"The Original Gold Bug" On The Coming Trade War

Written by James Dines
Posted November 24, 2018

Publisher's Note: We're fortunate enough to have access to the legendary Mr. James Dines and his renowned research. Mr. Dines is "The Original Gold Bug" and has been on the forefront of covering investing in China, giving him an unprecedented depth of perspective on the escalating trade war. 

Here is an excerpt from The Dines Letter.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club

In War: Resolution. In Defeat: Defiance. In
Victory: Magnanimity. In Peace: Good Will.

                           Sir Winston Churchill
                     The Gathering Storm (1948)

We wrote The Invisible Crash back in 1975, warning that severing the link between gold and the U.S. dollar would lead to unsustainable deficits, unpayably high debt, and end in an economic calamity. The book even dared to specify the date the deflation would begin: “in 2008.”

Indeed, American deficits began to accelerate around 1975, and then got progressively worse because there was no link to gold to force balanced budgets. Now, America’s debt is up to around twenty trillion dollars, and it is not alone in the world heading straight for an economic disaster.

We led our loyal, long-term TDLrs (The Dines Letter readers -Ed.) to gold and silver as self-defense against our unstoppable politicians when gold was at $35/ounce, figuring the avalanche of paper money would eventually be swept aside as it was to the south’s currency after America’s Civil War. As the deficit grew, we never believed politicians would ever bring themselves to voluntarily balance the U.S. budget — personally, we still don’t.

Nonetheless, we must force ourselves to at least consider whether Trump could risk a trade war, since the trade wars of the 1930s had led to a seizing up of the world’s trade, as many countries rejected imports and tried to export — but to whom?

Trump at least openly acknowledges the nation’s problem of huge annual deficits, which threatens to risk ending in a crash. We must weigh whether he would succeed, or instead destabilize the world’s economy by calling attention to a paper money backed by more paper as a figurative house of cards, vulnerable to a strong wind.

Perhaps that’s why gold and silver have gone so quiet, the metals themselves unclear as to how the current dilemma would be resolved. Our eyes are wide open and alert.

To wise TDLrs, forewarned is forearmed, so we again recommend keeping some defensive hedges because — rich or poor, it’s good to have a lot of gold and silver.

TDL has always advocated friendship with China, and even gave a press conference, after Mao died, predicting that “China will dominate the 21st century,” shocking the attending reporters. Nobody at the time believed the just-christened “Original China Bug.”

But that friendship must be fair to America, and we were outraged that China then forced American corporations to provide their companies’ secrets and know-how in order to get into China’s markets. With that “technology transfer,” it’s no wonder China grew so fast, by demanding a price for America’s right to do business in China. In order to earn membership to the World Trade Organization in 2001, China cleverly changed that requirement: instead they forced companies to include a Chinese partner — who subsequently transferred outsiders’ technology anyway.

This Chinese technology transfer requirement has finally been challenged by an American president. Trump has threatened to raise tariffs on China and block technology transfers, which shocked Chinese leaders and it remains to be seen if he gets away with it. TDL certainly hopes so! But China’s resistance to change will be ferocious, as it is a secret to the speed of their growth.

Additionally, America ran a whopping $375.2 billion trade deficit with China last year — that’s another way China gets the funds to buy the world!

Worse, America ran a deficit of $566 billion with the whole world, including China, the highest since 2008. At over a half-trillion dollars annually, that is clearly unsustainable for America. But a sudden departure from this trade imbalance that has been in place for decades will be met with understandable shock from many of America’s trading partners. This is clearly the start of a currency upheaval with no end in sight. Trump has stated that, with our huge trade deficit, America stopping those losses means it “cannot lose a trade war.” Because ending trade means stopping America’s losses!

But ending trade gains for America’s trading partners means those partners won’t be getting those trade surpluses any longer, and might that throw the world into an economic downturn of unknown depth? Causing a shift into haven investments?

We also know from long experience, that when everyone gives up on gold — it’s been near a bottom. Now listen carefully: not a bullish word can be heard about gold these days.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline, and The New York Times, among others.

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