How To Spot The Primary Trend

Gradually, then suddenly… ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ February 15, 2024  |  [View Online](  |  [Sign Up]( How To Spot The Primary Trend “How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, and then suddenly.” — Ernest Hemingway, The Sun Also Rises Dear Reader, The old timers on Wall Street have long borrowed Ernest Hemingway’s gist. “Megapolitical events,” they say, “move markets slowly… then all at once.” We learned as much before the Panic of ‘08. We published the first edition of Empire of Debt in 2006. It had taken several years of research and writing to pull off. When the book was released, it landed on the New York Times bestseller list. In the fourth and final part of the book, we admitted we didn’t know where the next crisis was going to manifest following the dot-com bust — but if you’d put a gun to our heads, we’d have forecast it was going to be in the housing market. And that’s exactly what we wrote in the manuscript published in 2006. What were we thinking? Well, the primary trend was already in place. Housing prices were hitting nosebleed heights. “No income, no job” (NINJ-a) loans were making mortgage brokers rich. Cab drivers and shoe-shine men had given up tipping tech stocks and started flipping houses — or at least they’d started talking about it. Contrary to then-Fed Chief Alan Greenspan’s feigned ignorance, bubbles are fairly easy to identify just by reading the headlines. The trick in a bubble is, of course, to not get swept up by the shenanigans, nor fall prey to hucksters. But what if the bubble is bigger than the headlines? Longer in duration than most people alive are aware? While recently editing the third edition of Empire of Debt, our publisher at John Wiley & Sons didn’t put a gun to our heads — but we’re confident all the same that the empire is on the cusp of a “grey swan” event whose primary trend is identifiable. I grabbed the following from a file resting quietly on my desktop. In draft form, it’s part of the third edition of Empire of Debt. It’s loosely edited, but you’ll be able to pick up what we’re laying down: The World’s Reserve Currency We’ve been fortunate. We are interested in, explore, and write about alternative ideas. We’ve been at it for a long time. As you have likely gathered, we’re often at odds with the politicians and the legacy press. The mainstream media and politicians cannot admit that there are problems. They are often the cause. Sometimes right. Sometimes wrong. But always on the case. Now, we believe, the world is on the cusp of more important changes than any we've described before. More important, even, than any of the crises we’ve identified in the past. In the next eighteen months, more money will be made — and lost — than ever before. Among the candidates for disruption: the U.S. will lose the ‘exorbitant privilege’ of printing the world’s reserve currency. You’ll recall from our various writings that, in 1971, the U.S. abandoned the Bretton Woods Exchange Rate system, which allowed foreign governments to exchange their holdings of U.S. dollars with U.S. gold held in reserve. After seeing the U.S. rack up enormous debts on a failed war in Vietnam, and on federal social programs like Lyndon Johnson’s Great Society and War on Poverty, foreign governments cried foul and wanted to take shipment of their gold. Closing the “gold window” presented its own set of global economic challenges. The U.S. dollar had enjoyed reserve currency status for 27 years. The dollar was the currency of choice for most nations of the world during the rapid economic expansion following World War II. With a stroke of panic-inspired statesmanship, President Nixon and then-Secretary of State Henry Kissinger convinced King Faisal of Saudi Arabia to accept only U.S. dollars as payment for oil. In exchange, they pledged to protect the Saudi Monarchy, and all its oil fields, from anyone who might choose to seize them, enemies domestic and foreign alike. King Faisal agreed. And by 1975, he had persuaded the member nations of OPEC to agree, too. Kissinger christened the pricing mechanism the “petrodollar.” Rather than being backed by gold, the dollar would be backed by the global oil market. The agreement was so successful it prolonged the dollar’s status as the world’s “reserve currency” for another 50 years – sans gold. It also pitted the empire irreparably against the Soviet Union, Libya, and Iran. Likewise, the monetary innovation known as “Petrodollar Recycling” was born. The phenomenon gave birth to our unprecedented 50-year secular bull-market in U.S. bonds. Warren Buffett is quoted to have dubbed it as one of the most “extraordinary” bubbles in financial history. Buffett’s “extraordinary bubble” allowed the empire’s citizens its delusions — to live beyond their means; to print unlimited amounts of money at virtually no cost; to spend more than earned; consume more than produced; import more than exported. Ultimately, the economic bubble allowed the U.S. government to borrow excessive amounts of money at obscenely low rates and build up enormous trade and budget deficits with few adverse effects. The security agreement behind the petrodollar emboldened the U.S. military to establish its presence globally. Beyond the Middle East, it maintains troops on every continent. “As of September 2022,” reads a report by Hope O’Dell, “there were 171,736 active-duty military troops across 178 countries, with the most in Japan (53,973), Germany (35,781), and South Korea (25,372). These three countries also have the most U.S. military bases – 120, 119, and 73, respectively.  There are around 750 U.S. military bases in at least 80 countries, though Al Jazeera says the number 'may be even higher as not all data is published by the Pentagon.'”    Alas, not every nation is so amenable to continue to grant the U.S. its exorbitancy. In 2006, a report titled “Iran Next U.S. Target” sighted the launch of an Iranian oil exchange as Americas #1 threat, hailing it to be the real “economic weapon of mass destruction.” The report was voted by alternative media outlet Project Censored as one of the top 10 censored stories of that year. By 2008, despite all U.S. efforts to crush it, Iran managed to successfully and silently get a version of this exchange up and running. The early exchange was beta tested to establish its validity on global commodity markets priced outside the dollar. In late August 2023, the so-called BRICS nations — Brazil, China, Russia, India, and South Africa — gathered in Johannesburg, South Africa for their annual meeting. The moniker “BRICS” was originally an acronym coined in 2001 by former Goldman Sachs economist Jim O’Neill, who used it in a paper to “highlight the economic potential of Brazil, Russia, India, and China for future investors.” Despite statements from the host country South Africa that an alternative currency to the dollar was not on the agenda for the meeting, Brazilian president Luiz Inacio Lula da Silva broke ranks and made the proposal a talking point all the same. During the meeting, the member nations also voted to accept Argentina, Egypt, Ethiopia, and the United Arab Emirates, who were all invited to join as full members from January 1, 2024. Notably, Saudi Arabia and Iran – the principle benefactor and detractor, respectively – of the petrodollar were also invited.  With the new members, the BRICS account for 40% of the world’s population. Another 23 nations have applied for membership. The next vote will take place in early October 2024 in Kazan, Russia. Existing member nations voted unanimously in support of Russia presiding over the next meeting.  As challenging as it might be to get Brazil, Russia, India, China, and South Africa on the same legal footing to support an international currency, not to mention their competing global ambitions, the subject is already on the table. The stewards of the world’s current reserve currency can only sit by idly gloating while they try. Weaponizing The Dollar In early 2022, following the Russian invasion of Ukraine, U.S.-led Western sanctions froze nearly half of Russia’s foreign currency reserves. They also removed major Russian banks from SWIFT, the international network banks use to facilitate payments. Later in the same year, the U.S. imposed restrictions on exports of semiconductor technology to China. Shirley Ze Yu, a senior visiting fellow at the London School of Economics told Al Jazeera: “As the U.S. weaponizes the dollar in the Russian and Iran sanctions, there is increasing desire by other developing countries to seek alternative currencies for trade, investment, and reserves, as well as developing alternative multilateral clearance systems outside of SWIFT.” Further, Yu notes, as the U.S. Federal Reserve has raised interest rates in recent years, “developing countries have widely suffered from paying higher interests on their dollar debt and battling the exchange rate impact from a strong dollar. The interest to borrow in local currencies or other currencies is strongly motivated by economic considerations.”  The “BRICS [are] not anti-West. We are not in competition,” South Africa’s BRICS ambassador, Anil Sooklal said after playing host to the August meeting. “Nor are we against the dollar. But what we are against is the continued dominance of the dollar in terms of global financial interactions.” “The U.S. dollar served its purpose since the end of WWII and became the major foreign exchange reserve currency,“ Brazilian economist Ricardo C. Amaral forecast a decade ago. But, he suggests more forcefully, “the days of the U.S. dollar playing that special role…has reached the end of the line… [and] today that system is very sick.” “The U.S. supplied the Allies in WWII and got paid in gold,” the Mida Gold Group helps us with an historical review: After the war, countries linked their currencies to the U.S. dollar, which was linked to gold. The Gold Standard ended completely in 1971, but the U.S. dollar’s reserve status remained. Today more than 61% of all foreign bank reserves are denominated in U.S. dollars. Nearly 40% of the world’s debt is in U.S. dollars. Reserve currency status has both benefits and drawbacks. The benefits are lower exchange rate risk and greater buying power, and the drawbacks are artificially-low interest rates that can spur asset bubbles. Since 1450 there have been six major world reserve currency periods: Portugal (1450–1530), Spain (1530–1640), Netherlands (1640–1720), France (1720–1815), Great Britain (1815–1920), and the United States from 1921 to today. If you notice, the average currency span is 94 years. The U.S. dollar presently has been the world’s reserve currency for roughly 99 years. Hmm. So it goes, Addison Wiggin, The Wiggin Sessions P.S. If something isn’t done to restore confidence in the dollar, says the legendary Investment Biker Jim Rogers, it will “lead to a huge decline in the standard of living of U.S. citizens like nothing we’ve seen in nearly a century.” Bill Gross, the world's biggest bond investor, has advised all his clients that if they had just one investment idea, it should be an investment in a non-dollar, non-euro currency. Tomorrow, we’ll look a little deeper into what Vladimir Putin’s war with the West could mean for the dollar reserve status. Asta manana. The Daily Missive from The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to The Wiggn Sessions delivering daily email issues and advertisements. 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