Jim Rickards, strategist of Strategic Intelligence, believes that we’ll see the US dollar reserve status die in the next couple of years. His analysis assumes that the US will lose control of its economy…if it hasn’t already. So punters will look elsewhere to hold their money during periods of uncertainty.
But before the US loses its reserve currency title, we’re likely to see a major financial crisis which will upset the world economy.
The coming financial crash of multiple generations
The next financial crisis will be worse than the GFC, wiping out most of the world’s wealth. Jim Rickards has been warning investors about what lays ahead. In fact, he believes that it could send the world economy into a 25-year depression. Here’s what Jim has to say:
‘The next financial collapse, already on our radar screen, will not come from hedge funds or home mortgages. It will come from junk bonds, especially energy-related and emerging-market corporate debt.
‘The Financial Times recently estimated that the total amount of energy-related corporate debt issued from 2009–2014 for exploration and development is over US$5 trillion. Meanwhile, the Bank for International Settlements recently estimated that the total amount of emerging-market dollar-denominated corporate debt is over US$9 trillion’.
Indeed, Jim Rickards is calling for a dual financial crash next year! Part one will be in the US dollar-denominated emerging market corporate credit sector. And part two will arise in the energy corporate credit space.
His argument is compelling.
On the one hand, if oil prices stay low, energy companies won’t be able to repay their debt commitments next year. On the other, as emerging market currencies decline, the US dollar bull will see emerging market corporates default on their US dollar debt obligations. This has happened before. You may recall the 1997 Asian Financial Crisis. Yet this time, Jim believes that we’ll see a global emerging market crisis.
And I agree.
Yet, there’s a point of difference between Jim’s analysis and my own….
I believe that the main financial crash will come from governments defaulting on their bonds. It’s quite clear from Jim’s analysis that he disagrees.
‘How many times have you heard the phrase “bond bubble” in the past three years?
‘It seems that every time you turn on financial television or go to a financial website, there’s an analyst warning you about a bond bubble about to burst. The commentary usually consists of the observation that “interest rates are near an all-time low” and “have nowhere to go but up.”
‘There’s not much more to the analysis than that. In fact, interest rates are near all-time highs and could drop significantly, setting off one of the greatest bond market rallies in history.’
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Get ready for the double rate rise in 2015
Jim believes that the bond bull market is here to stay for one clear reason — interest rates aren’t going up any time soon. In fact, Jim argues that rates possibly could go deeply negative. Indeed, this would fuel the bond rally like we’ve never seen it before.
That said, while I believe it’s possible for bonds to rally in the short term, I expect a US interest rate rise this year.
But let’s make this clear.
Not only do I believe we’ll see the rate lift in in either September or October, it’s quite possible that we’ll see a second rate rise in December.
And when interest rates rise, bond prices will fall!
Therefore, the peak in the 30-year bond bull market is just around the corner. And, because I expect rates will never be this low again, this unfortunately means that there’s only downside remaining.
But let’s not forget, the global economy is also declining. In fact, it’s set to get worse, before it gets better. This is a trend that will blow out federal and state budgets across the world. And given the current crisis, Europe will be hit the hardest.
Be prepared for the entire Eurozone to fall apart. There’s a major contagion event on the horizon. As I’ve been warning for the better part of a year now, with rising bond yields and a declining economy, expect the majority of European nations to default on their bonds in 2016/17.
But this isn’t all…
Once the sovereign debt crisis wipes out pension funds, which predominately buy ‘safe’ government bonds, this meltdown will go global. Banks will be wiped out across the world.
So, contrary to what Rickards argues, the sovereign debt defaults are coming. And they’re coming on a global scale.
One thing is assured. When people lose their money and futures, like what’s happening in Greece today, they’ll riot. And your ‘leaders’ will do the only thing they’re any good at — blame someone else for their mistakes. Unfortunately, historically this finger pointing leads to major wars.
Are you ready to prosper from the crash?
Now, I’m not all gloom and doom. Over at Resource Speculator my focus is to not only help my readers survive the coming crash, but prosper.
Even Jim Rickards recommends that you should buy hard assets — including commodities — ahead of this financial crash.
I could not agree more.
In this case, along with the sovereign debt crisis, we’ll see a revival in commodities during 2016. Mounting geopolitical tensions should also push up the price of most commodities.
Yet, for the immediate future, I remain extremely bearish commodities. For instance, my analysis shows that gold should decline to US$931 per ounce or below this year. I’ve been warning you about this for over 18 months now.
My readers now understand when we’ll see the bottom of the resources bear market. As such, they’re prepared to buy resource stocks. And I’ve recommended them multiple strategies to gain from the destruction. One strategy is shorting gold.
If you want to know when the resources sector will bottom, how to maximise your returns, or learn how to short gold, check out my work at Resource Speculator. I’m preparing readers for the next phase of the resources bull market. See here to learn more.
Resources Analyst, Resource Speculator
Ed Note: This article was first published in Money Morning