FIAT Drainage Has Begun
Gold will meet head winds as the world continues to hedge most of its uncertainty with flights to the USD. Unless that uncertainty abates, it must in the end spread all the way to the US. This will happen regardless of what you think of Trump's policies. Trump may accelerate or slow the inevitable. But Government can only slow or speed up market clearing events. They cannot stop them.
- politics are driving all markets for the foreseeable future
- uncertainty will cause more countries to buy the USD
- gold's rise will be slowed by relentless Dollar strength through mid 2017 at least
The worst currencies in 2017 are telegraphing this to us. And those currencies are the tip of a political spear that is reacting to rotting global markets. If the global marketplace were a patient: Turkey's Lira, the GBP, and Mexican Peso are the first symptoms of a major disease. Growing political uncertainty is a manifestation of backlash against current global dogmatic policies. Whether they manifest in Multicultural globalism, Monetary Unions, or Trade Pacts; the roots are the same. Global centralizers are ideologues who think they know what is best for everyone. And those unelected Supranationals will continue to ignore the grass roots backlash growing in all areas of the world. And it will eat them alive if they don't wake up.
The truth is ONE SIZE DOES NOT FIT ALL, whether that be in trade, monetary policy, or immigration crises. World leaders will learn that the hard way. The Global/Elitist hedge is to leave poor countries (emerging markets), and the west's citizens (via inflation) holding the USD bag in the end. There is little you can do except start definancializing your assets. Here is how we think it plays out. How fast it happens noone knows.
World's Worst Currencies are the Tip of the Iceberg: The world's three worst currencies are showing that politics are driving markets everywhere. This will not change any time soon. The Mexican Peso, Turkish Lira, and British Pound are examples of this in the worst way. But they are only the most obvious examples. The cause of flight out of most currencies and into the USD is a function of political uncertainty. The Euro, Yuan and Yen also are feeling the fallout of politics, but not as obviously as in the 3 worst above show.
The USD Benefits More Than Gold Now: The direct beneficiaries of this are the USD and Gold. The USD has, and will continue to attract more money based on its use in trade and greater liquidity. But as we have said many times, all paper money will circle the drain. The USD will just be last to do so. This is because its past performance as a safe haven will attract shelter seekers once again.
Long USD Will Be the Biggest Spoof Ever: And once the world has loaded up on dollars, there will be nothing left to go to when the Fed aggressively debases our currency to increase inflation and decrease our debt burden. We have been saying this for about a year now. Timing is not easy as central banks can levitate markets for quite a long time. But we are coming to the end of King Dollar's reign.
Keep your Speculative Powder Dry: The best thing to do is continue carrying a piece of your assets in Gold and Silver to hedge when (not if) the USD falls. But don't bet you can time the USD fall. Just have an appropriate percentage of your portfolio in non USD denominated assets.
BTD Comes to Gold: Then, at some point the USD will weaken precipitously. That's when you can start speculating and buy gold on dips to play the trading game. Gold will be easily north of $2,000 soon after the world is done converting its currency risk into USD. Then they will be left holding the bag as our Fed pulls the plug. and then you will be buying dips at $1800 and selling rallies at $2500. That's when Buy The Dip switches from the stock market's mantra to Gold's.- VBL for the Soren K. Group
What to REALLY Watch in 2017
Via Gerardo Del Real and the Outsider.com
Fundamental and technical analysis are valuable tools, whether speculating or trading, but they are tools that are less effective in today’s world than at any other time in history.
The rapid flow of information brought about by the influence of social media now requires a thorough awareness of geopolitical events and the potential consequences of those events when considering a speculation, trade, or investment.
Many have argued that the dollar has topped without a basic understanding of capital flows or a basic understanding of the politics abroad that affect capital flows.
On January 11, 2017, Bloomberg published an article titled “The Three Worst Currencies of 2017 Show That Politics, Not Economics, Are Driving Markets.”
It went on to highlight that politics are trumping (no pun intended) economics in the world’s foreign exchange markets.
The article went on to explain:
“These laggards "all face significant political headwinds: terror attacks and government interference in monetary policy in Turkey, Brexit-dithering in the U.K., and fears of U.S. protectionism in Mexico. The takeaway, two weeks into the year, is that as expected, politics is at least as important as economics in driving markets in 2017.”
So what should we be paying attention to the rest of the year?
Once again, anti-immigrant and anti-establishment sentiment has put in question whether Chancellor Angela Merkel can retain power in the upcoming German elections, which must take place before October 22, 2017.
Chancellor Merkel’s Christian Democrat Union (CDU) party was recently beaten in her home state, largely as a rebuke of the party’s open border policy. Chancellor Merkel came in third place behind Germany’s populist right-wing Alternative for Deutschland party (AfD), which secured 21% of the vote in her home state.
The Wall Street Journal reported this month that Ms. Merkel’s approval rating stood at 52%, down from more than 70% in the summer of 2015, according to pollster Infratest Dimap. Her party is polling in the low-30% range, after winning 41.5% of the vote in a 2013 federal election.
The same anti-establishment sentiment that exists in Italy is very much alive and well in France and Germany.
The spring presidential election in France is shaping up to be an important one as well.
Far-right candidate Marine Le Pen, a 48-year-old lawyer by training, has tapped into the growing anti-immigrant sentiment using recent terror attacks and a faltering economy as ammunition against President Francois Hollande.
Among Le Pen’s agenda items are leaving the European Union, ditching the euro, and securing the borders. This is the world’s sixth-largest economy.
She’s not currently favored to win, but neither were the pro-Brexit crowd or Donald Trump. With 10% unemployment — near a record high — months before the election, it would not surprise me to see Le Pen’s popularity gain traction among “undecided” voters.
Elections in France are multi-round affairs and ultimately decided by the popular vote. She’s expected to make it into the second round, though most polls currently have her losing. These are the same pollsters that forecasted Brexit and the Trump presidency inaccurately.
FYI she’s also a fan of Vladimir Putin, isn’t sold on climate change, and has called globalization “another kind of totalitarianism.” Sound familiar?
Should Le Pen win, the ramifications from this election, like the Italian referendum, could be potentially fatal to the sustainability of the euro, which will have an impact on banks, currencies, bond markets, and the precious metals space.
Elections in Germany and France will add to the political risks that the euro, a currency that is structurally flawed, faces.
The global war on cash will also play an important role in the how the dollar performs.
The ability of the Fed to make good on its promise to raise rates in 2017 will provide headwinds for precious metals prices.
While the European Central Bank and the Bank of Japan continue running aggressive quantitative-easing programs, the Federal Reserve has promised three hikes in 2017.
I don’t believe the economy is strong enough to justify three hikes but if the major stock indices continue to establish new highs — and they will — there will be many calling for at least one rate hike to contain asset bubbles.
Even one additional rate hike will lead to a surging dollar — even from today’s levels — that will catch many off guard.
Speaking of asset bubbles, Ivan Martchev recently wrote an article for Marketwatch outlining how:
“Although China’s GDP grew 11-fold since 2000, total credit in the economy grew over 40-fold, resulting in a total debt to GDP ratio rising from 100% to 400% (if one counts the infamous shadow banking system).
"This credit bubble has now burst, as evidenced by the crash in the stock market, the rolling crashes in local real estate markets, as well as the massive capital flight out of China.”
Capital from Japan, Europe, and China simultaneously looking for a home in the U.S. will provide one last kick to the rear for dollar bears.
How high could the dollar go in 2017?
Some context is important. Below is a chart from macrotrends.net of historical data showing the broad price-adjusted U.S. dollar index published by the Federal Reserve. The index is adjusted for the aggregated home inflation rates of all included currencies.
The price adjustment is especially important with our Asian and South American trading partners due to their significant inflation episodes of the 80s and 90s.That surging dollar will limit gold’s rise in 2017, but in a best-case scenario that surge happens in the first half of the year and not the second half.