Glass Houses and BRICS

The West dodges bullet as BRICS didn’t introduce “The Unit” in Kazan. October 24, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Throwing BRICS in Glass Houses BYRON KING Dear Reader, Something is coming down the tracks like a fast freight train. It’s big, and you should understand – no, you must understand – the danger it poses to you and your hard-earned wealth. What’s about to hit will be like one of those videos on YouTube, in which a locomotive plows into a stalled truck. Don’t be that truck. Set aside the rail crash analogy. It’s not an overstatement to say that American prosperity (your money and standard of living) is in the crosshairs. We’re looking at global forces at work, and much of what’s happening can’t be controlled by politicians in Washington, D.C. In fact, over several generations, our political class has created the mess that others will now exploit. Heck, even the mighty Federal Reserve will hunker in the bunker when the effects of what’s about to happen show up. All the interest rate voodoo in the world won’t change the events that are now very much in motion. This imminent tumult is being driven by something called BRICS. I’m not saying “bricks,” as in what you use to build a wall or throw through a window. No, it’s way more than that. So, let’s dive into the matter. A Marketing Idea Transformed Into a Geopolitical Force In 2001, Goldman Sachs launched a marketing campaign to sell its services. It published a glossy report about lucrative investment opportunities in four emerging economies: Brazil, Russia, India, and China. Goldman used the term “BRIC,” based on the first letter of each country’s name. Those were the good old days, right? International tensions were far lower then, and global trade was fast growing. The U.S. and Russia weren’t at loggerheads like today. China was a go-to destination for foreign investment. India was kicking off its efforts to develop and grow. Brazil, too, was wide open. In short, things were looking peachy. As the 2000s progressed, the four BRIC nations were happy to absorb foreign investment, build out industry, and grow their trade accounts. Over time, the governments of Brazil, Russia, India, and China began to meet formally to strategize and harmonize their trade and even foreign policies. Then, in 2009, South Africa requested to join these discussions, so BRIC became BRICS. As the past two decades unfolded, the five BRICS states outgrew that cute little Goldman Sachs marketing ploy. These nations began to adopt common trade and economic policies at senior governmental levels. And now, the BRICS idea has become an alliance of important countries in the arena of global power—that is, it’s a geopolitical bloc. Along the way, other nations applied to join the BRICS, such as Saudi Arabia, Iran, the United Arab Emirates, Egypt, Indonesia, and even Mexico. These countries are essential producers of energy, minerals, and agricultural products and/or hold strategic geographies such as Egypt’s Suez Canal or Mexico’s long border with the U.S. Right now, BRICS is big, and it’s growing. It represents a combined population of over 4 billion people. The landmasses of BRICS nations hold vast mineral and agricultural resources and significant energy reserves. All of this supports productive economies with global-scale industrial capabilities and related financial power. [Claim Your Starlink Pre-IPO Prospectus]( This is a critical and time-sensitive message. It’s regarding Starlink, which is expected to be the largest IPO in history – set to take place in as little as a few weeks. And for the first time ever, we’ve found a way for you to profit BEFORE the IPO happens. One of the world’s top venture capitalists and Silicon Valley insiders has just released all of the details… including a prospectus… in this short message. [Click Here To Learn More]( The West Blundered Big-Time Now, consider how Western nations, led by the U.S., have dealt with many of these BRICS members over many years, indeed over generations. Of course, people write books on such matters as dealing with colonialism, post-colonialism, the development of emerging economies, and much more. But the short version is that, for a long time, the U.S. and the West have bossed other nations around, using Western financial and military power. Well, time has passed, and we’ve now reached a point where the U.S. has painted itself into an economic and political corner. For example, the U.S. is hamstrung by its massive federal debt, now up over $35 trillion, with nearly $2 trillion per year in interest alone. There’s no way that U.S. taxpayers can ever repay that. And lately, with high Fed interest rates, just servicing the debt has become a backbreaker to the U.S. Treasury. Looking ahead, it’s a no-brainer to anticipate that the U.S. will use all manner of monetary gimmicks to appear to stay current on its debt and interest, but the real situation will be inflation and currency debasement. Your dollars will continuously lose purchasing power. Until recently, much of the rest of the world seemed to be okay with using U.S. dollars, despite the unpleasantness of the U.S. budget and related inflation. That is, other countries accumulated dollars for exports and then turned around to buy U.S. Treasuries with the surplus. The U.S. was the world’s banker, with its so-called “reserve currency” status. Then, in 2022, Russia launched its military operation in Ukraine, and almost immediately, the U.S. government froze Russian financial assets. And it wasn’t just the assets of Russians abroad, like oligarchs' yachts and real estate. No, the U.S. government froze the financial assets of the Russian state, about $350 billion in value. And very recently, the U.S. has moved to seize those Russian assets outright, allegedly to transfer the funds to Ukraine. Okay, think about that: if you were a leader in another country, this U.S. action against Russia would concern you. If the U.S. can simply confiscate dollar-denominated funds from nuclear-armed Russia, simply because the dollars are “U.S. dollars,” then what chance does anyone else have if they step over some magic line drawn by Washington? To sum up and hit the key point, there’s now a growing sense in many nations that they must move away from transacting business solely in U.S. dollars. The U.S. has presented itself to the globe as an unreliable, untrustworthy banker. De-Dollarization Goes Global I’ll skip many other details and fast-forward to an important event just wrapping up. BRICS held a conference in Kazan, Russia, from October 22 – 24. There, the organization was expected to formalize a monetary alliance that introduced a new trading currency called the “Unit.” Though pictures are floating around on social media of President Putin holding a “BRICS note,” it isn’t official. We are incredibly fortunate the BRICS club couldn’t get it together this time. This “Unit,” when it manifests itself - and it will - is designed to undermine the global use of U.S. dollars. Don’t dismiss this idea as monetary nonsense; there’s hubris in thinking that the dollar will always be the world’s reserve currency simply because it has been for so long. Whatever you believe, the fact is, in short order, much of the world will be on an active pathway of de-dollarization. Over the past few years, we’ve already seen the beginnings of de-dollarization. Saudi Arabia, for example, has sold oil to China for yuan, while China and Brazil trade in yuan and reals. Due to sanctions on Russia, that country has been trading with many nations in local currencies, such as selling oil to India for rupees. Plus, one can find numerous other examples of bilateral deals, which are far too numerous to list here. Consider what happens when, say, much of the world’s oil trade is no longer priced in dollars; not just Saudi-China shipments, but almost everything from the Middle East, Brazil, Russia, and more. Or consider what happens when many other globally traded items are no longer valued in dollars, but in Units. Think about agricultural products or manufactured items that range from plastic household goods to sophisticated automobiles, telecommunications equipment, electronics, and much more. The bottom line is that much of the Global South is bailing out on the dollar. Which means what? The BRICS Unit Versus the Dollar Many nations are moving to make other monetary arrangements to avoid using dollars as much as possible. Based on what we know now, I expect that the BRICS “Unit” will advertise that it is backed by gold for about 40% of its value. Don’t snicker… That’s 40% more gold-backing per Unit than what stands behind the U.S. dollar. People will likely not walk around with Units in their wallets. Instead, businesses and governments will set up Unit-based accounts, and international banks will figure out how to trade in and out of Units to finance the movement of goods and services. The BRICS Unit-based economy will grow, almost surely at the expense of the international dollar-based trade economy. Over time, many nations will no longer require significant amounts of U.S. dollars. That is, they won’t need American currency to buy or sell oil, food, machinery, and many other goods. Absent day-to-day demand for dollars to finance trade, many national central banks will spend down their remaining stockpiles of dollars. We might see one last blowout as governments and businesses buy “real things” that range from gold, silver, and oil to other commodities, real estate, mines, mills, industrial facilities, and similar items. Another way to describe what’s about to occur is that a tsunami of unneeded dollars will flow into global energy and commodity markets, as well as back toward U.S. shores to acquire “real stuff” to the extent it can be owned and controlled, if not exported away from U.S. jurisdiction and our crazy politicians, laws, judges and lawyers. In the U.S., we could see massive inflation based on large numbers of dollars chasing limited numbers of things worth buying. Again, just to emphasize the point, America’s monetary destiny is no longer in our collective hands. We’re about to reap the harvest of many decades of overspending, growing national debt, rising interest payouts, deindustrialization, and general social and economic dysfunction. Bad government matters. And bad policies over several generations are about to come back at us with a vengeance. It’s not like anybody will fly over and drop bombs on our collective heads. No, the impending blowback is far more subtle, targeted, and lethal. The setup for BRICS has been many years in the making, much of it in plain sight of Western intelligence services, policymakers, and politicians, who simply denied the reality of what was right before their eyes. What You Should Do Now In a world where the dollar has serious competition, not to mention the usual issues of profligate government overspending and inflation, you want to protect yourself by owning hard assets. If you do not yet have at least some portion of your net worth in gold and silver, it’s time to start, and no, it’s not too late. The price of precious metals has risen in the past year, but this is more like the start of a major upswing. Here at Paradigm, we often mention the Hard Assets Alliance for buying precious metals. In the interest of full disclosure, we have a relationship with this group, so we’re biased. Still, it’s a solid, well-run company. Give them a look, or consult your own favorite metals dealer. Then we come to actual gold mining plays like Barrick (GOLD), Newmont (NEM), and Agnico Eagle (AEM). These are all solid companies as well and large enough to offer deep liquidity. Plus, they will be among the first names to benefit from a stock market rush into mining names when it dawns on investors that the dollar is in trouble based on BRICS. Another place to look for safety is large, well-capitalized energy plays. Look at integrated, dividend-paying companies such as ExxonMobil (XOM), Chevron (CVX), and Shell (SHEL). Don’t overlook service companies, either, especially big, globally important names like Schlumberger (SLB) and Halliburton (HAL). We don’t track all these stocks, but I follow them. If you buy in, be sure to use limit orders. Follow the charts and wait for down days in the market. And never chase momentum. Frankly, there’s no shortage of companies that offer solid, well-run businesses that ought to do well in the future, no matter what happens with the dollar. These companies also offer protection on the downside in the face of new scenarios, such as we see with BRICS. In essence, you want companies with cash flow from operations and technical prowess that will be in demand no matter how things unfold. And just as important, be mentally prepared to understand what’s happening when the dollar begins to lose purchasing power in ways and at rates you haven’t seen in a lifetime. Like I said at the outset, there’s a train moving down the tracks. Do not be the truck that can’t get out of the way. Protect yourself with hard assets. With that, I’ll end here. Thank you for subscribing and reading. Best wishes, Contributing Editor Rude Awakening P.S. – Yes, BRICS is happening and possibly changing the world in its own way. That, along with much else going on. How do we make sense of it all? Check out the annual New Orleans Investment Conference, this coming November 20 – 23. It’s scheduled two weeks after the upcoming elections, so we might even know who the next U.S. president will be! To be clear, this event is unrelated to Paradigm Press Group, but our editors have long attended and even been speakers at this great old Mississippi River get-together. You'll see in NOLA the new incarnation of the old Jim Blanchard Gold Conference, updated to current events and issues. And this year marks the 50th annual gathering, so you’ll benefit from an outstanding and deeply informative event, with superb speakers and exhibits, all in the main hall of the Riverside Hilton. You can attend in person (recommended!) or stay home, log in, and watch it virtually. But one way or another, please sign up. I’ll be there, for sure. Again, for more details, [go here.]( Many thanks, and I’ll see you in NOLA! 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… If Powell Cut, Why Are Rates UP? SEAN RING Jay Powell, you deserve this. Look, I’m sure you’re a nice enough guy. And you’re one of the few bureaucrats left in Washington who means well. I know you view yourself as the last line of defense between a sensible economic policy and oblivion. But your addiction to “data dependence” is your undoing. You’re a lawyer, Jay. Stop pretending to understand how the data is compiled. You’re a driver, not an engineer. My favorite philosopher, the utter miseryguts once known as Arthur Schopenhauer, once said, “Talent hits a target no one else can hit. Genius hit a target no one else can see.” Stop trying to hit a target, Jay. You don’t need to be talented. You need to be a genius. And that means seeing things before everyone else does. The Keystone Cops Monetary Policy The Keystone Cops were fictional, incompetent policemen featured in silent slapstick comedies between 1912 and 1917. They were funny the first few times you saw them, but their popularity waned. You know, kind of like the Fed’s. I told you to cut rates in June, Jay. You would have been so far ahead of the curve that you could’ve—and should’ve—sat out this crazy election. But you didn’t move then, because you wanted more data. Next, July’s FOMC meeting came and went without you moving… again. Then you took August off, like the Fed does every year. Finally, the September meeting came, and you pooped the bed. You cut by 50 basis points instead of 25. You told the market something was wrong by pulling that stunt. Do you know how I know that? Because a month later, market yields are UP, not down, by 50 bps! You cut the base rate, and market rates have increased since you did so. Credit: [US Treasury Yield Curve]( It seems we’re partying like it’s 2008 – the last time this happened. How can this be? [Click Here To Learn More]( What’s In a Yield? For simplicity’s sake, “yield” is synonymous with “return.” Why do we have two terms? It’s hard to say, but back in the day, banks specialized in one thing. If you wanted to be a great retail banker, you worked for Citibank. If you wanted to work in a money center bank, you worked for J.P. Morgan. If you wanted to be in equity, you worked for Morgan Stanley. If you wanted to be in M&A, you worked for Goldman Sachs. If you wanted to be in bonds, you worked for either Lehman Brothers or Salomon Brothers. Then, at the behest of Larry Summers, Bill Clinton talked Congress into repealing the Glass-Steagall Act, which separated commercial and investment banks. (That’s why J.P. Morgan and Morgan Stanley became separate entities.) The repeal allowed commercial and investment banks to merge and created the mess we’ve been in for the last quarter century. Anyway, they worried about “yield " in fixed income houses and " return” in equity houses. [Alfonso “Macro Alf” Peccatiello has a great way of breaking down yield.]( I’ll use his definition, with only grammatical corrections, as it’s intuitive and easy to understand. But what makes up a yield? Simply put, yield = growth expectations + inflation expectations + term premium. Growth expectations When it comes to economic growth, we must consider two angles: structural and cyclical growth. Structural economic growth can be generated through more people joining the labor force (good demographics) and/or more productive use of labor and capital (strong productivity trends). An economy's ability to generate structural growth is an essential driver behind long-dated bond yields (strong structural growth = structurally higher long-dated yields and vice versa). Short-term economic cycles also matter for bond yields, particularly at the short end. Cyclical growth trends are driven by the credit cycle, the fiscal stance, earnings growth, labor market trends, and more. The healthier they are, the higher short-end bond yields can be pushed due to a likely tightening from central banks that might grow worried about economic overheating and inflationary pressures in such an environment. Inflation expectations The second component driving nominal bond yields is inflation, but NOT TODAY's inflation - instead, we are referring to long-term inflation expectations. Central Banks might temporarily react to concentrated bursts of inflationary pressures by raising short-term interest rates. Still, investors will always pay close attention to inflation expectations when it comes to long-dated bond yields. That's because consumers and borrowers will tend to make crucial decisions based on these rather than volatile short-term inflation trends. Term premium An investor looking to gain fixed-income exposure can buy 3-month T-bills and roll them each time they mature for the next 10 years. Alternatively, it can decide to purchase 10-year Treasuries today. What's the difference? Interest rate risk! Buying a 10-year bond today rather than rolling T-Bills for the next 10 years exposes investors to risks—the term premium compensates for this risk. The lower the uncertainty about growth and inflation, the lower the term premium and vice versa. So What Happened? When Jay Powell and his crew cut by 50 basis points in September, the market immediately knew something was wrong, as we did in the Rude. Growth expectations may have been dampened, but long-term inflation expectations and the term premium roofed it. This is precisely why central banks must remain calm and ahead of the curve. To remind you, the last time this happened was in 2008. What did gold and silver do from 2008-2011? Why is Costco selling gold bars as soon as they come in? Gold and silver may be slightly overbought, but things can stay overbought for a long time. Wrap Up Get ready for some turbulence. If you’re already long gold and silver, you’re doing all you can. Keep some extra cash in your drawer. The USG is in serious fiscal trouble, and the Fed needs to regain control of the economic narrative. Rates will continue to rise as the Fed fooled no one with its latest stunt. Stay vigilant and aware. All the best, Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( ☰ ⊗ [UPDATE PREFERENCES]( [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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