Sometimes seemingly unrelated news is actually joined at the hip and directly related. For example, what does Bill Gross leaving PIMCO, China announcing “yuan for euro” direct trade and unrest in Ukraine, ISIS overrunning part of Syria and Iraq, and the recent protests in Hong Kong …have in common? I’ll talk briefly about each and give you some clues along the way to an obvious ending.
First, Bill Gross left PIMCO last week to join Janus funds. He started the funds over 30 years ago and had grown assets under management to the staggering number of over $2 trillion! The vast majority of assets held are bonds or some sort of bond/interest rate derivative. The bull market in bonds which began in 1982 and started with a 15.375% coupon, 20 year Treasury yield has run its course to almost nonexistent yields. A simple question might be something like “what will happen to bonds when interest rates begin to rise?” Or another, “what will happen to bond’s collateral if these low rates have created asset bubbles?” (They have, everywhere).
Do you think these two questions might have passed through Bill Gross’s mind? Might this thought and the “answers” have contributed to his “exit” from PIMCO? Might the phrase “getting out while the gittin’s good” apply here? PIMCO already began small asset sales this past Friday and received $10 billion worth of liquidation requests… over the weekend. This amounts to 1/2% of assets under management without even including a single business day. Could this be the start of a “run” not only on PIMCO but of U.S. credit markets?
Next, and I believe the most significant news … and not really even reported on, was an announcement out of China on Monday. The PBOC announced that direct trading of yuan for euros will be allowed in the FX markets. This move will allow Chinese/European trade and investment to move more freely …and without the use of any dollars. We already knew of currency swaps set up with foreign trading partners by China, this latest news is more or less a “starting gun” being fired. Could this be the start of a “run” on dollars where if they are not needed they will be sent back to the States? This is truly huge news and how it is not reported on in the U.S. is simply amazing!
Another area to look at is the violence and unrest in Ukraine, the new “caliphate” state in Syria and Iraq, and now protests in Hong Kong. Much speculation has been written which suggests all of these are U.S. sponsored upheavals. I will only ask questions rather than writing in depth as each one of these issues is long and complicated but Occam’s Razor applies. Was the coup in Ukraine a coincidence while Russia hosted the Olympics? Is the U.S. now supporting the regime that took power? Has the U.S. wanted to bomb Syria for at least the last year (or many years)? Is there a gas pipeline “issue” in both the Ukraine and also Syria? Did Saudi Arabia want the bombing of Syria last year? Did they still? They do “support the dollar,” right? And what if Hong Kong all of a sudden? Why would “protests for democracy” sprout out of nowhere …and just before China announced the ability to trade yuan for euros? Do you see a pattern here where “destabilizing” an area could be disruptive to foreign currencies and supportive of the dollar?
So what do all of these stories have in common? It’s all about the dollar! All of it! Bill Gross obviously sees and feels the “flows” in the bond market. If the Fed has (is) truly tapered and no longer taking his “product” off his hands at a profit like they once did, he is simply jumping ship. China facilitating their trade with Europe without using any more dollars is certainly in their favor and dollar negative while “unrest” which certainly “smells” like it is being stirred up by the U.S. is dollar supportive.
These events are in my opinion all about a currency war where it is the dollar pitted against everything else. I only tangentially (via Ukraine) even mentioned Russia but we pursued the “brilliant” course of telling them they are shut out and can no longer use dollars. What will our reaction to this Chinese/European forex deal be? Will we sanction China and “tell” them they cannot use dollars anymore? How about Europe as a whole? Are we going to sanction Germany, France, Belgium, Holland and all the rest for not using dollars? …And the “punishment” or sanction will be what exactly? We will tell all of Europe they also cannot use dollars anymore? This is like telling a kid that his punishment for eating chocolate is… “No vanilla for you?”
At this point it is so important you understand how quickly the world (particularly “our” world if you are American) can and will change. The rest of the world is now overwhelmingly aligned against the U.S. and thus the dollar. The dollar has been our position of power and comparable to a heavyweight’s overhand right. Unfortunately for the world as a whole, the odds of a nuclear event occurring when the dollar fails is high and growing. No one ever willingly gives up power and often times the one losing power resorts to desperate measures.
Hemming and hawing and waiting to purchase “real money” for your financial survival is a very bad bet in my opinion. Gold and silver can and I believe will very easily move to a position of “no offer.” No offer meaning that once foreigners no longer accept dollars for metal, neither will anyone domestically. In this scenario there will be no “price” for gold or silver in dollars. I believe the current run up in the dollar on FOREX is a result of the so called tapering making dollars slightly less plentiful and tighter on the margin. This will completely change when something financial breaks, the monetary spigots will again be forced wide open. Once foreigners decide they no longer have a use for dollars…they will come flooding back to our shores. The Fed will have no choice but to “un taper” and monetize massively. The only problem is this, “how do you buy dollars with dollars” to sop up the supply? As I wrote yesterday, please do not wait and try to time your purchases of metal now, the world can and will look very different one morning soon. The day will come when everyone knows exactly what they should do …without the ability to do it.
I hope you can tolerate a few dumb questions. 🙂 Isn’t a stronger dollar going to be bad for the US economy? Is a stronger doller just their way of “teaching the bad guys” that they should stay in dollars instead? even if it kills the US economy? Don’t they need inflation, not deflation, to work off debt? Isn’t a strong doller counter to inflation?
Related: I thought Yellen was picked because she’s the biggest “dove”, then why is she talking raising rates, and going to kill the market?
Nothing makes sense anymore..
no problem Red, yes a stronger dollar is economy negative and yes, I believe part of the “strength” is to weaken our opponents in any future war. This tactic has always been used. As for inflation/deflation, yes correct, the only way to pay off the debt is with greatly cheaper dollars. I wrote this to another reader which may shed some light “yes, I knew this would be misunderstood. What I am saying is whether real or perceived, “tapering” means less liquidity while Europe and Japan have stepped on the accelerator causing their currency “weakness” versus the dollar. Once foreigners decide to no longer accept dollars this will be a glut and the tsunami of dollars will head back toward our shores.”
if Yellen was the biggest dove, why is she being a hawk? or am I reading things incorrectly. If she keeps going (presumably, based on whatever her marching orders are from those that really call the shots), she will crash the markets. Is this just yet another little “reminder” for the Politicians of who’s really in charge? Bankers can collapse everything, bite off their hand to spite their nose, or some saying like that, just cause they would. Greed doesn’t make wise, or decisions that are in one’s own self interests either all the time.
the Fed’s hand was forced as they were taking too much collateral out of the market.
Forced by what/whom? Can you explain a bit?
when the Fed does QE they “buy bonds” and take them off of the market. These bonds are used by the shadow banking system to lend against, the collateral pool was being shrunk too much and the negative effects of less lending were being felt. The Fed owns something like 40% of all 10 yr. Treasury equivalents now, thus …they forced their own hand.
Ok, I see the words, and they still don’t mean anything that seems to be real. Let me try, is this close?
when the Fed (a private non-governmental corporation) does QE (meaning they type into a keyboard to make up new dollars out of thin air) they “buy bonds” (the bonds which were prior made up out of thin air by?) and take them off of the market (which market? no clue). These bonds (which are backed by nothing to begin with) are used by the shadow (illegal, nontransparent, and fictional makes up it’s own rules having nothing to do with reality) banking system (cartel of greedy people) to lend (create more made up money backed by nothing again) against, the collateral pool (of something in name that was made up by creating dollars into existence that never existed before) was being shrunk too much (ah, so now here, they APPEAR to try to play fairly by their OWN rules, which they created up themselves, of having some such “capital” to back things and such good intentions, right?) and the negative effects of less lending (causing us all to take on more debt, which can’t be serviced even at current levels) were being felt (felt, felt…um, by who? and felt how? my translation of “felt” is that someone wasn’t making (again fake) money profits off of all this deception and made up scheme by using their own made up rules?). The Fed owns (owns…hmmm, no clue on that one…interesting word though) something like 40% of all 10 yr. Treasury equivalents now, thus …they forced their own hand (so if they are forcing their own hand, they want it forced, so it’s not really forced, is it?.
Do you see, I have nothing even REMOTELY tied to anything tangible or concrete in any of that, that REALLY EXISTS, and yet all that mumbo-jumbo made up stuff, apparently affects everything.
Another great article Bill. No one is more astute at connecting the “Dots” than you are. Keep up the great work.
thank you Richard, there are many others better, my mentor included.
I hope you can see the confusion of mere mortals trying to understand ANY of this…
Can you dig on this on e bit?
” The Fed owns something like 40% of all 10 yr. Treasury equivalents now”
So, a private non-gov corporation owns 40% of all US treasury “equivalents”. Well, isn’t that kind of bad if they own even 0.00001% of US notes? If not, well, why wouldn’t they just say, who cares, and go up to 90% of US notes, why not? It’s all just a game anyway, or so it appears…or is there something somewhere which ties all this back to a reality, that a 6-th grader could understand? Thanks for being patient. I think you will find that 99 out of 100 people reading your blog don’t know what any of this means, and 9999999 out of 100000000 of the general public knows even less than that. If someone ever, wrote a comprehensive overview of all this, in a way a 6th grader not proficient and trained in finance, fraud and theft yet would understand, that write would do a great service.
when the Fed buys bonds they are then no longer available to the banking system to lend against, thus QE was beginning to have the effect of tightening credit.
Ok, so buy not buying them…what? Others will suddenly want them? But if others had wanted them in the first place, why did the fed end up with them?
Let me try to circle the wagons on this stuff…to get others (banks) to buy them, and build collateral, that banks could lend against, to issue more loans (debt) then the economy could pick up they raise rates? But rising rates crash housing and stocks which slows the economy. So, no matter what, the economy slows? Hmmm. Me thinks they are “effed”?
Or do they have other plans to try something different? Since the fed really owns the banks to begin with, who doesn’t it just tell them to buy the bonds or else? Or change the collateral rules?
It seems like all these fraudsters have created a bunch of “rules” which are now trapping themselves? Um, since they are fraudsters, why don’t they just change the rules again?
Because the mental and physical capacity of the (young) people to repay the debts IS the collateral. It is about to evaporate. When the people really find out, the planners will be asked by the offspring to come out and play. This is a huge problem, for them AND us. They better admit defeat.
Good summary of geopolitics and likely demise of the dollar.
I particularly enjoyed the “no vanilla for you”
PM’s are at critical junctions.
Both could turn up dramatically but could also capitulate.
I had an each way bet yesterday..bought some gold( nobody was in the shop so could be a good sign) and still naked short silver.
PS $AUD is a good proxy for both PM’s.
Superb article. Well done. Not just a big picture approach to current events, but cosmic!
thank you Todd.
Why is it that all of the news letter writers avoid the fact that the real war is not the US vs Humanity or NATO vs humanity, but HUMANITY vs the bankers. The Bankers just happen to own all the political players all over the Western world. In particular, the one bank. Are you all afraid of what will happen when you point the finger at the people behind the curtain and say it is them that we need to expose and prosecute and… Well that is for the jury to decide. But the head of the Bank Of England did say that if you get everything back,but you leave the bankers with the power to print money they will simply print enough to buy it all back. Which is what is happening right now. Oh well it is, after all, a bugs life and we are merely ants.
what do I say to this? I write what I see and believe, yes it is the bankers and we say this all the time by calling for a new system with real money.
yes, and it will be like a bolt of lightning.
Do you think the elusive “WHEN” is getting a little closer more rapidly today than just a few months ago?
“The only problem is this, “how do you buy dollars with dollars” to sop up the supply?”
That won’t be the problem. The problem will be that those dollars will flood back into the US, not via the Fed, but via foreigners and foreign-owned businesses BUYING every hard asset they can find here in the US and using their excess US dollars to do it. The net result will be a severe bout of inflation as these dollars bid up the prices of all hard assets, whether purchased or not. Th price bar will simply be set a lot higher than it is now. A lot will be purchased… stocks, businesses, farms, ranches, fishing fleets, oil wells, homes, warehouses, water rights, vast tracts of forest land, railroads, utilities, etc.
This will be the greatest stripping of US assets in our history. It will make the asset grab of the Great Depression seem like a Sunday school picnic by comparison as $15-20 trillion US$ come home to roost, bring with them the inflation that the US Gov and Fed have worked so hard to export elsewhere all these years. Yes, payback really IS a bi*ch but that’s the way it goes when one abuses others. They may take it for a while but eventually they will exact revenge for the lousy treatment that they have been given.
It’s a matter of semantics, in order to keep the value of the dollar from collapsing (hyperinflation) the Fed will need to buy all bonds sold and dollars but they won’t be able to “buy dollars with dollars”. Yes, the money will flood in and try to buy everything not nailed down.
Ok, another dumb question…why would the be buying things in the US? Wouldn’t the US be an economic train wreck at such time? I would have thought they’d not want dollars and also not want anything in the US either?
foreigners could buy good assets at distressed prices with worthless currency, why wouldn’t they do this? Just because the asset is in the U.S. doen’t mean it’s not beautiful. What’s wrong with buying beachfront, mountainview or whatever, even a coalmine on the cheap with a dying currency.
You should like this.
“Now I understand that gold means different things to different people, and to the degree that gold trades as a commodity or a dollar-denominated store of value it can trade cheaper as the dollar advances. I get that. But I don’t think that’s been the principal meaning of gold for the past 5+ years, and if you think as I do that this is the beginning of the end for the Golden Age of the Central Banker (or at least the end of the beginning), gold is pretty interesting here.”
yes Mark, very good quote.
Bill, many have forgotten the word “honour”. The fact that this word exists over the entire globe, tells me the planners have only one way to go, which is down. A timeline exists, and history supports this. It must be so. But only time will tell when. Nobody else. And then all of a sudden, everybody. That event might be considered as the beginning of history again. Hard to grasp.
yes, a reset will mark the reemergence of honor.
What is the Dollar worth now and when do u think that that we will convert to coins and no paper?
I don’t understand your question and we will never go to all coins and no paper unless we go full Mad Max and barter by necessity.