This Week in Barrons – 12-8-2013
Is Bitcoin the next World Reserve Currency?
The average US citizen has been allowed to live well beyond their means, because the US dollar is the World’s Reserve currency. The US dollar’s reserve currency status has been the reason the United States could ‘borrow and spend’ (like a drunken sailor) for the last 40 years. Therefore, expect our politicians to fight tooth and nail before losing that status. Losing that status is inevitable, but politicians will want the inevitable to be delayed for as long as possible. One of our concessions for this delay has been to allow China to purchase tons of gold at discounted prices. When the global currency reset comes, all currencies will be revalued based on the true assets of the holding country. That is why Central banks all around the globe have been buying gold since the attacks on gold began a few years ago. Every country is trying to build up their balance sheet in preparation for the new reserve currency. After all, every nation knows that ‘printing money out of thin air’ can’t go on forever – something’s going to have to change.
Taking a step back: the US will lose its Global Reserve currency status because it has ruined (debased) the value of its currency. All of the countries that do business with US are tired of holding US dollars, and seeing them worth less and less each year. Therefore, job #1 for the US will be for us to try and pay down some of our debts, and actually show a ‘strengthening’ dollar. The only problem with that is that we (as a nation) are broke – we have no money.
4 years ago I remarked that Uncle Sam is looking at the tremendous accumulation of wealth inside our 401K's, Pension Plans, etc. This money is often just sitting idle. Uncle Sam would like that money, and has hired firms to study how they can make it mandatory that you take a percentage of that money and purchase Government bonds. Therefore, I think that the first step in the Global Reserve end game will be an announcement by our administration that the World Bank & IMF have instructed all nations to co-operate in a global currency revaluation, in order to bring all currencies into a new valuation range. This will result in the US no longer being the sole holder of the Global Reserve currency title. That title will go (instead) to a basket of currencies, backed by the assets of the underlying countries.
Because the reset will be costly (and we're mired in too much debt to bring our currency valuation in line with other countries), our administration will announce that they are going to force everyone to buy Government securities. Remember, it worked for health insurance. Our government will mandate that some percentage of our wages and savings will have to go towards buying Government issued bonds. I realize that (on the surface) this sounds totally insane – conspiracy nut stuff. But remember Cyprus? Remember how the Cyprus government absconded with up to 50% of the population’s savings? That was a trial balloon that worked. Instead of armed citizens revolting in the streets, they remained amazingly calm as: (a) they were denied access to their money for days, and (b) finally granted access to only limited amounts of their individual assets. No rioting. No shooting. The scam went off without a hitch.
So job #1 will be for our nation to try and ‘reinforce’ our currency by amassing all the ‘real-money’ it can scrape together. That way (when being measured for the ‘reset’) we hold the highest rankings. I also think (when the global reset button is pushed) – countries are going to try and work all the industrialized nations into a situation where there's not too much variance between the strongest and the weakest. The US will want its position to be at the strongest level. The US will want the US dollar to be ‘a significant part of’ the new Global Reserve currency basket, and supporting our dollars with the savings of 300 million people will help that effort tremendously.
From there, I think things start to unravel quickly. The US (for a long time) has not had to produce and export goods to enjoy a good standard of living. Currently – we simply print more money. We are (as a nation) allowed to borrow – with no real expectation of paying it back. Believe me, as soon as the ability to ‘print all the money we want’ is gone, it will be a very short period of time before it becomes abundantly clear that the US can not ‘produce and earn’ in the capacity necessary to keep us strong.
At that point our economy will begin to stall, and any recession will deepen. Now, the irony of it all is that most of the world has benefited greatly by the US spending more than it earns. Japan sells us cars and electronics by the boatload. China sends us all manner of gadgets. Every major economic power from Europe, to Asia, to South America to Canada has taken in fortunes on the heels of the American consumer spending money they don't have. That will stop.
If we can't print more money, we can't spend it. And when the US stops spending, the rest of the world will soon find that their individual countries do not have the internal consumption to support their economies. For example: Japan exported 1.5 million cars to the US in 2011. Germany's BMW and Mercedes export billions worth of cars and machinery to the US. If the US can't afford to buy those cars, goods, and services – will other country’s individual citizens be able to support that supply? Of course not. So the world will see a synchronized decline, and that is the real end game. I think it is at that point where we see the whole world push for a single currency, run by a central planning agency out of Europe. And that is why I find the rise of Bitcoin fascinating. Bitcoin may or may not be that single currency – but certainly something very much like it will be.
The real question is: When does this begin? The wheels are in motion right now, but I don't think we will see the first real actions being taken until late 2014 or early 2015. Nobody wants to make it a part of the mid-term election process, and we have at least a year before things get desperate enough to start these dominos falling. After all, the Fed has been pushing $85 Billion a month into our monetary system in order to keep the ‘crash’ away. But it is that very injection of currency that has all of our trading partner nations dumping dollars. Therefore, the Fed will have to end its currency injection (QE policy) at the very same time we approach this monetary reset. So as you can see, there's no shortage of excitement going forward.
Honestly, I hope I'm desperately wrong. I hope that ‘cheap natural gas / energy’ or some other magic dust hits our country, and we figure out how to solve all our economic problems. Unfortunately, math doesn't lie, and the math says we cannot fix this mess. This week the idea surfaced of the US minting a ‘Trillion Dollar Coin’ and having us borrow against it. But let's face it, it would still be a man-made fake, and it would eventually fail. The world is getting tired of the US fakes.
Last Sunday I suggested that the market technicals were telling me that it was setting up for a pullback. And then I also mentioned, that this year (alone) the market set up over 25 times for a similar pullback that never happened. We would then just pause; run in place a few days, and ‘boom’ up we would go.
We did basically the same thing this time. From Monday through Thursday we did a bit of selling, the averages faded off – but not by a lot. Monday we opened at 16,087 and Thursday we hit a low of 15,809 – off a total of about 280 points – 1.3%. Big deal.
Friday we received a ‘better than expected’ jobs report. No one (except the talking heads on CNBC) seemed to know where all this new found strength came from, but let it suffice it to say that ‘someone’ wanted to make the jobs report look good and they did. In years past, a strong jobs report would have had them selling stocks like mad (because it may signal the end of QE), but not this time. This time everyone adored the number, and on Friday we gained 200 points – basically gaining back virtually every point of the pullback.
What’s changed? Why was a good Jobs Report toxic for 3 years, and now it's rewarded? Have we finally decided that our country is strong enough to not worry about a Fed taper? Did we decide that the number was indeed ‘pretty good’, but not good enough to initiate tapering in December?
I tend to think that the last option makes the most sense. I believe that they came to the conclusion that the number was ‘pretty good’, but it might have some ‘noise’ in it from the Government shutdown. After all, the ending of the government shutdown did bring people back to work. And is the Fed really going to remove the punchbowl right before Christmas? Will the Fed really cut QE in a year when retailers are telling us that the consumer is about tapped out?
I believe that the Fed will keep some form of stimulus in place until all of the global leaders put their currency reset plans in place. But QE (in the fashion it is administered right now) is not the only way the Fed has of keeping interest rates low. The Fed could taper the current QE program and continue to keep rates low by using reverse repossessions. Therefore, my feeling remains the same – I don’t think that the Fed will do any tapering on Dec. 18th. But ‘just to save face’ (and after warning about it for so many months), I won't be surprised if the Fed (on December 18th) does toss out a ‘tiny’ $5 or $10 Billion QE reduction.
The Fed knows that they can pull $5 or $10 Billion out of the system without causing any structural damage. The market could look at it as the start of a larger cut back and go into spasms of selling, but then Ms. Janet Yellen could easily step in (in January) and push it right back. That's a lot of jostling around and upsetting of markets before springtime; therefore, I think they will leave things alone.
All that said, was Friday the start of the year-end push for glory? I don’t think so. I think we have some more chopping and slopping to do before they give us the all clear for a final year-end push. Despite everyone’s bravado on Friday, the market is still quite worried about the Fed pulling the punch bowl away, and everyone knows that our economic numbers are as fake as an honest politician. So unless market psychology has changed in the past day, the markets may be a bit timid about pushing us into the final year-end charge right now. But when Dec 18 comes without a taper, we should see a freight train run into the New Year.
We were stopped out of TSO this week for a hefty $7/share profit. We were also stopped out of OC and AXP flat.
I couple things I’m looking to get involved with this week:
- I purchased UNG (Natural Gas ETF) – April 2014 - $22 Call Options for $0.62 – currently $0.90.
- I purchased UNG (Natural Gas ETF) – December 21, 2013 - $18 Call Options for $1.41 – currently $2.18.
- I purchased USO (Oil ETF) – April 2014 - $37 Call Options for $0.74 – currently $0.77
- I purchased FXY (Japanese Currency ETF) – March 2014 - $97 Put Options for $3.76 – currently $3.50.
- Twitter (TWRT) is a little rich at $45 – but I do like the ‘covered call’ yields.
- I’m looking at:
o DBA – Jan, 2014 - $25 Put options around $0.50
o EMLC – heading lower – look at the $24 Put Options around $0.50
o ECH, PFF, PGX – heading lower looking at Put Options
o ITB – heading higher looking at Call Options
o TLT – heading a lot lower – looking at Put Options
o And GLD if it breaks thru 1218.36 – it could fall to 1147 – looking at Put Options or DUST if it breaks thru that resistance level.
My current short-term holds are:
- CCJ – in at 20.50 (currently 20.36) – stop at 19.80,
- UNG – April 2014 $22 Calls – in at $0.62 (currently $0.90) – more room to run
- UNG – Dec. 21, 2013 $18 Calls – in at $1.41 (currently $2.18) – more room to run
- USO – April 2014 $37 Calls – in at $0.74 (currently $0.77) – more room to run
- FXY – March 2014 $97 Puts – in at $3.76 (currently $3.50) – Japanese currency is worse than US currency J
- SIL – in at 24.51 (currently 10.82) – no stop,
- GLD (ETF for Gold) – in at 158.28, (currently 118.57) – no stop ($1,230 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 18.70) – no stop ($19.50 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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Until next week – be safe.