Welcome to the 01-17-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike discusses the weakness of the US dollar.
Many times as I sit down to write this article I have to try and think of ideas that are important and are being underreported- if reported at all in the mainstream media. There are many stories that I wouldn’t expect to see on the evening news but when the financial game shows ignore them it really makes me think that there is an agenda that is being put forth and if any story doesn’t fit the narrative it is not mentioned. If, by some quirk of fate it gets mentioned, there are often technical problems or the hosts are up against a hard break to stifle that conversation.
A couple of stories that fit that bill right now involve weakness in the US dollar. While its weakness has been discussed I have not seen a few major reasons why the weakness may be occurring discussed.
First of all, there is a planned oil trading market that is expected to be opened shortly where oil contracts will be settled in the Chinese Yuan rather than the US dollar. Currently, it appears that imports to China is how this will begin and it could grow from there.
Since 1971 when the USA severed any ties from the US dollar to gold the main backing for the dollar has come from oil and the trading of oil denominated in US dollars. Many believe, as I do, that Khaddafi in Libya and Sadaam Hussein from Iraq were liquidated because of their trading oil in other currencies. Hussein was taking Euros and Khaddafi wanted to trade in an African gold Dinar.
Many countries appear to b e jumping on this bandwagon like Russia, Iran, Iraq, Venezuela, and many others. In addition, the Yuan seems to be getting a boost internationally as the German Central Bank has indicated that it will add the Chinese Yuan to its list of international reserve holdings. (Asian Financial Forum)
This is big news. This is a major central bank acknowledging that the Chinese Yuan is not only ready for prime time but that its time is coming.
Another piece of information that has been unreported in the mainstream is that China’s Rating Agency- Dagong has lowered the credit rating of the United States from A- to BBB+. Luckily for them they are not here in the USA. The only firm that had the audacity to lower the US credit rating previously (S&P) were the ONLY ones investigated for rating junk debt AAA in the leadup o the 2008 debt implosion even though virtually all of their contemporaries rated these bonds the same way. It appears to me that this was a warning to be like Sergeant Schultz on Hogan’s Heroes and “See nothing!”.
As the dollar has been moving down in value against many other currencies it is also continuing to lose value against both gold and silver even though the efforts to keep those prices contained continues unabated.
I have heard some people hypothecate that as American companies bring their foreign cash holdings home that the dollar could see some strength. I have to disagree because first of all a lot of this “money” is already in the USA and it most definitely already exists so it shouldn’t create excess demand. It also should create no excess supply as this “money” will likely be used for dividends and share buybacks if we are to believe the executives who are saying that this is what is likely to happen.
A lot of this “money” is currently being held in US Treasury securities. It appears to me that not only is China talking about not buying more US Treasuries but many companies may also decide to cash out of their treasuries to be able to deploy the proceeds to buy back their own shares and pay dividends. This may be one extra reason we are seeing weakness in Treasury bonds recently as rates have been rising even though there has been unprecedented buying by major entities on almost a daily basis since 2018 has begun. (Reported by Gregory Mannorino- Traderschoice.net)
Central bank balance sheets have reached a staggering $15 trillion by their own admission (who knows what the real numbers may be) and an estimated $2 trillion was added to stock and bond markets by these same players in 2017. This appears to be the REAL reason that there is no volatility and that we are seeing global stock markets making new highs and hitting new milestones in record time.
As I look at the charts- particularly of the Dow it appears it has gone parabolic. This is a sure sign that we are seeing a blow-off top. How high could it go? I have no idea. But I will say when charts look like this it is just a matter of time before a MAJOR correction. Look at the Bitcoin chart. There was a parabolic rise to near $20,000.00 for a bitcoin. It was also reported that nearly 70% of bitcoin purchases in December of 2017 (when bitcoin was in a parabolic rise) were made by CREDIT or DEBIT cards. How do you think those folks feel right about now when a month later Bitcoin is trading at 50% LESS than it was in December? Their “investment has fallen substantially but the debt remains- and regular people can’t “print up” new currency to cover the losses.
Look back a few weeks ago. In this article I said that the futures trading would likely lead to just this outcome. It appears that those in control have taken control of Bitcoin also.
Let’s not forget that margin in the stock markets are also sitting at all time highs as we speak. The speculation is off the charts- the same as the prices!
I would also like to make one more point- this from McKinsey Global Institute. As markets have continued upward I have made the comment that the economy has not followed suit. Many times I bring up stagnant wages and subpar growth as examples. According to McKinsey global flows of goods, finances and services have declined 15% since peaking in 2007.
So global trade has contracted by 15% and yet global stock prices are flying to the moon. Only when someone can game the system by “printing up” demand which, in reality, should not exist and will likely lead to the most painful lesson that many will ever learn. The sad part is that this will be the third boom and bust in just 20 years- what fools we are for falling for it yet again!
If you are crossing your fingers and hoping that the markets keep rising it may be time to take some action to hedge against losses and maybe even explore some positions that may allow you to profit if you are positioned correctly.
How much time do you have? I seriously don’t know but warning signs are showing up in virtually all markets so the time for complacency has passed.
Mike Savage, ChFC, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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