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Simon Black: "The Market Is Telling Us That The Dollar Is Finished"
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
significant.
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.
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Buy USD.
Dollar will be finished only when every single company that wants to sell physical goods will stop targetting US consumer as the gold mine. All business plans include "we reach some success and then do a strategy to target the US consumer."
Don't waste anyone's time telling people the dollar is finished until the aforementioned mentality changes.
yep, exactly
You're a little out of date - it's the Asian consumer that companies are now particularly keen to target. There's billions of them; they're not saddled with humungous debts, personal and private; and they don't live in Bernankistan.
There's still plenty of wealth to be extracted from the US but it's a declining, mature market.
Everyone talks only about printing. Here come my extra part:
There are mainly three counter-parties:
1) lender creates debt money
2) gives it to borrower in exchange of debt
3) borrower transfers to cash holder i exchange for some good
Then borrower is forced to exchange own services against cash to pay debt back, which makes debt money much more "better" currency then some simply government printed "debt free" Zimbabwean style paper. But once borrower goes away from debt, lenders must suspend accounting rules and cash holders became nervous.
So, debt backed currencies became less valuable when debtors can refuse to pay debt back and they do it on a massive scale. Massive mortgage defaulting in USA lowered demand for dollar. PIIGS default will weaken Euro. Anyone seen more some AAA rated bonds going to default in near future?
OK, now hit me! Please take a comment on that!
Partially agreed. Large scale debt default actually reduces the total dollars available thus increasing demand. Fed will continue printing into this debt destruction knowing that monetizing $1.2 trillion in midst of multi-trillion debt destruction is non-inflationary in the monetary sense. Regards CI.
Can anyone imagine India allowing their banks to allow trade settlement in Chinese Yuan 10 years ago? It's a done deal now... The BRICS are opening more avenues to avoid conversion to dollars and dollar settlement. A few years ago this sort of announcement would have provoked an immediate response from the US... probably something along the lines of 'no more FZX Super Duper military aircraft or some similar punishment... Now what? Silence so far.
When Saudia Arabia announces that it will take BRIC currencies for oil the dollar is dead as a door nail... How long until that happens?
'Bank of India Becomes 1st Indian Bank to Offer Settlement in Chinese Yuan'
'BEIJING: Bank of India has become the first Indian bank to offer trade settlement facility between the rupee and the Chinese RMB from Hong Kong. This follows intense persuasion by the China Banking Regulatory Commission , which is trying to gain acceptance of the RMB as an international currency.'
"We are the first Indian bank to offer real-time settlement facility in RMB to Indian exporters and importers. It will be save a lot of time because settlement in US dollars usually takes three working days," Arun Kumar Arora, BoI's chief executive in Hong Kong, said during a recent visit to meeting regulators in Beijing." ...and... 'Indian buyers are at present making payments in US dollars, and they often have to convert rupee into the US currency for the purpose. The US dollars will no more be the intermediary currency as the BOI is offering direct settlement between the rupee and the Chinese money. Chinese exporters want their money in the local currency, which is regarded as more stable compared to the US dollar. They are also in a position to have their way because Indian buyers do not have an alternative source of low-cost goods, sources said.' http://banking-news-update.blogspot.com/2011/02/bank-of-india-becomes-1st-indian-bank.html
I try,and I try, to Rationalize your, Input. All I can deduce, is a cartoon character, with a a Law degree from some small SOVEREIGN. You Know nothing about trading, and everything about contract BS!
Don't worry. Time magazine has it all figured out and they will save us. We need to work more, in more "higher growth industries". They found this out by going to Denmark. No kidding. Read here:
http://strikelawyer.wordpress.com/2011/02/28/time-magazines-take-on-the-...
+1..."Let me summarize, and this is no joke. The thesis is that paychecks for US employees are shrinking at a pace not seen since the depression-era 1930′s because of two “mega-trends”: “technology-driven productivity”; and “the rise of emerging markets”.
Marx certainly wasn't right about everything but he did predict 'tech driven productivity'...and it tendency to make workers redundent. How does one 'retrain' a person putting tires on autos for 20 years to become a computer programmer capable of competeing with Indians?
As far as the 'rise of emerging markets'... When Gatt, NAFTA, and a zillion other trade pacts were passed by our CONgress critters, they told us America would become an 'information based economy'... How well has that worked out? Pretty well for the Indians.
Time Mag the Rag... worthless bs.
You're falling for the 'lump of labour' fallacy.
Technology only temporarily displaces workers, because capital freed up by it employs them elsewhere. It's tough on individuals who are unable/unwilling to acquire new skills, but society in aggregate benefits.
You want full employment? Ban the wheel.
The US' major problem is its over-regulation, over-militarism, and expanding parasitic public sector. Get rid of those and its citizens can compete again.
Was Libya one of Simon Blacks reccomendation for great place to move to???
j/k
Everything Simon says makes sense except the Renminbi. How can we any kind of certainty state what the value of the Renminbi currently is and whether or not it will fall or rise. Just because the Chinese are trying to desperately curb their runaway inflation means nothing, central planners are always late to the party.
Yes, he's worth reading but his faith in Chinese central planners' ability to get it right this time flies in the face of history.
However... they may get it more right than our own central planners, which is the important point when it comes to comparing the two currencies.
Are all the "soon to be deposed" dictators selling their dollars, buying gold, and revving up their private jets?
Doomed Dollar!
Let's just call it self-immolation!
This is a poorly conceived overview relative to gold, although I agree with the title. There's a reason why (unlike the U.S. Fed) european central banks list gold on their balance sheets: they consider it money. The price of gold in dollar terms therefore has meaning far beyond a few "pithy headlines." It's a real measure of the dollar's international standing. Thus for example, from Europe's perspective, all of its dollar-denominated debt decreases in significance in direct proportion to the rise in gold --and slightly more indirectly, silver. To grasp the significance of this, just picture the impact when the COMEX and/or LBMA is finally recognized to be in complete default. (Just watch the backwardation of silver continue to grow towards this event). The virtually instantaneous revaluation of precious metals will then automatically rewrite the entire geopolitical landscape of the dollar universe.
no.. telling us more about the sad reality that the Fed will use any excuse to keep rates at zero forever and do QE3 if necessary. Think about how crazy this is .. Fed tells everyone to buy stocks and when stocks go up they congatulata themselves on the brighter economic oulooi as a result. They will not understand that businesses will not hire if they think govt/fed policy is th only thing holding up market - when insiders start to buy as opposed to sell then maybe the idiot Bernanke will see hiring pick up.
Less significant? Easily dismissed?
Wishful thinking.
I believe wishful thinking is giving it too much credit; "automatic typing" seems more like it.
the head of the ostrich is the sign of the times...where is it buried?
Of course the toilet paper is useless; but what you are seeing are the wrong signals; there is clearly no "fear" around why would HK rally 2%, all US stocks are miraculously U-turned up the last 5 sessions while the euro aud, nzd gbp (that one is baffling given the awful gdp that just came out) are all rallying, the jpy is not, this is sign the forex hft algos are all in synchron risks on mode. But the eur/chf is down - it tells you market expects bad times ahead for euro zone. So why is CHF up? because money is coming out of the middle east and china (yes from corrupt politicians of all stripes plus from germany and france), voila!
Economists Warn of “Irrational Fears” of the Deficit and Stymied Recovery
Link:
http://www.newdeal20.org/2011/02/28/economists-warn-of-irrational-fears-of-the-deficit-and-stymied-recovery-37173/#comment-12504
Here was my comment (won't last long):
Hold that thought…let me puke.
This is America’s best and brightest in economics? What a bunch of idiots! Read the Creature of Jekyll Island! Read Ludwig von Mises! Read Ron Paul! Get educated before you shoot your Progressive mouth off, but at the very, bare minimum, help us - don’t hurt America!
END THE EFFING FED!
Posted by Ron Paul 2012
USDollar at 76.86 on the USDollar index as I type.
So losing ground quick,I don't want it,do you.?
I like PM, but I have not yet bought into PM due to concerns re confiscation. I would appreciate if the wise people here can share their thoughts on the matter.
If the NWO is indeed creating a currency, no matter if the new currency is PM-backed or not, they cannot allow for competition from an alternative currency (i.e. PM). They will need to exercise restrictions to ensure their new currency takes hold. This means they will at the very least enact restrictions on using PM as a medium of day-to-day trade, or worse, confiscation.
I see PM control as a very real risk. What are your thoughts on the likelihood, the impact of the price/value of PM should control is put in place and ways to avoid that fate?
i imagine confiscation will come in as gold approaches 2,000
so i will be selling alot of it at $1,700 or $1,800 $1,850 somewhere there...
the question will be what to buy with the cash at that point....maybe swiss francs? natural gas? no idea.
i doubt silver will be confiscated. so you are ok there. with silver the danger is more deflationary price crash.
Thank you for your views. Why do you think silver will not be confiscated? Even if silver is not confiscated, I am still worried about the strict control of silver usage other than industrial use. They could for example legislate that if you are ever caught transacting using silver or any commodity/PM/currency other than the NWO currency, you will be thrown into the black jails.
Is that not a possibility?
Ask yourself which is easier to confiscate - gold coins citizens have hidden away, or land/real estate/401Ks stocks/Bonds, via punitive taxation?
The amount of gold in private hands is relatively small. I doubt TPTB could be bothered to conduct house-to-house searches to get hold of it. Large private holders will probably be too politically connected to get robbed, or will have it stashed overseas.
If you're really worried about confiscation, why not get an account with Bullionvault? Vaults in NY, London, & Zurich.
Well it is not really a matter of my stash (not that I have any right now because of the concerns) being confiscated. I am lucky not to be in US/Europe, and in my country I doubt that they will ever confiscate PMs (because simply there is not much around).
However if a substantial number of rich countries start restricting/confiscating PMs, then the price/value would be dropped significantly if it cannot be used as a medium of exchange or otherwise liquid store of value. It would severely impact my financial position even if the hypothetical stash is not confiscated or restricted in my country. Is that no so?
Yep, and similarly that is why illegal drugs such as marijuana and cocaine cost just pennies per ounce.
But the dollar was finished in 1982?
only went from 72% of world commerce to 68% in the interim.