Intensifying Currency War Investor Consequences
Stock-Markets / Currency War Mar 08, 2014 - 02:23 PM GMTBy: DeepCaster_LLC
“When the dollar collapse comes, it will happen in two ways: gradually then suddenly. That formula, famously used by Hemingway to describe how one goes bankrupt, is an apt description of critical state dynamics in complex systems. The gradual part is a snowflake disturbing a small patch of snow, while the sudden part is the avalanche. The snowflake is random yet the avalanche is inevitable. Both ideas are easy to grasp. What is difficult to grasp is the critical state of the system in which the random event occurs.”Jim Rickards, Currency Wars
Major Fiat Currency Printers around the World are devaluing their currencies by “printing” ostensibly in order to bolster their economies.
But the consequences of The U.S. Fed’s QE for example, have been increasingly to artificially inflate financial Assets and enrich The Fed’s Mega-Bank Owners. It has not resulted in an improving U.S. Economy or Employment Picture.
But Fed QE and related forms of Money Printing have unleashed Serious and Impending Financial and Economic Threats.
These Threats are Signaling Impending Mega-Moves. Such Signals have already facilitated recent Profitable Recommendations (see Note 2).
But the impending Threats are also opportunities for Profit and Protection for the Well-informed!
Consider the U.S. Economy:
Indicator #1 – Q4 U.S. GDP was revised down to 2.4% from 3.2% -- Not Bullish.
Indicator #2 – The Case – Shiller PE Ratio (Google it) is nearly 28 today. But the Mean and Median since the 1880s is about 16. Historically, a reading as high as 28 indicates an Equities market which is grossly overvalued, and has typically resulted in a Crash.
Indicator #3 – Retail Sales, and Job Growth, and housing and Industrial Production have slowed. Real U.S. Unemployment is 23.2% per Shadowstats.com.
Indicator #4, technically, as we have demonstrated in our recent Alerts, the Equities Markets are making Multi-year Tops, with all exhibiting Jaws of Death Patterns.
Indicator #5 – The Russia-China “Squeeze Play” is just aborning (see below).
But, above all, The Currency War is being played out in the Ukraine.
Indeed, there is much more, and different than the Mainstream Media Version, about the Ukrainian Situation than meets the eye. And it is most Threatening to $US Hegemony as World’s Reserve Currency. Of the Many Factors causing that Conflict, Currency Hegemony, and Consequent Economic Hegemony is the main one.
The $US has been under increasing pressure in recent months as Sovereign Nations, and others have been increasingly selling $US and $US-denominated Assets.
There is much credible evidence that:
Russia, and China, and Russia in concert with China, are fed up with what they feel to be U.S., U.K. Eurozone (except to a degree Germany and the Nordics) Bullying-in-general. In their view, U.S. involvement in the Ukraine is only the latest example. Indeed, East Ukraine and Crimea which are historically and ethnically a Part of Russia, with millions of Russian-Ukrainian conjugal families as Testimony to this Fact. Indeed, Ukraine itself was part of Russia for 300 years.
Lest one think that this interpretation Mischaracterizes the perspectives of ethnically Russian Ukrainians consider that the Crimean Parliament just voted to join Russia and hold a referendum in 10 days on the matter. (Ukraine’s Acting President has predictably called the referendum “a farce.”)
But Russia-China see the overthrow of the elected Russian-backed government by an unelected Cabal (with ties to the West, and Western Banking and Financial interests and NATO!) on Russia’s Doorstep, to be unacceptable.
Indeed, in their view, the Obama Adm. – facilitated Coup, and attempt to isolate Russia can not succeed because Russia-China can not be isolated. And Russia and China are now de facto allies. Together Russia-China control 30% of US Financial Assets as well as Resources around the World. And China’s Control of African and Latin American Resources, plus China’s Leadership of the BRICS-controlled BRICS summit last year, provide an alternative to US-Eurozone (and thus $US) Hegemony.
The Renminbi has already been listed at the MICEX (Moscow Interbank Currency Exchange) and Russia-China intend to use only their own currencies for bilateral trade.
The Eurozone in Particular, and the World in general need the Energy and Food Production Assets Controlled by Russia and China.
Indeed, Investor Wilbur Ross, who has made Billions by not being wrong, recently said Putin is “leader of the World.”
Result: leverage for Russia & China
Couple all the aforementioned with what Russia sees (with considerable justification) as the West’s attempt to surround it with NATO-linked Nations, to control/limit the Export of Russia’s Gas via pipeline through Ukraine and neighboring countries, and control Ukrainian Oil, Gas and Food Exports. Russia has also been aggravated by the West’s attempt to limit/stop/control the export of Iranian Oil and Gas through the Russian-Controlled pipelines and Syrian Port, and to disrupt/stop Russia’s Gazprom and other Russian companies, from clearing their Transactions through Cypriot Banks, and you are looking at an outraged Russia, in league with China and with the support of resource rich Iran.
These three constitute an Axis which can not be Economically or Militarily isolated, however much the West try.
Most important for Investors is that there is new evidence that Russia’s Outrage and China’s Self-Interest are about to lead to a serious Attack on the $US and US T-Bonds. Indeed, Russian Presidential Advisor, Sergei Glazer, recently indicated that Russia’s Response to John Kerry’s “crippling sanctions” could be that “authorities should dump U.S. Government Bonds.” And China’s recent commitment to 7.5% GDP Growth but also to a 12.5% Increase in Military Spending is not comforting.
Indeed, China has already been preparing to replace the $US as World Reserve Currency, by a Gold-backed Yuan. And Russia has indicated it would support the inclusion of Gold in a weighted basket of a new Global Currency.
In sum, longer term, given the US Fed’s QE and other Central Bank’s Money Printing Frenzy of recent years, we forecast the $US will dramatically lose Purchasing Power and be displaced as The World’s Reserve Currency by a Gold-backed Chinese Yuan, as the Russia-China Squeeze takes its effect. The Fed-led Cartel (Note 1) Profligate Printing nearly guarantees that.
Indeed, Key Major Multi-Year Technicals and Fundamentals Signal a Crash is coming largely as a result of Fed and other Major Central Bank Money-Printing Policies..
Consider that, as The Fed (eventually) increases QE to counter The Crash (or if Russia-China start to implement their Squeeze Play First), the $US will start to Collapse (first slowly and then in a cascade, as Rickards points out) and, consequently, U.S. Treasury strength will reverse and That Biggest of all Asset Bubbles will begin to deflate and then Burst.
In other words, since The Fed (and other CB’s) will have to continue, and eventually increase, QE again to keep interest rates down and Equities propped up a while longer, the already ongoing debasement of the $US Purchasing Power will become increasingly evident. Therefore at some point the ongoing modest selling (i.e., refusal to support or purchase) of the $US by Sovereigns (e.g., China sold a record amount of U.S. T-Bonds in December, 2013) will turn into a Rout (as will selling of U.S. Treasuries), likely resulting in the collapse of US Treasury Securities Values as well as the displacement of the $US by the Gold-Backed Chinese Yuan as World Reserve Currency.
This will impel Gold and Silver Prices much higher, notwithstanding Ongoing Cartel (Note 1) Price Suppression attempts. Gold & Silver, remarkably, as the Ukraine Crises was heating up a bit and the $US Weakened (both should have impelled Gold Higher). Gold (and Silver) showed some weakness, until the Ukraine Crises heated up a lot, then they shot up.
This tells us the Cartel is still active, and somewhat successful, in suppressing Precious Metal prices, but not nearly as effective as in earlier days.
As well, for reasons we have laid out before (e.g., increasing Physical Demand from China), we believe Cartel Price Suppression can not be sustained.
We reiterate our earlier observation that the Shortage of Physical Gold is intensifying. Asian, and especially Chinese Buying, and taking Delivery of Physical is at Record levels. And Deliverable (Registered) Physical at Major Exchanges like the Comex is at Record lows.
Couple that with China’s record January, 2014 lending (i.e., credit creation) year over year (also a 4 year high) and Fed Chair Yellen’s promise to open the Monetary Spigots in the event of a slowdown, and one can see why Gold and Silver have been rising recently. Inflation is not only already here with Real U.S. CPI at 9.2% (cf. Shadowstats.com) but it is now becoming visible on the Horizon.
Thus, our view is that a Great Launch Up for the Precious Metals is impending, and may indeed already have begun.
Regarding the Currency War’s impact on Present and Prospective Crude Oil Prices, consider that The Ukraine Dispute has multifaceted Impact. In Part it is a battle over who Controls Ukraine’s Oil and Gas reserves, and access to Russia’s (via pipelines running through Ukraine); in part about controlling Russia’s Port on the Black Sea, and in part a conflict between the Russia-Speakers in East Ukraine and Crimea, and Euro-centric Citizens of the West, and above all about the Major Powers Conflict (Currency War) Scenario outlined above.
From the Russian-Chinese perspective, The Westerners facilitated the overthrow of the Democratically elected, (albeit Brutal and Corrupt) Government, and the installation of a Rogue Cabal linked to NATO and willing to Direct Energy and Food toward the West, which exacerbated the foregoing Disputes.
Whatever develops, (except peace, which is unlikely) it will be Bullish for the Oil Price in $US terms, since we are witnessing a weakening $US.
Given our Currency Wars Analysis, it is no surprise that our Crude forecast has thus far been “spot” on, pun intended. We correctly forecast Crudes Rally back up to $100/bbl. See our recent Alerts for Updated Forecasts. Indeed, signals from the Intensifying Currency War have facilitated several quite Profitable Recommendations recently (Note 2).
Also Unsurprisingly to us, OPEC recently estimated that World Demand has now risen to 90 Million/bbl/day – an all time record. China’s demand continues to increase.
In sum, it looks as if the Fed-Generated $US Currency Devaluation will lead to an Equities Crash and another Global Financial Meltdown.
This is only one of the Many Negative Consequences flowing from The private, for-profit Fed’s Policy of supporting its Owners/Shareholders through “Monetary Morphine,” a former U.S. Representative Dr. Ron Paul explains
"’Monetary morphine.’
“That's how some are now referring to the Fed's risky and unprecedented print-now, ask-questions-later policies.
“As a doctor, I can tell you morphine is one of the most dangerous and addictive substances known to man. First, just a little of the opiate masks a patient's pain. But then, addicts crave more and more until overdoses result in death.
“…the Fed has tried hard to mask many of our economic problems for years now. But today, the first cracks are starting to appear in what I believe will be nothing less than a Federal Reserve-created, global financial meltdown.
“And every second Congress waits to finally audit and EXPOSE the Federal Reserve - the first step toward finally ENDING the Fed once and for all - the problems get bigger and bigger.
“Monetary Morphine,”
Congressman Ron Paul
But the Hot War is the Intensifying War over the Future of the $US. John Williams of Shadowstats.com provides an excellent analysis and Forecast.
“…The End Game Begins. The U.S. currency and U.S. financial system have faced an intensifying, broad range of vulnerabilities in recent months. Negative shocks in the areas of economic activity, domestic- and global-political circumstances have continued, while U.S. government and Federal Reserve authorities increasingly have found themselves unable to address a non-recovering economy as well as the mounting risks of financial-system instabilities.
“Under these circumstances, Russia’s military action against Ukraine, and related bellicose comments from Russia concerning the U.S. dollar and banking system, have raised the risks markedly of instabilities in the dollar and the domestic financial system. Talk of action to abandon the dollar as the global reserve currency; to move to dump the dollar; and to damage U.S. banks financially, cannot be taken lightly. China has been supportive of the Russian military action and also previously has called for the removal of the dollar as the global reserve currency. There have been stories of discontent within OPEC as to the dollar’s reserve status.
“The risks here are manifold. Keep in mind that in 2008, the U.S. financial system was on the brink of actual collapse. All the actions taken then by the Fed and the U.S. Treasury, including creating or spending whatever money was needed, all the bailouts, guarantees, interventions, etc., were only stopgap measures. The actions forestalled a financial-system collapse, temporarily, but they did little, if anything, to restore normal economic activity or financial-system solvency.
“The problems of 2008 remain. A renewed crisis largely is just a matter of timing. As the system moves again to the brink, however, the Fed and the Treasury likely will find themselves with their ammunition much reduced, as a result of the post-2007 battle, which still is being waged in certain quarters.
“Then there is the unexpected. Something goes wrong, and various financial triggers are pulled, as threatened or otherwise. To the extent the rest of the world sees a pending demise in the U.S. dollar, there likely will be a number of large investors, sovereign and private, who would look to front run the Russians, or other hostile states, looking to get out of the U.S. currency while they could.
“A panicked sell-off in the U.S. dollar and dumping of dollar-denominated paper assets remains in the offing. Where a bad economic statistic, or fiscal or monetary blunder by the government or Federal Reserve had been viewed as the most likely proximal triggers for the dollar’s demise, global political instabilities also have become a leading contender. There likely will be a confluence of negative factors that will accelerate the decline in the dollar’s value. How that translates into inflation and other detail, again, is covered in Hyperinflation 2014—The End Game Begins. Physical gold and silver remain the primary hedges for those looking to preserve the purchasing power of their wealth and assets. …”
Commentary Number 605, John Williams
Shadowstats.com, 03/05/2014
And regarding the USA’s Real Fiscal Deficit according to GAAP:
“Subject to possible minor refinement, the federal deficit for fiscal-year 2013 (year-ended September 30th) was roughly $6.2 trillion, versus $6.6 trillion in 2012, based on the government’s generally-accepted accounting principles (GAAP), and as adjusted for a consistent-estimation basis with 2012 and for the year-end 2013 accounting and reporting gimmicks of the U.S. Treasury, which had been operating at its statutory debt-ceiling for five months, and was on the brink of a government shutdown. The federal government’s GAAP-Based fiscal deficit, remains beyond control and containment, and the long-term U.S. sovereign-solvency issues remain a significant concern for the global financial community.
“The headline cash-based deficit for 2013 was reported at a headline $680.3 billion, down from a $1089.4 billion headline deficit in 2012. Before accounting for the changes in unfunded liabilities for government programs, the GAAP-based 2013 deficit was about $1,157 billion, versus $1,316 trillion in 2012.
“Total federal obligations at year-end 2013 totaled $91.7 billion, up from $85.4 trillion in 2012. These obligations included gross federal debt and the net present value of unfunded liabilities. The 2013 total was 5.7 times the level of nominal (not-adjusted for inflation) GDP for the full fiscal-year. …”
Commentary Number 606, John Williams,
Shadowstats.com, 03/06/2014
And Richard Russell summarizes the Prospects for the Markets and Economy
“…The stock market continues to be levitated by the Fed’s quantitative easing. The risk to reward ratio for being in the stock market is negative.
“Meanwhile, the US economy remains in recession. And once the truth breaks out, the stock market will slip into crash mode. The stock market is up on Fed manipulations, and the economy is up on lies and propaganda. It’s a poisonous combination.”
Richard’s Remarks,
Richard Russell, 03/05/2014
Daily monitoring of the “Progress” of the ongoing Currency War allows Investors to Be prepared for Profit and Protection.
Best regards,
www.deepcaster.com
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