US$: Revolt, Downgrade & Disorder
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Anyone who cannot detect rumblings with more
magnitude than early volcanic tremors is brain dead, plain
and simple. For a full year, the USDollar enjoyed a sizeable
counter-trend bounce. It relieved the long-term oversold condition.
In usual times, in typical markets, such a period of time
would offer the fundamentals an opportunity to catch up, for
the remedy to work its medicine, for the condition to heal
itself. In the case of the USDollar, the trade deficit worsened.
The Jan2005 trade deficit was a grandiose $58.3 billion, pretty
doggone rotten. By Jan2006, a full twelve months for the “fix”
to take hold, to work through the system, the trade deficit
had ballooned to a shocking, yawning $68.6 billion, as nothing
but more metastasis flowed their the body economic. Our Pied
Piper Sir Alan Greenspan, who skipped town before the upcoming
crises, much like Robert Rubin skipped town in June2000, proclaimed
the lame line that financed deficits were a sign of flexibility.
Plenty of flexibility is manifested in a bank overdraft on
a stretched credit line awaiting default also. The Maestro
and GoldBugs should be aware, that a revolt, an insurrection,
a mutiny is in progress. The greenback is being rejected,
perhaps as much as the USGovt leadership is getting a global
vote of “NO CONFIDENCE.” Polls internal to US
shores show low confidence in our leadership trio, in parallel.
THE HEGEMON, NOT POKEY-MON
In recent months a new phenomenon is unmistakable,
dangerous, ominous, and so real. The world is not only sensing
the unfixable nature of all things USDollar-based, it has
begun to create alliances to protect itself from the US hegemon.
No longer does the United States rely
upon innovation, investment, and work, but rather upon attempts
at “full spectrum dominance,” deceptive coercion,
and blatant inflation. Refer not to the pocket monster,
aka pokey-mon. The hegemon is the dominant big guy who plays
dirty, throws his weight around, ignores the law, and dares
a reaction. No, he even retaliates in the face of warranted
protective response. For those who do not understand this
“hegemon” term, think of the nastiest evilest
wretchedest bully who didn’t just steal school lunch
money, but who would kidnap your daughter to ensure debt payment
in shylock setting. Think of dark shadowy men who threaten
and deploy the most sinister of weapons against a perceived
enemy. From the other side of the chess board, recall Georgi
Markov, a Bulgarian writer thought to inspire a dissident
movement against the Soviets from London. He was assassinated
by a KGB agent using an implanted ricin poison capsule by
means of an umbrella on a city street sidewalk.
Think of installing tyrants in foreign lands,
rich in resources, for the unexpressed unsanctioned purpose
of securing contracts for commodity supply to fulfill the
needs of the insatiable USEconomy. Think of criminal access
granted to gold miners for leasing and selling the US national
gold treasure, at nil interest rate for years on end, and
zippo accountability before the people’s representative
in Congress. Think of the IMF and pressured tactics to raise
interest rates in Argentina, after putting that nation’s
accumulated deficits on an installment loan, then warning
aristocrats to vacate their bank accounts into New York City
accounts before bank closures and confiscation of accounts.
My sister-in-law was such a victim. Think of heavy pressure
leaned upon the Bank of Japan, to comply and to supply the
West with 0% money in return for no trade tariffs whatsoever
as Tokyo accumulates over $600 billion in reserves in return
for the favor of open market access to US retail centers and
car showrooms. Note the cries of foul when China does the
same trick without a central bank for the hegemon to control.
Think of disinformation and distortion of intelligence for
the purpose of motivating then waging a war in a land rich
in crude oil and fresh water. Think of conducting naval exercises
off the coast of nations which make public statements against
the USTBond and the implied coercion to recycle Asian trade
surplus into bloated USTreasury Bonds. These are tactics used
by a hegemon. Foreigners are very familiar with these nasty
weapons, while Americans are largely ignorant of them. Remaining
in the dark might be a necessary ploy in order to maintain
distrust of outsiders. We are all too familiar with the tactics
of the underworld crime syndicates, with much more obvious
devices like murder, extortion, bombings, fires, kidnaps,
hijacks, loan sharks, and basic heists. The hegemon strives
to walk the fine line balancing respectability, deniability,
professionalism, and diplomatic leadership, a narrow walk
indeed. This hegemon is slowly being disrespected, challenged,
undermined, as opponents openly plan their alliances and devices
of their own making. A revolt is in progress. A scheiss storm
G7 ANNOUNCED PLAZA LITE ACCORD
A new phase is about to unfold in the currency
wars. The G7 Finance Ministers decided the USDollar must endure
a substantial reduction. The Second Plaza Accord has begun
(first was 1985) an initial phase, whereby Asian central banks
are on notice to permit their currencys to rise, and European
bankers will cooperate on a coordinated USDollar decline.
Martin Feldstein gives intellectual cover for a more competitive
(lower) USDollar. At issue is the gargantuan chronic US current
account deficit (trade gap & more), but more importantly
the foreign central bank lost confidence in the USDollar as
the reserve currency. The US and foreigners see the problem
from different vantage points, but they do share the common
objective of significant US$ devaluation. My view is that
the US trade deficit is structurally based and unfixable without
a deep recession, and surely not by means of a currency adjustment
alone. That is, unless the US$ falls by 50% or more. Entire
industries have gone extinct. Formal attempts to bring down
the USDollar will result very ugly serious fallout, all sure
to meet opposition, none of which to find political favor.
US economists expect little if any price inflation impact,
a fairy tale forecast.
World finance ministers have lost confidence
in the USDollar. The G7 Meeting communiqué, announcements
by Japanese leaders, statements from European bankers, warnings
by out of Beijing, outcries from South Korea, criticisms from
Russia, agreements in Asia, even statements by the IMF, they
all add up to a global banker revolt. US imbalances are not
being rectified. The Russian finance minister Kudrin openly
questions the USDollar as worthy, given substantial and chronically
dangerous deficits. Expect a rocky several months to contain
turbulence, minor panics, and some derivative accidents (likely
in bonds). Chinese leaders steadily make pronouncements about
the hazard to the global banking system from its USDollar
foundation, cite the high risk to financial markets of big
selloffs, remind of their steady grand subsidies to US consumers,
and defend their slow progress in relaxing currency controls.
Basically, at spoken issue is the legitimate viability of
the USDollar as world reserve. USTBonds, mortgage bonds, and
corporate bonds are collectively held as ransom. Asians meet
among themselves, for to coordinate mechanisms on a regional
monetary unit, one useful in establishing financial stability.
The parallel Asian currency is device to be used for certain
Even the IMF, an organization with a near perfect
track record of destroying economies through currency devaluation
and interest rate hikes, now calls for the USDollar to be
devalued. They believe simple currency adjustment will lead
to an orderly resolution. Wow! That is downright clueless.
Give me some of that stuff they’re smokin’. The
USEconomy has structural problems, much like a fat man missing
a left leg trying to walk normally down the street. A currency
fix would be akin to lengthening a leg which no longer exists.
Orderly resolutions without vast consequences are next to
impossible. The US banking leaders and USGovt leaders have
taken us way too far astray to be called home without missing
dinner. The bread crumb trail has been washed away by vast
floods of liquidity from previous storm relief. It is no wonder
that officials are calling for the equivalent of yet another
mythical SOFT LANDING, this one for the crippled bloated USDollar.
This is mythology spoken aloud, queer attempts to control
markets teetering in disarray.
The G7 topic of USDollar devaluation and insurrection
is discussed and analyzed in the May Hat
Trick Letter issue in more detail.
WEIMAR BEN AT THE CONTROLS
Chairman Bernanke denied any “managed
depreciation” in the USDollar on one end. However, intellectual
cover has come from former White House economist Martin Feldstein,
as he called for a more competitive US$ exchange rate, but
one with domestic strength. This is an important acknowledgement,
one made clearly with USGovt sanction to herald a new currency
phase shift in policy. He senses urgency, hopes to improve
the trade balance deficit, and addresses the housing decline
and consumption threat, sure to jeopardize economic growth.
His historical reference to tame price inflation seems goofy.
But his is just spin, from a drafted hired gun.
Unfortunately, an orderly decline for the USDollar
will be a monumental challenge, with the entire world of forces
aligned against it. Leveraged instruments, heavy US debts,
currency traders, foreign control of USTBonds, and the halt
of self-destructive official intervention can be powerful
tailwinds to assist the USDollar downhill. The gas pedal has
none other than the man who has written favorably about inflation
for most of his career. When a central banker has a track
record of extolling the virtue of operating a monetary printing
with near zero cost, the inherent national currency is in
grave danger. Weimar Ben was chosen precisely because he is
mad as hell and fully willing to run the press day and night
in order to avoid economic and financial seizures. However,
the USDollar is the pressure valve. When monetization is the
device to rescue and control, no floor can be claimed on the
The G7 topic of USFed slipped confidence and
general blundering is discussed and analyzed in the May Hat
Trick Letter issue in more detail.
ASIAN RIVALS JOSTLE FOR CONTROL
Japan and China jockey for control and influence,
as seen in the Hyderabad India meeting of the Asian Development
Bank last month. The US delegate was rendered a neutered puppy,
with shallow points made and dismissed. An Asian Currency
Unit (ACU) has entered policy making arenas, one to regulate
Asian currency exchange rates. The ACU is expected to be used
as a fulcrum of exchange rate management. Ministers from China,
Japan, and South Korea met with the 13-nation ASEAN in order
to come to agreement on a basket peg useful for any Asian
nation to manage and fix the value of its currency within
a band. This in my view is a pan-Asian currency equivalent
in function to the euro currency. Regard the ACU as a device
which Asia utilizes in devaluing the USDollar in unison and
out of our control, a crucial device in the event of a monetary
crisis. What Japanese ministers hatched and promoted, now
the Chinese have taken leadership with, even somewhat heavy
handed control with.
The G7 topic of Asian coordinated challenge
to the US systemic dominance is discussed and analyzed in
the May Hat Trick Letter issue
in more detail.
DISORDER IS THE WATCH WORD
Numerous forces work in opposition to an orderly
desired decline in the USDollar exchange rates. Market momentum,
financial leveraged instruments, speculative investments,
managed fund priorities, these are almost uniformly aligned
to take advantage of and to exploit the falling USDollar.
US debt engorgement is a massive orgy widely known worldwide.
Currency traders nowadays are like sharks aided by leverage.
Foreign central banks and their managing directors realize
risks similar to conditions before the Asian Meltdown. Resistance
and shedding is to follow. The notion is dawning on them that
intervention to support the USDollar in quick descent might
be like inviting a dozen gigantic obese cousins to dinner
every single night, night in and night out. Enough is enough.
No, no, this USDollar correction might turn into a rejection,
then an outright revolt. Its decline will be orderly at times,
but with sudden tumultuous down drafts. One must wonder to
what extent international disapproval of the United States
will be registered in votes against the USDollar, since votes
against the US Military are dismissed.
The G7 topic of mounting worldwide disorder
is discussed and analyzed in the May Hat
Trick Letter issue in more detail.
ALLIANCES IN GLOBAL ENERGY WAR
Key nations are entering a dangerous new stage
of worldwide energy war, with numerous fronts in conflict.
Government leader behavior has begun to resemble underworld
syndicates in their methods, tactics, even revealed strategies.
Geopolitical forces and actions urge perceptions of the energy
market to be the same as a global energy war, with governments
alongside warlords controlling key regions, with military
bases guarding important energy production zones (forts),
with military bases constructed as toeholds in untapped energy
deposit zones (new fronts), with product & pipelines used
as weapons (reinforcement supply lines), with nuclear threats
perceived and delivered, with counter offensives triggered
in response, with high profile abductions and executions,
with special operations and even mercenaries (behind enemy
lines), with urgent calls for conscripted contract workers
(draft), with new alliances forming against the United States
The first action was the attack, occupation,
and annexation of Iraq, an event which launched the global
energy war. The second action was by Russian President Putin
in securing by force Yukos for oil, Gazprom for natural gas,
as weapons, then using them against Ukraine, Europe, and England.
The nationalization of natural gas fields in Bolivia, and
similar anti-investment actions in Ecuador and Venezuela emphatically
confirm my viewpoint in military terms for this war. Bolivia
is the largest natgas supplier in South America. Venezuela
is the largest oil and energy product supplier in the region.
The war has finally reached South America, home to vast copper
and iron deposits, 25% of the known world copper supply. Will
mines be next?
New oil exchanges are springing up like jonquils
and daffodils, as they plan to sell oil not in the USDollar.
Saddam did so with euros, its discontinued practice a prime
motive for the Iraqi War. Sweden in euros, Iran in euros,
Russia in rubles. Each nation has its own motives. Russia
wants respect and control, even dominance. Iran wants a sphere
of influence outside US control. Sweden wants to avoid loss
from a corrosive foundation. Both Dubai and Qatar plan new
oil exchanges, but presumably in USDollar transactions. The
USGovt offers security to the Saudi royals and neighboring
emirs (napoleons in white robes) who hog their national wealth
and keep their nation impoverished. Such is a longstanding
arrangement (security treaty, contract) for reliable US suppliers.
The G7 topic of global energy war and its counter-attacks
is discussed and analyzed in the May Hat
Trick Letter issue in more detail, actually in a Special
BANK OF JAPAN & MARKET ACTION
It is perplexing. The announced hesitation
for Tokyo to begin a rate hike tightening cycle is given as
the main reason why commodities and their stocks declined.
Let’s step back a minute and think about that one. In
refusing to hike rates, the Bank of Japan in essence admits
that have decided to embrace very big inflation risk without
a policy reaction. Instead of curtailing the yen carry trade,
which is the largest financial engineering machine in modern
history, they openly reassure its continuation. They
admit they will continue with massive monetary inflation,
not hike rates, and supply the Western financial markets with
evermore money to borrow at nil interest rates. SINCE WHEN
IS THEIR CONTINUED ZERO INTEREST RATE POLICY BAD FOR COMMODITIES???
SINCE WHEN IS CONTINUED QUANTITATIVE EASING A HINDRANCE TO
No, no, the continued role and associated behavior
by Tokyo as the Far Eastern lackey office to the US Federal
Reserve is hardly negative for commodity prices at all. Instead,
Asia in general will remain a strong foundation of commodity
demand, a locus for speculative investment, and of strong
basic demand for energy, industrial metals, and gold.
The yen carry trade is responsible for generating
much of the Western world financial wealth. The
carry trade speculative flow will continue in all its cancerous
glory. Any discontinuance of the yen carry trade might
actually cause financial seizures from fast rising US long-term
interest rates!!! Furthermore, news of Tokyo reluctance to
hike at all is even more credence that USFed has some excuse
to halt hikes on its own, to pause. The BOJ announcement is
equivalent to Little Ben’s tease of a pause, yet it
had the opposite market reaction. Straaaaannnge!!!
THE GOLD PRICE ACTION
Much of what we are witnessing in the past
week is the annual spring selloff in commodity stocks. Also,
an unstable situation developed. Gold rose from $600 to $700
in less than one month. With breaktaking leaps comes a need
to catch one’s breath, even for a market. Look at the
old trusty 3/8-ths retracement rule for guidance, a reliable
tool in my kit. In a bigger sense, the breakout in gold in
March from $570 to the May $730 high would see a 60-point
pullback to $670. With more short-term eyes, the breakout
extension in April from $635 to the May $730 would see a 30-point
pullback to $685. So one might consider a healthy correction
to send gold back to the (670-685) range, provided the gold
bull still is alive and strong. Fundamentals
scream that the bull has many years to live, run free, even
stomp down both disbelievers and obstructive participants
My personal view is that, given the monetary
breakdown in the USDollar foundation and institutional insurrection
against it, given the global energy war counter-attacks and
govt warlord behavior to foment it, gold might be justified
in a move somewhere between $900 and $1100 before it re-evaluates
the crises in progress, the pathetic fixes in place, even
the progress toward resolution. Through any reasonable person’s
eyes, all movement is away from remedy and toward deeper crisis,
widening the gulf between reason and lunacy. The shocking
ingredient is that the USGovt seems to intentionally provoke
greater conflict. Given the chief US exports continue to be
debts, jobs, faulty banking systems, patents, obesity, and
given the principal strength of the USEconomy is military
investment, foreign beach head establishment, and leverage
upon governments, it seems the United States Axis has actively
chosen a path toward greater chaos to secure commodity supply
in an environment whereby our military strength can be utilized.
It is hard to say how far this correction in
commodity stocks might go. Surely, the mainstream press enjoys
what they proclaim as the end of the bull. However, they forget
that only a global recession will interrupt this commodity
bull market. They forget that energy stocks were the biggest
single engine in the S&P500 index last calendar year.
A case in point is the strong and growing global demand for
gold bullion as the USTBond erodes in confidence. A case in
point is the relentless twin deficits indicative of extreme
hemorrhage and foreign capital dependence. A case in point
is the 20% decline in official copper inventory at the exchange
warehouses, the challenge to Indonesia copper supply, the
socialist (and water) threat to Andean copper supply in Peru.
Sorry, but these three factors remain very much alive, either
without evidence in any way, or not even addressed.
Three requirements are necessary before the
commodity bull is interrupted:
1) emerging developing economies must stall in growth altogether,
like China, India, Southeast Asia, including the construction
boom in the Middle East
2) the multi-year USDollar decline must come to an end, in
a real sense from remedy to its crippled fundamentals in astronomical
trade deficits and burgeoning federal budgets
3) the imbalances whereby global commodity demand overwhelms
commodity supply must find equilibrium in the midst of historically
low inventories and supplies at risk.
Sorry, but none of these requirements has been met, as all
are still in force.
This hegemonistic policy will ultimately backfire,
with blocked supply routes and supply chains, along with a
mushroom of global alliances in opposition. Its policy will
fail from an insurrection in the USDollar and rejection of
the USTBond (its paper observe side). My forecast from early
2005 was for the world to separate into four trade zones:
Europe, Asia, Middle East, and Americas. There is far more
cohesion in the three non-American zones than in our zone.
Iran is the rogue within the Middle East. Venezuela, Ecuador,
Bolivia, and Cuba are the rogues within the Americas. Russia
is the rogue within Europe. The four zones in time will produce
their own single currency, as well as their own dominant commodity
supply. As the months pass, shipment of commodities across
zone boundaries will become increasingly problematic.
THIS PICTURE IS STILL VERY PROMISING FOR THE
GOLD AND OIL BULLS !!!
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