Seven Secrets of Wealth Preservation in the Coming Chaos

James Rickards



Charybdis Scylla: Financial system collapse vs. QT

Chapter 1 - Scattergoods

CFIUS (Committee on Foreign Investment in the United States) - created by Gerald Ford in 1975.

Uranium One & Rosatom story.

"Obama, both Bushes, and Bill Clinton were globalists, defined as those willing to trade off or compromise U.S. interests for the sake of a stronger global community from which the U.S. benefits. Even conservative hawks like Ronald Reagan and John Fm Kennedy were firmly in the globalist camp."

Teddy Roosevelt and Donald Trump are imperialists/nationalists working towards American hegemony.

"Investment Secret #1: Tariffs and trade surpluses are back in style. Prepare for a more mercantilist world."

  • Includes physical gold and silver.

  • Interesting: Rickards believes in American supremacy, including its financial system not resting on gold, but advocates for gold appreciating as part of trade/tariffs/surpluses war.

Chapter 2 - Putting Out Fire with Gasoline

Only since the Cold War has the US been consistently increasing debt-to-gdp ratio outside of war periods. It was a bit the case with FDR in the 30s, but nothing close to current levels.

Factoring in the ever-growing treasury-backed junk student debt, the risk of US debt spiraling out of control is close to certainty.

Options when debt becomes unmanageable.

"Investment Secret #2: Prepare for slow growth and periodic recessions for the decades to come."

  • Avoid FAANG stocks.

  • Invest in US Treasury notes <?>.

  • Stay in cash to hedge against deflation and to be able to buy stocks when markets collapse.

Chapter 3 - Find the Cost of Freedom

Choice Architecture: "Decision makers do not make choices in a vacuum. They make them in an environment where many features, noticed and unnoticed, can influence their decisions." - Thaler & Sunstein

The (im)morality of behavioural economics as a weapon of mass influencing - right because our evolved biases are poorly adapted to our environment, but still encroaching on free choice

Its ineffectiveness:

  • prevents learning from mistakes (e.g. dangerous sport, driving)

  • ignores that humans adapt and become insensitive (e.g. ignoring plane safety instructions, automatic popup dismissal)

  • the cost on attention quickly accumulates to a high impact, plus some tail risks/intrusions (e.g. organ donor choice)

Its risks

  • policy-makers are themselves very biased .-> Does everyone following the nudges of policy makers make our society more or less antifragile?

  • governments can apply it for bad, now or later.-> fair, but so is true for most expertise-> but also true that it relies on very strong assumptions on continuity and consistency of the state (retroactive/confiscatory tax, forced "legitimacy", etc.)

  • behavioural economist consultants are biased at a macro level by trusting that government will always keep respecting individual freedoms and property.

"Investment Secret #3: Beware the hidden hand of behavioral manipulation. Watch out for nudges."

Chapter 4 - The Alpha Trap

Efficient Market Hypothesis (EMH), weak (historical prices only), semi-strong (all-public information), and strong (all public and private information). Semi-strong does not reflect reality, and strong is virtually impossible to reach in practice.

"Active managers who do produce alpha over long periods of time are those who do a better job of neutralizing behavioral biases."

Asset allocation / stock picking skewness.

The Everything Bubble

  • the consequences of the rise of passive investing

  • the limitations of historical data and past correlation (long-tail Black Swans) - the dangers of Risk Parity asset allocations, Smart Beta, and VaR... and robo-advisory.

  • Central Banks being focused on maintaining market prices at all costs

"Investment Secret #4: Seek diversification away from exchange-traded markets by allocating to cash, gold and alternatives."

  • 30% cash

  • 10% gold

  • 10% VC/PE

Chapter 5 - Free Money

Above the 85-100% debt-to-GDP ratio critical threshold, debt becomes the primary driver of non-growth.

The limit of Modern Monetary Theory (MMT): trust.

Labor Force Participation Rate (LFPR) contradicts artificial unemployment data: the US are in a recession despite being 9 years into an "economic" expansion phase.

Universal Basic Income (UBI) & Public Service Employment (PSE)

"Higher money velocity increases *nominal* GDP. Meanwhile growth in *real* GDP is constrained by debt. If nominal GDP rises faster than real GDP, the difference is inflation, pure and simple."

"Investment Secret #5: Low productivity may mean inflation... or deflation."

Barbell portfolio:

  • gold, silver, land, and other hard assets for inflation protection;

  • 10-year Treasury notes <?>, utility stocks, and productivity-improving technology companies for deflation protection.

Chapter 6 - The Mar-a-Lago Accord

Gold standard, international monetary conferences, and devaluations timeline

Exploring the feasibility and consequences of a new gold peg implemented by non-US economies.

"Investment Secret #6: Prepare for asset-backed currencies with digital gold."

Gold will go up to 10k per ounce as 40% minimum backing is required for stability, and since US, EU, China & Japan have $24tn of M1 vs. 33,000t of gold reserves.

Chapter 7 - Godzilla

Wealth inequalities

"Investment Secret #7: Allocate wealth to alternative assets."

Gold to M1 ratio. US currently at 10% while sustainable ratio threshold is around 20-40%.

Chapter 8 - Aftermath

Chinese growth is at least partially fake

US-China trade war

  • China can't win the tariff war because it imports much less from the US that China imports from the US

  • China can't win the currency war because it has two much debt <?>

Tariffs as a way to enforce domestic production

Emerging market dollar reserves, liquidity crises, and capital accounts.

  • first KPI: hard currency reserves relative to the number of months of imports those reserves can buy.

  • second KPI: Gross External Financing Requirement (GXFR) as ratio of debt maturing over the next 12 months vs. total reserves.

Emerging Markets liquidity crisis contagion.


Worst-case scenario forecast