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Paradigm shift. The end of the petrodollar approaches, can America withstand the disruption?

The petrodollar system is being undermined by exponential growth in technology and shifting geopolitics.

Alex Christoforou

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In 1974, the United States agreed to purchase oil from Saudi Arabia, provide weapons, guarantee the preservation of Saudi oil wells, and provide unconditional cover for the brutal dictatorship.

In return, the Saudi Arabia agreed to invest the dollar proceeds of its oil sales in U.S. Treasuries, financing America’s appetite for spending, and fueling America’s hegemony, and 20 trillion dollar debt.

Via Zerohedge

Still, the underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions. From CultState:

So what is petrocurrency mercantilism?

It’s when a national bank and an energy producer collude to generate artificial demand for a currency at the expense of the purchasing power of other currencies.

The flowchart below shows how it all works.

The Coming Renaissance of Macro Investing: via Barrons

In the summer of 1974, Treasury Secretary William Simon traveled to Saudi Arabia and secretly struck a momentous deal with the kingdom. The U.S. agreed to purchase oil from Saudi Arabia, provide weapons, and in essence guarantee the preservation of Saudi oil wells, the monarchy, and the sovereignty of the kingdom. In return, the kingdom agreed to invest the dollar proceeds of its oil sales in U.S. Treasuries, basically financing America’s future federal expenditures.

Soon, other members of the Organization of Petroleum Exporting Countries followed suit, and the U.S. dollar became the standard by which oil was to be traded internationally. For Saudi Arabia, the deal made perfect sense, not only by protecting the regime but also by providing a safe, liquid market in which to invest its enormous oil-sale proceeds, known as petrodollars. The U.S. benefited, as well, by neutralizing oil as an economic weapon. The agreement enabled the U.S. to print dollars with little adverse effect on interest rates, thereby facilitating consistent U.S. economic growth over the subsequent decades.

An important consequence was that oil-importing nations would be required to hold large amounts of U.S. dollars in reserve in order to purchase oil, underpinning dollar demand. This essentially guaranteed a strong dollar and low U.S. interest rates for a generation.

Given this backdrop, one can better understand many subsequent U.S. foreign-policy moves involving the Middle East and other oil-producing regions.

Recent developments in technology and geopolitics, however, have already ignited a process to bring an end to the financial system predicated on petrodollars, which will have a profound impact on global financial markets. The 40-year equilibrium of this system is being dismantled by the exponential growth of technology, which will have a bearish impact on both supply and demand of petroleum. Moreover, the system no longer is in the best interest of key participants in the global oil trade. These developments have begun to exert influence on financial markets and will only grow over time. The upheaval of the petrodollar recycling system will trigger a resurgence of volatility and new price trends, which will lead to a renaissance in macro investing.

Let’s examine these developments in more detail. First, technology is affecting the energy markets dramatically, and this impact is growing exponentially. The pattern-seeking human mind is built for an observable linear universe, but has cognitive difficulty recognizing and understanding the impact of exponential growth.

Paralleling Moore’s Law, the current growth rate of new technologies roughly doubles every two years. In the transportation sector, the global penetration rate of electric vehicles, or EVs, was 1% at the end of 2016 and is now probably about 1.5%. However, a doubling every two years of this level of usage should lead to an automobile market that primarily consists of EVs in approximately 12 years, reducing gasoline demand and international oil revenue to a degree that today would seem unfathomable to the linear-thinking mind. Yes, the world is changing—rapidly.

Alternative energy sources (solar power, wind, and such) also are well into their exponential growth curves, and are even ahead of EVs in this regard. Based on growth curves of other recent technologies, and due to similar growth rates in battery technology and pricing, it is likely that solar power will supplant petroleum in a vast portion of nontransportation sectors in about a decade. Albert Einstein is rumored to have described compound interest (another form of exponential growth) as the most powerful force in the universe. This is real change.

The growth of U.S. oil production due to new technologies such as hydraulic fracturing and horizontal drilling has both reduced the U.S. need for foreign sources of oil and led to lower global oil prices. With the U.S. economy more self-reliant for its oil consumption, reduced purchases of foreign oil have led to a drop in the revenues of oil-producing nations and by extension, lower international demand for Treasuries and U.S. dollars.

ANOTHER MAJOR SECULAR CHANGE that is under way in the oil market comes from the geopolitical arena. China, now the world’s largest importer of oil, is no longer comfortable purchasing oil in a currency over which it has no control, and has taken the following steps that allow it to circumvent the use of the U.S. dollar:

– China has agreed with Russia to purchase Russian oil and natural gas in yuan.

– As an example of China’s newfound power to influence oil exporters, China has persuaded Angola (the world’s second-largest oil exporter to China) to accept the yuan as legal tender, evidence of efforts made by Beijing to speed up internationalization of the yuan. The incredible growth rates of the Chinese economy and its thirst for oil have endowed it with tremendous negotiating strength that has led, and will lead, other countries to cater to China’s needs at the expense of their historical client, the U.S.

– China is set to launch an oil exchange by the end of the year that is to be settled in yuan. Note that in conjunction with the existing Shanghai Gold Exchange, also denominated in yuan, any country will now be able to trade and hedge oil, circumventing U.S. dollar transactions, with the flexibility to take payment in yuan or gold, or exchange gold into any global currency.

– As China further forges relationships through its One Belt, One Road initiative, it will surely pull other exporters into its orbit to secure a reliable flow of supplies from multiple sources, while pressuring the terms of the trade to exclude the U.S. dollar.

The world’s second-largest oil exporter, Russia, is currently under sanctions imposed by the U.S. and European Union, and has made clear moves toward circumventing the dollar in oil and international trade. In addition to agreeing to sell oil and natural gas to China in exchange for yuan, Russia recently announced that all financial transactions conducted in Russian seaports will now be made in rubles, replacing dollars, according to Russian state news outlet RT. Clearly, there is a concerted effort from the East to reset the economic world order.

ALL OF THESE DEVELOPMENTS leave global financial markets vulnerable to a paradigm shift that has recently begun. In meetings with fund managers, asset allocators, and analysts, I have found a virtually universal view that macro investing—investing based on global macroeconomic and political, not security-specific trends—is dead, fueled by investor money exiting the space due to poor returns and historically high fees in relation to performance. This is what traders refer to as capitulation. It occurs when most market participants can’t take advantage of a promising opportunity due to losses, lack of dry powder, or a psychological inability to proceed because of recency bias.

A current generational low in volatility across a wide spectrum of asset classes is another indicator that the market doesn’t see a paradigm shift coming. This suggests that current volatility is expressing a full discounting of stale fundamental inputs and not adequately pricing in the potential of likely disruptive events.

THE FEDERAL RESERVE is now in the beginning stages of a shift toward “normalization,” which will lead to diminished support for the U.S. Treasury market. The Fed’s total assets stand at approximately $4.5 trillion, or five times what they were prior to the financial crisis of 2008-09. The goal of the Fed is to “unwind” this enormous balance sheet with minimal market disruption. This is a high-wire act a thousand feet in the air without a safety net or prior practice. Additionally, at some not-so-distant future date, the U.S. will need to finance enormous and growing entitlement programs, and our historical international sources for that financing will no longer be willing to support us in that endeavor.

The market participants with whom I met theoretically could have the ability to accept cognitively the points made in this article. But the accumulation of many small losses in a low-volatility and generally trendless market has robbed them of confidence and the psychological balance to embrace any new paradigm proactively. They are frozen with fear that the lower- return profile of recent years is permanent—ironic in an industry that is paid to capture price changes in a cyclical world.

One market legend with whom I spoke suggested he wouldn’t have had the success he enjoyed in his career had he begun in the past decade. Whether or not this might be true, it doesn’t mean that recent lower returns are to be extrapolated into the future, especially when these subpar returns occurred during the quantitative-easing era, a period that is an anomaly.

I have been fortunate to ride substantial bets on big trends, earning high risk-adjusted returns using time-tested techniques for exploiting these trends. Additionally, I have had the luxury of not participating actively full-time in macro investing during this difficult period. Both factors might give me perspective. I regard this as an extraordinarily opportune moment for those able to shed timeworn, archaic assumptions of market behavior and boldly return to the roots of macro investing.

The opportunity is reminiscent of the story told by Stanley Druckenmiller, who was promoted early in his investment career to head equity research at a time when his co-workers had vastly more experience than he did. His director of investments informed him that his promotion owed to the same reason they send 18-year-olds to war; they are too dumb to know not to charge. The “winners” under the paradigm now unfolding will be market participants able to disregard stale, anomalous concepts, and charge.

RELATEDLY, THERE IS a running debate as to whether trend-following is a dying strategy. There is plenty of anecdotal evidence that short-term and mean-reversion trading is more in vogue in today’s markets (think quant funds and “prop” shops). Additionally, the popularity of passive investing signals an unwillingness to invest in “idea generation,” or alpha. These developments represent a full capitulation of trend following and macro trading.

Ironically, many market players who wrongly anticipated a turn in recent years to a more positive environment for macro and trend-following are throwing in the towel. The key difference is that now there is a clear catalyst to trigger the start of the pendulum swinging back to a fertile macro/trend-following trading environment.

As my mentor, Bruce Kovner [the founder of Caxton Associates] used to say, “Nobody rings a bell at key turning points.” The ability to properly anticipate change is predicated upon detached analysis of fundamental information, applying that information to imagine a plausible world different from today’s, understanding how new data points fit (or don’t fit) into that world, and adjusting accordingly. Ideally, this process leads to an “aha!” moment, and the idea crystallizes into a clear vision. The thesis proposed here is one such vision.

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BBC producer admits Douma attack was false flag that nearly sparked Russia – U.S. hot war (Video)

The Duran – News in Review – Episode 176.

Alex Christoforou

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BBC producer Riam Dalati believes that the scenes caught on video from a hospital in Douma, Syria were staged, all in an effort driven by jihadist terrorists and White Helmet “activists” to draw the U.S. and its allies into full on confrontation with Syria, and by extension Russia.

The viral images caused a media firestorm in 2018, showing children allegedly suffering from chemicals, as main stream media channels, like the BBC itself, called for war with Assad.

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the BBC producer’s stunning admission, after a 6 month investigation, that reveals the “‘chemical attack” hospital scenes in Douma were completely staged.

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Via RT


Emotive scenes of Syrian civilians, among them crying, choking, half-naked children, dominated the airwaves in April last year after rebel-affiliated mouthpieces reported yet another “chemical attack by the Assad regime” in the town of Douma. Disturbing reports, including some from the controversial White Helmets, claimed scores of people had been killed and injured.

Mainstream media quickly picked up the horrific (but unverified) videos from a Douma hospital, where victims were treated after this “poison attack.” That hospital scene was enough to assemble a UN emergency session and prompt the US-led ‘coalition of the willing’ to rain down dozens of missiles on Damascus and other locations.

But Riam Dalati, a reputable BBC producer who has long reported from the Middle East, took the liberty of trying to sift through the fog of the Syrian war.

He believes Assad forces did attack the town, but that the much-publicized hospital scenes were staged.

After almost 6 months of investigations, I can prove without a doubt that the Douma Hospital scene was staged. No fatalities occurred in the hospital.

Anticipating further queries, he said no one from the White Helmets or opposition sources were present in Douma by the time the alleged attack had happened except for one person who was in Damascus.

Dalati also says that an attack “did happen” but that sarin, a weapons-grade nerve agent, was not used. He said, “we’ll have to wait for OPCW [Organization for the Prohibition of Chemical Weapons] to prove chlorine or otherwise.”

However, everything else around the attack was manufactured for maximum effect.

The journalist said Jaysh al-Islam, an Islamist faction that fought the Syrian army there, “ruled Douma with an iron fist. They co-opted activists, doctors and humanitarians with fear and intimidation.”

Dalati’s revelations could have become a bombshell news report, but instead it was met with a deafening media silence. His employer preferred to distance itself from his findings. The BBC told Sputnik in a statement that Dalati was expressing “his personal opinions about some of the video footage that emerged after the attack but has not claimed that the attack did not happen.” 

After a while, Dalati restricted access to his Twitter account which is now open only to confirmed followers.

Interestingly, his previous inputs did not sit well with the official narrative either. “Sick and tired of activists and rebels using corpses of dead children to stage emotive scenes for Western consumption. Then they wonder why some serious journos are questioning part of the narrative,” he said in a tweet which he later deleted over “the breach of editorial policy.”

In all, Dalati is not a lone voice in the wilderness. The Intercept has recently run a story that also cast doubt on the mainstream coverage of Douma, although it doesn’t doubt that the attack itself happened. While a veteran British reporter Robert Fisk suggested there was no gas attack at all, saying people there were suffering from oxygen starvation. Witnesses of the “chemical attack,” for their part, told international investigators the story was a set-up.

Moscow, which supports Damascus in its fight against terrorists, has long stated the Douma incident was staged, calling for an international OPCW inquiry. Last year, the Defense Ministry presented what it said was proof the “provocation” was to trigger Western airstrikes against Syrian government forces.

This time, the military recalled a similar 2017 incident in Khan Sheikhoun, where an alleged chemical attack took place. The ministry’s spokesman Igor Konashenkov said on Friday that a closer inspection of footage from that location clearly shows this was a set-up as well.

Now the Foreign Ministry has suggested Dalati is being silenced for voicing inconvenient views, with spokeswoman Maria Zakharova asking on Facebook: “A telling story. How about Western advocates of rights and freedoms? Had they accused BBC of censorship and pressuring the journalist?”

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President Trump schools liberals with National Emergency declaration

President Trump skillfully defeats Democrat naysayers, by increasing support for the border wall prior to declaring a National Emergency.

Seraphim Hanisch

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President Trump signed a continuing resolution to keep the US government fully running through the rest of the 2019 fiscal year. The CR contained a $1.374 bn allocation for US border security, and that money includes and pays for the completion of some fifty-five miles of border fence (or wall, or barrier, or “not-a-wall” depending on one’s preferential phrasing.) He also declared a National Emergency, theoretically freeing at least another $8 bn for the continued construction of the border wall.

Yes, it is a wall. And, yes, it is being built right now. And yes, it will be completed. The President of the United States has made this abundantly clear.

Some news reporters talk about this matter still as though there is in fact no wall now, and that there is no construction in progress on any wall. To that we can say, please watch this:

This section of the wall is going up near Santa Teresa, New Mexico. It augments a very well-designed 18 foot wall stretching from west of Santa Teresa, NM to Tornillo, Texas. If someone wants to cross the border without having to negotiate this barrier they have to go very far off the beaten path to do it. President Trump wants to make it even more difficult; in fact, he wants to have the barrier run the entire length of the US-Mexico border.

This second video says a bit more about the situation:

His campaign to get this has been brilliant in terms of getting the American people informed that there is a problem. How did he do this with a press that hates him?

Easy. He made an issue out of it, knowing that the news media has no choice but to cover the President’s every antic, and in so doing, while seeking fodder for criticism, they actually ended up reporting on the actual problem.

This has been an interesting flow of events:

  • Mainstream news slamming the President’s every statement about the need for a wall
  • The fury of Democrat leaders Nancy Pelosi and Charles “Chuck” Schumer in their 100% opposition – their own temper tantrum whilst blaming that tantrum on Trump, who actually acted more like a strict parent than a bratty teenager
  • The very public presentations of Border Patrol experts that Trump arranged, the purpose being to listen to their own expert assessment of the actual needs at the border

This last issue marks a need for even the conservative press to have a wake-up call. Daniel Horowitz wrote a piece in The Conservative Review excoriating President Trump’s signing of this present deal as a “sell out”, noting that:

Trump originally demanded $25 billion for the wall. Then he negotiated himself down to $5.6 billion. Democrats balked and only agreed to $1.6 billion. This bill calls it a day at $1.375 billion, enough to construct 55 miles. But it’s worse than that. This bill limits the president’s ability to construct “barriers” to just the Rio Grande Valley sector and only bollard fencing, not concrete walls of any kind.

Daniel’s point is great for rhetoric because, of course, the President originally did promise a big beautiful concrete wall running the entire length of the border.

However, he missed the point about using bollard-style walls that can be seen through – the Border Patrol agents themselves said this kind of wall is to their advantage. A solid wall prevents natural visibility and the agents were getting rocks thrown at them from people they could not see on the other side. A see-through capability means that people approaching the wall on the other side can be seen and tracked.

This marks an example of conservative ideology being too strongly fixed, just as the liberals’ ideology is fixed at the level of a four-year old child refusing to let someone else play with his toys.

They both do not understand that President Trump is not concerned with ideology. He is concerned with useful results, which he got in this deal.

Now about that National Emergency. Is this really the constitutional crisis Trump’s detractors say it is?

Probably not.

It has been widely reported that the US is currently running under some 31 other national emergencies, and that the one President Trump declared makes it number 32. The rhetoric from the news media and Democrats is centered around the idea that no President has ever used this power to get money that only the Congress can allot.

We also probably already know that this is an irrelevant point – the President is in charge of the national security of the nation, and he can and must do what he can to ensure it. The huge numbers of illegal crossings, nearly half a million in 2018 were largely apprehended and released into the United States, rather than deported. Half a million is far less than the 1.6 million that came through in 2000, but it is also not zero. Half a million is the size of the city of Atlanta, Georgia.

The distractors in the Democrat party and media do not want anyone comprehending this fact, so they try to divert and dissuade. But President Trump has not let any of this get past him. In a media event, the President had parents and relatives of people who were murdered by illegal aliens in a direct face-off with none other than CNN’s provocateur-in-chief Jim Acosta, and the reporter was forced to listen to what these family members had to say about their convictions that the president was correct in his:

Trump pointed to angel moms in attendance, asking them for their thoughts.

“You think I’m creating something? Ask these incredible women who lost their daughters and their sons,” Trump said. “OK, Because your question is a very political question because you have an agenda. You’re CNN. You’re fake news.”

Trump told Acosta the statistics he provided were “wrong” and told him to take a look at the federal prison population for proof.

“See how many of them,percentage-wise, are illegal aliens,” Trump said. “Just see, go ahead and see. It’s a fake question.”

Acosta was subsequently confronted by the angel moms in attendance, after the press conference. As angel moms confronted the CNN reporter, he invited them to appear on the network in the background of a live shot.

“There is no attempt whatsoever to diminish what they’ve gone through, or take away what they’ve gone through, but as you heard in that question that I had with the president … it was really about the facts and the data,” Acosta said on CNN following his exchange with Trump. “Some of these folks came up to me right after this press conference … they’re holding up these pictures of loved ones who lost their lives.”

An angel mom then discussed that a previously deported illegal alien murdered her son.

“President Trump is completely correct on this issue, we need to protect this country,” the angel mom told Acosta.

Acosta actually was a victim of his own passions when he went to the border to a place where the bollard wall presently stands and reported that nothing was happening there. It seemed that he was expecting that there were supposed to be angry mobs on the other side trying to get through. However, no one was there, because it is rather pointless to try to get over this wall at this place. Even liberals were forced to acknowledge Mr. Acosta’s strategic miscalculation.

The new national emergency is about getting results. If we were concerned only with smooth and impressive politics, we could only remark on the President’s success in maneuvering the Democrats (not all of them were slavishly going with the Pelosi-Schumer stance) and his ability to do what he does best – getting his message to the American people, and giving them information with which to decide what they want.

This campaign is not over, but this particular battle appears to have been won with a lot of hard work.

Slowly, oh, so slowly, it would seem that the forces of common sense are making some headway in America.

 

 

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“This is America” reveals a shocking vision of the United States

The Grammy Award winning Song and Record of the Year feature the very darkest vision of what America has become.

Seraphim Hanisch

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The Grammy Awards are the second of the three most significant musical achievement awards in the United States. Two of the anticipated awards that many fans of this event look forward to learning are the Song of the Year and the Record of the Year.

The Song of the Year is awarded to the songwriters of a given song, where the Record of the Year goes to the artists, producers and engineers involved in crafting the recording (the “record”) of a song. Both categories are huge and both usually go to an artist or organization responsible for a pop song.

It also happens to be that usually the song that is picked is beautiful and in most cases, reflects the character of beauty (whether in music or lyrics or both) for that year.

This year was quite different. Both awards went to Donald Glover, a.k.a. “Childish Gambino” for his song This is America.

This song features a radically different tone than previous winners going back for many years. Though rap remixes are usually less musical, the Grammy winners among these mixes have nevertheless retained some relatively positive, or at least attractive, aspect.

This is America is very different, especially when watched with its video.

Musically, it is genius, though the genius appears to have gone mad. Glover paints a picture of some very positive segments in American life, but then destroys it with his audible form and message that says absolutely nothing positive, but even more so – it doesn’t make sense unless one knows the context.

That context is revealed in the video with frightening images: someone getting their brains blown out (we see the blood fly), a gospel choir shot up with an automatic rifle while they were singing, and cannabis, front and center, being smoked by the artist himself.

This is America?

For Glover, this song and others on his album do seem to reflect that point of view.  Feels like Summer, one of Glover’s other recent songs, also reflects this sense of hopelessness, though it is far more musically consistent. The video gives the most clear contextual information that one could ask for, and while the video is not violent, it features degradation in society, even though the people depicted appear to be trying to make the best of their life situations.

The image Mr. Glover paints of America is a far cry from that which was known to most Americans only twenty years ago, and in fact, in many parts of the country where cannabis is still illegal there is a corresponding sense of positivity in life that is absent in Childish Gambino’s California-esque view of life.

There is a massive change that is taking place in American society. Our music and art reflects this change, and it sometimes even helps drive that change.

The United States of today is at a crossroads.

How many times have we read or heard THAT statement before?  But does it not seem so now? The attempt of identity politics to separate our nation into groups that must somehow fight for their own relevance against other groups is not the vision of the United States only twenty years ago.

Further, the normalization of themes such as drug-use and racism, the perpetuation of one in reality and the other as a mythological representation of how life “really is” in the US is radically bizarre.

In discussions with people who do not live in the United States, we found that sometimes they believed that white-on-black racism really was happening in America, because the media in the US pumps this information out in a constant stream, often with people like Donald Trump as the scapegoat.

But it is not true. Anyone in America’s new “accused class” of white, Christian, European-descent males (and some women who are not feminists), will note that they are not racist, and in fact, they feel persecuted for their existence under the new mantra of “white privilege.”

But it does not matter what they say. The media pumps the message it wants to, and with such coverage it is easy to get to halfway believing it: I know I am not this way, but I guess things are getting pretty bad elsewhere because all of those people seem to be getting this way…

This is the narrative the press promulgates, but upon conversations with people in “those places” we find that it is not true for them, either, and that they may in fact be thinking this is true about us.

Made in America is a visionary song and video. However, the vision is not a dream; it is nothing that anyone in the country would sincerely hope for. Even in Donald Glover’s case – as one of Hollywood’s hottest actors, and as a big success in music, he is far from being one of the “boys in the ‘hood.” In fact, Time Magazine in 2017 named him one of the world’s 100 most influential people.

Certainly his musical work creates a powerful influence, but it also must raise questions, with the main ones being:

  • Are we really like this?
  • Is this what we really want to be as a country?
  • Is this the kind of image we want our children in the US to adopt?

In fact, if Mr. Glover’s work was viewed with care (rather than just as something that is “cool” because the media says it is), it might help us steer away from the cliff that many Americans are in fact heading towards.

We have elected not to link to the video because it is too disturbing for children. It is even too disturbing for many adults. For that reason we are not making it one-click-easy to get to.

Parents reading this opinion piece would do well to screen the video by themselves without the kids around first, before deciding what they want to do. Even though the video is probably something that they have already seen, the parents still stand as the guides and guardians for their children through all the perils of growing up.

These times call for great guardians indeed.

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