private wealth advisoryphoenixcapitalmarketing.com/pwa67.pdf · “foreignexchange reserves have...

Private Wealth Advisory A Phoenix Capital Research Publication April 20, 2011 GAMEOVERPt1ThefollowingquotessignalthebeginningoftheEndGamefortheUSDollar:"WehopetheU.S.governmentwilltakeresponsiblepoliciesandmeasurestosafeguardinvestors'interests,"[China’sministry]saidinastatement.“Foreign­exchangereserveshaveexceededthereasonablelevelsthatweactuallyneed,”[China’scentralbankgovernor]said.“Therapidincreaseinreservesmayhaveledtoexcessiveliquidityandhasexertedsignificantsterilizationpressure.Ifthegovernmentdoesn’tstriketherightbalancewithitspolicies,thebuild­upcouldcausebigrisks,”hesaid,withoutelaborating.Thesetwostatements,inplainterms,areChinasayingit’ssickoftheUSDollar.Remember,theUSDollarandDollar‐denominatedassets(Treasuriesetc)areChina’ssinglelargestholding.Sothereferenceto“foreign‐exchangereserves,”issynonymouswith“USDollardenominatedassets.”Onthesurface,itwillbeeasytochalkallofthisuptopoliticianspeak.Afterall,ChinahasbeenissuingwarningstotheUSregardingthelatter’sfinancialconditionsince2009.However,afewkeydevelopmentshaveoccurredthatmakeitclearthislatestroundofstatementsaretherealdeal.Firstandforemost,ChinaandRussiaagreedlatelastyeartobegintradingwithoneanotherintheirowncurrencies,NOTtheUSDollar.Inthatstepalone,twoofthelargestemergingmarkets(andeconomies)intheworldmovedawayfromtheUSDollar.AddtothisthefactthatChinajustagreedtoexpeditetraderelationswithBrazilandyou’vegotthebeginningsofaflightfromtheUSDollarandtheendoftheDollar’sreservecurrencystatus.Indeed,notthreemonthsafterChinasignedthisdealwithRussia,China’spresidentvisitedWashingtonanddeliveredaspeechinwhichhestatedthat,“thecurrentinternationalcurrencysystemistheproductofthepast”(editsmine).Considerthe“past”commentinrelationtoChina’sdecisionshuttingtheUSDollaroutofitstradewithRussia(andotheritemsI’mabouttodetail).Inthissense,the“past”istheUSDollarastheworld’sreservecurrency.

Indeed,ChinahasbeenactivelymovingtodistanceitsrelianceontheUSasatradepartner.China’sExportsByCountry/TradePartnerIn Billions ($) 2005 In Billions ($) 2008 In Billions ($) 2009 US $162 US $252 US $298 Hong Kong $124 Hong Kong $190 Japan $228 Japan $84 Japan $116 Hong Kong $174 South Korea $35 South Korea $74 South Korea $156 Germany $32 Germany $59 Taiwan $106 Netherlands $25 Netherlands $46 Germany $105 UK $19 UK $36 Australia $60 Singapore $16 Russia $33 Malaysia $52 Taiwan $16 Singapore $32 Singapore $47 Russia $13 India $31 India $43 Total Exports $526 Total Exports $869 Total Exports $1,269 % From US 31% % From US 29% % From US 23% Asyoucansee,injustfouryears,theUShasgonefromaccountingfornearlyathirdofChina’sexportstolessthanaquarter.ThatisaMASSIVEshiftinlessthanadecade(atthispacetheUSwillbedowntojust15%ofChina’sexportsby2015).Chinaisliterallyputtingitsmoneywhereitsmouthis.Anditsmouthisnowopenlytellingtheworldthatit’snolongerinterestedinUSDollarsorDollardenominatedassets.Theworldhastakennote.Indeed,wearenowseeingvariousothernationspreparingfortheendoftheUSDollarasreservecurrency.ConsiderthatSaudiArabiabecomingsofedupwiththeUSthatitissendingtraderepresentativestoChinaandRussiatostrengthentradeties.SaudiArabiaisthesinglelargestoilproducingcountryintheworld.SaudiArabiaISoilinsomeregard.WhatevercurrencySaudiArabiachoosestodenominateitsoilexportsinwillbetheworld’sreservecurrency.SoSaudiArabia’sdecisiontosendtraderepresentativestoChinaandRussiashouldbeseenasSaudiaArabiaseeingthewritingonthewall,(deathoftheUSDollar)andstartingtheprocessofmovingawayfromthegreenback.SaudiArabiaisnottheonlyone.SingaporeannouncedtodaythatitwillbegintradingYuan.Thesignificanceofthisisenormous.Singaporeisoneofthefourlargestfinancialhubsintheworld(theothersareNewYork,London,andTokyo).It’salsothesecondlargestprivatebankingcenterbehindSwitzerland.WithitsEnglish‐speakingpopulation,first‐worldaccountingstandards,andcloseproximity

toChina,Singaporeisliterallya“gatewaytotheeast”throughwhichworldcapitalflowsintoAsia.Insimpleterms,theworldisbeginningtoshiftawayfromtheUSDollarasareservecurrency.Thisisnotidleconjecture.Thisisfact.Thewritingisclearlyonthewallforthosewhocanreadbetweenthelinesofthemedia’sUS‐centricfocus.Indeed,officialsfromChina,India,Brazil,Russia,andSouthAfrica(thelatestadditiontotheBRICacronym,nowtobecalledBRICS)recentlymetinsouthernChinatodiscussexpandingtheuseoftheirowncurrenciesinforeigntrade(yetanothermoveawayfromtheUSDollar).Torecap:

ChinaandRussiahaveremovedtheUSDollarfromtheirtrade ChinaisrushingitstradeagreementwithBrazil China,Russia,Brazil,India,andnowSouthAfricaaremovingtotrade

moreintheirowncurrencies(nottheUSDollar) SaudiArabiaismovingtoformalizetradewithChinaandRussia Singaporeismovingtotradeyuan

Thetrendhereisobvious.TheUSDollar’sreignastheworld’sreservecurrencyisending.Theprocesswilltaketimetounfold.ButtheDollarwillbefinishedasreservecurrencywithinthenextfiveyears.Theprocesswillnotbelinearinfashion:theGreenbackwillnotsimplycollapseinonego.Moreover,itwillnotbeobviousatfirst.Remember,theUSDollariscurrentlypricedagainstabasketofcurrenciesprimarilycomprisedofgarbagepapercurrenciesbackedbyinsolventnationsorbrokenunions(theJapaneseYenandtheEuro).Yetevenwhenpricedagainstthisgarbage,theUSDollarisstillbreakingdowninaterrifyingfashion.

Asyoucansee,theGreenback,whenpricedagainsttheEuro,YenandSwissFranchasbrokenitsmulti‐yeartrendlinewithconviction.Moreover,we’venotonlybrokenthisbutwe’veactuallyfailedtoreclaimitoncealready.Thisisaclearindicationthatthethree+yearuptrendintheUSDollarhasbeenbroken.ThingsareevenuglierinthefuturessessionwheretheUSDollarhasjusttakenoutits2009low,leavingthe2008lowasthefinallineofsupport:

ThisisBADnewsfortheUSDollar.It’snotasthoughtheUSDollarindexhasmuchfurthertojoinitsfuturescounterpart:

Asyoucansee,theUSDollarindexisrightonits2009low.Belowthatisthe2008low.Belowthat…istheabyss.Bearinmind,theabovechartsplottheUSDollar’sperformanceagainstotherworthlesspapercurrencies.WhenyouchartitsperformanceagainsthardercurrenciesliketheSwissFranc,thepictureisevenmoreabysmal.WithitssolidfinancialconditionandcloserelationshiptoGold,theSwissFrancislargelyheldtobethe“hardestmoney”formoffiatcurrency.Withthatinmind,considerthebelowchart,plottingtheUSDollaragainsttheSwissFranc.

Asyoucansee,theuptrendwasbrokenlongago.Andthecollapsehasalreadybegun.Infact,pricedinSwissFrancs,theUSDollarisatanALL‐TIMElow:

ThesameistruefortheUSDollar’sperformanceagainstthe“commodity”currencies.Here’stheUSDollarpricedinAussieDollars:

Anotheralltimelow.Here’stheUSDollarpricedisinCanadianDollars:

Notquiteanall‐timelow…butdarnclose.Andofcourse,here’stheUSDollarpricedintheultimatecurrency(theonlynon‐fiatcurrencyintheworld),GOLD:

PricedinGold,theUSDollarhaslostnearly90%ofitspurchasingpowerinthelast20years.Here’sthereversechart:GoldpricedinUSDollars:

Anewall‐timehigh.

MypointwithallofthisisthattheUSDollarcollapseisalreadyunderwayifwelookattheDollaragainststrongercurrencies(SwissFrancs),commodity‐centriccurrencies(AussieandCanadianDollar),andnon‐papercurrencies(Gold).Moreover,wehaveclearsignsthatthegrowingpowersoftheworld(China,Russia,Brazil)aswellasthetopOilproducer(SaudiArabia)andglobalfinancialhubs(Singapore)aretakingstepstopreparefortheendoftheDollarreignastheworld’sglobalcurrency.ThisprocessWILLhappen,guaranteed.Howevertheprocesswillbevolatileandwillnotnecessarilyberapid.WhatImeanbythisisthattheUSDollarcancontinuelosevalue…alotofit,veryquickly.However,notrendiscompletelylinearinnature.Sotherewillberallies(fortheDollar)andpullbacks(ininflationhedges)alongtheway.However,thelong‐termtrendisnowvery,veryclear.TheUSDollarisdoomedandwilllosereservecurrencystatusinthecomingyears.Itcouldhappensoonerofcourse,butthepacewilldependontheotherpapercurrenciessupportedbybankruptnations,first.Withthatinmind,let’slookatcrossthepondandconsidertheEuro,whichcomprisesover50%oftheUSDollarindex.Long‐term,theEuroiscomingupagainstmajorresistanceat145.It’salreadystagedasharpreversalatthislevel,butisnowre‐testingitagain:

OthersignsthatthecurrentEurorallyisalittlelong‐in‐tooth(asidefromthefactthattheentireEuropeanunionisadisasterandwon’texistwithintwoyears)istherisingbearishwedgepattern(acommonendingpattern)ithasformed:

Asyoucansee,theEurohasalreadybrokenthispattern,buttheECBsteppedinandjuicedthingshighertoreclaimit.However,IdonotexpecttheEurotogomuchhigherthan145.Andthispatternisveryclosetocompletion.Themostlikelyendingwillbeabreakdownwhichultimatelytargetsthepattern’sbase:130.Shouldweseeadefinitebreakbelowthelowertrendline(andespeciallyifwehaveafailedattempttoreclaimit)thenI’llbesuggestingweopenaEuroshort.However,giventheECB’sallouteffortstokeeptheEUintact,aswellastheendlesssupplyofloosemoney,I’mhesitanttojumpbackinontheEurountilwegetadefinitecorrection.Long‐termtheEurowillnolongerexistwithintwoyears.It’sadonedeal.Ignorealltheshort‐termgyrations.Europeansdon’twantanypartintheEuroanylonger.NottomentionthefactthatthecountriesthatareinsolventareSTILLinsolvent,withevenmoredebt.TherewillbewidespreaddebtdefaultsandtheEuroinitscurrentformwillbegonebeforetheendof2013.However,rightnowit’sallaboutloosemoney.ThesamegoesfortheJapaneseYen,

Japanisanabsolutedisaster.Havingblowntrillionsinyentryingtopropupabrokenfinancialsystem(andanagingpopulation),Japannowfindsitselfhavingtospendevenmoreinitsattempttorebuildaftertheearthquake.AddtothisanucleardisasterthatisnowclearlyworsethanChernobylandJapanisanabsolutedisasterandwillnotseeanykindofeconomicrecoveryinatleastayear.Fromatechnicalperspective,theYenbrokeamassivetrianglepatternin2007andhasbeenonateareversince.Theultimatetargetofthispatternisinthe140range.However,giventhatJapanhasalreadyspenttrillionssuppressingtheyen,Idoubtthey’llallowittogettothislevel.

Indeed,intheshort‐term,theYenisclosetobreakingtheuptrendthathassustaineditsince2007:

IfthislineisbrokentheYenisgoingtoatleast100ifnot90inahurry.I’mmonitoringthissituationandwillhaveatradeforitwhenthishappens.Ihaveahandfulofnewinflationhedgestosharewithyou.Butneedjustalittlemoretimetoresearchthem.SoI’llbepostingasecondportionofthisissuetomorrowafterthemarket’sclose.Inthemeantime,pleasereviewtheintrothisissueagain.Thesignificanceofwhat’sgoingonCANNOTbeoverstated.ThisisthebeginningofTHEENDfortheUSDollar.Weneedtobepreparingaccordingly.Untiltomorrow…GoodInvesting!GrahamSummersPORTFOLIOREVIEWOPENPOSITIONSInflationPortfolio(OPENBUYSNOW)Company Symbol BuyDate BuyPrice Current

PriceGain/Loss

Goldbullion N/A 3/17/10 $1,120 $1,508.00 35%Silverbullion N/A 3/17/10 $17.50 $45.88 162%VistaGold VGZ 12/15/10 $2.55 $3.44 35%NovusEnergy NVS.V 12/15/10 $1.01 $1.12 11%CentaminMining CEE.TO 2/23/11 $1.95 $2.22 14%AndersonEnergy AXL.TO 2/23/11 $1.19 $1.07 ‐10%BullishOilETF UCO 4/7/11 $60.85 $61.02 0%ConocoPhillips COP 4/7/11 $80.40 $79.99 ‐1%PretiumResources PVG.TO 4/7/11 $10.00 $9.70 ‐3%

Average 27% S&P500 14%

Coming Crisis Portfolio (Bought at 11/16/10 at 11:46AM) Investment Symbol BuyDate Buy

PriceCurrentPrice

Gain/Loss

UltraShortBrazil BZQ 11/16/10 $17.74 $14.12 ‐20%UltraShortEmerg.Mkts EEV 11/16/10 $36.57 $27.88 ‐24%UltraShortRussell2000 TWM 11/16/10 $63.48 $41.84 ‐34%UltraShortRealEstate SRS 11/16/10 $20.94 $14.93 ‐29%UltraShortMaterials SMN 11/16/10 $25.49 $16.57 ‐35%UltraShortFinancials SKF 11/16/10 $74.68 $59.07 ‐21% RecentlySoldTimberWest TWF-UN.TO

2/23/11 $4.63 SOLD

4/11/11(10:10AM)

$6.57

42%