How To Invest In The New World Order

Tyler Durden's picture

Submitted by Eugen von Bohm-Bawerk via,

In our latest Toward a New World Order, Part III we ended by promising to look closer at investment implications from the political and economic shift we currently find ourselves in; and that story must begin with the dollar. While known to the investing public for years, the Bank of International Settlements (BIS) recently acknowledge that the real risk-off / risk-on metric in global markets is the dollar and nothing else.

In the chart below, which we recreated from an absolute brilliant presentation by Macro Intelligence 2 Partners via RealVision-TV, we see the potential scale of the coming “dollar-problem”.  The dollar moves in cycles as most things. The lower extreme around 84, only broken when Bernanke pushed through QE2, means financial conditions for emerging markets and other commodity producing economies have gotten so out of hand that conventional risk-metrics finally lead investors to pull back. The trigger, as can be seen in the chart, is often policy driven, but the underlying structural imbalance has been building for years, if not decades, prior.

Before we move on it is of utmost importance to understand that many of the dollar liabilities accumulated outside the United States are not backed by actual dollars, but are rather claims to dollar proper. This is the infamous Eurodollar market whereby banks, mostly international European ones, fund various economic activities by issuing claims to dollars, but for which no such dollars exists.  Think of it as another layer of fractional reserve lending on top of fractionally created money in the first place.

When risk metrics stray too far from what is considered prudent, investors start to pull money out from emerging markets, and obviously demand that their investments are paid out in dollars. To comply, international banks scramble to get hold of as many dollars as they can in the shortest time possible in order to fulfil their part of the bargain. The value of the dollar jumps as demand suddenly outstrips supply. Financial conditions in emerging markets tighten significantly and it becomes impossible to fund further expansion. Emerging market banks, with dollar liabilities and LCU assets are particularly vulnerable. The boom turns to bust as the Eurodollar market breaks. If the cycle gets out of hand, as it did from 2008 onwards, banking solvency is not only limited to local emerging market banks, but to the international banking community at large.

Taking a closer look at the previous dollar cycles, as represented by the real broad based dollar index we find that the initial shock pushes the dollar 20 – 25% higher from its low. It then pauses, drops 5% before starting a second leg higher (we outlined this process back in October). This is exactly where we are at now and if history repeats itself, which we believe it will, a new financial crisis is brewing just under the surface as the dollar moves into its second leg.


There are also other compelling arguments for the strong dollar case. If President-Elect Trump moves forward with his policy promises, such as changing the tax-system in accordance with the principle of destination based taxation; exports will be tax exempt, while imports will fully taxed at the corporate rate. The dollar may strengthen as much as 10 – 15% on this tax alone. Furthermore, if American companies repatriate some of their trillions held abroad it will put additional pressure on the price of dollars. Some may argue that dollars held in Wall Street are just as fungible as those held in Tokyo, Hong Kong or London, but given new money market regulations that may no longer be the case. Prime funds are starved of cash, while those investing in government bills are flush. It is therefore highly likely that repatriated cash will be stuck in New York money markets and create additional pressure on Eurodollar markets.


In Toward a New World Order, Part III we showed several structural breaks occurring in US economic time series after 2008. Similar breaks can be found throughout the world. These are all directly related to a broad based funding problem stemming from Eurodollar scarcity and a higher price of the dollar. While dollar-QE interrupted this downward trend intermittently, it was never a solution to the problem, which is one of misallocation of capital and malinvestments. QE only help fund capital consuming economic activities, commonly referred to as bubbles, and as soon as QE injections stop, capital reallocation toward a sustainable economic constellation resumes. QE is thus an extremely destructive policy as it depletes an already stretched pool of real savings available to fund economic projects.

We created a proxy for the state of the Eurodollar by summing up balance sheets of major European banks and what that simple exercise reveals is not a recession and weak recovery, but the ongoing depression that has been so detrimental to Western economies for the last ten years.

Our Eurodollar proxy peaks with the financial crisis, falls rapidly despite QE1 (which was a more technical program designed to fund shadow banks within the US and didn’t really increase the supply of dollars globally), but recovers slightly during QE2 with its focus of pushing dollars into the global system. It is interesting to note how different the proxy reacted to QE3, a program designed just as QE2.


Our proxy showed tentative signs of a global financial system finally able to adjust to the new reality. By late 2015 the Eurodollar market had stabilized. Forced by unforgiving market forces and zealous regulators, banks increased their capital ratios and scaled down. However, just as the system started to cope, our money masters in their infinite stupidity decided they wanted to force banks to re-leverage their balance sheets again in what can only be interpreted as a schizophrenic Leviathan; regulators (often within the central bank itself) told banks to deleverage, while central bank policies tried to make banks leverage. We are of course talking about negative interest rates. By charging banks to hold their excessive reserves at the central banks, the idea was that banks would feel compelled to invest money in the main street economy.

As is now clear to all, maybe with the exception of the Ph.Ds. polluting the world central banking community, negative interest are a deflationary force in itself. Yield curves crashed, net interest margins were squeezed, and with Main Street at peak debt, there have been little appetite for more debt. It has been such an abject failure that the Bank of Japan have more or less admitted their mistake by introducing yield curve control. That step was originally an attempt to steepen the yield curve, but has since backfired spectacularly as the JGB 10-yr rushed through the zero percent level with the election of Donald J. Trump for the US Presidency. Now they are forced to put a lid on JGBs in order to maintain the zero target.

Lastly, if the US current account deficit shrinks, as tariffs and arm-twisting make US Inc. think twice about moving production abroad or even re-shoring some of their existing capacity and a resurgent shale oil industry increase oil production on back of OPEC jawboning, the global dollar supply / demand imbalance will only be aggravated.

In 2017 we expect the dollar to gain another 10 – 20%. This will create immense pressure in several emerging markets such as Turkey, South Africa, Indonesia, Brazil and India. While they have managed to reduce their current account deficits considerably, large amounts of dollar denominated liabilities need to be rolled over in 2017. The US, which currently experiences a mini-boom on the anticipation of Trump policies on top of large dollops government spending prior to the election, will head into recession as the Trump-amplifier turns out to be a dud. Deflation expectations re-emerge to the great surprise of most pundits, but a US led deflation will be nothing compared to what the inevitable Yuan devaluation (or stronger pace of depreciation) will create; in this respect, the German economy, with its heavy reliance on capital goods exports, looks particular vulnerable.

We expect gold to fall below USD1,000 per ounce (which will be a great buying opportunity).


Crude oil will probably fall into the low USD20s per barrel as the OPEC-deal fails to materialize and demand projections prove too optimistic. If OPEC fully comply with the announced deal inventories will start falling in Q1 2017 and provide data oil traders will justify further bullishness. In other words, short term, crude may move higher on OPEC and Trump, but in the medium term it is highly likely the glut will persist and pull the rug under all the bullish bets out there.


However, if OPEC cheats only 5% from the announced deal the first inventory drawdown will be postponed one year, and the cumulative inventory overhang will persist well into the 2020s.


Yield steepeners are in vogue today, but if the dollar thesis plays out as expected, you should load up on cheap yield flatteners in the “safe havens”.

The most important and interesting question though is this; what will the Fed do when they realize that their hiking cycle triggers the global risk-off trade? QE4? At that point everything we just said changes. QE4 will probably be the sign that velocity is about to take off and create the dreaded deflation-inflation whip-saw we expect over the longer term.

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SallySnyd's picture

Here is an article that looks at how there has been a paradigm shift in the global bond market:


This is yet another in a long series of unintended consequences of central bank monetary policies.

Captain Chlamydia's picture

I read the article, frankly not everything, but I picked up this line......Only time will tell whether the "new bond market reality" holds true during the next global economic contraction when central banks are forced to use new, imaginative monetary policies unless, of course, they find it desirable to own even more government debt.

weburke's picture

qe is what the reserve currency does.

It helps the rest of the world.

UNTIL the reserve currency betrays the qe countries by letting its currency go up.

imf to the rescue, like before. then, elites betray the reserve currency, and all move to imf one world currency.

groaner's picture
groaner (not verified) Dec 26, 2016 6:28 PM

OK, this is disgusting. how to make money off the genocide and communist new world order?

hxc's picture

Better than lettin em starve ya.

Oldwood's picture

And that is exactly what they rely on.

Kat Daddy's picture

A feature of the Federal Reserve System is that there no correct policy, the greater the struggle the tighter the noose gets, ending in national bankruptcy, followed by asset stripping and austerity by the ONE BANK CARTEL.  Take away the money printing franchise!  Confiscate fraudulent profits, nationalize the FED, renounce the debt!


Oil per barrel at $20.00 is exactly what I predicted about three months ago.


Great article +100

Croesus's picture

I have to mark this on my calendar...the day you posted something here without using your usual "Trump-o-the-Assclown"...

Good for you.

Since we're playing nicely:

May you and yours have a safe, prosperous, and Happy New Year.


A prosperous & Happy New Year to you, and yours, as well, Croesus. Sorry to not like the new POTUS, but he is not acceptable material for leadership IMHO. Moreover, I get tired of him every once in a while so I do my best to avoid articles that mention him so I can give the whole mess a drink now and then. The sensationalized headlines usually draw me back in when there seems to be some churn on the political front. Lastly, I do appreciate the business side of his policy framework, and like everyone on Z/H I was hoping someone would drain the swamp eventually. Looks like he backpeddled on that for now. cheers, eh.

Hope Copy's picture

Some one forgot to factor in that downed TU154

Dre4dwolf's picture

everything signals a deflationary crisis and dollar shortage.

milking institute's picture

Everything signals inflationary pressures building and Money printing to resume,plunging Dollar. anyway i'll buy you a Beer if i'm wrong...

In.Sip.ient's picture

You realize, that a 10-20% hike in the
US$ is NOT good for US business???

Expect the FEDs to liquify eurodollars
specifically... i.e. print money and
EXPORT it! That way when the clowns
outside the US ask for US$
they get 'em.

HRH Feant's picture
HRH Feant (not verified) Dec 26, 2016 6:48 PM

"Before we move on it is of utmost importance to understand that many of the dollar liabilities accumulated outside the United States are not backed by actual dollars, but are rather claims to dollar proper. This is the infamous Eurodollar market whereby banks, mostly international European ones, fund various economic activities by issuing claims to dollars, but for which no such dollars exists. Think of it as another layer of fractional reserve lending on top of fractionally created money in the first place."

So now fiat money is backing more fiat money and has been rehypothecated and is affiliated with nothing? Did I get that right?

Holy fucking shit Sherlock! Cheap oil and cheap gold, time to buy buy BTFD! Woo hoo!

Clara Tardis's picture

Here are some companies to avoid, in the event the Clinton Foundation actually does get shut down (including HSBC). Some real journalism here on dot connecting the dark web that is the ClintonMachine, if the Clinton Foundation rolls on -place your bets on these winners!!

pparalegal's picture

Will we see them hat-in-hand with wet lips visiting the Don?

BigDuke6's picture

free advice like this is mostly crap
Beware. Many spruikers on this site these days

Btw , people talk about ammo here
Does anyone load their own?
Cheaper. More accurate and fun

hooligan2009's picture

fukushima paint balls? ;>)

Mr Poopoo Guy's picture

not gonna happen !! When everyone was touting inflation during all QE's we got deflation , now they're touting deflation and we are gonna get , you quessed it, Inflation .

hooligan2009's picture

nailed it

but it will be a transfer of inflation from the stock markets (from fed/CB induced QE) to general prices for state/city/local taxes, feeding into higher utility and food prices (we already had inflation in health care and education).

the fed will prove itself even less relevant, if thats possible, because (unless the Treasury cancels the debt on the Fed's balance sheet) - inflation will peak at between 5-8% - necessitating Fed Funds of 8-10% and a bankrupt Fed and Government.

20 trillion of debt will need to be refinanced at 6-8% instead of 0-3% = an additional 20 trillion times 4% or 800 billion a year -

draining the swamp will mean that at least 800 billion or 1% of global gdp of 80 trillion dollars needs to swing to the US for trade surpluses, for the US to stand any chance of avoiding the black hole - europe and japan have already passed that event horizon, where there is no escape from default of sovereign debt.

buzzsaw99's picture

nobody around here wants to read about a strengthening usd or gold falling below $1000/oz. lulz

hxc's picture

Oh, is that why there are all these comments here? Lol

Stoical's picture

Imperialism: the highest stage of Capitalism

hooligan2009's picture

there will be no Eurodollar "crisis" for as long as f/x markets continue to function.

keep an eye on f/x volumes, when these start to dry up, it will signal/confirm a slow-down in global growth - the other way to check on crisis conditions will be the usual freight volumes (ships, trains and planes) and LETTERS OF CREDIT - of course i Europe and Japan, these are LETTERS OF DEBIT - because of the psychologically damaged central bank politburos.

i find it cute that not a word is mentioned any more of "coordinated central bank intervention" or "central bank currency swaps".

anyway, we know that central banks have no impact on quality in an economy OR on inflation, employment or economic growth - the big question is the marginal impact of the size and scope of the eurodollar market from banking regulation (eurodollars were invented to circumvent ALL sovereign regulations via the creation of "offshore" subisidary banks and companies - but governments have "nationalized" euro dollars via the BIS consoldiation of subsidiaries making them redundant.

i am sure that the US government will love to sell their Strategic Petroleum Rerseve at 20 dollars a barrel - not.

so... do fiat onshore (Fed controlled) fiat dollars generate global ex-US trade - apparently not?

do fiat offshore (BIS controlled) fiat dollars generate global (inc-US trade) apparently not as much as they used to, since BIS regulations that cosnolidate offshore subs?

my bet is that instant cash settlement creates its own dedit problems (think Apple and Google pay etc) that are being entirely screwed by the money market reguations, that force funds into treasury bills (guaranteed short term funding for the Government - by denying the release of fund to banks and hence to borrowers for houses, cars, consumer goods etc).

in a nutshell, the banks should have been and should be, allowed to fail - governments prove again and again that their regulations screw up trade, investment and profits - exacerbated by government spending that turns one dollar into 40 cents as fast as possible..

round and round it goes, where it stops nobody knows - other than in the toilet - i hope that once the swamp is drained the government (including the military) is half as big and twice as smart.

fbazzrea's picture

am i the only one here that sees his flawed interpretation of the Real US Dollar Index chart (first one)?

instead of seeing the current plotting follow the 1980 and 2000 uplegs after a 25% correction, i see a larger downward trend from the 1985 peak which appears to be close to the next peak plot before reversing.

i'm probably wrong.

jmack's picture

what great information... this and this and this is gonna happen, oh, but if this happens then forget that, this is gonna happen.... lol.

Korprit_Phlunkie's picture

The NWO is NOT about economics, it IS about souls for satan. Many will join in because of their greed but that is not the ultimate end game.

DarkPurpleHaze's picture

Lol...Satan? Did he issue a recent press statement of his intentions at Davos?

Globalization is clearly the manner in which Satan conquers the world. C'mon man!


peterk's picture

All that matters is if  a countrys bond market collapses and rates go up.

If Eurodollar  int rates spike up and the  domestic national economy of whatever nation is able to absorb it, then who cares

what the eurodollar rate did.

China, with its  lagre holdings of US dollars would be able to  inslate its economy, but other nations  not so much.

So essentially ot comes down to  the local boind market of each country.

This article is like taking the long way around.:)).... Still its good to have the theory, but its maybe worthless money wise.

peterk's picture

i guess i should have just said above, this is all theory.

Theory also  said interest rates could never become negative......... imagine you argued at university

with the professors that they could.... you would have been laughed at.


Trade the  markets, not the theory.

peterk's picture

btw, thaat  real eurodollar chart seems to have been pulled out of  someones backside....  just created out of  who knows what.

It could be a chart of averge  raintfall in  guatamale for all i know.


if you going to use chart just use market  eurodollar data.... but i guess that would have coformed to the  articles conclusion

to  buy "gold" at $1000.

GOLD will FALL  to $600 or lower imo... to many  closet stackers waiting to buy,... they must be fushed out.

All those CHINESE with their gold horads must CAPITULATE before a GOLD BUY... that will take a LONG TIME.

WHAT DO YOU THINK?.. GOLD falls to  $X00 and you are given a chance to  BUY and the gold market SHOOTS TO $10,000.

I think thats a wet dream.

More likely gold falls to $300 , stays there for 3 years, and you CANNOT BUY as you dont have any $$$$ money .