The blogosphere is rife with talk of the “death of the US Dollar.”
The US Dollar will eventually die, as all fiat currencies do. But the fact remains that it is the reserve currency of the world. And everyone on the planet has been borrowing in US Dollars for decades, or leveraging up using Dollars.
When you borrow in US Dollars you are effectively shorting the US Dollar. So when leverage decreases through defaults or restructuring, the number of US Dollars outstanding diminishes.
And this strengthens the US Dollar.
With that in mind, it looks as though we are in the early stages of a massive, multi-year Dollar deleveraging cycle. Indeed, the greenback is now breaking out against EVERY major world currency.
Here’s the US Dollar/ Japanese Yen:
Here’s the US Dollar/ Euro:
Even the Swiss’s decision to break the peg to the Euro hasn’t stopped the US Dollar from breaking out of a long-term downtrend relative to the Franc:
The fact that we are getting major breakouts of multi-year if not multi-decade patterns against every major world currency indicates that this US Dollar bull market is the REAL DEAL, not just an anomaly.
With that in mind, I continue to believe the US Dollar is in the beginning of a multi-year bull market. And this will result in various crises along the way.
Globally there is over $9 trillion borrowed in US Dollars and invested in other assets/ projects. This global carry trade is now blowing up and will continue to do so as Central Banks turn on one another.
This will bring about a wave of deleveraging that will see the amount of US Dollars in the system shrink. This in turn will drive the US Dollar higher.
Indeed, consider that the US Dollar actually MATCHED the performance of stocks for the year of 2014.
Any entity or investor who is using aggressive leverage in US Dollars will be at risk of imploding. Globally that $9 trillion in US Dollar carry trades is equal in size to the economies of Germany and Japan combined.
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