With many investors worried about the economic turmoil that has engulfed the globe, protect yourself as China seizes control of the internet. Also, this will be the greatest bull market in history.
Gold’s Greatest Bull Move And China’s Seizure Of The Internet
Stephen Leeb: “If today seems like just another ordinary Saturday, think again. Someday Oct. 1, 2016 will be recognized as a momentous day in world history, for it marks the official transfer of economic power from the West to the East and in particular to China, the East’s clear hegemon…
Continue reading the Stephen Leeb interview below…
“Of course, China already has surpassed the U.S. in terms of many important economic metrics. For example, it tops us when it comes to the measure of GDP known as “purchasing power parity.” And it has overtaken us when it comes to world trade, with its exports roughly 50 percent greater than ours. It even now beats us in the area of supercomputers.
But unless China can establish effective control over two key areas – the global monetary system and the world’s Internet – it can’t take charge of its own destiny in the way it wants to, leaving it still beholden to developments in the West. Today China has taken a giant and decisive step towards control over both those two realms.
Let’s start with the monetary system. Today the yuan officially becomes an SDR currency. Most commentators have painted this as a symbolic event, one that acknowledges China’s economic importance but doesn’t challenge existing monetary relationships. After all, the dollar’s weighting in the SDR is nearly four times the yuan’s.
That, however, is the initial weighting as set by the IMF. All the SDR currencies remain free trading, which means that if the yuan gains against the dollar, its weighting in the SDR will rise. And if China becomes even more important as an economic power, the IMF could reset its weightings as well, compounding the yuan’s gains.
The Yuan’s Ascent Will Be Fueled By Gold & Oil
Two words sum up why the yuan will indeed start to gain ground over the dollar, making China even more ascendant: gold and oil. A few weeks ago I predicted OPEC and Russia would jointly announce a cut in oil production sooner rather than later. It’s already happened. The OPEC-Russia agreement, which most commentators had dismissed as unlikely, actually was inevitable. One reason is that China is now ready, after two years of talking about it, to initiate a plan to establish its own oil benchmark. The weights governing the different types of oil it will include have likely been set already, and we expect trading will start in 2017’s first quarter.
China’s dominance over oil comes from its roles as the largest consumer of Eastern oil and, by a wide margin, the largest refiner. The benchmark will be denominated in yuan and will represent the lion’s share of world oil supply. Good-bye petrodollars, hello petro-yuan. After the dollar was delinked from gold in 1971, it remained the global reserve currency because oil was traded in dollars, under a deal in which the U.S. pledged to protect the Gulf States militarily.
China Is Now Calling The Shots
Today China calls the shots. This can be seen in the aftermath of the Iran nuclear deal, which was anathema to the Saudis and initially threatened to widen the gulf between the Saudis and Iran, longtime rivals. Now the two countries are making deals, unified in agreeing to cut production levels. (Remember that in April, Iran refused even to attend a meeting of OPEC countries. Credit China for the turnaround.)
Now let’s turn to the second reason that will propel the yuan: gold. It will enter the picture either as a sixth component of the SDR, which the IMF might ultimately do with strong Chinese urging. Or China could decide to back the yuan directly, at least in part, with gold. Either way will be tantamount to anointing gold as a currency. Right now, while gold is considered a financial asset, it’s not recognized as a currency by either the Bank of International Settlements or the IMF. Maybe it was just a slip but a Bloomberg primer on gold published this week (the timing may or may not have been a coincidence) began: “Gold is among the most complex of all global metals industries. It is a currency first….” It could have been a Freudian slip or maybe prescience – after all, one of the article’s two authors was Chinese.