The Dollar’s Demise (Update)

  • Liberal website’s gross clickbait
  • A Ukraine scenario starts to play out
  • Russia’s endgame? (A story with a long arc)
  • Billionaire Ken Griffin changes tune about crypto
  • What would you sacrifice for Ukraine?… Mikron vs. Micron… Remembering the world’s oldest billionaire… And more!

In investing or anything else, you have to be careful not to let confirmation bias — your ideological blinders — get the best of you.

And so we begin with an item today that’s not necessarily financial in nature… but is certainly applicable to the realms of investing and economics.

The story begins with a tweet by a liberal website called The Recount.

the recount

Inflammatory, huh?

Well, yes. Except it was taken totally out of context.

Here’s the full sentence uttered this week by Russia’s U.N. ambassador: “Nothing is mentioned about the illegal coup in Kiev in February 2014 — with the connivance of Germany, France and Poland and with the support of the United States — where the legitimately elected president of the country was overthrown.”

Yeah, so he was referring to the overthrow of Ukraine’s elected president Viktor Yanukovych in 2014 — not anything pertaining to the U.S. election in 2020.

The Recount took enough heat that it had to backpedal. “The way his sentence was structured and translated tripped us up,” said a subsequent tweet. “We do not take this lightly, and we sincerely regret the error.”

Horse****. Sorry to invoke foul language, but it’s so obvious they took it out of context for the sake of clickbait.

Worked, too. It went so viral that Chris Krebs — the former director of the federal Cybersecurity and Infrastructure Security Agency, someone presumably knowledgeable about online “disinformation” — enthusiastically retweeted.

Business Insider, The Daily Beast and Newsweek all picked up The Recount’s deceptive spin. The first two have since issued “updates” — since no one issues “corrections” anymore — but Newsweek’s version is still out there, loud and proud.

Then, in a true “joke’s on you” moment… right-wingers picked up the ball and ran with it.

“The Russians are no longer incentivized to keep their mouths shut,” blogged the blowhard who goes by the pen name Vox Day. “I wonder what else we’re going to learn about in the coming weeks.”

“Buckle up, buccaroos. Looks like Russia has the receipts on the ARSH 2020 ‘election,’” added the retired broker Ann Barnhardt.

We have no idea what “ARSH” means and we don’t care; sometime after we cheered on Barnhardt for closing her firm and calling out systemic financial fraud a decade ago, she plumb lost her mind.

Anyway, we’ll leave it there. Although we’ll come back to our warning as we move into our next topic today…

The Ukraine scenario we laid out in mid-January — we gave it the dramatic title Ukraine and the End of the Dollar — is starting to play out.

In short, the U.S. dollar might be approaching a near-death experience as occurred in late 1979 — wealthy people around the world scrambling to get out of dollars in reaction to American acts of economic warfare. The gold price doubled to record highs in a little over three months.

Basically, the increasing cutoff of Russia from the SWIFT financial messaging network is driving Moscow into the arms of Beijing. China has been building up its own version of SWIFT called the Cross-Border Interbank Payment system, or CIPS. A merger with Russia’s own nascent SWIFT analogue looks increasingly likely.

Nor will they go it alone. Developing nations “will seek to join and at the same time keep SWIFT — moving their reserves into the new system,” says the economist Michael Hudson. Now nearly 83, Mr. Hudson is still plugging away 50 years after publication of his book Super Imperialism: The Economic Strategy of American Empire.

Hudson is “simply numbed over the near-atomic escalation of the U.S.,” he says in an interview with the journalist Pepe Escobar.

While the Russian-Chinese reaction will take time to play out, “the result will end dollarization for good, as countries threatened with ‘democracy’ or displaying diplomatic independence will be afraid to use U.S. banks.”

The end result could be something we touched on yesterday — “whether Europe and the dollar bloc can buy Russian raw materials — cobalt, palladium, etc., and whether China will join Russia in a minerals boycott.”

Likewise numbed is the very mainstream figure Zoltan Pozsar, a veteran of the New York Fed now working as a strategist with Credit Suisse. We’ll paraphrase his recent appearance on Bloomberg’s Odd Lots podcast: If Russia’s foreign exchange reserves can be rendered nigh-worthless on a moment’s notice from the White House… what’s the incentive for other central banks to hold onto dollars as a “safe” asset?

And that’s to say nothing of Russia’s own endgame now: “If things get worse,” says Pozsar, “you could basically re-anchor the ruble to a pile of gold because you need an anchor in situations like this.”

A few years ago, it was only outliers like our own Jim Rickards who talked this way.

Now the notion is hitting the most mainstream of media outlets. “SWIFT Kick Aimed at Russia, But It Will Also Hit the U.S. Dollar,” says a commentary published in USA Today.

The piece is by Thomas Knapp, director of the William Lloyd Garrison Center.

“What happens,” he writes, “when one of the world’s largest oil producers 1) is cut off from SWIFT; 2) doesn’t want U.S. dollars as much as it used to because other sanctions make those dollars difficult to spend; and 3) has trading partners who are watching these sanctions and fear they could be the next victims?”

Mr. Knapp’s answer comes from India — where a leading newspaper reports New Delhi is likely to step up its already-existing trade with Russia denominated in rubles and rupees, not dollars.

➢ Note well: Twice in recent days, India abstained from United Nations resolutions condemning the Russian invasion, along with China.

“In the short term,” he writes, “the SWIFT kick and other sanctions may hurt Russia more than they hurt you. But the uncontested reign of the U.S. dollar among global currencies seems to be nearing its end, in part because the U.S. government is driving the world away from it with the constant threat of sanctions.”

Yes. Waging economic warfare against one-tenth of the world’s governments is bound to blow back sooner or later.

It’s here we have to come back to our warning about confirmation bias.

As the newsletter legend Doug Casey often reminds us, events that are inevitable are not necessarily imminent. The “end of the dollar” might not be a this-year thing or even a next-year thing. You can’t invest on the assumption it is — which is why Jim Rickards suggests a 10% gold allocation in your portfolio instead of going all-in on the Midas metal.

As Jim often reminds us, it took a 30-year process for the dollar to dethrone the British pound as the globe’s reserve currency — starting with the outbreak of World War I in 1914 and ending with the Bretton Woods agreement of 1944.

Where did the present “de-dollarization” process even begin? Was it the first de-dollarization summit between Russia and China that we described in 2014? Or something else?

And what takes the place of the dollar as the reserve currency? Both the Chinese yuan and cryptocurrencies — the two answers we see most frequently posited by the mainstream — are problematic for reasons our 5 Mins. can’t accommodate today.

It’s a story with a long arc. We’ll stay on top of it. In a way, nothing else really matters to your financial future…

In the meantime, markets are taking a breather from the volatility of the last week.

At last check, the Dow is up less than a quarter percent, approaching 34,000 again. The S&P 500 is flat at 4,387. The Nasdaq is down a quarter percent at 13,651.

Gold is little moved at $1,932. Silver remains a few pennies above $25.

After leaping yesterday from “highest since 2014” levels to “highest since 2011” levels… crude is actually down slightly at $109.93.

Cryptos are selling off, Bitcoin just below $42,500 and Ethereum at $2,831.

For the record: Billionaire and Citadel founder Ken Griffin is changing his tune about crypto.

“Crypto has been one of the great stories in finance over the course of the last 15 years. And I’ll be clear, I’ve been in the naysayer camp over that period of time,” he tells Bloomberg.

“But the crypto market today has a market capitalization of about $2 trillion in round numbers, which tells you that I haven’t been right on this call.”

It was only last October that Griffin declared crypto is “a jihadist call that we don’t believe in the dollar.” In November, he bid up and won an original copy of the U.S. Constitution — just to spite a bunch of crypto/decentralized finance enthusiasts who organized their own bid.

But we perked up in January when his firm’s Citadel Securities unit accepted a $1.15 billion investment from two venture capital firms — the well-known Sequoia Capital and much-less-known and crypto-focused outfit Paradigm.

Griffin now acknowledges what we speculated then: The middleman fees, something Citadel skims off very skillfully in traditional finance, are too good to pass up in crypto: “To the extent that we’re trying to help institutions and investors solve their portfolio allocation problems, we have to give serious consideration to being a market maker in crypto.”

If Ken Griffin’s seeing the crypto light, do you need any more obvious signal to get cracking with our Big Book of Crypto?

On the topic of wartime sacrifice that we explored on Monday, a reader writes…

“So I was thinking (dangerous in these times) that in the past, in order for the U.S. to ‘win’ we have sacrificed as a nation.

“I understand that there are huge complexities in the equation that defines the current scenario. But to do what we needed to during World War II, the U.S. sucked it up as a nation and gave up some of the luxuries (new cars, etc., etc.) to forward our cause in defeating a radical regime.

“Russia provides roughly 7% of our energy needs (please correct me if this is way off). How hard would it be to systematically give a s@#t and cut back a degree on our AC or not drive to a restaurant every day because we are too lazy as modern Americans to cook.

“I would personally give up a car entirely and walk or ride a bike the 15 miles to my shop to help Ukraine. The American dream is changing as it should. To quote a very wise and humble man who could see beyond his personal condition, ‘Can we all get along?’”

The 5: Per figures from the American Fuel and Petrochemical Manufacturers, Russia accounts for 3% of U.S. crude imports. Fully 61% comes from Canada, 10% from Mexico and 6% from Saudi Arabia.

Meanwhile, we’re slightly unsettled by this random tweet from last weekend…

retweet

Tinfoil… or maybe approaching the target? Write if you have an opinion.

In our own service to the cause of accuracy, we thank the reader who writes in with an emendation to something we cited yesterday…

“The tweet by ‘technopopulist’ M.A. Jones gives the wrong impression when it says, ‘Russia has Baikal and Micron’ …

“He confuses Mikron Group (of Russia) with Micron Technology (of the U.S.). Mikron has potential, but Micron is an established world-class competitor.”

The 5: Indeed it is. Our own George Gilder tells the story of Micron’s rise in his book Recapturing the Spirit of Enterprise — including how the Idaho potato baron J.R. Simplot took a stake in the firm in 1980.

Simplot ended up sinking way more capital into Micron than he figured on at first: “We were sure pawing the air for a while,” he recalled to Mr. Gilder. “It was touch and go.”

But it all worked out: Between Micron and the potatoes, Simplot was the oldest billionaire in the Forbes 400 when he died in 2008 at age 99.

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. As we go to virtual press, House Speaker Nancy Pelosi has 1) come out in favor of banning energy imports from Russia and 2) come out against increasing U.S. oil production on public lands.

Scroll back up, look at that last tweet in today’s issue and tell us once more whether you think it’s tinfoil or approaching the target: feedback@5minforecast.com

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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