On the Question of Current and Future Lockdowns

By John Mauldin

Simply discussing COVID-19 will undoubtedly make this letter controversial and, in some circles, political. That is not my intent. I truly believe that something affecting all of us so deeply should be kept in the scientific realm to the extent possible, not the political. Sadly, that is not the case today in many countries.

My theme today is on the pandemic’s future economic impact, especially in the United States. It is relatively easy to look back and see what happened, but I am more interested in future responses. In the US, we have tried a wide variety of experiments in various states over the past six months, some which seem to have worked and some that have been less effective.

I am going to make some suggestions about how we move from here. I can guarantee you that no one will be happy with everything I write. This is an emotional issue. What follows are just my feelings and observations

In general, here is what we have learned.

First, the median age of fatalities seems to be around 80. Deaths below that age level are highly associated with one or more conditions like obesity, hypertension, heart disease, diabetes, a weakened immune system, etc. Deaths among those under 20 are quite rare.

The estimated Infection Fatality Rate is close to zero for younger adults but rises sharply with age, reaching about 0.3% for ages 50–59, 1.3% for ages 60–69, 4% for ages 70–79, and 10% for ages 80–89. 

That is not to say that every death does not matter, and when it is your loved one, it is tragic. I get that. Truly, I do. But according to CDC data, only about 6% of COVID-19 deaths were from COVID-19 alone. All the others had at least one comorbidity associated with them and, on average, all US deaths had 2.6 additional conditions

Second, the lockdowns created a depression-like economic reaction in the first quarter and even though the economy has rebounded, it is still in severe recession territory. It’s impossible to say otherwise when over 800,000 are people still applying for unemployment benefits every week.

Third, both health and economic impacts have skewed toward those of lower income and ability to recover. Those of us lucky enough to have jobs where we can work from home have seen relatively less damage, and in some cases even improvement, at least from an employment standpoint.

With the benefit of hindsight, I am sure that we would’ve made different choices in terms of our response to the disease. It would’ve been nice to have a stockpile of N95 masks and other PPE gear. Efforts are underway to remedy that problem, but those will likely take years to actually prove successful.

A Bit of Good News

The justifiable concern about hospitals being able to handle large numbers of cases seems to have improved. Further, treatment practices and medicines have increased and will continue to get better.

Likewise, hundreds of vaccines are in some stages of trial/testing. There are over 30 vaccines currently in a phase 3 trial. To put it in hockey or soccer terms, that is over 200 shots on goal.

Given the wide variety of approaches, most will either fail because they don’t work or have harmful side effects, or they are uneconomic. But the good news is we only need a few to help bring the disease under control.

Further, as time passes, we get closer to herd immunity. And while that is a nebulous concept, as we are not sure quite what the number is for this particular virus (here the scientists strongly disagree with each other), like every flu pandemic that we have had in the past 70 years, herd immunity is eventually reached. We have to hope that immunity to this virus is long lasting, otherwise all bets are off.

As an aside, everyone has learned today that the elderly long-term care facilities are at risk. In many countries, 50% to 60% of COVID-19 deaths are from care facilities. In some countries, it approaches 80%. While every death is horrible, life expectancy for those victims was often short already.
The length of stay data are striking:

  • The median length of stay in a nursing home before death was five months 

  • 65% died within one year of nursing home admission 

  • 53% died within six months of nursing home admission 

There is a reason insurance companies that offer long-term healthcare insurance provide a significant discount for the first 90-day exclusion clause.
That is because they know the risk of dying soon after you enter a healthcare facility is quite high. That’s just a very sad actuarial fact.

Cases in the US are now trending down with the exception of locations associated with super spreader events like the Sturgis motorcycle gathering. It was more than just North and South Dakota, but you can track increases back to where a motorcyclist went home and see smaller spikes there.

What Do We Do Now?

Many experts see high odds of an increase in both cases and hospitalizations (and thus deaths) as winter approaches. There will be a natural tendency to want to go back into lockdown mode. We can’t do it.

A lockdown on the level that we had in the second quarter would throw the economy into yet another depression scenario that would be even harder to escape. Hundreds of thousands of small businesses, and a few larger ones, are simply going to go out of business as it stands today.
That represents millions of jobs. Another lockdown would make the situation even worse.

Interestingly, according to the Wall Street Journal, “The U.S. Centers for Disease Control and Prevention, in its 2017 community mitigation guidelines for pandemic flu, didn’t recommend stay-at-home orders or closing nonessential businesses even for a flu as severe as the one a century ago.”  
The World Health Organization (WHO) Writing Group, after reviewing the literature and considering contemporary international experience, concluded that “forced isolation and quarantine are ineffective and impractical.” Canada’s pandemic guidelines concluded that restrictions on movement were “impractical if not impossible.” 

Of course, there were other authorities and government officials who disagreed with those suggestions and promoted lockdowns. I am not going to argue whether or not the decisions were proper. That’s water under the bridge. I am arguing that we cannot pursue future lockdowns to the extent that we did.

So what do we do?

First, we have to figure out how to protect those who are most vulnerable.
They must be supplied with N95 masks.

Second, we need to recognize that people are dying as a secondary effect to the lockdowns. There is a significant spike in deaths of despair, drug use, and suicide.
Doctors in Denver noticed that there was a reduction of heart attack victims coming to hospitals. They found that the number of people dying of cardiac arrest at home in the two weeks following the statewide stay-at-home order was greater than the total number of people who died of COVID-19 in the city during that time.

New cancer diagnoses have fallen off significantly. That means people are not coming in for checkups, and when (or if) their cancer is eventually discovered, it will be later stage and thus more likely to be fatal.

In England, there was a 50% decline in admissions for heart attacks as people were concerned about going into hospitals with COVID-19 patients.
The result was 40% more people dying from lower-risk treatable heart conditions.
For strokes, the situation is further exacerbated by living alone and not having visitors as 98% of emergency calls for strokes are made by someone else.

(My own daughter, Amanda, who was the picture of health, experienced a severe stroke. Fortunately, her husband found her within a few minutes, as he was working from home. He got her to the hospital where she recovered. Now she is back out in the community and working, but many are not so fortunate.)

There are other knock-on effects. Tuberculosis kills 1.5 million people each year. According to one estimate, a three-month lockdown across different parts of the world and a gradual return to normal over 10 months could result in an additional 6.3 million cases of tuberculosis and 1.4 million deaths.
A six-month disruption of antiretroviral therapy may lead to more than 500,000 additional deaths from illnesses related to HIV, according to the WHO. Another WHO model predicted that in the worst-case scenario, deaths from malaria could double to 770,000 per year.

While lockdown may seem to protect us from an immediate known problem, the unintended consequences are killing just as many people from different sources and few of those deaths make it into the media.

Third, we need to do the obvious. While the use of masks is controversial in some quarters, and not legally mandated everywhere, I believe we should continue using masks in public places—especially if you are older (like me) or have a comorbidity.
Social distancing is also effective Interestingly, normal flus and other infectious diseases are down thanks to social distancing and mask usage. (Dr. Mike Roizen and I wrote about this last June, and it is still accurate.)

Fourth, until we have a vaccine or have clearly obtained herd immunity, and the risk is no more than that of a normal flu, we should avoid mass events like football games and arena sports. And it should go without saying to wash your hands frequently.

And speaking of herd immunity, let me refer to a country that is somewhat controversial: Sweden. It did not pursue a lockdown strategy. It kept its schools open and reopened them again. It had 5,800 deaths as of a few weeks ago.
Seventy percent of those deaths were in long-term care facilities, most of them occurred early on, providing the spike in its initial death rates. And while everyone was agonizing over the deaths in Sweden, there were more deaths in Sweden in 1993 and 2000 from the flu than from COVID-19 this last year.

Today, deaths and hospitalizations in Sweden are in the single digits and zero most days.  Its policy worked, at least for the Swedes. Sweden may be a bad analogy for the US. Its population simply has less comorbidities.  

Fifth, we need to figure out more precise and reasonable social-distancing methodologies. Arbitrary 50% rules for restaurants may not make sense in every case.
The actual distance between tables is what is important. Most restaurants, for example, can’t be profitable at 50% capacity The same goes for almost any retail business or public place.

Sixth, businesses should consider reserving times for those who need additional protective measures. Again, using the restaurant example, maybe dinner from four to six for those who are older or vulnerable so that they can feel comfortable getting out again, with more distancing between tables for that period of time.

Seventh, we clearly need to improve the availability of not just masks and other protective gear but also important drugs and medical supplies. Temporary tax breaks to encourage the building of facilities within the US may be useful. I know that a bill has been introduced in Congress to make it easier to produce pharmaceuticals and equipment within Puerto Rico.

(Interestingly, not that long ago, there were significant tax advantages for pharmaceutical companies to locate production in Puerto Rico. For whatever reason, those were removed and eventually the pharmaceutical companies left, but there are still enormous facilities that could once again be used for pharmaceutical production.

Eighth, I wrote about the potential for 205 to 222 nm ultraviolet light (UVC) to kill not only this coronavirus but all viruses and bacteria without harming humans. It turns out there are several companies working on such products. Right now, they are terribly expensive. But with the development of a simple LED capable of producing that light, the cost would drop by several magnitudes Not only would this protect us from COVID-19, but it would protect us from other infections in the future. It would help in other ways, too. Fifty thousand people a year die from hospital-acquired infections. This would cut that into a fraction. This type of lighting should become ubiquitous not only in businesses but also in the homes of at-risk people.

It would not take a great deal of money to make many research centers focus on developing cheaper LEDs for UVC light. We would probably recover the investment quickly just by needing less PPE gear, which must be constantly replenished. Not to mention the future lives saved around the world. Honestly, this is probably the most productive suggestion I made so far, at least from a long-term standpoint.

The Risk of a COVID-19 Spike and the Federal Reserve

Dr. Woody Brock, in his latest “Quarterly Profile,” gave us the submitted wisdom:

Looked at differently, the Fed's newest policy can be viewed as a substitution of fragility monitoring for inflation monitoring.  Powell has just stated that the Fed will now tolerate more inflation than it used to. One reason why was his concern with economic fragility -- fragility which has been created by interest rates that have been too low for too long.

Another lockdown and the economy slipping back into depression would tempt the Federal Reserve to enact even more aggressive quantitative easing, since it can no longer cut rates. That would have the unintended consequence of potentially increasing inflation, which the Federal Reserve is absolutely certain it can control (of course it is absolutely certain), and will make the economy even more fragile.

While I agree with Woody, I think the Fed has been managing fragility for decades. It was the famous “Fed put.” It has certainly made the world more fragile. And while it may seem a little arcane to want to avoid a lockdown in order to keep from tempting the Fed to give us more QE, this economist sees that as a quite worthy goal—ninth or tenth on my list, for sure, and way below doing the things necessary to preserve life, but it is still there.

It Is Time to Open Up the Economy, Slowly

I am not suggesting we open up the economy overnight. But we do need to open it up in an orderly fashion as soon as possible with the above caveats about masks, social distancing, and clearly no mass events until there is a vaccine, or the disease, like all flus in the past 50 years, simply and obviously runs its course.

I recognize that there is somewhat of a contradiction in my position. I am saying that there is a potential for the disease to spike again this winter. But because herd immunity, at whatever level we are at, has already been somewhat improved, that spike should be of lesser magnitude. Further, we have better treatments and our hospitals are not threatened with being overrun. Sometime in 2021, with or without a vaccine, we should be able to treat this as a simple risk along the lines of a normal flu, and go about our day-to-day lives.  

I will close by offering this collection of links from a close friend, who for personal business reasons must remain anonymous. He obviously leans toward the “end the lockdowns now” camp, but he provides scores of links to scientific articles and journals to back up his position. I found it quite useful. I get about this much data from one source who seemingly collects everything written within the last 24 hours and provides pages of links and summaries. It can be a bit overwhelming, but it is also encouraging to see the progress being made on the vaccine front

There are no good or easy choices, and certainly none that will make everybody happy.

Personal Observations

We find out today (as you read this) what the new restrictions will be in Puerto Rico. Right now, they are relatively strict in some areas. Restaurants are open at 50% capacity, but alcohol is not served after 7 PM, and everything is pretty much shut down on Sunday.
The current governor, who lost in her last primary election and immediately imposed much stricter lockdown rules, will tell us the new rules. The informal “betting” market is split between things being mismo (Spanish for the same) or more severe. I hope they are both wrong, in that I hope it loosens up bit, at least from the exercise/gym standpoint. A lot of people would like to get back to work. Tourism is way down.

I do hope the bill that was introduced in Congress will make its way through, as making Puerto Rico a new pharmaceutical and PPE production center would be fabulous for local workers.
As an aside, the entire island is an opportunity zone, and there are numerous new projects being worked on to take advantage of that. I think that in 10 years, Puerto Rico will be a relatively much more prosperous island.

Finally, I have a small request. We’re taking a quick survey of Mauldin Economics readers to gauge your attitudes on the economy, markets, and a few other topics. It’s completely private and will only take a few minutes.

With that, it’s time to hit the send button.
Have a great week and stay safe out there!

Your cautiously optimistic about COVID analyst,
John Mauldin
Co-Founder, Mauldin Economics

INFLATION – DOW 50,000 – GOLD $50,000

by Egon von Greyerz

The buzz word of Central Bank Chiefs at Jackson Hole was INFLATION: “The Fed to tolerate higher inflation” says Powell, “ECB to inject more monetary stimulus to ensure inflation” says ECB Chief Economist, “Bank of England has ample fire power to support UK economy…… and not tighten monetary policy until inflation returns“ says Governor of BoE.


So here we have the Chiefs of three of the mightiest central banks in the world speaking with one voice and telling the world that the solution to the world’s financial woes is inflation. Kuroda, the Governor of the Bank of Japan would have said the same since they have been trying to get inflation above one percent for almost 30 years.

All these chiefs are singing from the same hymn sheet. Their language is veiled which is the normal central bank speak. This is not a question of tolerating high inflation. Inflation is already here but the way it is conventionally measured hasn’t yet shown up in prices. But the central bank (CB) heads know what is next. It is inevitable that the 30% or $6 trillion increase in CB assets this year will have a major inflationary effect.

Anyone following Austrian economics would have known this for quite some time since in Austrian terms, the proper definition of inflation is increase in money supply.


What is absolutely clear is that CBs around the world have not just turned on the money spigots but they have had to resort to Bernanke’s old catchphrase of Helicopter Money. The $6T CB money so far is just a few initial specs in the ether. The next phase will see massive dark clouds of money covering the sky.

We will see inflation that the West hasn’t seen since the 1970s. Eventually it will turn to hyperinflation.

The Fed will naturally lead this exercise as the biggest CB of them all and also with the biggest vested interest. And president Trump will use all his might to run those printing presses ever faster in order to enhance his chances of being reelected.


For the last twenty years, I have been more concerned about risk and wealth preservation than opportunistic gains in the stock market. Overall this has worked very well since for example the Dow has fallen 70% against gold since the peak in 1999. (See chart further down.)

So with gold outperforming virtually all investment classes in this century why get involved in stocks, especially since physical gold held outside the banking system offers so much better protection.

At the end of January this year I forecast that a stock market crash was imminent and we saw falls in stocks of 30% around the world. But the recovery since then has been dramatic and many indices have made new highs although most European markets haven’t and nor has the Dow, yet.

So on the one hand, the state of the world economy, the debt, the bad debt, the fragile financial system, the unemployment, the collapse in GDP, Covid, the social unrest and many more factors certainly makes me extremely concerned about the world economy and financial risk.


But as Tewje in Fiddler on the Roof said, “on the other hand”, a secular bull market seldom finishes like this. A secular bull market finishes with pomp and circumstance, with fireworks and with fanfares and we haven’t really seen any of that.

If we are now near the end of a major cycle and era, there must be a proper sendoff. So my “on the other hand” scenario is that we might now enter a spectacular final 12-18 months of an inflationary explosion thanks to the generosity of the central bankers around the world.

In the final send off, everyone is sucked into the stock market, professionals, amateurs, as well as orphans and widows. No one will be left outside this the most spectacular finale in history. It will be like the Nasdaq in 1999 when everyone was a stock market genius. Everyone who had never invested in stocks before, then became an absolute expert on tech stocks.

If this scenario is correct, there will clearly be massive opportunities in stocks. Commodity stocks and especially gold and silver stocks will do spectacularly well. But there will be many other exciting stocks like smaller or medium sized tech and biotech companies.

My 81 year old aunt in Florida, for example, who had never invested in stocks before became, in the late 1990s, a Nasdaq expert. She was watching the ticker on CNBC all day long. She was so good that she even taught her cleaning lady to invest in stocks and she also became an expert.

This was for me the epiphany. When the blind leads the blind into the stock market at the very end of a bubble, it can never end well. And it didn’t, of course. I am sure they both lost 80% or more, as most people did. But no one ever talks about their losses, only their gains.


The other interesting point if this scenario is correct is that Coronavirus is not going to kill the world. Many countries are already overreacting and locking down economies that don’t need to be locked down. It is a fact that especially in Western Europe, both hospitalisations and deaths are greatly reduced. In my two home countries, Sweden and Switzerland, there are very few in hospital and only the occasional death every 2-3 days.

These could easily be due to normal flu or other circumstances. Number of cases are increasing but that is probably due to more testing. But it is crazy to lock countries down just because more people are tested positive for flu.

And the mad rush for a vaccine is only going to cost governments fortunes and benefit big pharma. No flu vaccine has any year been more effective than maximum 10-20% and that is after many years of testing. No one must believe that an imminent vaccine will help anyone but big pharma.

Just look at Sweden. No lockdown, no quarantine, life has continued as normal, restaurants and bars have stayed open and so have schools. The early deaths were mainly in old people’s homes and today very few are dying overall. Businesses and factories have continued to operate and GDP was only down 8% in Q2 against -33% in the US. Switzerland was even better with only 6% decrease in Q2 GDP.


Can I be wrong with my short term bullish scenario? When someone who has been very bearish on the market for a long time starts to talk about a spectacular final rally, it might be the right time to become really bearish.

Of course I can be wrong. Risk is very high but the final move or melt up can go on for longer and higher than any bear can imagine and the combination of inflation hungry central bankers and unlimited money printing is very likely to fuel this coming massive liquidity event.

So how does this relate to the number one wealth preservation asset in the world – gold?

Well, it is consistent with what I have been saying for quite a few years. I believe that gold will continue to outperform the general stock market as it has for the last 20 years. And I still believe that the Dow/Gold ratio will go to 1:1 as in 1980 when gold was $850 and the Dow was 850. I actually think that it will go below 0.5:1 but that might take a bit longer.

So in a high inflation scenario, gold can go to $50,000 and the Dow to 50,000. This would mean that the Dow doubles and gold goes up more than 25x. Sounds very plausible in my mind.

At some point when hyperinflation rules, the economy will turn down and the printed money will be totally worthless.

At that point, stocks and gold will decouple and gold will continue up whilst stocks will fall or be stagnant.


The way we at MAM look at the world, stocks are a much bigger risk than physical precious metals stored outside the financial system. If my slightly altered scenario is correct, it will certainly be worthwhile to hold some of the stocks I mention above.

But investors must remember that the foundation of their wealth preservation pyramid must consist of gold and silver and also that the potential gain for gold is vastly greater than in a final stock market melt-up.

Also, although I am somewhat changing my stance, it is only a matter of change in timing and not of the final outcome. If we get this inflationary blowoff in stocks in the next 12-18 months, it doesn’t change the end game. The end game is still hyperinflation that turns into a deflationary implosion and depression that lasts for one or many decades.

Remember also that gold is wealth protection and money even in a deflationary scenario although it won’t be at the frothy levels. When the implosion starts, the financial system is unlikely to function for quite some time. At that moment gold and silver will be money as they have been in every period of crisis in history.

Turkey Means Business in the Eastern Mediterranean

Erdogan is determined not to back down.

By: Hilal Khashan

Turkish President Recep Tayyip Erdogan is on a mission to remake the Eastern Mediterranean.

Within Turkish society and across the country’s fragmented political landscape, there is a consensus that the decision to cede islands in the Aegean Sea to Greece decades ago was a tremendous mistake.

Thus, in 2017, at a welcoming ceremony during the first visit to Greece by a Turkish president in 65 years, Erdogan stunned Greek President Prokopis Pavlopoulos by saying the 1923 Treaty of Lausanne, which established the borders of modern Turkey following the collapse of the Ottoman Empire, needed to be revised.

It’s not hard to see why Erdogan places such stock in the region: The recent natural gas discoveries in the Eastern Mediterranean are massive. For Turkey, gaining access to energy sources is a key foreign policy objective, and a matter of territorial sovereignty, entitlement and rectifying past injustices.

Ankara’s Demands

Much to Ankara’s chagrin, the Treaty of Lausanne essentially made the Aegean Sea a Greek lake and enabled Athens to challenge Turkey’s access to trade lanes at will. Turkey has never come to grips with the fact that, for example, the island of Kastellorizo (known as Meis in Turkish) that lies one mile from the Turkish coast and 360 miles (580 kilometers) from the Greek coast belongs to Greece.

What aggravates Turkey most is that the island, which measures 3.5 square miles, has a 15,500 square mile exclusive economic zone. Turkey did not envision this becoming an issue in 1923. But last week, the Greek government announced that it would submit a bill to expand Greek territorial waters in the Ionian Sea from six nautical miles to 12. Turkish Vice President Fuat Oktay said it would be a cause for war if Greece were to expand its territorial waters farther east where Turkish interests are at stake.

Turkey does not recognize maritime agreements that delineate waters around Cyprus’ coast. In 2017, it dispatched naval vessels to surveil a ship drilling on Cyprus’ behalf. A year later, it prevented another ship from prospecting in what it considers its continental shelf. Ankara lacks allies in the Eastern Mediterranean, save for the Tripoli-based Government of National Accord in war-torn Libya, with which Turkey signed a maritime boundary agreement in November 2019 that drew sharp criticism from Greece and Egypt.

Turkey has used its Blue Homeland doctrine to justify expanding its jurisdiction to 177,000 square miles into the Black Sea, the Aegean Sea and the Mediterranean. It has even refused to sign the U.N. Convention on the Law of the Sea because it allocates EEZs to islands and islets, and thus would give jurisdiction over its expanded claims to other countries.

Anti-Turkish Coalition

The Blue Homeland doctrine is highly controversial, especially among Turkey’s neighbors. One of its main challengers in the Eastern Mediterranean is Greece, which says that Turkey’s hydrocarbon exploration operations violate its rights under the 1958 Geneva Convention on the Continental Shelf. Ankara, which didn’t sign the treaty, insists that it is defending its own rights. It believes that the European opposition to it stems from a European bias against Muslims.

In terms of military capabilities, Greece is no match for Turkey. It is therefore trying to secure the support of its allies. The European Union has backed Greece’s claims and threatened to impose sanctions on Turkey. The recently established seven-country EastMed Gas Forum has excluded Turkey, arguing that its EEZ – at least in the eyes of other Mediterranean nations – is small and irrelevant. Last month, Greece and Egypt signed a maritime agreement to demarcate their EEZs, several months after Turkey and the GNA agreed to a similar deal.

Greece and its allies have also held frequent naval and air exercises and threatened Turkey with war. The French, who have vociferously condemned Turkish escalation, added muscle to their rhetoric by sending naval vessels to the area.

France has a vested financial interest in the region; French oil giant Total stands to earn billions of dollars from its partnership with the EastMed Gas Forum.

Erdogan’s Determination

Erdogan has given up hope that Turkey will one day join the European Union. During his tenure, he’s visited countries like Russia, the United States and Qatar more often than European nations. Indeed, he has been anticipating trouble in the Eastern Mediterranean and preparing the Turkish navy for such a possibility through an ambitious modernization effort.

Erdogan is testing Europe and taking advantage of its indecisiveness and internal divisions. He violates Greek sovereignty in the Aegean Sea, for example, while simultaneously calling for dialogue. Meanwhile, he’s taking stock of the US. position, knowing that Washington will not let the situation escalate to war.

But if it does, Erdogan will not back down. He wants to rewrite history. Whether he succeeds is another matter. Turkey’s founder, Mustafa Kemal Ataturk, drove Greek forces out of the Turkish mainland, and Erdogan wants to outdo him by making Turkey the dominant maritime power in the Eastern Mediterranean. But to do so, he must contend not only with Greece but also with France and the United Arab Emirates, both of which, he is convinced, are conspiring to limit Turkish influence.

Three weeks ago, France deployed a naval frigate and fighter jets to the Eastern Mediterranean amid tensions between Turkey and Greece. The UAE also sent warplanes recently to the Greek island of Crete for joint exercises, though it’s unclear how long they will remain there.

Indeed, the UAE has made a concerted effort to contain Turkey throughout the Middle East, North Africa and Horn of Africa, for example by using the al-Shabab Islamic movement to target its emerging ties with the Somali government.

Ankara simply can’t tolerate having UAE fighter jets flying a few miles off the Turkish coast, especially not after the UAE air force bombarded Libya’s al-Watiya air base near Tripoli and destroyed Turkish surface-to-air missile systems. Later this week, the Turkish navy is set to hold drills off the coast of Iskenderun in Hatay province near Cyprus.

The U.S. does not want war in the Eastern Mediterranean and has made it a point to avoid criticizing Turkey. Indeed, both the U.S. and Germany have stressed the need for dialogue to resolve the dispute.

But the U.S. will not turn on the Turks despite Greece's pleas to do so. In fact, the USS Winston Churchill has just completed joint exercises with the Turkish navy, illustrating Washington’s view of Turkey as an ally.

Turkey possesses military and diplomatic assets that are unmatched in the region, and should war break out, it would spell the demise of NATO. France may be capable of inflicting heavy losses on the Turks, but it cannot defeat them, and it’s a Western Mediterranean power anyway.

The French will eventually have to return to their side of the Mediterranean, but for the Turks, the Eastern Med is home.

The Perfect Economic Storm To Stack Up On Gold

Man Yin To


- Central bank reserve is proven to be an effective early warning indicator for predicting a currency crisis.

- The world has been secretly stockpiling gold for decades, which is not a good signal.

- If we are to return to the gold standard, the yellow metal should be revalued to $14,000-$35,000.

Recently, gold has seen a lot of movements and volatility. With its price is about to return to the level of $2,000, could it be the right time to take profit now, or is it better to wait until it records a new high?

If I were you, I would simply buy-and-hold and completely ignore the negligible fluctuations, because I am telling you that gold could hit $14,000 or even more. It is understandable that it may sound a little bit speculative, but consider the rise of value will not be linear but exponential.

(Source: Kitco)

We are entering a financial crisis that is the greatest the world has ever seen. But on the opposite side of every crisis, there always is an opportunity. The important thing is: Are you well-prepared and have the resources to play around when the moment comes?

If you have read my previous gold analysis, you may be aware that I have always preached to hold at least a small proportion of gold in the portfolio not simply for hedging against inflation, but for a monetary catastrophe such as the collapse of the currency system.

This reckoning day, as many economists believe is inevitable, will come ultimately. Now, it is best to prepare the ground, buy gold, and sit back during this perfect economic storm so that our wealth can be preserved for the future.

Insider Knowledge

To start with, let us look at what the banks have been doing lately. In a comprehensive analysis, researchers by the name of Frankel and Saravelos found central bank reserve is the most useful early warning indicator that can explain currency crisis across countries beforehand. From the chart below, it clearly shows that if the big leagues on this planet have been quietly stockpiling the yellow metal for decades, they probably know some insider information that the general public does not. In fact, since the abandonment of the Bretton Woods System in 1971, many central banks have been increasingly hoarding the most gold in their vault. So, does it signal something big could really happen soon? It could be, but our government will never tell us the truth.

If central banks really had confidence in themselves, i.e. paper money, they would get rid of all the gold in their vaults, sell it all off at high prices and put the proceeds into dollars, euros, yen or what have you. Instead they are clinging onto [gold] as something to hold on to if things really go down the drain.

--- David Marsh, a researcher with the OMFIF.

(Source: Isabelnet)

Fall of a Giant?

History has taught us the fiat system would often end up disastrously, and it is just a matter of time before people will wake up from the American dream to realize they are living in the world of excessive debt, thus creating a panic that will ever change the tide of the currency system.

In fact, the fiat system is so fragile that once the Fed loses its credibility, people would immediately dump their money and rush to something like gold that has intrinsic value. As a worldwide reserve currency, the dollar theoretically is less vulnerable but a handful of people abandoning the currency will be sufficient to create the butterfly effect that will influence the mass population.

The value of the dollar will soon decay with less and less people and countries are using it as medium of exchange. Currently, there is an increasing trend that countries are becoming less reliant on the dollar as per the chart below, which could pose a challenge to it as being the world's leading currency should the trend continue.

(Source: Wolf Street)

Gold Revaluation

For decades, there have been ongoing debates by politicians and economists of whether the world should return to the gold standard in case of the failure of the current system. Indeed, if central banks think they can print their way out of oblivion, then returning to the old ways might bring more benefits than harms.

I bet many Americans have already forgotten the day where the government confiscated their gold at $20.67/ounce and subsequently revalued it to $35/ounce in 1933. It was a legalized robbery that could happen today should the government deem it is necessary to protect the currency system a second time.

Jim Rickards, the former Wall Street veteran and best-selling author, claimed “$10,000 an ounce is not pie in the sky”. From the table below, I updated Jim’s forecast made in 2016 with the newest statistics.

If the world is to return to the gold standard, the yellow metal could be revalued to $14,000 or $35,000, in accordance with 40% or 100% reserve ratio, respectively. Do not be surprised at all, for this revaluation is not exaggerated in any case.

Back in the 1930s, gold was revalued to $35/ounce while the dollar still remained 75% of its purchasing power. Today, the dollar has lost more than 99% of its original value. Considering the speed of mining can never catch up with the Fed's printer, the valuation is very reasonable.

Key Takeaway

This article whatsoever does not encourage anyone to speculate nor to support the idea of fully loaded with the yellow metal.

Instead, it builds on my previous valuations to provide a new perspective for our readers. It is always worth knowing that the world is playing with fire, sooner or later it will hurt.

Hence, why would anyone ever trade their gold, the real money, for fiat, the fake money?

Ultimately, the intelligent investor is to diversify his asset classes and always include at least a small proportion of gold in his portfolio for wealth preservation in an unexpected disaster.

The COVID Middle-Income Trap

COVID-19 has had a devastating impact on middle-income countries, especially in Latin America. By helping these countries to overcome the pandemic and its economic fallout, the international community will be acting in its own interests, too.

Masood Ahmed, Mauricio Cárdenas

cardenas8_ERNESTO BENAVIDESAFP via Getty Images_perucoronavirus

WASHINGTON, DC – The coronavirus pandemic has had a devastating impact on middle-income countries (MICs). With the exception of the United States, the ten countries with the highest number of COVID-19 cases to date are all MICs. And the same is true for new daily cases and COVID-19 deaths per million population.

The economic projections for MICs are equally dismal. Household incomes will fall across the board in 2020, including for most of the 100 million additional people globally who will fall into extreme poverty in a downside scenario.

Latin America’s experience is illustrative: the region accounts for just 8.4% of the global population, but 30% of total COVID-19 fatalities to date. The International Monetary Fund estimates that GDP in Latin America and the Caribbean will contract by 9.4% this year, while the World Bank expects a ten-percentage-point increase in poverty in the region.

These setbacks come at a time when waves of social unrest are spreading across MICs. With a few exceptions such as Peru or Ghana, the main drivers of discontent – especially in Latin America – have been lackluster growth, lack of upward mobility, and demands for greater political representation and participation.

Even in better-performing economies, like Chile, many feel that their expectations and aspirations have not been met, and that those at the top of the income distribution have captured most of the gains.

To make matters worse, before the COVID-19 crisis, the end of the long commodity supercycle that had boosted MICs’ exports was threatening to reverse rising living standards. Young people feared they would end up where their parents had started a generation ago.

When the pandemic erupted, MIC governments responded with lockdowns and economic stimulus. But the effectiveness of these measures has been limited by high urban population densities, sizeable informal economies that make human contact hard to avoid, and financial constraints that are much more binding than in the rich world.

In Colombia, for example, GDP will shrink this year by approximately 7%, the largest decline on record. The pandemic-induced loss of jobs and income has already increased the share of the population living below the poverty line from 27% at the end of 2019 to an estimated 38% in May, despite the government’s provision of emergency cash transfers. Moreover, inequality has widened, with the income of the poorest fifth of the population falling by more than 50%, compared to a 33% reduction for the top quintile.

The story is similar in other Latin American countries, suggesting that the economic reversal feared by those protesting in the streets last December is already happening. Social unrest, which had been hibernating, will likely return with a vengeance.

MIC governments cannot afford a “whatever it takes” response, and are instead doing whatever they can. But whatever they can do will not be enough, and the international community would be short-sighted to ignore their plight, for at least three reasons.

First, MICs account for 75% of the world’s population, which means there can be no effective global health security infrastructure without their engagement and support. It is therefore essential that these countries have access to an effective COVID-19 vaccine as soon as it becomes available.

But as things stand, it seems that a vaccine or vaccines will go first to the advanced economies that are investing in their development. Furthermore, the World Health Organization, which is leading the COVID-19 Vaccine Global Access (COVAX) initiative together with the Coalition for Epidemic Preparedness Innovations and Gavi, the Vaccine Alliance, is – understandably – mainly focusing on the poorest countries. There is currently no guarantee that COVAX will be able to provide the vaccine volumes that MICs need.

The “missing middle” is unable to invest heavily in laboratories and clinical trials, lacks adequate disease and mortality surveillance, and receives little global aid. MICs’ rates of vaccination against other infectious diseases – already lower than herd immunity requires – have plummeted during the crisis, which will lead to global outbreaks if not addressed.

Second, global economic growth depends on the performance of emerging markets, which account for 60% of the world economy. The recovery from the 2008 global financial crisis was driven by China and, through their impact on commodity prices and trade volumes, by MICs.

That is unlikely to happen this time, so MICs will need to rely on other sources of growth to emerge from the pandemic-driven recession. Unfortunately, MIC governments lack the resources to increase public investment and de-risk private investment, so access to international finance is indispensable.

So far, MICs have had adequate access to global capital markets, but this could change without notice. Deteriorating fiscal and economic conditions have already triggered a cascade of credit-rating downgrades that could worsen. If markets close or become too expensive, MICs will need to rely on official lenders such as regional development banks. But these institutions have limited capacity to lend to MICs, and will require capital replenishments.

Other financing proposals include an issuance of IMF Special Drawing Rights (the Fund’s reserve asset) or the establishment of a special-purpose vehicle to channel the liquidity being generated by advanced economies’ central banks toward emerging markets. Concessional finance via regional institutions is also needed to meet vaccination shortfalls, finance public goods like global health security, and shore up safety nets for the poorest populations.

Finally, the world is trying to move onto a greener growth path. The bulk of infrastructure investment over the next three decades will be in MICs, and the choices they make will determine whether the world achieves zero net greenhouse-gas emissions by 2050.

A protracted crisis in MICs – where emissions are increasing faster than in the developed world – will at best delay such efforts, and could have more damaging consequences. By helping these countries to overcome the pandemic and its economic fallout, the international community will be acting in its own interests, too.

Masood Ahmed, a former senior official at the International Monetary Fund and the World Bank, is President of the Center for Global Development.

Mauricio Cárdenas, a former finance minister of Colombia, is Senior Fellow at Columbia University’s Center on Global Energy Policy.