U.S. Dollar “Fear Mongers” Only Need To Be Right Once

Submitted by QTR’s Fringe Finance

Optimists about the U.S. economy and the dollar’s global reserve status have had the wind at their back for half of a century, so why should anyone expect them to consider an alternative viewpoint?

Therein lies the folly that our country faces.

There’s a reason that every financial disclosure, brochure, hedge fund letter or commercial always says “past performance is not indicative of future results” on it: because it isn’t. But that boilerplate-sounding warning is printed in size zero font and, as a result, also rests in the equivalent of size zero font in the brains of U.S. dollar bulls.

The fact is that warnings about the precarious nature of the U.S. dollar – whether bombastic or not – are probably more important today than they have ever been. But these warnings can’t compete with 50 years of the “trend being the United States’ friend”, a hurricane force tailwind that includes politicians on both sides of the aisle, the nation’s central bank, the treasury secretary and the roaring concert of all financial news media.

Those who believe the dollar is always destined to be the backbone of the global economy are like players at a roulette table who have a system of betting all of the inside numbers, except for the number 13. Given a small house edge and the fact that you have to lay 35 to win 36 (excluding the 0 and 00) means that, in order to start cashing in on your system in a big way, you have to get hot and tear off a ton of wins in a row. But when the odds are in your favor – and betting 35 of 36 total outcomes definitely skews them to your advantage – it’s almost a certainty you’ll “get hot” and start winning multiple spins in row. When you start winning dozens of spins in a row, it becomes impossible to hear the skepticism of the one person betting the 13 or warning you that eventually, it’ll come out.

Well right now, at the casino of the global economy, the U.S. is on a roll. We are on fire. We have figured out how to beat the house. We are casino gods.

We’ve won 1,000 spins of the roulette wheel in a row, without hitting the number 13. We are a shooter at a craps table that has made every point, over and over, for hundreds of days in a row. We are sports bettors hitting every leg of an 8 team parlay every single night for an entire month and pressing the winnings each time. We are playing multiple blackjack hands every hand, and we split and double down on every hand, and all we do is pull 20’s and 21’s. The dealer doesn’t even need to bust every hand, but it does.

The casino has plied us with drinks. We’ve been drinking top shelf for 50 years and have no idea how drunk we’ve become. The seduction of the win has blinded us to the sobering constant of the math on the other side of our “systems”. Like a slithering, unsuspecting cobra slowly making its way to our table on the floor while we high five our allies after every additional win, the snake of reality gets closer and closer, preparing to eventually bite us when we least expect it.

And the truly fucked up thing? When you’re betting it all, every hand, it only takes that one roll, or that one spin, to give back everything we’ve spent our entire winning streak accumulating.

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Which brings me to the point of today’s post: the idea that so-called “fear mongers” about the U.S. dollar – arguing for everything from a mundane DXY crash to a full out loss of reserve currency status – literally only have to be right once.

Most people will tell you that, mathematically, they acknowledge that the dollar’s run can’t continue for the rest of eternity. And we’ve never experimented with a monetary system the way we have now, so we don’t have any basis for comparison about how long the fiat circus is going to continue. 50 years of fiat is actually a relatively short amount of time, so there are good arguments for both continuing to ride the “hot streak” for a few more generations and also for hegemony ending suddenly, when we least expect it.

However, after 10 years of trying to figure out the dastardly scheme that is macroeconomics, I can’t remember a time where the idea of the dollar losing reserve status has been in the mainstream media as much as it is now.

And in the past few hours we’ve seen headlines like:

• Malaysia Prime Minister Says There’s No Reason To Continue to Depend on the US Dollar

• Saudi Arabia’s Crown Prince is No Longer Interested in “Pleasing” the U.S.

• Chinese Yuan Replaces US Dollar as the Most Traded Currency in Russia

• Dubai Oil Benchmark Takes Center Stage as Russia, India Abandon Brent Benchmark

• Kenya signs deal with Saudi Arabia and UAE to buy oil with Kenyan shillings instead of US dollars. President of Kenya tells citizens to get rid of US dollars.

And also courtesy of @WatcherGuru, Saudi Arabia in just the past week has done the following:

1. Saudi Arabia to adopt economic strategy without US dependence, following decline in relations under Biden Administration, FT reports.

2. Saudi Arabia, Russia, UAE, Iraq, Kuwait, Oman, and Algeria to cut oil production output until the end of 2023.

3. Saudi Arabia partners with China to build a Chinese oil refinery for 83.7 billion yuan ($12.2 billion).

4. Saudi Arabia enters trade alliance with China, Russia, India, Pakistan, and four Central Asian nations to step further away from reliance on the US dollar.

5. Saudi Arabia partners with India to create an investment bridge emphasizing greater economic interconnectedness.

Initially, I wrote today’s article as a concession that I would stop writing about the risks facing the dollar – but then I took personal inventory and realized it’s not likely I would be able to commit to that.

Suffice it say, however, the mainstream is finally picking up the thread.

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Even the mainstream media realizes what many of us have been screaming for years: that we are in uncharted waters, given the decades of low rates, Keynesian policy, current potential for serious stagflation and the global challenge that nations like Saudi Arabia, Russia and China appear to be mounting against the dollar.

Journalists that don’t even involve themselves in finance much even agree that we haven’t faced these financial conditions before, and are exercising caution.

If the US dollar’s global supremacy erodes, America will face a reckoning like none before.

My take: pic.twitter.com/yxTz16bi3N

— Fareed Zakaria (@FareedZakaria) March 26, 2023

While we had a similar inflationary crisis back in the 70’s, we had only been off the gold standard for a couple years and our debt levels were nowhere near where they are today as a percentage of GDP.

Today we’re 50 years into the fiat experiment and we’ve drawn the ire of half the world.

Look, there are a lot of smart people on the other side of this argument – Brent Johnson, who I respect a ton, comes to mind – but even he can’t escape the fact that our situation, as it stands today, has never before occurred in the history of our country.

We have never been off a gold standard for 50 years, while separating economically and militarily from China, Russia and the Saudis, all while experiencing significant inflation and an economic slowdown.

And it is this very same fact – the fact that we have never been here before – that is also what makes it clear that we have no idea how or when things will change drastically.

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To go back to the roulette analogy, the trend certainly seems to be continuing as our friend. But what happens when something unprecedented takes place at the casino?

For example, what if the dealer wants to drop two roulette balls in the wheel every time it spins now. And what if the craps dealer handed you three dice instead of two, and told you it was only going to take the two that landed the closest to 3 and 4? In those cases, the game changes drastically, as do the odds. This is exactly what’s happening all around the United States on a global stage.

If it isn’t enough that the BRICS nations have openly stated their intent to develop a global reserve currency, and that they’re hoarding gold while ending the petrodollar, OPEC snubbed President Biden for all the world to see, just hours ago, when it announced an unplanned cut of 1 million barrels of oil per day.

There is no doubt OPEC knows that energy prices are a huge contributor to inflation in the United States, and that inflation remains the main driver of monetary policy – at least until markets crash (coming soon, in my opinion).

And so the Saudi’s and OPEC have knowingly thrown a wrench in the gears of the United States because President Biden chose not to refill the strategic petroleum reserve in the $60 range when he had the chance over the last few weeks.

Biden is multiple steps behind the 8 ball. This plundering of the reserves and then missing the chance to buy it back is like something out of my shitty trading playbook. Biden is “trading” like the ultimate bagholder – except he’s not pushing around 100 shares of AMC, he’s speculating with the oil reserves that our country keeps for a military emergency.

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As far as the dollar goes, I’m happy to be called a fear monger as long as I’m wrong.

Being a skeptic of monetary policy and coming by it honestly is very paradoxical in nature. On one hand, I want to warn about the way it appears things are going.

On the other hand, for my country, and everybody in it, our critics are right in the sense that I don’t want to be right. Deep down, I hope guys like Brent Johnson are right and the dollar remains a shining beacon on a hill for the rest of the world. And hey, if I could think myself into some cognitive dissonance enough to truly believe that a bullish dollar situation is more likely than the ones I write about, I would do it in a heartbeat. And I would probably sleep a lot better at night.

But the fact is that, like many of you, I can’t ignore what appears to be the obvious.

When you’re betting it all, it only takes that one ‘13’ to come up on the roulette wheel or the one ‘7’ to come up with the button on in craps. With the dollar, our nation is betting it all on remaining reserve currency in the way we abuse it – and it only takes us “fear mongers” once to be right before we wake up and everything is completely different than it has ever been before.

Sure, I never want this day to happen – but that doesn’t mean that the likelihood of it happening isn’t significant enough to prepare for it. For how I’m positioned personally, you can read my latest on my portfolio here and here and my earlier market forecast for 2023 or my 23 Stocks To Watch In 2023 (Part 1 here, Part 2 here).

QTR’s Disclaimer: I am not a guru or an expert. I am an idiot writing a blog and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning and generally trade like a degenerate psychopath. This is not a recommendation to buy or sell any stocks or securities or any asset class – just my opinions of me and my guests. I often lose money on positions I trade/invest in and I’m sure have lost more than I’ve made in my time in markets. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. Positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it three times because it’s that important.

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