Saudis-Syria & Reserve Status of the Dollar
QUESTION: Your insight into the Saudi’s supplying the chemical weapons and arms to the Syrian Rebels long before anyone even had a hint of that was astonishing. I recently met someone in London who worked at your City Office. He said even Margaret Thatcher would ask you what was really going on in Russia. He said no one was as connected as you were. It seems that is still true today. With the Saudi rejection of a seat on the US security council protesting the refusal to invade Syria, is the reserve status of the dollar in jeopardy?
Thanks;
BCJ
ANSWER: It has always been the Invisible Hand at work. Clients around the world want the REAL story. They way to get that is they share what they know. Hence, it is a two-way street. To make business and investment decisions, you need the REAL story that requires REAL sources. Attending our conferences you meet a good cross-section of people from around the world. People from central banks, investment houses, important families, corporates, and individuals come together. They have always been like mini-UNs.
Yes, sometimes our sources were better than the various inteilegence services because there was a self-interest involved. Russia was building a secret underground facility in the early 1990s that could not be seen by satellite – today Google Maps. Maggie asked me what was really being built back then. I am sure the info was sought as a confirming tool.
Nonetheless, this entire Syrian play is not about Rebels and an oppressive dictator. It was about competing with Russia and getting a pipeline through Syria. That is the real story and Obama could care less if the Rebels carved off the heads of a 1,000 Christians with a dull knife. This was all about energy and Saudi Arabia was the source of the conflict. I disagree with them totally and doubt that they will be able to control the Rebels once the Syrian government falls. This will turn Syria into a crazy state that is out of control politically and morally. ALL of this just to get gas to Europe.
The stability of the U.S. dollar reserve status does not depend on Saudi Arabia pricing oil in dollars. Saudi Arabia in turn has a strong interest in the stability of the dollar despite what they may hint at otherwise. The reserve status of the dollar will change based upon what currency they price their oil in these days. The Japanese beat the German auto industry by pricing their product in local currency and taking the foreign exchange risk home. The German kept pricing their cars in Deustche market and as the dollar declined, German cars rose in price rapidly reducing their market share handing it to the Japanese. The Saudi’s could believe their own threats that pricing oil in something other tha dollars will topple the world. It will only lose market share for them as well.
No doubt, the accumulative process changing the world reserve currency is created from many sources. Eventually, this will be one aspect. It takes far more to turn the tide in the eternal sea of politics to change the direction of the world economy. These are the subtle things that unfold that will eventually lead to a new world monetary system. It does not matter if the Saudis price oil in rubles. How do you park serious money in anything but dollars? When the economy turns down, the pressure will build.e U.S. dollar reserves but this is by no means because the U.S. dollar is used as the sole currency of oil trade.
What About Gold – Hoarding – & the Reserve Dollar Status
The Debt Ceiling Crisis has done far more damage than anyone suspects. It has drawn attention to the Sovereign Debt Crisis by highlighting the national debt and then the “Conservatives” are targeting the Republicans who voted to end the shutdown. While it may be admirable that someone is trying to address the debt crisis, shutting down the government is by no means the way to do this,
Then there is China where papers are calling for the de-Americanization of the World. That is far easier said than done when the USA is the largest consumer market and the national debt is the means of parking big money for institutions and governments alike. This is not an issue of the dollar alone. This is an issue whereby the entire world economy needs to be revised in a non-political manner – harder to accomplish than identify. Until that takes place, the US dollar cannot be replaced as the reserve currency. The Euro is a basket case and Russia and China would be equally as bad even if they had the mass to replace the dollar. Then there are countless third-world countries who issued their debt in dollars. True, China accounts for more than 40% of the demand for base metals, Big deal. China will surpass India for gold consumption only because India is out to stop gold purchases. China will soon be the largest oil importer but the USA is surpassing Russia in energy production. So the Sovereign Debt Crisis will cause major economic change, but it will not be so easy.
Gold clearly could be confiscated in this hunt for assets. You certainly do not want to have gold allocated in a bank. Banks will hand-over whatever the government demands faster than Microsoft, Google, and Facebook did with the NSA. Gold should rise in value and we will be providing the 2014 outlook in January where we will give the targets for the low in time and price.
The hunt for money is causing capital to hoard among small investors. It is small business that provides about 70% of all employment. The governments are attacking the very engine the holds society together. True, assets will rise, but this is the shift from public to private that is manifesting primarily among institutions. The number of inquires at this level are increasing dramatically in our firm reflecting this very distinction. Pension funds have no choice but to abandon government debt seeking higher yields. Then there is the smart money among individuals who realize they cannot store gold in banks nor cash and the only place to park is equities. This is not even about trading. It is about hoarding capital – looking for a safe parking spot.
The finds of Roman coins from the 3rd century, even though they were debased, are extensive. This demonstrates that there was no safe place to store money for they buried money that was depreciating in purchasing power. Better to have something than nothing.
The years ahead are not going to be easy. We will have the Global Market Watch up by November 1st and we will be informing clients about weekly reports with the turning points, enhanced volatility indicators, and reversals.