The $9 Trillion US Dollar Carry Trade Blew Up Oil, Russia, and Brazil… What's Next?

Phoenix Capital Research's picture

As we have emphasized repeatedly, Oil’s crash is being misinterpreted by many investors.


When it comes to Oil, OPEC matters, as does Oil Shale, production cuts, geopolitical risk, etc. However, the reality is that all of these are minor issues against the MAIN STORY: the $9 TRILLION US Dollar carry trade.


Drilling for Oil, producing Oil, transporting Oil… all of these are extremely expensive processes. Which means… unless you have hundreds of millions (if not billions) of Dollars in cash lying around… you’re going to have to borrow money.


Borrowing US Dollars is the equivalent of shorting the US DOLLAR. If the US Dollar rallies, then your debt becomes more and more expensive to finance on a relative basis.


There is a lot of talk of the “Death of the Petrodollar,” but for now, Oil is priced in US Dollars. In this scheme, a US Dollar rally is Oil negative.


Here’s the US Dollar:



Here’s a chart showing an inverted US Dollar (meaning when the Dollar strengthens, the black line falls) and Oil (blue line):


Oil’s collapse is predicated by one major event: the explosion of the US Dollar carry trade. Worldwide, there is over $9 TRILLION in borrowed US Dollars that has been ploughed into risk assets.


Energy projects, particularly Oil Shale in the US, are one of the prime spots for this. But it is not the only one. Economies that are closely aligned with commodities (all of which are priced in US Dollars) are getting demolished too.


Here’s Brazil:






Just about everything will be hit as well. Most of the “recovery” of the last five years has been fueled by cheap borrowed Dollars. Now that the US Dollar has broken out of a multi-year range, you’re going to see more and more “risk assets” (read: projects or investments fueled by borrowed Dollars) blow up. Oil is just the beginning, not a  standalone story.


If things really pick up steam, there’s over $9 TRILLION worth of potential explosions waiting in the wings. Imagine if the entire economies of both Germany and Japan exploded and you’ve got a decent idea of the size of the potential impact on the financial system


And that’s assuming NO increased leverage from derivative usage.


The story here is not Oil; it’s about a massive bubble in risk assets fueled by borrowed Dollars blowing up. The last time around it was a housing bubble. This time it’s an EVERYTHING bubble. And Oil is just the canary in the coalmine.


If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.


You can pick up a FREE copy at:


Best Regards

Phoenix Capital Research






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basho's picture

worth a repost from FlyingWombat

Lots of insight on possible "what's next" scenarios here:

Paul Craig Roberts also wrote about it.  See link.

tired1's picture

Who are these 'we' of whom you speak?

Lynn Trainor's picture

Yes, and to think we are just bringing all this on ourselves because of very unwise and foolish leaders so full of themselves.  Sickening.

NEOSERF's picture

This post QE stop runup has been completely engineered by Wall St for bonuses...once the pressure is off, there will be an obligatory 20% drop folllowed by a 15% correction so the maggots can get their 50% out of the are either in the circle or outside of it...

Wahooo's picture

The negative effects of a soaring dollar on borrowers does not equate to all debt being a "massive bubble in risk assets". If his thesis is that all debt - even debt of E&Ps - will be demolished by a rising dollar, then he's over speculating.

Panafrican Funktron Robot's picture

I think the main thing he's not touching on is "why" the dollar is rising so rapidly.  The answer is simply a pause in QE, which increased the relative value of the dollar vs. other fiat that continued QE (esp. JPY).  I think this pause is to engineer a "manageable correction" to create the political environment to resume USD QE. 

Sandmann's picture

Russia has stopped grain exports and I doubt Ukraine has any to export and MENA is largest grain importer so I guess food costs will explode in the Middle East as food subsidies are cut because of oil revenue deficits

rsnoble's picture

Food costs in middle east explode?  More like in the US.  We'll be happy to send them all they can eat.

Sirius Wonderblast's picture

Russia (for instance) is paid in dollars for oil, receives less of them, but earns roughly the same in roubles because of it's decreased value against the dollar. Vlad isn't hurting, and has plenty of time to effect his strategy, therefore.

flyingpigg's picture

Sure, and BMW's, televisions, iphone's, coffee are al imported at roubles?

Sandmann's picture

Polish gangs steal BMW,  Porsche,  Mercedes to order in Germany for the Russian market

cowdogg's picture

More fun and games from the Empire of Illusion. Notice how many times Evans-Pritchard mentions a US "recovery". You know the "recovery" that doesn't exist. Then he goes on to imply that this "recovery" is so strong that the Fed is just going to have to start raising rates to moderate this "recovery" that doesn't exist. Evans-Pritchard is telling us a lie based on another lie pure and simple. Edward Bernays formulated that a lie repeated often enough would be perceived as truth and now through the majic of media compounding other lies become become "truths" and facts are ignored and forgotten like how in the hell can government fund it's multi trillion dollar deficits without zero rates and the Fed's printing press?

GreatUncle's picture

Yep read it at the time and thought 2 things.

If you can't print dollars because it is not your currency likely the US appreciation society is going to fall rather quickly and how much they are prepared to take "being as nobody else can print dollars" how long will it be befiore the US be forced back to the table to continue QE ... August / Spetember? Bigger too!

No one nation should be responsible for the global reserve currency although once you have drank of that cup you will never give it up manipulating the currency to prop up your own economy.

On that expecting a very difficult end to 2015 and it is not even started ywt.

Mad Muppet's picture

I'm pretty sure both Russia and China could print up all the Dollars they want to...they have presses too, right? It would be a good way bumf our currency worse than it is already.

tired1's picture

For years the NorKs have been suspected of printing 'supernotes', so why not?

ItsDanger's picture

All this talk of unhedged positions and then talk of massive derivatives.  Which is it?

Soul Glow's picture

How are the mid east markets doing?  Not well huh?

TruthHunter's picture

"Borrowing US Dollars is the equivalent of shorting the USD. If USD rallies, then your debt becomes more and more expensive...a USD rally is Oil negative."


The mother of all short squeezes. I think I get it, a short squeeze to end all...uh, uh...ALL!

MrButtoMcFarty's picture


Sell the paper. Buy the physical.

Or better yet....go shoot a Bankster in the face.

Happy New Year.

paint it red call it hell's picture

Pitchforks and a short length of pre-stretched rope seem more traditional, satisfying and appropriate to the crimes.

Sirius Wonderblast's picture

An arrow or a crossbow bolt could perhaps also have a satisfying visual effect.

Panafrican Funktron Robot's picture

For some reason I usually envision this scenario similar to William Wallace riding horseback into their bedroom, startling them awake, waiting just long enough for them to realize their impending death, and them bludgeoning them in the face.

But that's just me.

Ewtman's picture

The USD will take a break shortly before resuming its rocketing climb into the stratosphere...

TeethVillage88s's picture

I guess I get fixated on numbers and can't seem to get complete chart I saw linked in Zero hedge this year showing both a Financial Cycle (long term) and a shorter business or credit cycle. I think the point was we were at the end of a 30 year (aprox) Financial Cycle. But after 2005 Mortgage Top and 2008-2010 Financial Crisis... USA is doing their best to push more credit & money into the US Markets (except not into Infrastructure, Manufacturing, big National Type Projects, and they would use protectionism to protect wages).

Hell there are lots of numbers to look at.


Not the $1.7 Quadrillion created?

The financial position of the United States as of Q4 2012 included household and not-for-profit net worth of $66.07 trillion, [1] non-financial corporate business net worth of $17.59 trillion[2] and non-financial non-corporate business net worth of $8.06 trillion, for a total of $91.72 trillion.[3]

As of 2009, there was $50.7 trillion of debt owed by US households, businesses, and governments, representing more than 3.5 times the annual gross domestic product of the United States.[5] As of the first quarter of 2010, domestic financial assetsA totaled $131 trillion and domestic financial liabilities $106 trillion.[6] Tangible assets in 2008 (such as real estate and equipment) for selected sectorsB totaled an additional $56.3 trillion.[7]


- How can US Derivatives created out of thin air, Totallying over $1.7 Quadrillion USD... Not be a concern

- DTCC. Through its subsidiaries, DTCC provides clearance, settlement, and information services for equities, corporate and municipal bonds, unit investment trusts, government and mortgage-backed securities, money market instruments, and over-the-counter derivatives. It also manages transactions between mutual funds and insurance carriers and their respective investors.

- In 2011, DTCC settled the vast majority of securities transactions in the United States and close to $1.7 quadrillion in value worldwide. DTCC operates facilities in the New York metropolitan area, and at multiple locations in and outside the U.S.

Flying Wombat's picture

Lots of insight on possible "what's next" scenarios here:

Paul Craig Roberts also wrote about it.  See link.

rsnoble's picture

So what kind of dumbfuck couldn't see Russia and China partnering?  You'd have to be completely blinded by greed and allsomighty you would never think of such a thing. they already have nightmare contingency plans for that also?

Now we know the true meaning of China saying recently "Be ready for war".

paint it red call it hell's picture

Or totally out of options.......

Flying Wombat's picture

...the kind that work under Obama at the State Department upper management level, perhaps (not so much the core staffers that have been there for years as they actually know a thing or two about history and diplomacy and realpolitik, but the civilian leadership really does make one wonder!)

Flying Wombat's picture

Even people like Henry Kissinger and Zbigniew Brzezinski have been chastising the idiocy of the US failure to understand what is truly going on in Russia.  Those two are hardly "pro Russian."

rsnoble's picture

Sometimes you have to wonder how idiots like this can't figure out they should talk to other people asides their own circle jerk ring.

That's true just about in anything though.  Like I was going to send out applications to food giants for the position of 'food taster' because your tasters are fucking worthless.

The new and improved Coke!!!!!!!!! LMAO yeah ok.  They do lots of stupid things like hand the  new burger out for free.  Of course people will say they like it.  They're happy cause it was fkn free lol.

Morons.  Whole lot of 'em.

Back to the Russian AND China debacle(LMAO)..........that is pure mind boggling.  It is hard to imagine how detached one would have to be to make that kind of miscalculation.  Among many other things, just plan weird.

Sometimes I think this lot of humanoid idiots are the ones that hid underground in the last ancient war that destroyed mankind lol.  No wonder we haven't made impovements.

rsnoble's picture

LOL nice thx.

Oh well at least I had the 'tastes sucks' part right.

dreadnaught's picture

Ha!! Shades of the SONY "debacle" all just a marketing scam to watch movies on smartphones;

BTW you can buy Coke with sugar at your local SAFEWAY-its from Mexico

kchrisc's picture


The banksters need to repay us.

Duc888's picture



Thanks for the linky FW.


Obummer is being outflanked once again.  Just goes to show there is absolutely no cohesion in US foriegn policy.  Each little squad of cheerleaders (CIA, NATO, EU, etc) are trapped in their own myopic short term squabbles.  Amazing to see the criminal cabal(s) butt fuck themselves into oblivion.  As always it will be interesting to see who sux the Old Werld Bankster cock and who says Nyet.

ebworthen's picture

Ooh, that is good stuff.  The 25 page PDF explaining the double helix of the Dragon and the Bear is worth the read:

prefan4200's picture

That's a pretty interesting read, FW.  Thank you for posting the link.  The author(s) appear to be very well-informed on the inner workings of the China/Russia partnership.  If most of this is fact-based and not some wild speculative conspiracy theory, the ramifications for the West in general and the US in particular are sobering.

Max Steel's picture

Implode Bitchez .

Clint Liquor's picture

Did the FED raise rates? Dollars are just a 'cheap' as they were last year. In fact, they are 'cheaper' because they will buy more in other currencies.

Ying-Yang's picture

Russian Roulette

Taxpayers Could Be on the Hook for Trillions in Oil Derivatives


topshelfstuff's picture

Ellen Brown did a fantastic 22 minutes just a few weeks ago...find the time to listen, and the comments too

Ellen Brown-5 Big Banks will Survive Next Financial Calamity-Everybody Else Bankrupt


Ellen Brown says these new rules will allow banks to take money from depositors and pensioners globally. Brown explains, “It became rules we agreed to actually implement. There was no treaty, and Congress didn’t agree to all this. They use words so that it’s not obvious to tell what they have done, but what they did was say, basically, that we, the governments, are no longer going to be responsible for bailing out the big banks. These are about 30 international banks. So, you are going to have to save yourselves, and the way you are going to have to do it is by bailing in the money of your creditors. The largest class of creditors of any bank is the depositors.”

It gets worse, as Brown goes on to say, “Theoretically, we are protected by deposit insurance up to $250,000 in the U.S. and 100,000 euros in Europe. The FDIC fund has $46 billion, the last time I looked, to cover $4.5 trillion worth of deposits. So, even though we are protected by the FDIC, the FDIC is not going to have the money. . . . This makes it legal for these big 30 banks to take our money when they become insolvent. They are too-big-to-fail. This was supposed to avoid too-big-to-fail, but what it does is institutionalizes too-big-to-fail. They are not going to go down. They are going to take our money instead.”


Lynn Trainor's picture

Time with get our funds, pension and otherwise, out of the corrupt banks.

j0nx's picture

Haha legal shcmegal. If these guys think that Americans are just going to kick back and grumble after they have siphoned 20% out of our checking account balance to pay for their bad bets then I've got a bridge to sell you. In your face bail-ins in the USA will never fly. No need to anyway as they can print all they want and have been for years. Easier (and safer) to print and offload the inflation stealthily and shrug their shoulders as to why since most Americans are tards that don't understand the effects.

Clint Liquor's picture

The good news is; the bill was passed in a bi-partisan manner.