Welcome to the 02-27-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike dives into the current and future evaluation of the US dollar, and how it indicates a shift of financial power on a global scale.
In the last few weeks it has been hard to find anything new to write about. It has been like groundhog day- the movie where each day seems to be the same as the last one. The same games, the same manipulations and the same volatility day after day.
I have said many times I believe that the Fed will protect the bond markets above all else and that has been happening day after day in the past few weeks in stunning amounts. (Gregory Mannarino)
Finally, late last week there was something that hit me as extremely important and, as usual, there is virtually no mention of it in the mainstream media. These people publish “all the news that is meant to confuse” but don’t give you any information that might allow you to prepare yourself for what is likely coming.
There have been rumors for a long time about China starting its own oil benchmark to compete with the Brent and West Texas Intermediate benchmarks. Their market would also price the oil in Chinese Yuan and it is reported to be convertible to gold in Shanghai and Hong Kong.
According to Zerohedge article The End Of The Petrodollar? “Following December’s final successful test, in a challenge to the world’s dollar-denominated oil benchmarks, Brent and West Texas Intermediate, China will list local-currency crude futures in Shanghai on March 26, according to the nation’s securities regulator”.
The most important part of that quote is that, as far as I know, this is the first rumored date for this market to begin that has been released by the Chinese government.
I have said in the past that this date will likely come and go and 99.9% of the world’s population will not see any major changes. This date, however, as we look back in time from the future, will likely be a day that is remembered as the day the torch was being passed from West to East.
It is likely that this could usher in a period of extreme weakness for the US dollar in particular but also for many other developed-nation’s currencies. Basically, trade is being set up- mainly in Asia right now to bypass settling trade in US dollars and settling trades in local currencies. The supply of dollars is off the charts high but since currently demand is brisk it keeps the value elevated.
How do I know the supply is off the charts high? $21 trillion missing from the pentagon and $24 trillion given to the banks in the last 10 years- and these numbers show up NOWHERE in official debt figures.
The official debt figures are dire enough without all of this added to it. Don’t think for a second that those looking to change the game are not aware of the liberties that those in charge have taken with the reserve currency in the past many years.
As demand wanes for US dollars the most likely outcome is a far weaker dollar. While this may help our exporters it will also increase prices for particularly all of the imported goods that we have been feasting on for decades.
It may sound like hype but I believe our very way of life is at stake. The country will still be here just like England and Spain are still around but they no longer wield the power they had when they had the world’s reserve currencies at the time. In addition, they didn’t likely have the advantages that we have had since 1942 and more importantly since 1971 when we went off of the gold standard and it allowed unlimited money “printing” which has been growing exponentially since. This has allowed many nations but the USA in particular to live FAR above our means. This advantage has allowed us to get real assets for first- printed money- and lately with nothing more than a click of a mouse.
It has also allowed most developed nations to borrow funds that could not have been borrowed if rates were anywhere near normal. This has led to a situation where rising interest rates could lead not only to insolvency of individuals but also companies, municipalities, cities, states and even nations.
World debt is at all time highs and the bets on interest rates in the derivatives market is rumored to be $575 trillion of a 2 quadrillion dollar derivatives market. Since this market is virtually unregulated we are limited to estimates put out by the authorities.
Remember Warren Buffet calls these derivatives (which just mean they have no value on their own- they derive their value from underlying assets) financial weapons of mass destruction . The world’s largest banks have hundreds of trillions at risk in these markets. But hey- don’t worry. Every bank in the USA has had to have its bail-in plans submitted to the FDIC by January 1, 2017 so the banks have all of the deposits at their disposal to bail themselves out again. (FDIC meeting minutes April 14, 2016).
Throughout history people have used gold and silver to preserve purchasing power as fiat currencies are “printed” into oblivion by those in charge. This is nothing new it is simply human nature. It feels good as the initial rush of “printed” money leads to higher asset prices and an illusion of more wealth. The problem is that word illusion- because that is all that it is. It continues until faith is lost in the currency, those that “print” it, or both.
Those that have had that foresight to have purchasing power when financial assets are undervalued have historically led to the world’s resurgence and a new beginning. The only reason I believe this has lasted this long is that the entire world is in on it. Any of these games being played (negative interest rates, “printing up” money and buying real assets with virtually nothing) in one area would likely lead to a swift disaster. Since it appears that almost all countries are devaluing their currencies to make their debts easier to pay and for trade advantages the only question is who will be the first to zero value. Actually Zimbabwe and Venezuela have blazed the path for hyperinflation but they hardly qualify as major currencies.
Currently, there are many horses in this race. It appears that Japan is nearest the cliff as they are buying virtually all newly-issued Japanese government debt and are also the largest holder of Japanese ETFs and are also a top 10 holder in the majority of Nikkei stocks. (6 months ago they were a top 10 holder of 70% of that average).
However, with the European Central Bank doing “whatever it takes” and $45 trillion that is unaccounted for with the Fed- that we are aware of- who knows?
Once the authorities went down this path there was no turning back. Keep “printing” and prop up markets until the currency’s value is virtually liquidated or stop and create a deflationary depression that would dwarf the 1929 episode.
Got gold? Got silver? Do you have any real assets as part of your portfolio in case those assets are not available for a short period of time?
Important questions! Be Prepared!
Mike Savage, ChFC, Financial Advisor
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