For the past few years the “strong dollar” has been so central to the global financial story – enabling ever-lower interest rates and ever-higher financial asset prices pretty much everywhere – that it’s easy to forget how illusory “strength” is for fiat currencies. 

Since mid-2017 that illusion has been evaporating, as the dollar falls (both against other fiat currencies and assets like oil, bitcoin, tech stocks and gold) and interest rates rise. 

And this week the US seemed to welcome these trends. 

Mnuchin comment surprises financial markets, turns dollar decline into ‘one-way bet’

(CNBC) – The dollar, already on a spiral lower, sank to a three-year low after Treasury Secretary Steven Mnuchin said a weaker dollar was good for U.S. trade.

The comments depart from the strong dollar policy of Treasury secretaries before him, going back to Robert Rubin in the Clinton administration, but fit with the Trump administration’s “America first” message.

The weak dollar policy could backfire and make U.S. assets like Treasurys less appealing, and drive up the costs of foreign goods for businesses and everyday Americans.

“They basically open this up as a one-way bet for traders, and traders will keep pushing it and keep pushing it,” said one strategist.

Mnuchin’s comments echo statements by President Donald Trump, who famously helped turn a market trend of a stronger dollar last January when he said, prior to his inauguration, that the dollar was “too strong” and that U.S. companies can’t compete because of it, particularly against the Chinese. The dollar index has lost more than 10 percent since then, and after Mnuchin’s comment Wednesday morning, it sank to a new three-year low.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos, according to Bloomberg, adding that the currency’s short-term value is “not a concern of ours at all.”

Whether a weak dollar policy was the intended message or not, the fact that Mnuchin made the comments at a briefing at the World Economic Forum’s annual meeting in Davos, Switzerland, was not lost on the market. The forum is viewed as the bastion of globalization and free trade, while Trump officials have been or are expected to reaffirm the administration’s America first policies, seen as protectionist by some.

The dollar was already set on a downward course this year, and Mnuchin’s comments help cement that path. The euro rose to 1.23 per dollar, and yen gained about 0.8 percent Wednesday against the greenback.

Treasury Department data show that China and Japan, the two largest holders of U.S. Treasurys, reduced their holdings in November as the dollar weakened. Last month, the International Monetary Fund reported the dollar’s share of global currency reserves fell in the third quarter to 63.5 percent, its smallest since mid-2014.

What are the downsides of a weak global reserve currency? Bond market carnage for one: 

Ray Dalio Says Bond Bear Market Has Begun, Expects Historic Crash

(Zero Hedge) – Joining the likes of Bill Gross and Jeffrey Gundlach, and echoing his ominous crash warning to the NY Fed from October 2016, Bridgewater’s billionaire founder and CEO Ray Dalio told Bloomberg TV that the bond market has “slipped into a bear phase” and warned that a rise in yields could spark the biggest crisis for fixed-income investors in almost 40 years.

“A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,” Bridgewater Associates founder Dalio said in a Bloomberg TV interview in Davos on Wednesday. We’re in a bear market, he said.

However, as we explained last December, this is a low-ball estimate which “understates the potential losses” as it “does not include high-yield bonds, fixed-rate mortgages, and fixed-income derivatives”, which would suggest that the real number is likely more than double the estimated when taking into account all duration products. As a reminder, Goldman calculated the entire duration universe at $40 trillion as of the summer of 2016, resulting in $2.4 trillion in losses for a 1% move. 

By now the number is far, far greater.

Gold, of course, loves this kind of thing:

Gold hits 4-month peak after US welcomes weaker dollar

(CNBC) – Gold prices hit the highest in more than four months on Wednesday after a U.S. official welcomed a weaker dollar and investors sought insurance against uncertainty.

The dollar index touched fresh three-year lows after U.S. Treasury Secretary Steven Mnuchin said a softer dollar was good for the United States. A decline in the dollar makes commodities priced in the greenback cheaper for buyers using other currencies.

Spot gold was up 0.95 percent at $1,353.80 per ounce at 12:02 p.m. EST, while U.S. gold futures for February delivery climbed 1.23 percent to $1,353.20 per ounce.

“It’s the weaker dollar, it’s the inflation focus and it’s also to some extent the market is continuing to look for a hedge against a world that’s becoming incredibly complacent with stocks at record highs,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. “We’re honing in on the 2017 high around $1,357, which is going to be the next big level.”

“Global investors are also concerned about potential trade wars… which is stirring up some risk-aversion trade, so that, in turn, is supporting gold,” said Richard Xu, a fund manager at China’s biggest gold exchange-traded fund, HuaAn Gold. “I think gold prices will continue to trend higher along with other commodities, so $1,400 (an ounce) is our near-term target.”

In other precious metals, silver gained 2.14 percent to $17.41 per ounce after touching a 3-1/2-week low of $16.73 in the previous session.

For greed all nature is too little.

Seneca

Whenever the masses fully embrace a market, trouble is usually close at hand, and that’s what occurred with bitcoin; the masses were completely enamoured with Bitcoin. The masses were euphoric and were expecting bitcoin to soar to the next galaxy. Wild targets of $100,000 were being issued that sounded more like the ravings of a lunatic than of an expert. In an article published on the 4^th of December 2017 we made the following comments:

Bitcoin, on the other hand, is now in the feeding frenzy stage, so this market is ripe for a correction. Tactical Investor

The problem with Bitcoin is that it’s not the only cryptocurrency; every Tom, Dick and Harry can issue a cryptocurrency, and to date, that is is what is occurring as we speak. There are so many cryptocurrencies out there that it in our opinion the better way to score a home run would be to issue your own cryptocurrency.

What caught our attention was that the masses were jumping up in joy and embracing bitcoin, but for over nine years they refused to embrace the equities bull market. Mass psychology states that when the masses are euphoric (not to be confused with bullish); the outlook is going to take a turn for the worse. And more or less that’s what transpired with bitcoin.

Clear Psychological signals that all was not well

1. Long Island Ice tea; a company that has nothing to with the Bitcoin market decided to change its name to Long Block Chain Corp. Mind you the name change had not taken effect yet, but the effect on the stock price was immediate; it tacked on almost 200%.

The CEO of Long Island Ice tea had this to say about the upcoming name change:

“We view advances in blockchain technology as a once-in-a-generation opportunity, and have made the decision to pivot our business strategy in order to pursue opportunities in this evolving industry,”

What a load of rubbish as no one in the company has a clue as to how blockchain operates. It’s interesting to note that other than the intended name change, this company has no viable block chain product (as of the date of the above announcement). It just thinks it would be a good idea to get into this market. The company makes beverages for crying out loud. Before the name change, its stock was down roughly 40% for the year. It is a tiny company with sales of just $1.6 million, and viola all it had to do was change its name, and its stock surged.

2. Riot Block Chain was known as Bioptyx, and its price soared after it changed its name. LongFin (LFIN), a financial company saw its price skyrocket after it announced it would be buying a blockchain microlender. And most recently Kodak decided to take a similar route, and its stock price jumped.

At this rate, even companies that specialise in garbage might decide that it’s a good time to add the words blockchain to their names. Hey, why not right? It’s like share buybacks on steroids; here you don’t even need to borrow money to buy back your shares, just change your name and voila, your stock soars in value.

3. The creator of Litecoin Charlie Lee sold his entire stake before bitcoin crashed; he claims it was due to conflict of interest. Strange he waited till now to sell it. Maybe it took a few hundred million for him to figure out that there was a conflict of interest issue? http://bit.ly/2leWumd

4. People were taking out mortgages or cash advances on their credit cards to invest in Bitcoin. Taking money you don’t have to buy something you can’t afford in the hopes you score a home run; what could go wrong with such a brilliant plan?

The last Psychological Straw?

When two experts, James Altucher and John MacAfee stated that bitcoin was destined to soar to $1 million, it was almost a given that the outlook would change for the worse. We sent out the following warning to our subscribers:

Bitcoin is now in a full-blown mania stage; people are taking mortgages to speculate on bitcoin. Insane price targets of $1 million are being tossed into the air, and the masses are lapping it. That is how the market works, it gives and gives but then it strikes and takes everything back ten times faster. Market Update Dec 17, 2017

Bitcoin futures; the perfect vehicle to manipulate Bitcoin

Bitcoin futures provides a great venue for the big sharks to swallow up the silly sardines hoping to strike it rich. The big players can now manipulate the bitcoin market via the futures market. They can use Fiat money (worthless paper) to push it up or down, much the same way they did and are still doing with the precious metals markets. Which illustrates the lie behind the “Bitcoin is different nonsense”; Bitcoin is nothing but digital fiat; in some ways, its worse as anyone can issue their own cryptocurrency.

So what’s the outlook for Bitcoin?

Courtesy of https://finance.yahoo.com

If you look at the above chart, it puts into perspective how fast the situation went from excellent to unpleasant/painful. While the crowd is anxious, they are still not in panic mode. The bloodletting will continue until the trend of lower highs that started after Dec 14, 2017, comes to an end. On the conservative side, we think Bitcoin could drop down to the 8,800-9,200 ranges, but this market is far from your typical market, and there is a good chance that Bitcoin could drop down to the $5000-$5600 ranges before the dust settles. The masses are notorious for selling at or close to the bottom, so while $5000 might appear implausible now, just remember that panic has a way of distorting reality. When a person panics, they forget what they are doing, their objective is to get out of the game as fast as possible regardless of the cost.

Bitcoin will trend upwards again, but the trending upwards does not mean it has to surge to new highs. A bottom will be close at hand when experts stop issuing lofty targets and turn on this market. Compared to the wild bubble like action the bitcoin/blockchain sector has experienced, the equities markets appear almost timid. One could argue that if these markets follow a similar path, then the Dow and SPX could trade a lot higher before experiencing a strong correction. And that lofty targets of Dow 30K might not be that lofty after all. We will discuss this in a follow-up article, which we hope to publish with the next 1-2 day.

For those who want to play the bitcoin market, a somewhat safer alternative would be via Bitcoin Investment Trust (GBTC). Its quite liquid and you can jump in and out with the click of a mouse. Consider waiting until the sentiment turns decidedly negative or bitcoin is trading at least in the $8000 ranges before deploying some of your funds and don’t bet the house on this market.

On a final note, the outlook for Gold right now is far brighter than that for Bitcoin.

Ability will never catch up with the demand for it.

Malcolm S. Forbes

Through the first three weeks of 2018, one of the key stories has been the falling US dollar. Expect this trend to continue and even accelerate as we go through the year. 

After peaking with a false breakout near 104 in early 2017, the US dollar (as measured by the Dollar Index) has continued to plummet in 2018. As I type, the index is near 90 and already down over 2% year-to-date. Dollar weakness has traditionally been positive for commodity prices, and the evidence of this can be seen below. 

First, check the clear and obvious top in the Dollar Index. Note the breakdown through 92, and the most recent drop through the 2017 lows near 91. 

In a reaction to this, note the clear bottoms and breakouts in the two most important global commodities, copper and crude oil: 

You can also see this early-stage commodity rally in the broad-based CRB Index. Note the recent threat to move above the 200 level for the first time since mid-2015: 

So far, nearly the only “commodity” unaffected by the falling dollar is silver. This is no surprise, as the silver “market” is easily the most manipulated in the world. As you can see below, in this chart from Nick Laird at GoldChartsRUs, the monopolistic concentration of positions held by a small handful of Bullion Banks stands in stark contrast to other markets such as crude and copper: 

But this collusive manipulation does not mean silver can never rally in price. Recall the price action of 2010-2011 and consider the possibilities for 2018, as the dollar continues to fall and global interest in the sector gradually returns. Could silver be on the verge of breaking out and playing “catch up” with crude, copper and the rest? 

The most recent CoT structure suggests there’s certainly some room to run before The Banks would attempt to halt the advance. Note that the current structure is nowhere near the bearish extremes seen at the price tops of 2016 and 2017: 

Date: 1/16/18 Price: $17.19 LS NET LONG: 37,200 COMM NET SHORT: 50,100 

At the price peak of April 2017: 

Date: 4/11/17 Price $18.50 LS NET LONG: 105,500 COMM NET SHORT: 114,400 

And at the price peak of August 2016: 

Date: 8/2/16 Price $20.50 LS NET LONG: 93,400 COMM NET SHORT: 109,100 

So perhaps we are on the verge of a decent rally in silver that could take the price 30% higher and up, toward the breakout level of $22. The dollar weakness suggests it. Other commodities suggest it. The CoT structure suggests it. But will The Banks allow it?

Only time will tell, I suppose. But the ongoing trend of US dollar weakness certainly supports the notion of higher silver prices in 2018. 

https://www.sprottmoney.com/

Martin Armstrong argues strenuously its “nonsense” that Crypto Currencies are free of government. Governments simply will will not allow that to happen. Safety? If the electric grid goes down you’ve got NOTHING he says. The global power requirements for Crypto Currencies are massive as this article points out: The electricity used to mine bitcoin this year is bigger than the annual usage of 159 countries- Money Talks ED.  

QUESTION: You have talked about bitcoin and are rightly skeptical as we all should be, yet creative destruction rolls on. What insights do you have to share about the Dapps and Ethereum? In reading your blog for several years now you have truly opened many peoples minds. Thank you for your insight!

Chart from Clive Maund

Bob Moriarty, founder of 321gold, has been adamant about Bitcoin and cryptocurrencies being the biggest bubble we’ve ever seen. He has been incredibly accurate in our recent conversations, calling Bitcoin a bubble that had burst in our last conversation on December 22nd, even offering a prescient quote “the bubble has popped but most people don’t know it yet.”

He hasn’t become any more optimistic on cryptos in the last few weeks, in fact he sees a much deeper decline coming and this time Bob offers somewhat surprising advice to investors given his usual bullishness on precious metals.

….continue reading HERE

….also from Bob Moriarty:

Altamira Begins Releasing Results