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
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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
jtmo3's picture

All I can say is bull shit. We've seen this story more than once. Dollar will rise from the ashes when it's makers need it to.

Sudden Debt's picture

Yep, in about 1 week Europe will get som bad news and the dollar will spike back again.

This has happened about a dozen times already the last 3 years.

1,395 and I'm shorting the euro.

Remember, the euro and the dollar are staging a simultaneous crash.

Alies in war, alies in fraud.

Waffen's picture

yes but the trend for all is down.. This is the managed decline of the dollar that George Soros talked about in 2009.

 

I hate to put on my tinfoil hat, but the person i thought was crazy Lindsey Williams continues to be correct in his predictions.   BTW, his statement from close to a year ago is when the Euro collapses you will have 2 weeks to get out before the dollar collapses.   Just keep that in your back pocket, incase this guy is correct yet again. 

 


IQ 145's picture

 Agreed. it's a wide trading range. Euro short time either here or very imminent

huggy_in_london's picture

naive.  The are trying to get the dollar lower, and its working.  And when, just like in the 70s its done what they want, they'll get it higher (imagine what happens when there is policy withdrawl).  There is no credible alternative tothe USD.  Sorry, but right now that's the facts!

bingaling's picture

I got news for you it ain't the 70's , policy withdrawal is impossible and like Starsky and Hutch it will be replaced with something else .

huggy_in_london's picture

Junk-away ... but i am guessing most of you have no fucking clue what you are talking about.  Read the history, you might get some clues to the future.  Sorry if it disagrees with your positions.....

akak's picture

Sorry, Huggy, it is you who is clearly the historically ignorant and blinkered one. Fiat currencies ALWAYS fail, and the dollar will be no exception.  In fact, it is already 96% of the way into the grave as we speak.  Reality has a way of demanding conformity from even your all-powerful central bankers.

Now be a good boy and go for a walk in London --- there are 718,432 surveillance cameras, and their watchers, just waiting to rob you of every shred of privacy.

huggy_in_london's picture

"Now be a good boy and go for a walk"

 

Go fuck yourself dickhead

akak's picture

At least on your walk you'll be "Safe Beneath the Watchful Eyes".

BigJim's picture

    Go fuck yourself dickhead

Hey! That's really clever! Did you come up with that one?

ConfusedIdiot's picture

Agreed Huggy. The buck is still backed by the only thing that matters in a post apocalypse scenario. Regards CI

Kayman's picture

huggy...

I, for one, have read my History; I am not certain about you.

Surely a Brit can remember when Sterling reigned.  As the British Empire collapsed Sterling went with it.

Are you proposing a growing, job-creating American economy ?  If so, can I share what you are smoking ?

America has lost its engine and now is trying desperately to keep the empire together.  All the British bases that were exchanged for War materials to fight Hitler are now just another burden for a declining Empire.

Trade between any 2 Non-american countries can easily be done without involving the USD

This may not be the last Hurrah, but the USD has seen its best days. 

 

sunnydays's picture

The dollar index broke the 77 support level.

 

But look at the chart at opening yesterday in Asia - something very odd happened.  The dollar had a flash crash.  A message being sent?  It corrected fast, but it still crashed big time.   I wish I could put a picture in to show the crash, but it won't let me.

nwskii's picture

I agree, that spike down hit 76. Its like telling their buddies 76 is where it will be at the end of the day, now it is 76ish

ConfusedIdiot's picture

Nii. Watching DXY for dollar relative strength is akin to watching Live hog futures for DBA. For $ value one needs use the Major Trading Partners weighted value. DXY does not even include 80% of $ trade partners - it's what it buys that counts. Regards CI

disabledvet's picture

markets can "price in horror" as well.  if a policy maker cannot see a "collapsed real estate market" being combined with "soaring lumber prices" as a problem then we obviously need new policy makers for starters.  who knows...maybe there will even be a discussion relative to "the policy."

Burnbright's picture

The top isn't in yet.

Henry Chinaski's picture

I agree with Mr. Black.  Euro goes first.

BigJim's picture

Relax, you can eat gold.

You just can't digest it.

Stares straight ahead's picture

That's why my sh*t don't stink!

Caviar Emptor's picture

Very negative sign that the dollar was not 'flight to safety' at the start of the Mid East Crisis. It tells me there's a pervasive lack of confidence in paper and more confidence in hard assets. A huge shift. 

But what's not a shift is the 30 year decline in value of the dollar. That's the result of unremitting twin deficits covered with relentless printing. 

Other issues: instability in energy markets is raising the prospect that the dollar's day as reserve currency are numbered. The world is rejecting the notion of having unstable commodities backed by and denominated in an unstable currency. Simple as that. When the dollar was stable and truly king, it worked. Now only gold or a basket of currencies backed with gold would provide stability. 

lynnybee's picture

Lindsey Williams said that the EURO would go first.    He said that when the EURO crashes, you have 2 - 3 weeks to get everything out of your bank accounts & it's over .

but, then, it's been over a long time ago ..... thank you, ROBERT RUBIN !

EscapeKey's picture

I really wish people would stop listening to that opportunistic quack.

~

Waffen's picture

trust me. I would like to discount Lindsey, but the guy was correct again.. for ex. he predicted the Middle East breakout before anyone was even talking about it.  He said that there would be a "non war" crisis in the middle east that would serve as a distraction. He brought this up in November.

 

The guy either really has insider knowledge or he is damn lucky.

EscapeKey's picture

Oh FFS, he predicted the end of the world in 2010, then 2011, then 2012... he predicted the end of the world with regards to the Gulf oil spill (which he's gone completely quiet on now)...

The guy has an analytical mind, and uses it to piece together a statistically/theoretically probable future scenario, in order to cash in on the gullible by selling CDs/DVDs on his website. Hell, most of the regulars on ZH could piece together the same conclusion.

He probably knew Ken Fromm, and he probably was accidentally let in on some knowledge he shouldn't have access to, but even if you read his book you realize the guy knows jack shit about the oil sector. He essentially claims all the US oil problems can be sorted out by opening up untapped reserves (Gull Island), which according to his own book only amounts to an additional 2m barrels/day, during a time where imports run at 13m barrels/day.

And then he starts yapping about Bakken. Jeez, am I tired of sensationalist nonsense spawned about Bakken.

Waffen's picture

The guy comes off as a full on charlatan to me, which is why i would expect him to be wrong more often, for example his ridiculous, gas bubble in the gulf that was going to explode and flood florid.   Or his cancer cure that is known by the elites kind of bullshit. 

 

However he was correct about the $50  $150 then back to $50.

He was right about the cost of oil staying around $80 for close to a year

He predicited the "crisis in the middle east"  he said ignore that and look to china.(which is still cryptic)

He now is prediciting it to go back to 150-200 by 2012.

 

So far he is correct about 70% of the time, which is pretty good for a charlatan.

 

I am not aware of him predicting end of world 2010,2011,2012, although I have only heard him on the radio since novmeber 2009.

 

 

EscapeKey's picture

That's what I mean he's got an analytical mind. He's clearly an intelligent man, and clearly can derive future scenarios on past performances. No doubt he's an avid student of hostory.

But he also claimed McCain was going to win the election, but then backed down by saying "the elite doesn't always get what they want".

If only I had an undo button in real life.

Rusty Shorts's picture

The "Elites" are always calling Lindsey up in the middle of the night with "new information", then,  "don't tell anybody, or we will have you killed"

 

Two weeks later, there is a new DVD on the subject.

FubarNation's picture

Weird how that always happens.  I guess it is by the providence of God.

BigJim's picture

Careful. Any conflation of Zionists and Nazism - no matter what the Zionists do - is irrefutable proof of anti-semitism.

Natalie Portman told me so.

johnQpublic's picture

zh needs a live ticker for the pm's, dollar, djia etc to facilitate real time discussion/bullshit sessions

DougM's picture

His last name is racist.  Please refer to him as Simon African-American

kaiten's picture

The year for euro collapse was 2010. It didnt collapse, and now it´s not going to collapse anytime soon.

frankiegamwell's picture

"the simultaneous rise in both the dollar and gold indicated the market’s changing attitude towards what it considered a ‘safe haven.’"

 

Trying to wrap my head around that bit of logic

MachoMan's picture

Previously it's dollar up, gold down...  when gold AND the dollar went up during a panic, it showed the dollar was not the only flight to safety... 

Hondo's picture

The market may be telling us the $ is finished but the Fed doesn't really give a rat's ass.....actually read Christina Romer's OP-Ed in yesterday's NYT (I think she is one of the worst so called economist of all time).  The Fed and the administration actually welcome the fall in the dollar all the while lying to the population that that isn't their goal...........well she said it was right there in black and white.

Caviar Emptor's picture

Big stuff happening in Libya as Gadaffi military bombs rebels, US warship moves off coast. 

Oh regional Indian's picture

Secoond the ticker suggestion from JohnQ upthread. It would be great.

And not sure if there is really even room for discussion for the dollar's long-term survival. Short alien interference, the puppy is too sick, eviscerated, hollow. 

Really hard to see through the fog, soo many viariables, all peaking and crashing...fast.

Maybe the need of the hour is steady hands, not nimble ones.

ORI

http://aadivaahan.wordpress.com/2011/02/27/the-fascinating-dr-chippalone/

DoChenRollingBearing's picture

Steady strong hands holding gold and silver, thine time hath arrived.

newworldorder's picture

Full disclosure; I agree with everyone  on this board who detests our ponzi markets, catastrophic debt spending and the demise of the middle class. I am long PM and like most here would like to see an economicly strong America. But --

If not the dollar then what?

What is so large that can accomodate world access liquidity and safety? Can the world live with China providing the reserve currency, (or any other country/currency for that matter,) without the economic and military protection on the USA and its NATO allies.

Currently every currency exists in its present form, through the protection and guarantee the USA provides as the keeper of the peace. IF this guarantee goes away what have you got to take its place? The Chinese army and their system of government?

I don't have the answer to the dollar question and clearly the FED can't print forever, but what are the real world alternatives?

Henry Chinaski's picture

somebody missed the Fight Club meme  >:|

kaiten's picture

"If not the dollar then what?"

The answer is simple. World will look like pre-euro Europe. There will be few competing currencies(dollar, euro, yuan, yen, pound ...), but neither of them strong enough to become(stay) dominant.

Same in geopolitics. There´s no country strong enough to replace US as the world´s hyperpower, but as US is sliding down at one point it ceases to be dominant, i.e capable of being the world´s policeman. Militarily, but above all economically.