The Rabid-Dog Days of Summer

Byron King is back to explain what the heck is going on. August 06, 2024 [WEBSITE]( | [UNSUBSCRIBE]( The Rabid-Dog Days of Summer SEAN RING Dear Reader, Before we get into Byron’s excellent commentary on the state of our Terran dungheap, I wanted to remind you about [my interview with Jim Rickards]( the man himself. In it, we talk about what the Fed should have done, why Trump will win in November, and his economic plan. [Head to YouTube]( right after you read Byron’s great piece below. All the best, Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( The Rabid-Dog Days of Summer BYRON KING August is supposed to be a slow month. People go on vacation, and the general tempo of life kind of unwinds. Or maybe not; perhaps that perceived August lull is just what’s known as “recency bias,” rooted in what we’re used to seeing from our protected perch in North America. Sure, many people hit the beach in August. But when you look back across history, the fact is that big things have happened in the eighth month of the year. For example, World War I broke out in early August 1914, and World War II ramped up at the end of August 1939, culminating in the German invasion of Poland on September 1 of that year. Right now, in the first week of August 2024, it’s clear that many issues are primed to blow up in unpredictable outcomes, other than it’ll likely be negative. The so-called “dog days of summer” (see below) have turned rabid on us. So, aren’t you glad you have a stash of cash, physical gold and silver, and a reasonably crash-proof stable of assets like energy producers? You DO have that stash, yes? Well, at any rate, here are a few points to consider along these foregoing lines: Russia-Ukraine: This conflict is already a strategic victory for Russia and an unmitigated disaster for Ukraine, NATO, and the West in general, particularly the U.S. That is, over the past two-and-a-half years, Russia has wrecked most of Ukraine’s combat power, as well as its energy and industrial capability. With high casualties and limited supply lines, there’s simply no way for Ukraine to prevail. Throughout the conflict, Russian armed forces serially defeated one after another Western weapon systems (artillery, tanks, air defense, electronic warfare, and much more; F-16s yet to come) while draining Western stocks of ammunition and equipment. Ukrainian military resistance could crack and crumble at any moment, and no one who truly follows events will be surprised. As all of this has unfolded, Western military power has appeared weak and declining, which does not bode well for many other future eventualities. Israel: After ten months of fighting in Gaza, the Israeli Defense Force (IDF) is stretched thin. Regular and reserve IDF components are exhausted, casualties have been shockingly high, and supplies of everything are depleted (tanks, armored systems, ammunition, and much more). Yet, for all the material and human costs of continuous combat, Hamas survives and remains entrenched in Gaza. Now, Israel faces a myriad of new potential conflicts with Hezbollah in Lebanon, Syrian forces, and Iran. That is, entire new fronts could blow up for Israel in a huge way, all with innumerable adverse outcomes for the rest of the world. [Offer Pending: Please confirm your address…]( Your name is on a list of people eligible to claim the [“most dangerous book in America.”]( Here’s how to claim your copy: - [Click this link]( watch Jim's short message.]( - Review your account information. - Confirm you’d like to accept Jim’s offer. [Simply click here and learn how to claim your copy.]( [Click Here To Learn More]( Red Sea: The world is now nine months into dealing (or not) with the Houthis, who operate out of the strategic nation of Yemen, located at the southern end of the Red Sea. Using combat vessels, manned aircraft, drones, cruise missiles, and ballistic rockets, Houthi forces have attacked commercial shipping in the Red Sea, as well as across environs that range from Suez to the far reaches of the North Arabian Sea. Global shipping remains at high risk in every sense of the concept. This has led to high insurance premiums on international cargoes that transit the region, plus additional time and expense for thousands of vessels to circumnavigate Africa to avoid zones of conflict. Meanwhile, U.S. naval forces, supplemented by sea and air support from NATO and other allied and friendly nations, have fired billions of dollars’ worth of munitions at Houthi targets with little appearance of mission success. Looking ahead, there’s little prospect of this situation resolving soon, either diplomatically or via Western (i.e., U.S.) military strikes. Anything could happen, and most of the options are bad. Western Hemisphere: The U.S. southern border remains effectively wide open. Unknown and unvetted masses of humanity just walk right on in because it’s that easy! That is, they walk unless the U.S. government charters an airplane to fly them to a city of their choice. Inside the U.S. border, such as it is (which isn’t much), many millions have already arrived over the past three-plus years, with millions more lined up in a long queue to make the transit, in many cases aided and abetted by various organizations that have some version of the word “charity” in their name. Yes, indeed; their charity, paid for by your tax dollars and that ineffable, now former sense of social cohesion. Meanwhile, Mexico more and more resembles a narco-state, particularly in locales near the border regions with the U.S. And this time, unlike in the summer and fall of 1916, there will be no General John Pershing to head south and chase down the Pancho Villas of today. If all of that is not enough of a national-scale headache, in recent weeks, we have seen cruise missile-armed Russian warships and submarines making port calls in Havana and a totally dodgy, so-called “election” in Venezuela, where the communists currently in power again won – so they say – a revised mandate to continue their unending reign of ideology and ruin. Global Economy: Clearly, an unwind is occurring, and just as clearly, it is growing. One root cause is U.S. sanctions against Russia, including the Western seizure of Russian sovereign assets denominated in U.S. treasuries. For well over two years, these sanctions have placed the world on notice that the U.S. government and its currency are entirely unreliable. For this, plus other reasons, worldwide de-dollarization continues, with more and more overseas greenbacks coming home to the land of Uncle Sam to buy real stuff and fuel inflation in flyover country. In other corners of the world economy, much of the global oil trade now transacts in currencies other than dollars from Russia, Iran, Saudi, and Brazil, plus other sellers. The takeaway is that the reign of the U.S. petrodollar is ending. And the U.S. economy is not geared to run well in a system in which the dollar is not the prevailing world’s reserve currency. It’s not happening instantly; maybe not even imminently. But drip-drip-drip… This is not a question of if but when and how long. Meanwhile, from the top-down ruling circles in Beijing, China has officially de-emphasized real estate construction as a means of internal growth, which will undoubtedly distort world commodity markets. And if China doesn’t interest you, note that global tech is in sell-down mode, ranging from Berkshire Hathaway paring back its holdings in Apple, to Nvidia retreating from its stratospheric valuation to Intel falling and much more. We seem to have turned a corner here. The past has ended, and now we really do have to reimagine possibilities for the future. It’s like riding Amtrak across Pennsylvania and rolling through the famous Horseshoe Curve near Altoona. From the front of the train, you can see the rear-most cars. That’s how twisted things have become. U.S. Politics: Ugh, what can one say? Well, other than to remark on how the U.S. is increasingly perceived as an ungovernable, out-of-control political entity that rolls ahead on societal inertia, coupled with near-bottomless government money creation. There is no need for deep detail other than to note how, on June 27, President Biden shattered any residual hints of being compos mentis with a rambling, flailing performance on the otherwise friendly stage of CNN in Atlanta. Then, after a couple of weeks of debating the Biden face plant, former President Trump got shot, surviving by about a quarter of an inch of bullet deflection, which reflects a 5-knot crosswind across a 140-yard rifle shot, coupled with the whims of fate. Of interest, if not hope, the Trump assassination attempt led even the abysmally bad mainstream U.S./Western media to get real for a few days. But it didn’t last long, in that our modern Baghdad Bobs reverted to form, which is, in effect, to serve as official liars who shamelessly parrot state-level propaganda. Then came Biden's withdrawal from nomination to run again for president via the mysterious Sunday letter he doubtless did not write. This was followed by Biden’s raspy endorsement of that ridiculous Kamala character, whose trademark line is that she is “unburdened by what has been,” a Marxist concept that reminds one of Mao’s vow to get rid of “old things.” The Rabid-Dog Days of Summer To wrap up, let’s return to where we began, namely, early August, traditionally referred to as the “dog days of summer.” Except that these particular dog days seem kind of rabid. If you’re interested in the analogy, this time of year is when planet Earth endures what’s usually the hottest part of the year in the Northern Hemisphere, about July 3 through August 11, according to the Old Farmer’s Almanac. It’s about as close to the sun as we’re going to get. There are old stories behind this. For example, in ancient Egypt, astronomers scanned the mid-summer, early-morning sky to discern the annual return of the “dog star” Sirius as it rose with the sun. This was the cue for floods on the Nile River, which soaked and renewed the soil, the agricultural foundation of the kingdom. Of course, Sirius is about 8.6 light years away and has nothing to do with terrestrial weather. Those Nile floods were due to monsoons far to the south in what is now Ethiopia and Sudan, but the astronomers didn’t know that. Ancient Greece lacked a great river like the Nile; rain was sparse, and floods were few. Still, Greeks of old also associated the rise of Sirius with uncomfortable weather, namely the heat of summer. In fact, this belief became embedded in Greek culture, such that Homer’s Iliad compares the warrior Achilles to “the star they call Orion’s dog; brightest of all but a fatal sign emblazoned on the heavens, it brings such killing fever down on wretched men.” Post-Greece, ancient Romans took Sirius a step further; they, too, believed that the return of Sirius each summer influenced the weather. The star brought droughts and thunderstorms, as well as poor health, bad luck, and even dogs gone mad; hence, the phrase “dog days of summer.” And like I said, it’s only the first week of August! There is more to come, so hold cash and precious metals. Watch events, engage carefully, and avoid chasing momentum. That’s all for now. Thank you for subscribing and reading. Best wishes… Byron W. King Contributing Editor Rude Awakening Rate this email Like Dislike Thanks for rating this content! Looks like something went wrong. Please try to rate again. In Case You Missed It… The Three Horsemen of Fintwit SEAN RING Dear Reader, Last Friday, I was hopeful for a quiet weekend. I wrote this in that edition of the Rude: We’ve got nonfarm payrolls and the unemployment rate. Barring any massive deviations from the consensus, we should close the week in relative peace. However, the market had other plans. It was a tumultuous Friday, and today seems to be following suit. Friday the Bloody: NFP and Unemployment The First Horseman is unemployment. The Fed has been monitoring inflation for so long that it has neglected the other important issue: unemployment. Nonfarm payrolls came in weak for the first time in ages. The market was expecting 185,000 new jobs to be added, but only 114,000 were created. Also, June’s number was revised downward from 206,000 to 179,000. It’s the lowest level in three months, below the average monthly gain of 215,000 over the prior 12 months, signaling the labor market is cooling off. The nation’s unemployment rate also jumped to 4.3% from 4.1%. Now, Jay Powell is under immense pressure to take action. Thanks to the current situation and the factors at play, a significant 50 basis points (0.5%) cut could be possible before the next FOMC meeting. This decision could have far-reaching implications for inflation. Next, we cross the Pacific. [Elon Musk’s Final Masterpiece: X-9840]( After revolutionizing the payment processing industry with Paypal…The space exploration industry with SpaceX…And the auto industry with self-driving Teslas… Elon Musk is now set to revolutionize MONEY with his [“Project X-9840...”]( A project he said could change “Your entire financial life.” [Click here to see the details because there’s not much time to prepare](. Elon has said he could flip the switch “as early as mid 2024.” [Click Here To Learn More]( Japan and the Carry Trade The Second Horseman is Asian. In today’s trading in Japan, the Nikkei 225 closed down 12.30% after Friday’s 5.8% drop. After over thirty years of waiting to recapture its all-time high, the Nikkei is down nearly 12,000 points off its peak. The chart below shows it didn’t take long. Credit: Trading View After years of negative interest rates, the Bank of Japan's decision to hike rates earlier this year seemed to be a turning point. However, the unexpected hike to 0.25% on August 1st sent shockwaves through the market. Suddenly, the yen was crushing the dollar. Notice how similar the charts look. Credit: Trading View In FX terms, the USDJPY was rising. The first currency (USD) in the pair is the base currency, and the second currency (JPY) is the variable currency. So when we say, “Dollar-yen is going up,” the dollar is going up, and the yen is going down against each other. It’s never yen-dollar to avoid confusion. I wrote last week: If Japanese interest rates keep increasing, the flow may reverse. Japan may start importing capital from other countries. If that happens, US Treasury bonds would have to offer more of a return to keep investors interested. That means increasing US interest rates and falling US treasury bond prices. But this will take a lot of time to bleed into the markets. That last sentence was incorrect, clearly. I can’t believe how quickly this has crushed the markets. Let me explain why. When you’re in finance, you know the fixed income markets dwarf the equity markets. You need to watch that market, not equity markets, to see signals of impending catastrophe. In 2007-2008, the fixed income markets fell apart long before the equity markets. Lehman going bankrupt and the stock market capitulating were practically the last events of the Great Financial Crisis of 2008. So what’s happening now? Because the Bank of Japan increased rates unexpectedly, USDJPY (and Aussie Yen, in particular) have been crushed. This hurts everyone who has the carry trade on. The carry trade, a common practice in banking but often unfamiliar to the general investing public, is a crucial element of international finance. Let’s take a currency with a very low interest rate, like the Japanese yen (JPY), and pair it with the Aussie dollar (AUD), which has a much higher relative interest rate. Commodity currencies like the AUD tend to have higher interest rates because, among other things, when commodity prices shoot up, the Reserve Bank of Australia, their central bank, needs higher interest rates to quell inflation. It makes sense: - To borrow the yen for practically nothing. The yen is the “funding currency.” - Then, convert the yen into Australian dollars, earning a higher interest rate. The AUD is the “target currency.” - When the deposit term is up, reconvert the Australian dollars into Japanese yen. The idea is to capture the interest rate differential. (That’s one reason interest rate differentials matter so much in macroeconomic analysis.) However, this isn’t a risk-free trade. If the AUDJPY exchange rate falls (the JPY strengthens), you can lose a ton of money on the reconversion. Let me give you an example. Let’s say today, AUDJPY trades at 109.00. So we’ll borrow JPY 109,000,000 for one year at 0.235%. We then convert those yen into AUD 1,000,000 and deposit that for one year at 4.175%. At the end of the year, we’ll have AUD 1,041,750. We need to convert that back into JPY 109,256,150 to pay off the JPY loan. Here are a few scenarios: - If AUDJPY stays at 109.00, we’ll make the initial interest rate differential of AUD 39,400. - If it's higher than 109.00, we'll make even more money, as converting back to JPY will be cheaper. - If AUDJPY falls to 104.88, we’ll break even (AUD 1,041,750 x 104.88 = JPY 109,256,150). - Anything below 104.88, and we’re losing money. The cost of reconversion to pay off the loan eats up all the profit – and more – of the trade. Where is AUDJPY now? 91.47. So if we didn’t get out of the trade yet – which we surely would’ve by now – we’d have to convert AUD 1,041,750 at 91.64, giving us only JPY 95,290,435. We’d have to convert another AUD 152,000 or so to make up the difference! That’s why everyone and his mother is selling AUD, USD, CAD, and any other target currency they used in the carry trade to buy back JPY. This is what’s called the carry trade unwind. It happens every few years, and a fair few traders get “carried out” (figuratively, on a stretcher). These losses, combined with the ongoing losses of holding US treasuries, weigh heavily on Wall Street. The Kamala Factor The Third Horseman is really a woman. Finally, I’ve got friends around the world who say, “Your stupid country can’t be serious about Kamala!” One friend, who runs a hedge fund, wrote, “I think the market is spooked by the fear of a Kamala win.” He continued, “Imagine America’s enemies licking their lips at the prospect of her… The West is f*cked if Kamala gets in.” This may be a part of what’s going on, as a Harris victory will continue Biden’s policies. And Biden’s policies are Democrat Deep State policies. If you want to know where that leads domestically, look no further than the riots all over the United Kingdom. To know where that leads globally, check out Ukraine, Israel, and Taiwan (perhaps soon). Wrap Up These aren’t the only things spooking the markets. The yield curve is now steepening at an alarming speed, initial jobless claims have trended upward, and copper has fallen out of bed. And although the dollar has been crushed, oil has also moved down. Crypto and gold have also fallen. But if Powell cuts in between FOMC meetings, we’ll know the game is up. But first, we’ll have a face-ripping rally. That’s why it’s still important to remain calm for now. Have a great week ahead. All the best, Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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