I have been thinking a lot about Beanie Babies and Chess lately. In my mind, they are the best analogy I can think of to describe world events.
When I was younger, I played chess. I considered myself a respectable player. What fascinates me about the game of chess is one move on a chessboard can change the entire trajectory of the game. As an active player, there were numerous games where I was convinced I was winning handily, then three moves later my opponent would loudly proclaim “Checkmate.” When I look at world events, particularly the war in Ukraine, my instincts tell me that the United States is in a similar financial predicament.
I want to be perfectly clear that my comments are formed by markets and my understanding of them. I’m not a cheerleader for Russia and hold dearly to the perspective that truth is the first casualty of war. My understanding and instincts are being formed primarily by the events occurring in the financial markets that go unreported in the press.
Let me explain.
One of my hobbies over the years has been studying currency charts of countries that have been ravaged by hyperinflation. What is painfully clear in all instances when hyperinflation occurs is that when a currency loses 25% of its value in a month, it is on its way to extinction. I would challenge you to study the long-term currency charts of countries like Venezuela, Zimbabwe, South Sudan, Argentina, Iran, Liberia, Haiti, Sierra Leone, Angola, Sudan, Lebanon, Turkey, Nigeria, Pakistan, and Kazakhstan over the last 20 years.
As an example, here is a 30-year chart of the U.S. Dollar versus the Argentinian Peso. The two areas on the chart that I have highlighted are instances when the Argentinian Peso lost more than 25% of its value in one month. The long-term result of this move was the perpetual debasement of the Argentinian currency.
This same pattern emerges repeatedly whenever you look at a country that is being ravaged by inflation or some other form of economic crisis.
Why is this important?
The invasion of Ukraine by Russia began on February 24, 2022. Within a period of two weeks, after the United States kicked Russia out of the SWIFT banking system and slapped them with economic sanctions, the Russian currency declined 45% in value! Western pundits cheered.
Normally, you don’t see a currency recover from this severe of a decline!
My history teacher in college emphasized two things in all of his courses.
- Desperate governments do desperate things.
and
2. Analyzing history effectively depends upon where you start and end your analysis.
Very few in the Western media have noticed what has occurred in the Russian Ruble over the last 3 weeks. So here is the rest of the story.
Since the March 7, 2022, bottom of the Russian Ruble, we have seen the currency rally 80% and currently it is down only 1.5% from where it was trading in the international markets on the day the invasion started.
This is the most consequential thing that has happened in the financial markets in the last 50+ years. Russia has a GDP of $1.483 trillion dollars. It is the 12th largest economy in the world. In one powerful economic move, Vladimir Putin has changed the dynamics of the economic chessboard and challenged the fiat economic order which has ruled the world for the last 51 years.
Since Russia was kicked out of the SWIFT economic sanctions and could no longer use U.S. dollars to transact, Russia has started to demand payment in Rubles, Gold, or other hard currencies when it sells natural gas, crude oil, or fertilizer to friendly nations.
This a new directive from President Vladimir Putin as he attempts to leverage his country’s in-demand resources to counter the barrage of Western sanctions.
What should concern Western powers though is that in a few short weeks Russia effectively de-dollarized. They will not accept payment in dollars for any transaction that they engage in.
“If other countries want to buy oil, gas, other resources or anything else from Russia” said Pavel Zavalny, the head of Russian Parliament “let them pay either in hard currency, and this is gold for us, or pay as it is convenient for us, this is the national currency.”
In other words, Russia will accept other national currencies — yuan, lira, ringgits or whatever — or rubles, or “hard currency,” and for them that no longer means U.S. dollars, it means gold. The head of Russian Parliament went on the compare the U.S. greenback to “candy wrappers.”
This isn’t being discussed much by the corporate media in the West.
The Russians aren’t just saying that they do not recognize U.S. dollars as the reserve currency of the world any longer.
That would be bad enough. They are actually saying that they have de-dollarized and are urging other nations to do likewise. Russia has tied their currency to Gold, Natural Gas and Crude Oil and any other sovereign currency other than the U.S. dollar.
This is a move that changes everything.
Putin has issued a direct economic challenge to the entire FIAT economic order of the Western World.
Putin is very aware of how highly leveraged the economies of the West are. There are hundreds of trillions of dollars in unfunded liabilities on the balance sheets of Western Nations. Inflation is the west is at the highest level in 40 years. The Money Supply over the last 2 years is at levels never seen before in history.
Once upon a time, the U.S. dollar was tied to gold, and that allowed the greenback to become the dominant currency on the entire planet.
But then in 1971, President Nixon took us off the gold standard, and things have gone haywire ever since. Now Russia, a former cold war enemy, has linked the value of the ruble to the price of gold and Putin is challenging the entire structure of the world’s fiat economy. Western Nations are being forced to decide whether their governments will back their currencies with something tangible, or whether they will continue with the fiat experiment.
At the start of this article, I mentioned that I have been thinking a lot about Chess and Beanie Babies. 😊 I fear the U.S. Dollar will be like the Beanie Babies of yesteryear. Once they were incredibly vibrant and popular until they weren’t.
In 1993 Ty Inc. the manufacturer of Beanie Babies created a collectible doll, stuffed animal that was the first internet sensation. They were scarce, and very much in demand. For many, they were also a huge financial investment because of their collectible status. They were a bestselling toy for more than a decade.
But somewhere around 2004, the manufacturer flooded the marketplace with Beanie Babies, and they completely lost their appeal and value. I personally know several people who had palettes of Beanie Babies in their garage that they could not even liquidate on eBay.
The United States is the world’s Reserve Currency and leader in the great fiat experiment. There are about $30 trillion dollars overseas that will quickly be liquidated should the U.S. dollar’s reserve status be effectively threatened. I think that is what Vladimir Putin’s end game is in the Ukrainian invasion.
History shows us that economic conflicts have a way to quickly escalate into shooting conflicts. Obviously, we do not want a full-scale war with Russia. Political leaders around the world should be attempting to find ways to achieve peace and to fix the tremendous damage that has been done. That includes militarily, economically, and financially.
In the interim, I would strongly urge you to pay attention to the value of the Russian Ruble. I know of no other economic instance when a currency has lost 45% of its value in two weeks and quickly rebounded to its previous levels even though harsh economic sanctions were imposed upon it. Should the Russian Ruble surpass the level where it was trading on February 24, 2022, when the invasion started, it will be a strong signal that the status of the U.S. dollar as the world’s reserve currency has been effectively challenged by a brutal dictator.
Putin’s recent moves on the chessboard have allowed him to proclaim, “CHECK” on the fiat economies of the western world. The West may need to think a long while before they make their next move.
What should amaze Westerners is that Russia has de-dollarized. Should that trend accelerate, it will threaten how value is denominated moving forward. This idea and possibility is fraught with risk and tremendous opportunity for traders.
Last week I wrote my article was, “Are We Witnessing an End to the Petrodollar?” Mr. Putin is clearly leading the charge of nations like Brazil, India, China and South Africa who feel that the U.S. dollar has exploited lesser developed countries.
As a trader and investor what is your next move?
How do you protect the value of your life savings based upon these events?
This is why I value artificial intelligence in my investing and trading decisions. Artificial intelligence has beaten humans at Chess, Checkers, Poker, Jeopardy and Go!
Why should trading be any different?
What artificial intelligence brings to the table is the ability to keep you on the right side, of the right trend at the right time. In today’s volatile world that is a very valuable proposition.
The sign of a great trader is not how much they make when they are right, but rather how little they lose when they are wrong.
Artificial intelligence is so powerful because it learns what doesn’t work, remembers it, and then focuses on other paths to find a solution. This is the Feedback Loop that is responsible for building the fortunes of every successful trader I know.
If you think about this question, you will begin to appreciate that A.I. applies mistake prevention to discover what is true and workable. Artificial Intelligence applies mistake prevention as a continual process 24 hours a day, 365 days a year towards whatever problem it is looking to solve.
That should get you excited because it is a game-changer.
It sounds very elementary and obvious. But overlooking the obvious things often hurts a traders’ portfolio.
The basics are regularly overlooked by inexperienced traders.
The beauty of neural networks, artificial intelligence, and machine learning is that it is fundamentally focused on pattern recognition to determine the best move forward. When these technologies flash a change in forecast it is newsworthy. We often do not understand why something is occurring but that does not mean that we cannot take advantage of it.
A.I., through advanced pattern recognition, analyzing hundreds of thousands of data points, and crunching millions of computations, finds the highest probability trades and is indispensable in separating fact from fiction.
Intrigued? Visit with us and check out the A.I. at our Next Live Training.
It’s not magic. It’s machine learning.
Make it count.
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