The panel of keynote speakers came to wrap up Day One at World War D. We can’t cover it all, but there were some key points you might find interesting. A delegate at the conference asked about the risk the Chinese banking system posed to the rest of the world. Would any credit collapse there be contagious?
Jim Rickards suggested that while there was less likelihood of contagion, the great unknown was what the Chinese banks would sell if they ran into financial distress to raise cash. ‘You don’t sell what you want in a crisis, you sell what you can.’He made the point that in 2007 Japanese stocks started to sell off and nobody could figure out why. It was because hedge funds were liquidating their positions to meet margin calls as the mortgage market began to go sour. Hmm.
Rickards also rebuffed the idea that we’re living in a time of record low interest rates. Yes, he said, long term rates in the US at around 3% are low. But he said you had to distinguish carefully between nominal rates and real rates. He said interest rates were actually high in the US because with long rates at 3%, and inflation at 1%, you’re paying 2% in real terms. He then compared that to the early 80s on his own mortgage at the time, when he paid 13% rates but inflation was at 15%. In real terms, he was ahead.
Rickards argued it was feasible for long rates in the US to fall as low as those seen in Japan. This could set off one of the biggest US bond market rallies in history. Short sellers beware. His model portfolio for now includes an exposure to gold, fine art, land, cash and hedge funds or private equity.
There is, however, more to life than money. All the panel agreed that the militarisation of the police in the US was both astonishing and disturbing. The loss of liberty and the rise of neo-fascism was apparent now, and rampant. Rickards made the point that there are so many laws in the US — which nobody has a hope of reading or understanding — that practically everyone’s a criminal, without realising it. You can add in selective enforcement, as demonstrated when the IRS targeted members of the Tea Party.
And as Rickards suggested, this trend is coming to a town near you.