China's Groundbreaking Announcement
A big shakeup at the Federal Reserve... China's groundbreaking announcement... 'The world will never trade oil in just U.S. dollars again'... Your last chance to experience the 2017 Stansberry Las Vegas Conference for yourself...
We could soon see a big shakeup at the Federal Reserve...
Former Fed governor Kevin Warsh could be named the next chairman of the central bank.
Warsh met with both President Donald Trump and Treasury Secretary Steven Mnuchin on Friday. And according to reports, he is now the favorite to replace Janet Yellen when her term expires in February.
If Warsh is nominated, he could bring some significant changes to the Fed. He's known as a "hawk," and has criticized the Fed's easy-money policies. As the Wall Street Journal reported on Friday...
Mr. Warsh has been a critic of the Fed's aggressive monetary easing, warning that it increased the risks of a financial bubble. He has called for broad changes in how Fed officials communicate with each other and the public, and has urged policy makers to overcome what he calls groupthink in academic economic circles.
"The conduct of monetary policy in recent years has been deeply flawed," Mr. Warsh wrote in an opinion piece published in the Wall Street Journal in August 2016, citing the weak economic growth of recent years. He called for "a rigorous review of recent policy choices and significant changes in the Fed's tools, strategies, communications and governance."
Now, we can't guarantee this will be the case...
Trump isn't expected to make a decision for a few more weeks. Other candidates could still emerge. And even if Warsh is selected, he could be persuaded to moderate his views once in office. It wouldn't be the first time. (Alan Greenspan was a noted libertarian and gold bug before he became chairman, and we all know how that turned out.)
Still, any move that brings even a little sanity to the Fed can only be a good thing.
'This is a game-changer'...
Last week, Steve Sjuggerud shared some big news with his True Wealth China Opportunities subscribers.
In short, China recently made a big announcement... One that could mark the beginning of the end of the U.S. dollar's global dominance. Yet, almost no one noticed. From the September issue of True Wealth China Opportunities...
The world will never trade oil in just U.S. dollars again... At least, that's the goal of the Chinese government. The Chinese want oil to trade not just in U.S. dollars... but also in China's currency, the yuan. And the Chinese government recently announced a plan to make it happen.
It's a crafty plan. It has the potential to change everything. It is likely NOT a good thing for the U.S. – but there's not much the U.S. can do to stop it. If it works, this will be the start of a huge shift of economic power... a shift away from the U.S. and toward China.
More importantly, it could be the first step toward China's yuan competing with the U.S. dollar as the world's "reserve" currency. I know, I know. This all sounds a little crazy. The dollar hasn't had competition like this in generations. But earlier this month, the Chinese made a groundbreaking statement.
Most folks missed it, or didn't truly understand the magnitude of it. But it changes everything... On September 1, the Nikkei Asian Review reported that, "China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold."
Steve believes this is a "game changer" not only for the oil market, but also for the U.S. dollar and the Chinese yuan. More from the issue...
Today, crude oil is mostly priced based on either Brent or West Texas Intermediate ("WTI") futures. Both trade in U.S. dollars... making the dollar a de facto monopoly for crude-oil trading.
China's entry to the market could change that. And this story has major implications, including...
- Growth in demand for the Chinese yuan, creating long-term strength.
- Lower demand for the U.S. dollar, creating long-term weakness.
- An inability for the U.S. to impose financial-system sanctions on foreign countries.
- The yuan creating real competition for the U.S. dollar as the world's reserve currency.
As Steve explained, this is a big story with many moving parts...
We still don't know all the details, and those we do know are subject to change. But he believes some long-term implications are already clear. This isn't just about oil. It's also about geopolitics. More from Steve...
Commodities trade in dollars all over the world. And that gives the U.S. enormous power. U.S. sanctions can make it nearly impossible for places like Russia, Iran, or North Korea to trade freely. Transactions denominated in U.S. dollars must comply with U.S. policy. Breaking the United States' international-trade policies has serious costs. French bank BNP Paribas learned this the hard way...
In 2014, the U.S. charged BNP Paribas a record-setting $9 billion fine for violating U.S. money laundering rules and helping its clients (shady countries) dodge U.S. sanctions.
France's foreign minister called the actions of the U.S. "not reasonable." But the dollar is one of the United States' most effective policy tools. And reasonable or not, the U.S. will do whatever it deems necessary to maintain that control.
French banks have to listen, in part, because the U.S. dollar is the currency of choice around the world. The federal government can enforce sanctions because vitally important commodities, like oil, tend to trade in U.S. dollars.
China's new plan could eventually change this...
As Steve explained, it would allow foreign governments to purchase oil in a currency other than U.S. dollars. And that's critical...
Say you're Iran, and you're hampered by U.S. financial sanctions. Your banks can't easily trade in U.S. dollars. And non-Iranian banks can face huge fines by the U.S. for trading in dollars with Iran. (Sanctions, remember.)
China has a solution. Its yuan-priced oil futures would allow these countries to freely trade in oil without the worry of U.S. oversight. That's a huge incentive and it creates a built-in customer base for China's new idea.
Now, as Steve noted, these countries might not want to deal with China, either. Most important, they might not trust the safety of China's currency the way they trust the U.S. dollar. But that's where the second part of China's plan comes in...
Here's the quote from the Nikkei Asian Review again... "China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold." The last few words are why this is such an important announcement. It's why the U.S. dollar's monopoly on global trade could be nearing an end.
Not only does this plan allow countries to skirt U.S. regulations on trade... But they don't have to take any yuan risk, either. They will have the ability to settle all trades in gold! Everyone trusts gold as a means of exchange. It's a simple solution to a major problem of a yuan-priced futures market...
China will issue futures contracts for oil. They'll be priced in yuan. But they'll be backed by, and convertible into, gold. Again, gold is the key. Countries trading contracts in yuan can feel safe knowing that they'll be able to convert from yuan to gold.
But this plan isn't just a big win for countries like Iran and Russia...
It could also be a big win for China, too. As Steve noted, China is now the world's biggest oil importer. And it buys a huge amount of that oil from Saudi Arabia. But Saudi Arabia has long resisted China's demands to trade in yuan instead of dollars...
China has successfully gotten other countries to trade in yuan. In Africa, for example, Angola uses the yuan as its second currency. Zimbabwe now accepts the yuan as legal tender.
But it hasn't been as easy for China in the Middle East. Like it or not, the U.S. dollar is the international standard for trade. And Saudi Arabia doesn't want to settle transactions in yuan.
China's yuan-priced and gold-backed futures contracts could make all the difference. Again, gold is the key to global adoption of these futures.
So what should you make of this announcement?
Steve says there are a few major takeaways from China's plan. First, if it's successful, it could eventually shift a large amount of global trade out of the U.S. dollar and into the yuan.
This would create significant demand for the yuan over the long term, which Steve says would be incredibly bullish for China's currency. Likewise, it would cause demand for U.S. dollars to fall, which would be a long-term negative for us.
It could also slowly weaken U.S. dominance as government sanctions become more and more difficult to enforce.
Second, and more concerning, it could eventually dethrone the U.S. dollar as the world's reserve currency. More from Steve (emphasis added)...
I expect China's yuan-priced oil futures will succeed initially because they're backed by gold. That's what will allow folks to trust the system. But that's not the long-term plan. What this really does is get folks comfortable trading in yuan. Gold gives them peace of mind for now. But they won't need that forever.
They'll get used to trading in yuan. It'll start to feel normal. And it'll be convenient for more and more global markets over time. Eventually, they will wonder why they even take the extra step (and cost) of converting it into gold.
That's a recipe for China's currency to seriously challenge the U.S. dollar as a global reserve currency. It won't happen overnight. But this is a step in that direction. And it's China's long-term goal.
This wasn't the only big news Steve shared with True Wealth China Opportunities subscribers on Thursday...
He also noted that one of his favorite China investments is now back in "buy" territory for the first time in months.
In short, it's a way to own Chinese "A shares" – the local Chinese stocks that will soon be included in MSCI's emerging-market index – at a double-digit discount to what others are paying in the market today.
If you didn't take Steve's advice to buy these stocks last summer, this is your second chance to profit. You can get all the details on this recommendation in the September issue of True Wealth China Opportunities. Click here to learn more about a subscription.
New 52-week highs (as of 9/29/17): American Express (AXP), Allianz (AZSEY), Baidu (BIDU), Bristol-Myers Squibb (BMY), Morgan Stanley China A Share Fund (CAF), Celgene (CELG), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), iShares MSCI Japan Fund (EWJ), Barclays ETN+ FI Enhanced Europe 50 Fund (FEEU), Huntington Ingalls Industries (HII), iShares Core S&P Small-Cap Fund (IJR), ETFMG Prime Mobile Payments Fund (IPAY), iShares U.S. Home Construction Fund (ITB), JPMorgan Chase (JPM), Lockheed Martin (LMT), AllianzGI Equity & Convertible Income Fund (NIE), PNC Financial Warrants (PNC-WT), ProShares Ultra S&P 500 Fund (SSO), ProShares Ultra Financials Fund (UYG), and Verisign (VRSN).
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October 2, 2017