Summary – I look at how 3 things the Fed are doing may be making the value of the DXY go up, but it is missing how the dollar is losing value REAL THINGS, and quickly. I find that there is a phenomena ahead where both milkshake AND Schiff can be right in that the DXY as a measure of the USD against a basket of “friendly” currencies that are debauching faster than the USD are losing value to it – but is not potentially taking into account currencies which may have ties to commodities/gold soon could trounce the USD. Meaning – you COULD have a higher DXY and significantly higher priced gold in USD happening at the same time, and soon.
Back to the article…
All of you know I can write massive articles. I had decided to break this into two parts. Part one was discussing the strength of the ruble in relation with gold, oil, and other commodities against the backdrop of a rising DXY due mostly in part to weakness in the JPY, EUR, and GBP.
Part 2 is now talking about some of the mechanisms which would start to take the value of the USD down.
I know, I know – “dollar bears”. “Dollar is dead”. I get it. But all anyone sees right now is a rising DXY. That is, strength against 3 currencies heavily reliant on Russian energy that I listed in part 1. But I ask you, what is next for our dear friend, the dollar?
Let’s look at a couple areas of concern.
The path on the Fed…
We are locked in on 3 specific events that the fed is doing.
- Stopping QE. Meaning, they have stopped buying the mortgage backed securities and treasuries.
- Raising Fed Funds rates. They talk about higher and higher rates.
- Reducing balance sheet.
Here, we can clearly see the Fed can deliver the kill shot against the US population for the Russians. No need for them to do anything but watch us do it to ourselves.
“But the Fed is trapped!” you hear everyone say. “I’m waiting for a Powell Pivot” others may say. In my piece about “Could they let it burn” I discussed the idea that in order to save the country, they may sacrifice the markets to save the dollar. Furthermore, in 2018 – Trump was berating Powell daily trying to get him to reverse course and reduce rates to save the stock market. This time around, you have the Biden team trying to quash inflation – and the Fed has already talked about the “reverse wealth effect”. Overall, my reasoning was that it made sense to sacrifice the markets to save the dollar, to rebuild the markets later. IF you allow the dollar to die, it doesn’t matter what the value of your stocks are, the currency you trade them for will be worthless and hyper inflate.
IF you look at that path, it is very reasonable to see a higher DXY with a “strength” of the dollar. But…relative to what?????
Remember, the ruble is hinting/flirting/discussing/testing/working on a currency that is backed/associated/aligned with a commodity/gold/oil/nat gas backing. Ronan nails it again in his article out yesterday. In this environment, you can also see the ruble back to pre-war strength against the USD. IF you look at those other three currencies relative to the ruble, you can then extrapolate where that delta is that is pushing the USD higher relative to them, and hence producing a higher DXY.
Let’s now discuss all three of those Fed tools and the potential negative impacts to the citizens of the country.
Using ballpark numbers, you saw something like $120b per month buying up MBS dog shit and treasuries to keep rates low during COVID. During this time, you saw the Fed balance sheet taking on water.
You can see this going from just under $4T in 2020 to close to $9T today. Correct me if I’m wrong, but the TARP program was about $1.2T to “fix” the “Global Financial Crisis” of 2008. Then there was a QE with that, which then reversed. Still, it looked like the Fed had $4T parked on their balance sheet they could not get down. The Fed seems displeased with this balance, and we will save that for its section below.
But, our economy the last few years has been propped up by cheaper and cheaper credit based on the low rates. Home refinancing has allowed people to save money each month, and then spend that delta into the economy. Businesses got cheap credit. Margin for trading accounts, FX, cryptos were dirt cheap and allowed for mass speculation. Bubble inflated, just as the dotcom and GFC inflated those bubbles. This, of course, is called the “Everything Bubble”.
All of this buying kept the machine going. It kept profits coming in which helped inflate the equity bubble with high P/E ratios. It supported wild crypto rides up. It supported business expansion.
With this spigot turned off, we are now seeing 5.3% 30 year home mortgage rates. I think I refinanced 15 months ago at like 2.8%. My buddy got in at 2.5%. The cost of borrowing will now increase, meaning…all of that margin above costs more, and credit will tighten. Home rates have increased quickly…and drastically. This is a kill shot to the housing market. Buh bye.
Buying WILL slow down on bullshit stuff. Ironically, things like food and staples though will continue to increase.
With all of these things creeping higher, this means cost of capital is higher. Budgets will get tighter, especially with 17% inflation for the masses of the United States. We are already seeing some companies crater with bad 1st quarter profits.
Stock markets are down…but how much further can they go? Point to me who wants to buy 2.8% 10yr at 17% inflation? Remember, the Chinese, Saudis, and others are buying less and less debt, and are sellers into the market. The Japanese continue to buy, but the Yen is collapsing – so for how long are they buyers?
To me, this continues to see rates run much…much higher. If the Fed isn’t buying, who is? Lots of debt is coming up, and since these things rollover on shorter periods, the cost to borrow these things are going to be extraordinarily higher in our budgets. Do we just run up more deficits?
This has the potential to lead to a lot of companies failing, job losses, and less taxes coming in for 2022 – increasing the deficit even MORE. Debt ceiling? Yeah, right.
I had written this a few days ago and yesterday they announced the contraction of the economy for GDP. Not a good look.
So the effect of item one here is that rates will continue much higher AS LONG as inflation is high. It is POSSIBLE they feel with this level of demand destruction and a perhaps deflationary BOMB into the economy that this would rid us of inflation.
The BIG issue with that calculus is threefold:
- Russia and their commodities problems for the world will cause shortages.
- Food scarcity is now a real thing.
- Items 1 and 2 continue to have commodities rising due to scarcity AND the $6 T printed into the system then ensures someone will be able to buy. This competition for goods could really hockey stick some prices quickly.
Meaning – it is interesting how a COVID hit us from Wuhan, our reaction was probably scripted out as “print, print, print” – which causes monetary inflation, and JUST as we are winding down from this AND want to get our books right, we now have raging inflation and Russia invading Ukraine – which was probably gamed out with sanctions and then the Ruble attacking the dollar with a gold/oil-peg.
This FORCES the Fed essentially to defend the dollar, at all costs, by potentially creating a deflationary bomb in order to save it. This could lead to massive unemployment in the next 6-9 months. As inflation is raging. It seems a response to this at some point may be more money printing by the congress to make the deficit even WORSE, with more treasuries being issued that no one buys.
But the DXY might be 105-110? Is it “strong” or is it strong relative to major currencies collapsing against the ruble? So this may make dollar bulls happy in their FX trades, but in reality, commodities will increase in dollar terms at a very rapid rate. Meaning, the dollar will not “buy more goods” – but in fact, you may need more currency units to buy raw materials – and IF you capitulate to buy goods from Russia, your currency will depreciate against the ruble. But the DXY might be high? Yes – gold CAN rise with that.
Raise Fed Funds rates
There seemed to be a competition a few months ago about how many rate hikes we might see in how short of a time. The tool here was to also raise the cost of borrowing from the Fed – but also the jawboning associated with it. Since the “transitory” gaffe, no one really believes them anymore. At least I don’t. It’s mostly theatre. But there are teeth here.
Like the above, if things cost a lot more to borrow – these costs are then passed on. So if banks are now having to pay more to borrow, perhaps the mortgage rates are then over 7% or 8%. In the 1970s, my parents bought our house at 20% interest. Is it possible to get 8%? I bought my first house in 2000 at 8%. But the principal was much lower. As the interest rates declined, housing prices exploded because you could ‘get more house’ at lower rates. As the rates decrease, the prices go up having essentially a same monthly payment. Those who already own the palace were then able to refinance at cheap rates and free up a lot of money to then spend into the economy.
All of the above section applies here, but this is I believe something where people think they will reverse course or so, and THAT will be bullish for all things. As we are staring down a recession, we also see the high inflation. Hence, stagflation. Hemke pointed out our GDP was like .4% in Q1 (since released to be a contraction), but our inflation is (officially) 8.8%.
What are the federal reserve mandates? Investopedia says…
“The first is to maintain maximum employment and the second is the keep prices stable while and long-term interest rates at moderate levels”.
These two can’t really coexist at the same time – or at least they try to – but if we are indeed at 3.6% unemployment and have 8.8% interest rates, you can see they may give up a low unemployment number to fight high inflation (higher prices). The second half of that – “long term interest rates at moderate levels” is saved for the next section. What is interest that with COVID, the unemployment rate isn’t exactly accurate because a lot of people were assumed to “drop out” of the labor market after not being employed for 12 months. This is a little trick they do to spin unemployment numbers. What you could have in many people were forced out of work with COVID, others had to drop out to do child care. Others may have been small business owners forced into bankruptcy who now may work part time at a Home Depot.
So my expectation here with this is to have higher unemployment coming. This potentially will cull demand by forcing these people into austerity. The problem is – again – the $6T in dollars fighting for scarce resources will not adequately fight the inflation. In fact, they NEED inflation in order to try to inflate out of it.
Think of this though. You put 5-8m people out of work with stupid high rates coming. Think about millions of them have potentially trading accounts with massive amounts of unrealized gains over years. They now have no work, and must sell their stocks and realize these gains to eat, and pay taxes on these gains. There’s a nice little tax addition to the kitty while you destroy more demand and bring the stock markets down.
If you take a look at the Fed Funds rate, you can see how the inflationary 1960s with the Vietnam War raged into the 1970s stagflation. To me, it looks like we could be in a new cycle that looked like the 1960s.
Doesn’t that look a lot like this? Obviously, the reverse based on value, but you can see how the cycle here is working
Granted, there was a lot less debt then, but what happens when that red circle at about 1.5% is breached? Does it level out everything the next day? No – but I can tell you that my BELIEF is that is when the stock market REALLY gets into trouble.
I believe also that Hunter WAS correct with his melt up, but it had already happened.
What you are seeing from the above is how someone made a 5.7x in the DJI in 12 years. It has only re-traced back to the .238 Fib from the 2020 low.
You have a SIMILAR story in the NASDAQ, but this went up…13x in 12 years????? Currently, it’s at a .382 Fib retracement. To ME, this is where the cost of capital problem comes to a head, and I think the tech sector is going to get baptized.
Furthermore, a year or so ago, I had written an in-depth article comparing Bitcoin to NUGT for the Nasdaq. Before that, I never heard ANYONE say anything like it, and the mouth pieces with bitcoin kept calling it “digital gold” and called me a “boomer” (I’m 47 and have a masters in cyber security, so I’m very much in the know of cryptology and PKI at the bit and byte level).
So to me, as the Nasdaq goes down, so do the cryptos – as I see them as tech and not money (I love the invention of the blockchain, I just think people have been misusing it, mostly). Remember, gold is a safe haven asset, and we clearly have seen that cryptos are levered on top of speculation in risk on times. I then went on Citizens for Sound Money with Jim Forsythe to point out different asset classes so people do NOT confuse risky cryptos with the safe haven asset of gold. They are meant for TWO DIFFERENT PURPOSES.
With the S&P, they may be affected the most, as I had read how 38% of these companies were “zombie” companies. These were saved with cheap capital, refinancing, etc – but I feel with higher cost of capital coming, here is where most of your unemployment is coming from. While tech STOCK prices will be baptized it is the zombie S&P companies that will become insolvent. Inflation is higher than junk bonds, and many of these companies may close down or be taken over at discounts.
S&P was up….7.24x in 12 years?
It’s now sitting at a .238 Fib as well, but my guess is with higher costs raging now, and higher costs of capital, 1st and 2nd qtr profits are going to have significant sell offs here as insolvency is inevitable with some of these.
So the Fed Funds rates rising could break the markets – but save the dollar. Remember, we could have a DXY at 110 here, but as these companies all start to sell off, would that not then put that in a risk off environment? Where the standard 60/40 model of investing was equities to bonds, you would HAVE to think that this happens, but ALSO many might think to buy gold here with 17% inflation. Also – who wants to have a massive pile of cash in 17% inflation?
I have also shown this chart before that gets little love – as the Fed Funds rate has risen, it then has slowed the economy and created the risk off events that lowered the 10yr and with this, paved the way for gold to rise.
On the chart above, my “dome of doom” is being invalidated as the DXY is going higher. But at the bottom you see the 10yr rising. I believe shortly, we may see the treasuries go down in rates and potentially see the DXY rise with the price of gold.
The wildcard here was all of these other currencies are failing to USD based on them selling to get the RUB. The high DXY here is a mirage. In a sense, it may give dollar bulls a short term feeling of being right and getting a peaceful sleep. But…it may be short lived.
Reducing the Fed balance sheet
I believe this might be the kill shot – IF they start it. Imagine a scenario where the DXY is 108 as all the other shit currencies continue to crater against the ruble, and with this, the Fed then announces they will sell $100B of assets into the market per month. I don’t think they CAN do this until inflation is under 5%. And – I think over the next few months we COULD see treasury rates go down as “safe haven” bids take place as stocks sell off.
What does the Fed own? Let’s take a look at the FRED site.
The above shows about $5.7T in treasury securities. So remember for the past two years they kept buying this stuff up? Well, if you look at them buying no more AND selling at $100B per month you can imagine our treasuries going way higher.
But at this point – we are maybe into September. We are now in a full out recession, and it’s possible the markets are in a bad way. Unemployment has crept up. 10yr may have gone down to 1.5-2%. Now the question is…what is inflation at? The YoY numbers could come down to 5-6% by then (shadowstats may still have this near 10%). I believe a lot of USD would have been buying gold and treasuries and with high inflation, no one wanted to hold the dollar long term. I believe this may have the DXY still over 100, but the price of gold in USD over $2100.
IF the Fed then starts unloading these, it will significantly raise rates. Could a 3% or 4% 10yr attract foreign buyers IF we are at 5% inflation? Perhaps this puts a ceiling on the rates – European rates are garbage so there may be flight to this vehicle. I believe this is the wild card in the whole damn thing. IF they can get the YoY inflation down to 5-6%, they can unload $100B per month of these treasuries, possibly, to countries with virtually no yield or negative yield.
But the wildcard here then is what if you have China, Japan, and Saudis also selling? Who is doing all of this buying? Perhaps if the stock market is going down, hard, it makes a lot of sense to “preserve” wealth in 4% 10yr with a 4-5% inflation. The constant drip of new treasuries coming to market may coincide with more market selling AND foreign investment from allies looking for yield. Remember, Japan does near zero – and if they can get 4% yield, they may be buyers.
So far, all of this indicates that the dollar is still around. The DXY may be north of 100, but you may also see a 4% 10yr and $2100 gold. Meaning, the value of the USD may be up against JPY, EUR, and GBP, but down against gold and other commodities.
Now, if the Fed wants to run this balance sheet down of treasuries, at $100B per month, you are looking at roughly 5 years. This isn’t even talking about the mortgage-backed securities.
So it is easy to see a constant selling pressure on these could either hold the rates in place, or you would see rates consistently creep up higher for 5 years. That goes into the rate cycles above.
“But there’s too much debt”. I agree. So they run deficits higher and increase the debt limits. THIS is where you may get the downward pressure on the dollar, IF they cannot cut spending, ever. The costs of servicing this debt spiral out of control, and is met with then higher taxes – further hurting the pocketbook. This is definitely a recipe for disaster, in which you can see trillions upon trillions more printing just to service the debt.
Now, IF they were able to cut spending, perhaps that might be something to help out the dollar? I can’t see anyone getting elected in this climate who can ever promise to cut spending. ALL political campaigns here now are promising more spending.
Car windshield. Meet bug.
In this climate, if you cannot cut spending, you need to service the debt from increased rates by…printing more dollars. So yeah, this eventually leads to a move down because they will print…print. And, higher unemployment along with inflation still high undoubtedly leads to more talks of more stimmies, UBI, and student loan forgiveness. Which is printing more money.
So in the SHORT term, raising rates APPEARS to save the dollar – but it’s only continuing to delay the problem more. This is what they have been doing for 40 years. Can they continue it another 5-10? Maybe?
But….what about that ruble and gold?
I believe the Fed’s plan has this in mind…
- Ruin markets
- Take inflation down to 4-5% by brute force of inflationary shock
IF they can pull off the above, they might have a chance for the 5-10 year can kick – but you are looking at several years of stagflation. Remember, a 5% inflation, in reality, is probably closer to 10% but only reported as 5% for the bean counting – SSI adjustments, federal wages, etc. So we may see several more years of higher prices creeping up with wages either going down or staying flat.
But this plan doesn’t take into account a few things.
- Rising costs of food. Remember how if food prices get to 35%, you might have riots? Russia fighting Ukraine pretty much wrecked the planting season where you have 25% of the world’s wheat. While we are a net exporter, imagine where much of the world is now out of food. Our companies will sell to the highest bidder and the $4 box of Cheerios you used to buy will be $5 or disappear from the shelves to be sold somewhere else for $5. So don’t think that our country is safe from this. UBI for food at least may be here sooner than you think to prevent rioting in inner cities.
- Consistently high energy costs. With Russian oil being sold to her allies, this removes oil from the markets and has the West competing over scarce OPEC supply. OPEC has no real incentive to help keep prices low. This will force a Red administration then to re-open drilling again, and I can see 2025 (after the new president takes office) where we finally get relief on energy prices.
- Chinese buying oil in Yuan. Europe buying gas/oil in ruble. Other countries may side step the dollar. You do NOT need to have an emerging currency to topple the USD. You only need less and less demand of it. It is possible you see dollars coming here for THINGS like COMEX silver bars, wheat, iron, etc. The best way they can dump dollars is by sending them here for things. Perhaps buying land? Houses that get dumped in a massive sell off? Imagine a well off Saudi family buying several houses in CASH in the US. These dollars coming here will increase price inflation at the same time the Fed is trying to cause deflation. Raw materials, land, houses may stay elevated in prices IF foreign entities buy things in USD cash. Perhaps these foreign entities are dip buyers as our markets/economy has jitters? It’s a way for them to de-dollarize AND get good deals. It can keep up from really seeing lows like the 80% or so Hunter talks about. Think of a constant supply of cash coming in to buy distressed assets. This could be a way you see a lot of these dollars coming here.
- Less and less buying of treasuries. I think how we demonstrated we can seize foreign assets, that made many countries uncomfortable. You may have countries like India that may now lean more towards a Russian sphere of influence with trade. While the US wants to unload $100B of debt per month, my guess is in practicality it will be FAR less unless they want all rates to go vertical. But, that could be part of the plan to quash inflation.
- Russia (and perhaps others) demanding payment in their own currencies or gold. This direct challenge to hegemony ultimately will lead to less demand for USD. If a standard is now set, you can imagine that over 3-5 years perhaps less BRICS+16 countries are involved with SWIFT and getting dollars.
- Continued pressure on commodities prices from Russia/allies starving the market of crucial commodities, along with malinvestment in exploration/development of commodities, higher prices to extract these commodities, and potentially higher cost of capital for the CAPEX to build/sustain these commodities. Part of me secretly worries about Kazakhstan and Kazataprom with uranium supply available to the West if this escalates. Might be a good time to buy Cameco.
- Strikes/wage fights about to erupt. Imagine inflation stays north of 5% and people are paying double at the pump to get to work and groceries are now double from 2 years ago? Imagine wages going up 1% YoY? Unions here may start to really have problems and this may lead to a lot of outages. We may have a mass exodus of employees seeking higher paying work.
- A gold standard. What if the Russian article from RT is true? (Ronan’s new article above addresses this) What if the Russians and Chinese are working on digital tokens to send gold back and forth? What if you have countries ditching the USD to buy gold?
- With their demand destruction with the stock market comes perhaps massive side effects – can you imagine a massive portion of the quadrillion dollar derivatives market takes a dump? The house of cards can come crashing down perhaps far worse than they anticipate.
There’s probably 10-20 other items I’m leaving off of here, but the point is that I believe the Fed’s plan is sound to keep the dollar around another 3-5 years (perhaps only as a bridge to FedCoin), but there’s a LOT of things that have to go right for this to work out. I don’t think Russia invading the whole of Ukraine was on their bingo card 8 months ago as a reality. MY thoughts were they were just going to go into the east and then the game of sanctions would happen. I think that may have been the prevailing thought. But all of this was timed – just as we are coming out of buybacks and about to raise rates…BAM. Invasion just at the beginning of planting season for Ukraine.
The cracks begin to emerge with the USD as Russia’s currency continues to strengthen. Right now, they seem happy to hold serve. IF the West gets more aggressive in their defense of Ukraine, it does seem logical the gold standard card could be played, and THAT wipes out highly leveraged banks. How? The derivative market is massive, and we saw what happened with nickel on the LME. The speculative shorts can get crushed. Massive short squeezes. Metals prices start to move north, in a hurry – and everything re-prices properly in gold. What does that mean?
Everyone here thinks of things in terms of USD. “How much does it cost”. In 1964, a gallon of gas cost 2 dimes. Today, you can take those silver dimes to a coin shop and sell that silver for enough USD to buy…a gallon of gas. If you think historically how much things cost, in gold, and gold re-prices significantly higher in USD, it stands to reason this brings other items up in cost, relative to gold.
That beachball is a problem. Once that goes up, a lot of other things do as well.
Risk to gold?
My thinking here is the underbelly of the beast is being exposed and AS they blow up the stock market, gold not only catches the safe haven bid, but the fear and anxiety play that Don Durrett talks about a lot. But you COULD see the milkshake theory playing out where there’s a run to cash. Perhaps they don’t trust bonds. Perhaps they don’t trust the gold is there and don’t want to buy paper gold. IF the DXY hits 130, that can be a real problem in a deflationary scenario. What I didn’t see happening was all of the other basket of currencies going to shit against the ruble and the ruble rebounding against the USD.
What this effectively means, at this point, is a high DXY is relative to shit, making a higher DXY number moot. So yeah, I didn’t have a worthless high DXY on my bingo card. The assumption for me was gold would be going up as the DXY is going down, but I think what we need to watch is the RUB/USD for the VALUE of the USD and have a lot less weight being put on the DXY as a measure of dollar “strength”. It’s like comparing the worst player in the NFL against a league of pee wee football teams for relative strength.
To put this into perspective, I could then see the USD compared to a proxy of a currency that is commodity-backed or based. Meaning – you could see the DXY continue up against paper shit that has debauched the currency worse than the USD, but can see it going down in relative value to commodities.
I think this section above requires further analysis by people smarter than me.
Why? If you look at this chart over a longer period of time, you can most definitely see the ruble making up a lot of ground against the dollar. Consider Russia’s relatively low debt compared to the US and the recent constant chatter of backing the currency to some form of commodities, gold, or both.
The above suggests that the ruble could get significant appreciation against the dollar ahead. But does that mean gold has no risk?
In this video, I remember Peter Schiff debating Harry Dent. Dent said the dollar may go way up, gold does way down, but in the end gold goes way up later. Schiff said, “if you think it is eventually going up, why get cute with the unnecessary risk of thinking it may go down first. If you are wrong to the downside, you lose. Just hold gold because in both of our scenarios, gold goes up”. Perhaps a trader may want to play the milkshake like that – I will BET the DXY goes way up, then I can buy a lot of gold when it is cheap in USD, then gold will go WAY up. But Schiff points out the flaw with that – WHY add that layer of risk if you think gold is going up anyway?
Meaning – EVEN the deflationists all see gold going way up eventually. So why is there a milkshake fight now? No one can know what will happen. No one. One side is betting the dollar strengthens first, the other side says who cares, gold is going up in both of our scenarios.
I believe any destruction the Fed will ATTEMPT to do may be a chunk at a time. Perhaps the plunge protection team is still there to prevent a 3,000 point down day. Perhaps there is a managed take down of these markets either sideways (with high inflation devalues the stocks) or down gently – in the arm wrestling fashion Michael Oliver talks about.
Today (yesterday), we are at what I feel is the end of the monthly beat down cycle. Last Monday we were all happy gold touched $2000, and a week and half later we are walking out of the jungles of ‘Nam after a 2 month tour fighting non-stop. It is easy to be euphoric on the runs up, but just as easy to be panicked on the way down that the banks are in to break me.
I see the East promoting gold into their economic systems of the future. And I can see many countries around the world buying gold, rubles, yuan and getting out of USD and treasuries. But the risks here are that the US financial weapons are stronger than the east, and the east bows to the SWIFT system. Remember, China is a big part of the Russian play here. If China buys Russian oil and gas, could a petulant western WEF-brained moron slap horrible sanctions on China IF they do not comply? China would then lose a massive amount of sales to the West. Perhaps for now, they are playing both sides of the fence. What if they decide to take Taiwan next month? Gold then rockets higher. But the flip side can be true – what if the massive financial penalties we have placed on Russian oligarchs led one of them to hiring a team to take out Putin? While the US didn’t kill him, could we have incentivized his people to do so?
You know that Xi has been running China with more of an iron fist the last year, with Jack Ma pretty much disappearing from public view. Many of his people have lived cushy lives, but what happens if someone like a Jack Ma sees trouble ahead and takes out Xi? What if the US sanctioned all of their rich people and seized all of their assets, would Xi think twice about invading Taiwan? IF Putin is taken out by his own people after Western financial sanctions on 500 wealthy Russians, wouldn’t Xi worry about the same fate?
If Putin dies before his plan is complete, the threat of the gold-backed system might die with him. Consider rich oligarchs friendly to the west put Garry Kasparov (one of my childhood idols) in place to play nice with the West? Perhaps he bends the knee to the WEF and the gold-backing is forgotten, forever.
There are levels of politics and global chess games being played that none of us have clearance for, can’t imagine, and don’t want to know about. I think the Fed is doing what they need to do to save the dollar, but Russia is doing its best to de-stabilize the dollar and boosting its own currency. Most countries do NOT want a strong currency – as having a weaker currency allows politicians to show how they were able to open factories and create jobs. Stronger currencies may labor forces more expensive, and with it, drives jobs overseas from us. But if you are Russia, what do you produce? Vodka, oil, natural gas, caviar, palladium, platinum, gold, and many other commodities. Russia has to buy finished products from other countries. Having a stronger currency makes sense IF you have higher priced commodities.
I see gold going up, and the eventual collapse of the dollar’s ability to buy things from other countries. Next week? Next month? 3-5 years? Over the next few years, we may see wave after wave after wave of cash coming here to buy things up as countries and elites worldwide exit the dollar. On paper, you may look wealthy, until one day you wake up and see that it costs $31 to buy a loaf of bread.
Gold has risks, but I’d say in a globalized environment where a group of belligerents is pro gold, and facing off against a country with massive inflation and extraordinary debt, that the pro-gold group has a better than average chance of forcing the gold price significantly higher in the high debt belligerent group.
I think the Fed is doing something methodically to try and save the USD at all costs – and I have heard others stating this may be the Fed forcing congress into cutting spending at some point to be more fiscally responsible. I believe there exists a great deflationary risks in overvalued stocks, housing, and crypto. To me, this is a lot of froth that is about to come crashing down, first. But this doesn’t mean there is a great deflation in EVERYTHING. The key here I believe is this underlying inflation, and how I don’t think people want to sit on piles of cash during this type of inflation. The cash that is out there, I believe may find its way into undervalued items out of cash like precious metals and commodities that have malinvestments. Like copper, silver, rare earths, lithium, nickel, and uranium miners. And, given how Russia’s ruble has increased in value, a LOT, against the dollar – shows the value of commodities in the globalist system. You cannot sanction someone into compliance that is a major energy producer, worldwide. That is clearly apparent, as that nation can then simply shun the party who sanctioned into bankruptcy or massive price inflation.
What is CLEARLY evolving is the broken globalist system. What better way to cash out of a 50x in Tesla than to invest in a nickel or silver miner who can do 50x in the next decade as nations rebuild their supply chains from the ground up?
While gold is possible as a backing to the ruble, I think the importance of oil, nat gas, and gold just have come front and center to the global stage. While pundits MAY see the DXY go up, I am seeing commodities having a chance to go up in a more steep incline. Reading between the lines, you can see how you need more USD currency units to buy REAL things from non-friendly nations (not represented with the DXY). When this becomes apparent, is when you will see the major rotation from cash into these areas for investment. This can potentially send oil over $120, silver over $30, gold over $2000 for many years. The USD in circulation around the world WILL get out of those USD and exchange them for the items above. This is the price inflation we have all anticipated with the trillions of dollars overseas we all knew existed.
While I still see the dollar “dying” – you can see other currencies going to the graveyard a lot faster than the dollar. And, a credible measure of the dollar may no longer be the DXY, but the USD against a basket of commodities. What you may find is the ruble may stay relatively stable against this as the USD starts to melt up (gets weaker).
April 30, 2022 at 4:04 pm
Keep up the good work.