Almighty Dollar Hammers Asia, Europe

China and Japan start to panic over USD strength [The Rude Awakening] September 06, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Almighty Dollar Hammers Asia, Europe - Asian central banks don’t want to hike, which weakens their bonds. - China’s yuan and Japan’s yen have underperformed versus the USD. - The BRICS’s plan wasn’t developed enough. [Secret Gold Back currency RUINING Biden’s plans for a digital dollar?]( [James Altucher]( What you see here is a completely new form of money… As we speak, it's being used as an alternative currency across the U.S. minting in places like Utah, New Hampshire and Nevada… And since it’s made out of a thinly printed sheet of REAL gold... It may be the single best way to protect your wealth from Biden’s plan for a government controlled digital dollar. That’s why, we'd like to offer to send one to you today. But since there are a limited number, I need you to respond to [this message]( by Wednesday at midnight. [Watch this short 2 minute message that explains everything here.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Hump Day from a gloriously sunny Asti! [Yesterday, we broke down the dollar index]( showing the basket’s constituents and performances and why it’s a good bet to be dollar-bullish. It was a good exercise, and I hope you feel like you understand the US dollar index’s gears and cranks better. And we were right on time. Because this morning, stories of dollar dominance fill Bloomberg’s front page. Don’t get me wrong: de-dollarization is a thing. It’s just going to take time. Perhaps lots of time. As Hemingway once wrote, “Gradually. And then suddenly.” In the meantime, flows are going through the USD. And it’s pretty easy to see why. As the Fed hikes rates, the dollar becomes more attractive. And while most investors thought the rate hikes would end soon, it looks like they will wait longer. In fact, while the market seems sure Chairman Pow won’t hike this September, I’m still not so sure. And even when he finally stops, there’s no guarantee that a “pivot” to rate cuts is around the corner. In this edition of the Rude, we’ll get a bit more macro and geopolitical on the renewed almighty dollar. Dollar Rises in the East. From [Bloomberg]( Japan issued its strongest warning in weeks against rapid declines in the yen on Wednesday, with its top currency official saying the nation is ready to take action amid speculative moves in the market. Shortly after, China’s central bank offered the most forceful guidance on record with its daily reference rate for the yuan, as the managed currency weakened toward a level unseen since 2007. As these two countries are export-driven, they may be crying crocodile tears. Nevertheless, as China and Japan still pay dollars on many of their imports, they may be starting to feel the pinch. Bloomberg’s Asian dollar index has certainly underperformed: [pub] Credit: [Bloomberg]( Again, from Bloomberg: “The prospect of higher-for-longer US rates is reigniting pressure, and investors will be cautious,” said Vijay Kannan, a macro strategist at Societe Generale SA in Singapore. “Specifically, EM Asia is more vulnerable to this dollar strength, given a much lower interest rate differential and a greater exposure to a weaker China growth outlook.” This is something we’ve been saying in the Rude for a while. Jay Powell won’t start cutting rates as soon as he’s done hiking, whenever that is. And the market may be completely incorrect this time regarding the September meeting. According to the [CME FedWatch Tool]( the chances of a rate hike are only 7%. [pub] It’ll be a fun day at the markets if Powell and Co. surprise them! [Man Who Predicted Bitcoin Warns: “Don’t Buy Bitcoin!”]( [James Altucher]( James Altucher first predicted Bitcoin all the way back in 2013… And ever since, he’s been one of the biggest advocates for it. But now, he’s warning Americans that buying Bitcoin could be a big mistake… [Click here now to see why](. [Click Here To Learn More]( Who’s Really Getting Hurt? I’ll give you a hint. I’m typing from there. But even better, let me give you this little ditty the incomparable Tom Luongo wrote on his blog, [Gold Goats ‘N Guns]( While everyone is talking de-dollarization, the real currency losing its position in global trade is the euro. But no one is talking about de-euroization. I guess it doesn’t roll off the tongue as well. According to the latest data from the SWIFT RMB Tracker, there is no currency that has lost more ground in global trade than the euro. In just over two years, the euro has fallen from 39.5% of global payments outside the eurozone to just 13.6%. [pub] The dollar absorbed most of those payments, with the British pound, Japanese yen, and, yes, the Chinese renminbi taking up the rest. So, the great distraction about de-dollarization is, in part, about paying no attention to the rapid demise of the euro and the emerging sovereign bond crisis that ECB President Christine Lagarde works every day to paper over. You must remember the euro was a politicalproject meant to tie Germany and France into a death embrace so they couldn’t go to war anymore. The economic story fed to the public was complete poppycock. Read [The Tragedy of the Euro]( if you fancy more detail on that history. The euro was never going to work. And now, we’re seeing just how fragile it is. We also see how willing the US is to sacrifice Germany on the altar of neocon warmongering. Do you really think Germany was worse off “depending” on Russian oil and gas? Right now, Germany looks like it will turn into the New European Rust Belt. It makes one wonder why Europe treats the US like an ally. Perhaps it’s the over 60,000 US troops based there. But even more disappointing are the BRICS and their “plan.” BRICS Didn’t Make a Dent. I thought the BRICS were a bit farther along the path of de-dollarization. But the truth is they didn’t develop their plan. Luongo asserts this is because geography trumps currency. As a fan of David Landes, I greatly sympathize with this argument. [Luongo writes]( But, back to the BRICS. If de-dollarization wasn’t the point of the Summit this year, then what was? Expansion. And not just expansion for the sake of expansion, but geographically strategic expansion. The BRICS formally added six countries — Iran, Saudi Arabia, United Arab Emirates, Argentina, Egypt, and Ethiopia. They could have added others and almost added Algeria if not for a last-minute veto by India on behalf of France. Algeria is symbolic of the fight between Italy and France for access to African oil and gas. There can be no Ital-exit from the EU without Italy minimizing France’s influence in North Africa, shoring up its energy needs as collateral for a return to the lira. Thankfully, with the help of Russia and China, the Africans are taking care of the Italians’ French Problem all on their own. If there is one common theme beyond the geography (more on that in a bit) with all six of these countries, it is their relationship with the supposedly former British empire. From the Arab states and Egypt to those that defied the Brits in the past — e.g., Iran and Argentina — these additions represent a power shift that is profound. And while we wait expectantly for an alternative monetary system, we put our savings in USD. Wrap Up Imagine the irony: It won’t be a weak dollar that destroys the international monetary system. It’ll be a strong dollar. A strong dollar that capital-hungry countries simply can’t pay back. And while that locks countries into this system, for now, it easily explains why the Global South wants out so badly. China and Russia see the opportunity to offer an alternative but haven’t developed their plan enough. So here we are, watching the Ascent of the Almighty. Have a great day! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( In Case You Missed It… Dead Ben’s Amazing Ascent [Sean Ring] SEAN RING Good morning from a rather grigio (gray) morning in Northern Italy. Last Friday, I had the pleasure of interviewing Jim Rickards for our new, yet unnamed video series. Jim skillfully and thoroughly walked me through the entire banking crisis of early 2023, with Silvergate, Silicon Valley Bank, Credit Suisse, and First Republic. And with precise dates! Jim was positively Sherlockian in dismantling the “crisis is over” thesis. I can’t wait until the piece gets through post-production and into your hands. But before I let Jim sign off to drink his Aperol Spritz - Americans have finally discovered this fine aperitif - I asked him one question. “Are you a dollar bull or bear?” As a long-term macro thinker, Jim didn’t hesitate to say, “Bull.” That may surprise you. After all, the dollar has been printed willy-nilly since 2008. The Fed’s balance sheet has exploded. Biden keeps sending dollars abroad to Ukraine. When does it stop? And that’s the irony. Despite all this printing, the dollar is still the prettiest girl in this ugly currency parade. In this edition of the Rude, I’ll go through why I think Jim will ultimately be proven correct, and perhaps sooner than anyone would have thought. The Last Two Years First, let’s look at the chart so we can get our bearing: [pub] Throughout 2022, the USD index furiously rallied alongside Chairman Pow’s steep and sustained interest rate hikes (big green up arrow). Well, until October. At that point, the market was convinced Powell would have to pivot and start cutting soon. This match lit the equities rally we’ve had for the past ten months. From its high of 114.75 in October, the USD index fell to 102 in the first week of January 2023 (first big down red arrow). Since then, we’ve had at least two sucker’s rallies (blue arrows). But the USD index has been predominantly rangebound between 101 and 105 for the year so far. That big dip to 99.25 had many traders believe it was the end of the dollar. But that now seems to have been a false breakout to the downside. Since that false breakout, we’ve rallied back up to 104.58. If we get above 105.50, there’s a lot of room for a sustained run back up to at least 111, if not the previous high of 114.75. [Over 62 And Collect Social Security? Take Action Immediately!]( [James Altucher]( [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( Currency Pricing The trouble with pricing a currency is that you compare money to… other money. It’s much easier to visualize a stock price. There’s one share, and it has a price. With foreign exchange, both “things” or “monies” represent a price. So, what would make one piece of paper more valuable than another? It’s informative to remember Benjamin Graham’s quote about stocks: “In the short run, the market is a voting machine. But in the long run, it is a weighing machine.” This applies doubly to currencies. So, what do we mean by “voting machine?” The Voting Machine In the short run, when a country raises its interest rates, it offers lenders (such as banks, institutions, and investors) a higher return than other countries. Consequently, higher interest rates attract foreign capital seeking the best investment return. This causes increased demand for that country's currency. This increased demand tends to push up the price of the currency. - Short-Run Supply and Demand: Most currencies are traded on a global foreign exchange market. Their values fluctuate based on supply and demand. If more investors or institutions want to own a particular currency, its value will increase. - Interest Rates: Currencies from countries with higher interest rates often have higher values because they offer better returns on investments denominated in that currency. As you saw, the Fed rate hikes caused much dollar buying. - Market Speculation: If traders believe that a currency will strengthen in the future, they will buy more now. The Weighing Machine In the long run, the strength of the economy, low inflation, and high real interest rates will drive the “smart money” to the best country’s currencies. - Economic Indicators: Data like unemployment rates, manufacturing output, and consumer price indices influence a currency's value. Strong economic performance usually strengthens a currency. - Political Stability: Currencies from countries with stable governments are generally more valuable because they're seen as less risky. - Relative Interest Rates: It’s not just the absolute interest rate in a country that affects its currency's value but also how that rate compares with interest rates in other countries. If one country's interest rates rise while another country’s remain the same, the country with the rising rates will see an appreciation in its currency relative to the other. This is especially true in the case of highly traded currency pairs. - Inflation and Real Interest Rates: Higher interest rates help control inflation. A lower inflation rate in a country compared to other countries can increase that country's currency's value. When comparing interest rates across countries, traders often look at the "real interest rate," which is the nominal interest rate minus inflation. A higher real interest rate will be desirable to foreign investors. Digging Deeper Into the Index First, let’s look at the dollar index basket constituents: - Euro (EUR) - 57.6% of the basket - Japanese yen (JPY) - 13.6% - Pound sterling (GBP) - 11.9% - Canadian dollar (CAD) - 9.1% - Swedish krona (SEK) - 4.2% - Swiss franc (CHF) - 3.6% The euro isn’t dead yet, but it’s on life support. Germany is turning into Europe’s Rust Belt, thanks to the stupid “Russian” sanctions. The Bank of Japan has attempted to murder the yen for the past thirty years. Andrew Bailey, the Governor of the Bank of England, couldn’t find his bare ass with either hand. Those currencies (EUR, JPY, and GBP) make up over 80% of this basket. How can you be bearish when you’re up against ECB Chief Christine Lagarde and this crew? The only currency that has beaten the dollar consistently over the past two years is the Swiss franc, but that’s only 3.6% of the basket. Even so, the dollar has rallied against the franc lately. Quick note: The first currency quoted is the base currency. For EURUSD and GBPUSD, the euro and the pound sterling are the base currency against the dollar. That’s why their charts are going down (since July). The dollar is the base against the other currencies we’re discussing here. That’s why it comes first in these pairs: USDJPY, USDCAD, USDSEK, and USDCHF. Here’s a chart of all six versus the dollar: [pub] The first chart is the EURUSD: since July, the EUR has fallen. The second chart is USDJPY. Since July, the dollar has rallied. The third chart is GBPUSD. The GBP has fallen since July. For the bottom three charts, the USD has rallied since July. Wrap Up Looking at the constituent charts of the dollar index makes you wonder why anyone would be bearish on the dollar. The dollar’s opponents just aren’t fit for purpose. The EUR, JPY, and GBP are in trouble, primarily because their central banks are even worse than the Fed. Look for the dollar to rally further, putting pressure on the stock, bond, and crypto markets. And have a great week ahead! All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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