion held by the public and $6 trillion in government loans. “Piling on debt like this is especially unwise and unnecessary in a strong economy,” he added. AOTH/Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. AOTH/Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. 5 January 2020 Few investors now remember the days when price discovery was thought to be the key role of stock markets. Marketwatch reported US companies cut back on investment last year, due to reduced exports and disruptions to the global economy from the US-China trade war. To elevate debt to dangerous levels to enable share repurchases—which usually lowers profits because of the increased interest costs—is the antithesis of judicious corporate stewardship. The late American economist, whose theories experienced a revival following the GFC, was considered post-Keynesian and was critical of much of the deregulation of financial markets in the eighties. Each year another trillion dollars gets added to the national debt. I’d like to end this article here, after presenting you not with the disease we suffer, but with its symptoms/ consequences, and take the following up, in another article. By 2026 the interest is projected to be $762 billion and take up 12.9% of the budget. Instead, we know that prices are really now set by central banks, on the model of the Politburo in the old Soviet Union. Markets facing a possible 'Minsky moment,' strategist says. Then – bang! Then – bang! William Rhodes. We rely on advertising to help fund our award-winning journalism. Two years ago, Zhou Xiaochuan, then China’s central bank governor, told a press conference at the 19th Communist party Congress in Beijing that too many procyclical factors in the economy and excessive optimism risked generating “accumulating contradictions that … Minsky Moment. Our Planet: Too Big to Fail airs on the 18th September. Instead, we know that prices are really now set by central banks, on the model of the Politburo in the old Soviet Union. “all the effort and planning imaginable cannot make paper money work. The world is about to face a 'Minsky moment' because of climate change, Mark Carney has warned. Eventually companies in these countries would begin to suffer, plus all other nations that trade with the US, like Canada and Mexico. At the same time, gold mining equities, as measured by Sprott Gold Miners ETF (SGDM) are up 39.52% YTD. Party, though mining companies have had trouble delivering supplies due to port shutdowns the 2016.... 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