Simon Black: "The Market Is Telling Us That The Dollar Is Finished"

Tyler Durden's picture

Some unpleasant perspectives for dollar bulls (and manna from heaven for the M.E. genocidal maniacs) from Sovereign Man's Simon Black.

The market is telling us that the dollar is finished

There’s major shift occurring right now in financial markets.

Sure, the food and freedom riots that are spreading across the globe
are a major indicator that civil unrest follows very closely behind
resource shortages and economic turmoil… but there’s something else that
I’ve noticed recently– it’s a sea change in the financial system.

In the past, major crises normally caused investors to seek safe
haven assets, and everything else equal, the dollar would rise. They
call it a ‘flight to safety’, and investors would flock towards the
perceived stability of US Treasury securities.

In 2008, for example, the Lehman collapse spurred the market to go
rushing into the dollar. The pound, euro, S&P, oil, and gold all
went into freefall, and the dollar surged. Anyone holding cash felt
pretty smart, and the market paid tribute to the US dollar as the
world’s safe haven currency.

There were a lot of reasons for why this happened. The US government
likes to claim that it has never failed to pay on its debts. Of course,
even the most cursory analysis would lead one to conclude that they
trade debt for inflation… and more debt.

Regardless, when financial markets were collapsing in 2008, investors
made a rational decision to accept negative real rates in the dollar
(effectively paying a fee to hold short-term treasuries) over other
currencies and asset classes.

It was the lesser of all evils at that particular moment and should not be conflated with ‘confidence’.

The other big reason for the dollar’s 2008 surge was that many of the
world’s financial markets were leveraged to the hilt… in dollars. When
Greenspan started slashing rates in 2001, investors around the world had
been able to borrow cheap US dollars and park them in higher yielding
assets abroad.

This global carry trade helped produce huge returns in emerging
financial markets as investors borrowed four to six times their dollar
equity at 2% to 8% and invested in China at 20%+.

When those markets began to melt down, however, the dollar loans
needed to be repaid, and investors went rushing back into the dollar.

The dollar sat atop its altar for about six-months from September
2008 through March 2009, at which point risk tolerance reversed and the
dollar began steadily losing ground again.

When European sovereign debt woes surfaced later that year (and in
earnest in early 2010), the dollar surged once again… but that time it
was a little different.

Sure, the dollar rallied against the euro and other European
currencies… but gold rose as well. I remember writing about this last
year, suggesting that the simultaneous rise in both the dollar and gold
indicated the market’s changing attitude towards what it considered a
‘safe haven.’

Clearly the dollar was beginning to fall out of favor.

Fast forward to today. Mubarak. Gaddafi. Khalifa. Al Said. Ben Ali.
Etc. There is no shortage of turmoil right now… yet we are seeing the
dollar get clobbered while gold, silver, and smaller currencies like the
Swiss franc rise. This represents a major shift in the way that the
market views risk.

It’s true that nothing goes up or down in a straight line… but long
term, the market is telling us that investors are washing their hands of
the dollar as a safe haven asset.

So what happens from here?

In the long run, the law of one price will prevail; the US dollar
cannot become so cheap relative to other currencies that a multimillion
dollar home in Malibu only costs the equivalent of six month’s wages in
Switzerland… or that a new Corvette equals the price of an electric
bicycle in Singapore.

Foreigners will swoop in and mop up US inventory long before that
happens, not to mention foreign governments will manipulate their own
currencies in order to avoid missing out on a 300 million-strong
consumer market.

We’re already seeing this now as the ridiculous game of international
capital controls tries to masquerade as a free market. I suspect the
regulatory environment will only worsen as the political lemmings follow
one another off the cliffside.

(yes I know it’s a myth, but so is the notion of fiat currency as sound money…)

What about commodities? Investors looking for safe haven assets may
opt for things like oil and wheat which have functional value… but I
suspect that governments will step in long before we see $200 oil to set
a ceiling price, or begin attacking speculators once again.

Ironically, this makes precious metals among the most attractive safe
haven alternatives– the fact that they have no real functional value is
a net positive.

As a caveat, I am not a gold bug, but the regular lamentations by the
PM bears (gold is just a paper weight that has no function, you cannot
eat gold, you cannot fill your gas tank with gold, there is no way to
value gold, etc.) may turn out to be beneficial.

It is simply BECAUSE you cannot eat gold, cannot fill your gas tank
with gold, etc. that governments will be more concerned about regulating
high oil, wheat, and soy prices. If gold has no real benefit to the
masses, the political consequences of high gold prices are less

In other words, $20 wheat means blood in the streets. $2,000 gold
only makes for pithy headlines, and its significance is easily dismissed
when highly regarded sages like Warren Buffet dispute the notion of
holding precious metals (nevermind he bought oodles of silver in the
late 90s).

We’ll talk about this much more on this later, especially why the
euro will likely fall first, and how the renimbi will continue to rise
as an alternative reserve currency.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Turd Ferguson's picture

The chart is telling you that, too, Simon.

egdeh orez's picture

Calls for "Dollar is dead" is premature.

Dollar is dead only if the fed (and the banksters) want it to die.  If the fed wants a strong dollar, it has an ace up its sleeve.  All it has to do is remove the swaps with the European banks and the dollar would surge.  Of course, this would be accompanied by utter chaos in the financial world.

Burnbright's picture

It is true that the dollar top calling is premature but the FED has no control at this point. Anything Ben does at this point is going to destroy the U.S economy.

Shell Game's picture

True that.  It is more like the dollar is dead but it just doesn't know it yet, a zombie currency if you will. 

surfsk8sno's picture

The dollar is dead when the Asians, and Arabs want it to die

Burnbright's picture

Bingo, only trouble is that all the individuals within these governments have been benefiting directly by being bought out essentially at the expense of their own populations. Whole world is smoking while the dollar burns, the masses can't suffer any more loss. We have reached the threshold.

Either governments around the globe dump the dollar or they will be disposed.

MolotovCockhead's picture

Calls for "Dollar is dead" is premature.

No, it's not's on intravenous drips and Ben Bernanke is celebrating!!

A Man without Qualities's picture

"Dollar is dead only if the fed (and the banksters) want it to die.."

This is the nuance most Dollar bears fail to understand.  The global financial system is inherently unstable owing to the tendency to borrow short term and lend longer term, to earn the easy money from the carry.  The Fed controls short term lending rates and quantities, so the Fed and the US banks can pull the rug out from under the feet of the market anytime they want (of course, this is mutually assured destruction.)  

piceridu's picture


If you knew you were going to die soon and you had one month to prepare. Let’s say you had to prepare a vault with a time lock that would only open 10 years from the date of your death. Let’s say you had 2 million dollars in 100 dollar bills and what you left in the vault was solely for your 2 young children…. But you had a choice to put the U.S. dollars in the vault, or convert them into Swiss Francs, or any other paper currency from around the world or 1,400 ounces of gold. What would you put in the vault?


Montecarlo's picture

Clearly you would choose Gold and Silver.

Nobody special's picture

Ain't that the best way to put it.  You ever considered selling treasuries?  /sarc

Dooud's picture

The only thing you could be "certain" would have positive value would be the gold. There is a risk that "any" current fiat currency may not even exist. This is a good question because it cuts to the essential value of gold. A poor second choice would be blue chip stock, but its hard to pick any which are certain to survive AND outperform gold in the next 10 years.


XPolemic's picture

Personally I would put seeds, plus a little essay explaining how all the great fortunes of the world have been made due to the great stupidity of the average person.

jus_lite_reading's picture

I concur. Although the dollar is on its way out eventually, that day is not today. The Euro will crash and burn first, with such suddeness, that even Dr. Deficit himself will be calling up Axel Weber for answers.

Once the liquidity swaps with the ECB end, the EU will descend into chaos and the world will follow. Either that, or WWIII. Pick your poison.

Imminent Crucible's picture

"All it has to do is remove the swaps with the European banks and the dollar would surge"

You misunderstood the purpose of the dollar swap lines.  They were not instituted to cheapen dollars in Euro markets. They were put in place to provide dollar liquidity to support Treasury purchases by Euro central banks.

How do you think that the U.K. was able to double its U.S. T-bond holdings while in the midst of a govt debt crisis that requires them to lay off 20% of public-sector employees?

Terminate the dollar swap lines and the dollar collapses.

egdeh orez's picture

This is one possible, but unlikely, outcome.

Think back to '08... dollar liquidity was non-existent... dollar was going through the roof... european banks were about to go belly-up... YET, everybody was buying Treasuries because this was the flight to safety play.  The dollar swap saves the euro banks and lightens the dollar/liquidity crunch.

ConfusedIdiot's picture

Agreed EO. Odd your junking as the swap lines are as reported by TD in ZH. Need only look at the swap line carried with Mex to see how this is being played. Regards CI.


Fed Extends Swap Lines With ECB, Other Central Banks

December 22, 2010, 8:17 AM EST

malek's picture

You sound like The Bernank "I could raise interest rates within 15 minutes."

Yeah, yeah. But it will never happen.

Pladizow's picture

The death of the $ is the desired outcome.

You cant have a NWO with a super power in it.

Confuchius's picture


What you say is true.

Add to that the 600 quadrillion of "derivatives" clutched sweatily by most of the world's banks and you have the necessary ingredients for an IED to end all IEDs.

Best to stand back and view the spectacle from the helm of your vessel, safely at sea with a year's provisions...

EscapeKey's picture

Derivatives: $1qn.

Net notional: ~2%

Net notional of derivatives: $20tn.

Not that $20tn is a walk in the park, but please stop parrotting those ridiculous Max Keiser figures.

mick_richfield's picture

Total Derivatives:                                 $1 quadrillion

Net notional value of Derivatives:        $20 trillion

Current value of All Investable Silver:  $21 billion

Popcorn:                                              Priceless



Fed delenda est.

Joseph Jones's picture

I agree: NWO requires no super power in it...they intended to destroy the USA all along. 

DeeDeeTwo's picture

What nonsense. "Flight to safety" happens when the stock market tanks. The stock market = summer 2007. When it finally collapses... USD will soar.

akak's picture

Good luck with fighting the last war, General Petain.

the rookie cynic's picture

Posted this on another article but it's apropos here as well:

It would appear that the dollar is no longer a flight to safety. If this were 10-20 years ago, these Middle East conflagrations would have pushed capital out of equities and into US treasuries and cash dollars. Dollar weakness on the heels of global "risk-off" conditions is a harbinger of further declines.  Add the fact that the dollar index just measures the dollar vs. other fiat currencies (and not hard assets) and you realize that the days of the dollar as reserve currency are numbered. It could take 5-10 years to roll out SDRs en masse, but that day is coming if the NWO and global banking cartel gets their way.

redpill's picture

10-20 years ago?  More like *2* years ago.

unwashedmass's picture


you can see this happening now. the euro is tanking but gold is holding steady and edging higher.

silver, JPM is sitting on it, barely holding it under 34......

we're gonna see these things become the "go to" in the flight to safety. you have to be brain dead to "flee to the dollar" for safety now...

the rookie cynic's picture

Good point. Black swans seem to be flying to safety of different climes since as recently as 2 years ago.

MolotovCockhead's picture

Not too many years ago, when there's minor unrest in the middle east, you see the share market tumble world wide and the dollar rally but now the reverse is true. I think the dollar is sick!

Is it the new normal or are we seeing the unraveling of the Great Keynesian Experiment?! Don't care what the rest think....I am getting physical!

SilverRhino's picture

Silver just broke 34.00 or at least is kissing it.

It is simply BECAUSE you cannot eat gold, cannot fill your gas tank with gold, etc. that governments will be more concerned about regulating high oil, wheat, and soy prices. If gold has no real benefit to the masses, the political consequences of high gold prices are less significant.

Is this man high or just incredibly foolish?  There's not a single sole proprietor / non-corporate business owner that I know that will NOT take PM's for services / goods.

Bob's picture

Thanks for the link, Turd.  I'm betting we don't see 32.5 again for a very long time.

purplefrog's picture

I don't know of a good place to put this questions, but what obstacles do I face taking my PMs to Mexico?


ConfusedIdiot's picture

Hi Frog. I live in Mex and haul PM back and forth in my back pack. Going in ain't the issue. It's coming back to US of A you  got to be on record. If you are driving just hit the no declare lane and keep trucking. If flying write "lots of  silver dollars and gold coins - face value less than $10k". In Mex City Aduana will ask to see some but your listing means no problemo. In BJX aduana never looks as long as listed as I stated above. Reason is in Espagnol "less than 10k" fits the requirement and Aduana never exceeds the requirement - very bureaucratic down there.

velobabe's picture

yeah my new found bro, walter, over @ Vanatta. sign was old and wore.

N O  C R E D I T   C A R D s

he will take silver coin. plus i told him the whole gov ponzi scam and he said he just read about it. i wised some people up this bright and beautiful AM.

he is going to buy some

silver coin, bitches†

NotApplicable's picture

That's not his point. His point is that gold is a commodity that we do not depend upon to sustain life, so its price run is less of a consequence to a government "in charge" of things.

Ignatius's picture

+ 55,000

So few seem to get this.  Looks to be only about 1 in 50 herabouts.

"The road will seem so straight and fair to travel, you will kick yourself for stumbling through the brambles for so long, and wonder at their neighbors who stll can't see the path, though it is truly a freeway."  (Aristotle, courtesy of FOFOA)

But I repeat myself....

johnQpublic's picture

i used to accept silver pre 64 and food for trade or barter at my autoshop

it actually started with a woman who made the best bread you've ever had,

and the girl who owned the health food store

bartered services with a doctor and a chiropracteur,landscaper,home improvement guy also

almost forgot the dog groomer,jewelry store owner and property lawyer, and a real estate broker too

win win for all involved

MachoMan's picture

Used to?  Bartering is a mainstay of american small business...  when margins are compressed even more, expect more bartering...  I think you are going to see a return to your old ways...  and you won't be alone.

augmister's picture

When it all blows up, so will your precious shiny shiny.  In a Mad Max world, muscle and lead rule.  Get over it!

jus_lite_reading's picture

Mad Max world will be the eventual outcome but I strongly believe that before that occurs, we will need some common exchange. Further, when humanity picks up the pieces, silver and gold will be the standard forever.

akak's picture

Yes, of course augmister, there are two and only two possible futures: an infinite continuation of the status-quo, or else Armageddon.  How foolish of me to think anything else was conceivable or possible.

"Muscle and lead", huh?  I think you have been watching too many Mad Max movies.

Mike7.62's picture

Really? I wonder why the Roman denarii and solidi were still valued as money hundreds of years after the fall of the Western Empire. People trade, no matter how bad things get, and PM's facilitate that trade.


As to muscle and lead ruling, high velocity cupronickel rules over any amount of unarmored muscle, as per Sam Colt's dictum, and those holding PM's usually have more than sufficient amounts of the former to deal with the latter, especially those who are muscle from the neck up. People trying to steal from others are looters, and will get a looters fate.