“We had a dollar standard instead.”
-Jim Rickards
Got Reagan and Clinton? Republicans and Democrats? #StrongDollar, Strong America?
That’s what all Americans (not just the 1% of us “making money” on Wall St.) had in the 1980s and 1990s. That’s what allowed their purchasing power to manifest into everything that was not US Dollar Devaluation by the Federal Reserve. That was awesome.
Now?
Every time the GDP cycle slows (and profit growth slows in conjunction with that), what do both Republicans and Democrats (Bush and Obama Administrations) beg for? Same thing Nixon and Carter did => Down Dollar, Bailouts, Inflations/Reflations, etc.
That’s not an American Standard anyone in this profession should be proud of. That’s the “Inequality” standard. And until a legitimate leader figures this out, we’re heading down history’s littered path of failed monetary policies.
Back to the Global Macro Grind…
Are the US Dollars in your savings accounts considered money? How about the Gold in your safes? Of course they are. And, unless you want to try to build your wealth in failed currencies, it’s critical to understand when there are buying opportunities in both.
Since what elected US Presidents should do … and what their un-elected Federal Reserve Chair people will do … are currently two very different things, I struggle getting completely amped up about buying more Gold at any time and price.
There is no question that a return to a sustainable #StrongDollar would be one of the major headwinds for Gold breaking out above $1300/oz again. At the same time, there are many more questions as to what Presidential candidate actually wants a strong USD!
As Rickards reminds us in his latest book, The New Case For Gold, “for 30 years, from 1980 to 2010, the world did not have a Gold Standard. We had a dollar standard instead. Now we have no standard and no anchors whatsoever…” (pg 43)
That’s why, at a price this year, I have no problem buying:
- Gold
- US Dollars
- Or Japanese Yens
You have to be completely catalyst and levels driven to risk manage all 3 of these major global currencies. Since Gold has no chairman of central planning, it’s a race between Janet going “dovish” (again) and sane people not believing the Bank of Japan.
A) If you don’t believe the BOJ (Bank of Japan), you’re covering shorts and buying Yens as the #BeliefSystem breaks down
B) If you believe Yellen, you’re hoping that the #BeliefSystem doesn’t break down in the US (as it has in Japan and Europe)
Fun, eh?
Perversely, if the #BeliefSystem starts to break down here in the USA, Gold is going to be an intermediate-term loser in that. Those who are begging Yellen to devalue will have to cover US Dollar shorts and sell both their Oil and Gold futures contracts.
Currently, from a CFTC Futures & Options positioning perspective, USD vs. Oil and Gold is as stretched as it has been all year:
- US DOLLAR: net LONG position is all the way back down to +13,314 contracts (vs. a 1YR avg of +43,586)
- OIL: latest net LONG position has ramped back up to +397,838 contracts (vs. a 1YR avg of +297,315)
- GOLD: net LONG position is huge right now at +188,030 contracts (vs. a 1YR avg of +51,173)
Another way to think about this is the standard deviation of the NET position relative to itself, across durations. On the 1YR duration, we measure this weekly using a z-score:
- US DOLLAR 1YR z-score is currently -2.08x
- OIL’s 1YR z-score is currently +1.80x
- GOLD’s 1YR z-score is currently +2.26x
Anytime anything big in macro is positioned +/- 2.0x standard deviations, it’s generally a good time to start thinking about fading (doing the opposite) of what that macro position has done in the last 3 months.
Getting the next big move in USD => Oil => Gold? That’s my struggle right now.
I bet that it will be your struggle too. And, sadly, if an un-elected Fed is allowed to devalue the Dollar into the US election… rising gas, rent, and food prices will most definitely be the struggle for both the American People and their economy.
You see, inasmuch as Down Dollar asset “reflation” is a windfall for us “rich people”, it’s a passive aggressive consumption tax on the rest of the country (who these politicians patronize as “folks”).
Maybe one of these big time “for The People” candidates should figure this out. For people with non-partisan standards, it’s not that complicated. How the real US consumption economy doesn’t keep slowing with growth slowing and inflation accelerating is.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.70-1.92%
SPX 2058-2106
USD 94.01-95.45
YEN 107.98-111.80
Oil (WTI) 40.34-44.39
Gold 1220--1260
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
