BALTIMORE, MARYLAND – Yesterday’s trading was inconclusive, like an argument between a husband and wife that has been going on for years.

Sellers opened with an attack that sent the Dow down 500 points. Buyers defended themselves… forcing the Dow back up to end the day with nothing decided, one way or the other.

But let’s get back to the story we were following yesterday…

Failure to Salute

As we reported yesterday, the arrest of a high-profile foreign citizen in a foreign country was an eye-opener.

Ms. Meng Wanzhou, a Chinese citizen, was jailed in Vancouver for political reasons. When the U.S. gave her Chinese company – tech giant Huawei – its marching orders, she failed to salute.

That arrest – unless it is undone quickly – will surely block any efforts to secure a “win-win” deal with the Chinese. And this will leave the Trump team with no attractive alternatives.

It could go ahead with its silly trade war, but that would bring about the stock market selloff Mr. Trump wants to avoid.

Or the president could back down and look like a chump.

Most likely, he will go with the third option: declare victory… and let trade continue more or less as before. That was the solution in the NAFTA deal; it seemed to work.

But China is not Canada. Ms. Meng is still in the hoosegow. And America’s economy still depends on China’s economy. The two function like a machine. One pumps fake money into the world economy. The other cranks out cheap products.

Alas, the arrest of Huawei’s CFO looks like the kind of grit that could wear out the gears and break the drive shaft.

Origin of the Species

But today, we look beyond the machine… to the animals that run it. We give the devil his due, in other words.

That is, we look at the origins of our species. We look at why, for all the success of win-win deals, win-lose deals are still popular.

Let us begin by backtracking a million years. There, perhaps on the banks of the Jordan River, pre-man – a form of Homo erectus – was throwing a party.

When a new couple arrived, the males at the party eyed the new fellow… They may have looked for a smile… or perhaps for the relaxed posture of someone who posed no threat.

Then, they turned to the female and looked her up and down, too, with longer, more careful leers… She was the one that really interested them.

The other females scarcely bothered with the male at all. They looked at the female, gauging the competition.

The same phenomenon was evident at our office party on Friday night. Men looked mostly at women. Women looked mostly at women, too. And women, in their colorful fabrics, sparkling jewelry, and painted nails, wanted to be looked at.

What gives?

The concept of the “rugged individualist” is mostly myth… and a dead end. Man is a social animal. With no one to stand beside us, we might as well not stand at all. Only in groups are people able to get their bearings.

Man was able to survive on the savannas of Africa only because he communicated and cooperated with others. Together, they could drive off stronger, faster predators with sticks and stones. Alone, he was dead meat.

But working together to hunt, to defend themselves, and to divide up the work so they could be more productive, mankind flourished… and eventually, dominated the whole planet.

Eat and Produce

All of us alive today are the descendants of people who wanted to mate and reproduce. That desire is, in addition to survival itself, the sine qua non of existence. If you don’t want to eat or procreate, your genes will not be passed along.

Obviously, we are the products of those whose appetites were satisfied… at least for a while. That is why most of us have appetites, too. We inherited them.

Both procreation and eating involve competition. The world’s natural food resources are not infinite. In any given area, there are only so many ripe fruits and slow animals.

During the millions of years in which human evolution made us what we are today, there must have been many proto-humans who were too slow, too dumb, or too unlucky to get enough to eat.

Whole tribes… perhaps whole subsets of primates… disappeared. Homo neanderthalensis, for example, survived for hundreds of thousands of years.

Then, Homo sapiens (we) arrived on the scene. Within a few thousand years, Neanderthals were history, leaving only a trace of their DNA – in us.

They may have starved. They may have been killed. Either way, competition took its toll.

There is also competition to mate. Women can only have a few children. At the margin, the women whose children survived were probably those who were most selective about their mates. They chose men who were strong, fast, smart, and successful. This increased the odds that their children would get those traits, too.

And thus do men and women look at each other at parties. They have one eye out for suitable mates… and the other for the competition. Who’s strongest? Who’s fastest? Who’s smartest? Who’s most attractive?

That’s why we put on nice clothes and make-up, even if we have no current intention of mating; “flaunting it” is embedded in our genes as an instinct.

Since the agricultural revolution some 5,000 years ago, survival has been man’s number one concern only episodically. Famines came from time to time. But mating… finding, attracting, forcing, or seducing… was always on his mind.

He wanted to make things better, so he would have more mating opportunities. It was a relative “better” that he wanted, not an absolute “better.” He only had to get richer, smarter, and more able – compared to his rivals.

And there were two ways to do it. He could improve himself – work harder to make himself more attractive. Or he could try to take the competition down a peg.

So, in addition to becoming a cooperative, win-win dealmaker, he also became fiercely jealous, competitive, power-mad, ruthless, murderous, and vengeful.

In the purest, simplest, crudest form of competition, he could simply kill his rival. Voilà – he was then the best available mate.

It was upon those dark ears – formed over so many thousands of years by evolution and competition – that news of Ms. Meng’s arrest arrived.

Stay tuned…

Regards,

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Bill

MARKET INSIGHT: WHY CENTRAL BANKS ARE BUYING GOLD

By Joe Withrow, Head of Research, Bonner & Partners

Yesterday, we showed you that more investors were getting exposure to gold through gold-backed ETFs. Today, we share another interesting trend forming around the important metal.

Central banks went on a gold-buying spree during the third quarter of this year…

That’s the story of today’s chart, which maps quarterly net gold purchases by central banks around the world going back to the start of 2017.

Chart

As you can see, central banks purchased net 148.4 tonnes of gold during Q3 2018 – equal to roughly $6 billion at today’s price.

That’s a 51% increase in gold purchases over last quarter… And a 22% increase over Q3 2017.

According to the World Gold Council, central banks increased their gold purchases as part of a global shift towards a “multipolar” monetary system, and away from the U.S. dollar-dominated system that is currently in place.

That is partially because gold is a universally accepted asset with a deep and liquid global market, making it well-suited for international trade… and partially because fears of a global economic slowdown are surfacing – making gold more attractive as a hedge.

As Bill wrote yesterday, the U.S. holds an unprecedented amount of sway over global affairs. This is due, in part, to the U.S. dollar underpinning the global financial system.

But if the World Gold Council is right about a global shift towards gold, that arrangement could be upended in the years ahead. The U.S. would become weaker as gold becomes more important to the global financial order.

Joe Withrow

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MAILBAG

In the mailbag, the discussion on climate change continues…

Bill, your Diary on global warming was well done; balanced with the uncertainties of CO2 as the cause of the Earth’s apparent temperature increase and the almost certain increases in crop production in currencool areas of the world.

Missing is the geological perspective. There have been five ice ages in the last million years, with the last reaching its peak ice cover about 20,000 years ago. Since then, the vast ice cover of North America has been receding on a irregular basis, but with trends towards a warmer global temperature. Imagine the breakup of the ice dam in North America that broke eastward creating the St. Lawrence River and maybe causing the great Noah flood of 4,600 years ago. Wouldn’t that be some revelation to doubters. Science reinforces the Bible.

And what about the creation of Long Island, NY as the result of a glacial moraine – furthest advance – of that same last ice age that deposited sand/silt on the south shore and smooth pebbles and low hills on the north shore. How do we know this; ice coring by the Russians and standard geological research.

So now, we have estimated ice age CO2 levels at 200 ppm but now 400+ ppm. All due to man? Definitely some of it, but do not forget other sources – methane clathrates in the deep ocean, tundra permafrost melting, etc. Yet with all this global warming caused by man’s activity, we forget to look skyward. The sun: constant 6 million hydrogen bombs per second every second for millions of years. Ya, sure. Oh yes, we are now entering the solar minimum, least solar sunspot activity, less solar heat production in centuries – possibly another little ice age.

– Joe G.

I swore to myself to say nothing regarding your erroneous thinking on global warming because it would take far too much space and time to try and explain the science behind what is happening to the Earth’s climate due to humankind’s idiocy. But with so many of your dear readers chiming in with their fake science and the BS they hear from the fools on Fox News, I have to say something!

I majored in both physics and climatology/meteorology. I have subscribed to several scientific journals for decades, and have watched the predictions of climatologists come true, beginning in the early 1970s – long before the news media ever even heard of the Runaway Greenhouse Effect (what “climate change” was known as back then). The science is sound. The science is correct. Planet Earth is heating up, and humans are responsible.

First, if the Earth were warming naturally, it would take many thousands of years to heat up as much as it has since the beginning of the Industrial Revolution, when humans first began pumping prodigious amounts of carbon dioxide into the atmosphere. How do we know this? Paleo climatologists (scientists who study the past history of Earth’s climate) have discerned it from evidence such as tree rings, ice cores drilled in the Arctic and Antarctic, and sediment cores drilled in lake bottoms, among other things. The amount that the Earth has warmed by in the one hundred and fifty or so years since the beginning of the Industrial Revolution would have taken roughly ten to fifteen thousand years to happen naturally. The correlation between how fast the Earth is warming and the amount of carbon dioxide (and methane, courtesy of industrial-scale livestock farming, as well as the petroleum industry) humans are dumping into the air is in perfect lockstep. As the amount of greenhouse gases increases, so does the Earth’s temperature. That is no coincidence. Only fools label undeniable fact as coincidence.

Second: Humans are heating the planet up in other ways besides greenhouse gases. Ever hear of deforestation? Humans have cut down the majority of the world’s forests. Those uncounted trillions of trees absorbed unimaginable amounts of carbon dioxide. With their destruction, the CO2 remains in the atmosphere, absorbing the infrared radiation given off by the Earth’s surface as it is warmed by the sun. The CO2 also traps the heat generated by human beings as we burn fossil fuels – a double whammy.

This probably won’t convince the die-hard Trumpites who deny the reality of global warming (and are heavily invested in oil and coal-mining stocks), but it may sway some of those who are sitting on the fence because they don’t understand the science involved.

– Dale A.

IN CASE YOU MISSED IT…

If you’re wondering what will happen with cryptocurrencies in 2019, you’ll want to go here.

World-renowned crypto expert, Teeka Tiwari, is hosting a free webinar tomorrow night. He’ll reveal what he believes is behind the current crypto bear market, and show where he sees the market going in 2019. Reserve your spot here.

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