- Visualizing the dollar’s abandonment
- Chuck Butler on the dollar-demolition plan that began in December 2008… and it’s not QE
- How China’s rise to reserve currency status will unfold… and the safest way to play it
- A beaten-down, bombed-out sector that’s still not ripe for buying cheap
- More fun with FIFA satire… a boomer reader’s plans to keep working past 66… and more!
It’s one thing to say the world is slowly abandoning the U.S. dollar. It’s another thing to grasp it visually. Click on the map…
To be sure, this infographic comes from a biased source — Sputnik News, a Russian state media outlet that traces its lineage back to the old Radio Moscow of Cold War days. The Russkies have an interest in playing up dollar doomage right now, considering how Western sanctions crushed the ruble last year. Still, we’re reasonably sure Sputnik didn’t just make the figures up. And as you’ll see shortly, the figures might be low.
Notice China’s dominance of the pink lines — showing countries that have already walked away from the dollar when trading with each other.
“The Chinese government certainly seems to feel confident that the time has come for the renminbi to take a leadership role on the reserve currency stage,” says our friend Chuck Butler, managing director at EverBank Global Markets.
It was in February 2010 when Chuck declared the dollar’s status as the world’s dominant reserve currency would be over by the end of the decade. Five years on, events might well be ahead of schedule.
Let’s begin at the beginning: In late 2008 — while the Western world was consumed with a financial panic — China quietly cut its first currency swap deal with another country, bypassing the dollar for their trade. Here in The 5, we’ve mentioned these deals every so often as they’ve been announced.
But again, it’s the visual that really drives the point home… and EverBank’s research team has compiled this revealing calendar of 31 such deals — some of which don’t even show up on Sputnik’s map:
Little wonder that now the renminbi is the second most used currency in trade finance, recently surpassing the euro. It’s also the fifth most used for international payments.
More facts and figures from Chuck: “The Chinese economy is now the largest economy in the world, passing the United States at the end of 2014, based on IMF estimates. China is also the world’s largest exporting economy, trading $2.3 trillion in merchandise exports, relative to U.S. exports of $1.6 trillion. Gross national savings in China now represent 49.5% of Chinese gross domestic product (GDP), compared with U.S. savings at just 17.3% of GDP.
“By acquiring nearly $4 trillion in reserves of foreign exchange and gold, guess where China ranks in terms of global reserves? You got it: No.1. China is also the world’s largest producer of gold, with more than twice the production in the U.S., and is also now the world’s largest importer of gold, placing the country ahead of India.”
China’s next big step onto the global currency stage comes toward year-end. If you’ve been reading us regularly, you know that’s when the International Monetary Fund is set to add the renminbi to its “super currency” called the special drawing right, or SDR. It’s an exclusive club… as we showed you in this pie chart last month:
Chuck anticipates the following sequence of events…
1. China continues to open its capital markets to foreign investment.
2. Investors provide additional liquidity to the Chinese economy through bond purchasing.
3. The IMF accepts the renminbi as one of its reserve currencies in the SDR – which, coincidentally, is rebalanced at the end of 2015 — under the condition that the PBOC eliminates the renminbi peg to its current basket of currencies.
4. Then the renminbi becomes a floating currency, and the Chinese government subsequently allocates a percentage of its massive gold reserves (and other hard assets) as backing to the outstanding currency float.
“Under this type of scenario,” he adds, “the renminbi may have a real opportunity to become one of the most attractive major currencies in the world relative to its fiat currency contemporaries.
“A fully floating renminbi could have far-reaching consequences for the U.S. dollar,” Chuck says, “particularly if or when the renminbi eventually assumes a position as a global reserve currency.
“Once global trading partners are no longer required to trade exclusively in dollars, countries will similarly be released from requirements of holding massive amounts of dollars in reserve… U.S.-based asset values and interest rates could potentially be in for a tough run if this were to unfold.”
True, it might not unfold overnight. But again, Chuck’s forecast of a dethroned dollar by the end of the decade is ahead of schedule. Now’s the time to seize upon the trend… and the safest way we know to do so is EverBank’s MarketSafe Future Economies CD.
With a single investment, you gain exposure to six emerging-market currencies — the renminbi, the Indian rupee, the Indonesian rupiah, the Brazilian real, the Mexican peso and the Turkish lira.
Those six currencies alone are used by more than 45% of the world’s population — future economies, indeed. All six are positioned to benefit from a stumbling U.S. dollar over the next five years. And even if they don’t rally against the dollar, your principal is fully protected. That’s right — zero downside.
The funding deadline for this opportunity is fast approaching — June 11, a week from Thursday. We encourage you to check out the details at this link. Full disclosure: We have a marketing relationship with EverBank. But we wouldn’t talk about their products if we didn’t believe in them.
The dollar and U.S. Treasuries are the big losers in today’s market action.
The dollar index is off nearly 1.5% as we write, barely holding onto the 96 level. Meanwhile, the yield on a 10-year Treasury note is back to its recent highs of 2.26%.
But major U.S. stock indexes are little moved, the S&P 500 off three points, at 2,108. Gold is likewise static, at $1,191. Crude is back above $60 again.
There’s little market-moving news aside from the constant low-level noise about Greece. (Another payment deadline? Say it ain’t so!) But as we said in April, the real date to watch is July 20… and we fully expect the proverbial can to be kicked yet again, albeit maybe with last-minute theatrics.
“Every major coal company in this country is either going to be broken up or sold or in bankruptcy, except two,” says Murray Energy founder and CEO Robert Murray. “And I hope I am one of them. And it will happen by the end of next year.”
Well, that’s definitive.
Murray — who started digging for coal at age 16 and is now 75 — spoke recently at a coal conference near Pittsburgh. “According to Murray,” reports our Byron King, “the business climate for coal mining has transformed into brutal competition for survival across the industry. Murray identified two reasons for current problems with coal mining: low coal prices competing with low natural gas prices and heavy-handed environmental regulation from the Obama administration.
“A decade ago,” Byron goes on, “coal accounted for about half of U.S. electric generation; today, it’s down to about 40%. Meanwhile, there’s not a new coal-fired power plant on the drawing board of any utility company in the nation. New electric capacity is mostly natural gas, with substantial solar and wind also in the queue.”
Byron tells his readers he’s taking Murray’s words to heart: “I suspect we still have an industry cave-in ahead, with bankruptcies and restructuring before a market turnaround. For now, we can afford to sit on the sidelines and watch while we look for new opportunities in other areas, like solar, even.”
This FIFA scandal is the gift that keeps on giving.
Yesterday, we heaped scorn on the indicted former FIFA official who bought into an Onion story while trying to defend himself on YouTube. Today, it’s the turn of Vladislav Vorobyov, a columnist for the Russian newspaper Rossiiskaya Gazeta.
As you might be aware, Russians are suspicious the FIFA scandal is about sabotaging the 2018 World Cup in Russia, a veiled attack on President Vladimir Putin. And as we said last week, our own Jim Rickards finds that notion credible.
But Vorobyov went way overboard. He was taken in by a piece from New Yorker satirist Andy Borowitz — reporting Sen. John McCain was calling for military action against FIFA. “These are people who only understand one thing: force,” read a made-up McCain quote. “We must make FIFA taste the vengeful might and fury of the United States military.”
Vorobyov said the “statement” was proof of U.S. willingness to bomb “any place on the planet.”
Like The Onion, Borowitz has a unique talent luring in the gullible: Five years ago, he wrote an article about Goldman Sachs making “a substantial financial bet against the Gulf of Mexico” the day before Deepwater Horizon oil rig blew up, complete with a “memo” by Goldman VP Fabrice Tourre: “Suck it, fishies and birdies.”
That story still gets circulation on certain message boards today…
“So many working boomers today are working longer, not taking that early retirement,” writes one of our regulars on an ongoing theme, “and the consensus among the bean counters and economists is that the recession changed their plans. I would agree.
“I think, though, that times have changed, and Social Security has not adapted. Life expectancy today on the average across the board is 77 years old, with the original plan for people to die at 61. That is a fatal error in the program.
“People today work longer because they can. They are still healthy and productive, and they know they will live longer and put off draining their savings. It doesn’t take a million-dollar study to figure that out. If you retire at age 62, you have to buy health insurance, and a person who may be able to afford early retirement may conclude he doesn’t want to pay that cost when his employer will cover it for him.
“Maybe the noneducated are dying younger because they cannot afford Obamacare, the educational system is a farce, and banking, finance and Wall Street have run the country to ruin, and Big Brother has sucked us dry supporting the welfare state across the board. And those are not just words, they are truth you write about every day.
“Simple plan. I will keep working once I can collect SS. They will tax me on my SS, but over a five-year period, it is worth 100,000 extra investable dollars. I can keep working because I can and don’t have to spend my savings to live.
“I will say it again: The fools have given me a million-dollar portfolio at age 66 that I can draw on, so why should I not keep working and collecting the gravy of my investment of 45 years of working and paying?”
The 5: We’re sure you’re not alone…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. We’ll once again take this opportunity to draw your attention to the advantages of Canada’s version of Social Security.
At a time when U.S. Social Security is running on fumes… the Canadians have managed to double funding for their own old-age retirement program since 2004.
And funding is set to quadruple by 2040 (to the tune of some $800 billion in financial reserves).
Incredible, right? See for yourself:
(Click here or on the chart for a quick write-up on what they’ve done differently to get these eye-opening results.)
What’s it to you? A recently created website pinpoints a loophole in “Canadian Social Security.”
And this loophole has made it 100% legal for Americans to piggyback “Canadian Social Security” and collect monthly “benefit” checks ranging from $400-4,700.
You don’t need to live or work in or even visit Canada to begin receiving these “benefits.”
Dozens of Americans are already taking part. People like…
- Sara Yaeger — a secretary from Texas — who is now collecting $2,900 per month in “benefits”…
- Carol Alderman — a widow with two children — who averages more than $1,200 in “benefits”…
- And Stephen Gallicchio, who now receives an extra $500 per month.
To read more on this one-of-a-kind situation and to see if you could qualify for monthly “benefits,” click here right now.
