Currency Convulsions

55
Wed, May 18, 2022 - 11:08am

It's just another day in the barrel for Comex precious metals so let's a couple of other items that have crossed my screen this morning.

First of all, welcome to Wednesday...in all its glory. The POSX is up while bonds catch a safe haven bid as the S&P is down 70 points. Yeehaw. And the PMs?....

Let's start with this. As you know, that whole Terra/Luna shitcoin "ecosystem" collapsed last week...as all ponzis eventually do. Many have wondered if this would/will extend to other so-called "stablecoins", most notably Tether. But you're probably like me...too old and cynical to have taken time to grasp and understand this stuff. And that's fine.

But now, these schemes are threatening to become a systemic risk. Already, more than $1T in combined crypto market cap has been vaporized and what happens if this is just the start?

To that end, I urge you to read this column by Ben Hunt today. It's less than a ten minute read and it may seem a bit thick from time to time. However, it will help you to understand why I used the word "ponzi" a few paragraphs earlier. Again, this does not mean that all crypto is useless or doomed but if the pyramids described in this article begin to implode, the impacts will not be limited to just each individual "ecosystem".

OK. Now let's talk about currencies. As you know, the POSX is soaring and this creates a massive problem for everyone else, particularly emerging market countries which have issued primarily dollar-denominated sovereign debt. The spiral of demand for dollars at a time when The Fed is trying to reduce the supply of dollars is at the root of all this. It's what my friend Brent Johnson has described for years as his "Dollar Milkshake" theory.

And it's not just emerging markets that are feeling the pain. Check the charts below of the euro, the yen, the Swiss franc and the pound versus $US.

So I think you can see where this is all getting pretty messy, with no end in sight...or is there?

To my surprise, check these two items that ended up in my Twitter stream this morning. In order to connect the dots, I combined them into one.

As I understand it, the situation present day is not entirely similar to 1985 in a macro sense. OK, fine. But it's pretty close is terms of currency crosses and collateral damage. So, maybe there's no official "Plaza Accords II" pending but what if the global CBs all agree to "intervene" to support their currency? What would this look like? And what would be the impact on POSX?

Just two items that we normally don't discuss on a Wednesday but definitely some things that need to be on your radar in the weeks ahead.

Back to today...

Stonks are down bigly after meeting stout resistance near S&P 4100 which, of course, had previously been support. It's going to take a sharp breakdown to begin the move toward Powell Pivot II so we might as well root for it and get it over with. The key level to watch going forward will be those intraday lows below 3900 from a week ago today.

All of the commodities just stink on ice...again.

And just to show you again how it's not just the precious metals which have had their pricing scheme bastardized through the financialization of the Bank Vipers, check wheat. As you'll recall, India announced last weekend a full ban on wheat exports: https://www.cnn.com/2022/05/14/business/india-wheat-export-banned/index....

But where is price? It's up from last Friday but now it's simply being beaten back lower by short-selling Spec machines. Fundamentals don't matter. It's simply a dot on a screen to be chased and impacted by the POSX.

Alright, it's suddenly 11:00 ET so I'd better just wrap this up and get it posted. A quick check of Twitter yields nothing new of import so let's call it a morning. Please be sure to check back later though for your full daily rant podcast.

TF

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Key Economic Events Week of 6/27

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6/29 11:30 ET Goon Mester
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6/30 8:30 ET PCE and Core PCE
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7/1 10:00 ET ISM Manu PMI

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