Will A China Cold War Mean Currency Wars? (NYSEARCA: UUP) – Mike Swanson (08/14/2020)

This year is a year of trouble inside many countries and change for the US dollar bullish index ETF (NYESARCA: UUP).

A lot of things have happened, but one thing is that this is the year that the Secretary of State of the United States declared a new Cold War on China in a recent speech. But he said this is not a war of containment like the last Cold War – instead it is a war in which the enemy is not the Chinese people, but the Chinese government itself. He seems to want it destroyed. It seems as if no one has paid attention to this speech inside the United States, but it is driving a wave of anger inside China where it is being shown to the Chinese people on TV to make them feel under siege so that they will worship their leaders and ignore their hardships and the detention camps and what has happened to Hong Kong.

Meanwhile on our television sets President Trump talks about a “China” virus to gather support to win reelection and distract from the total mess of things inside the Unites States many of which that he is not responsible for, but these remarks by his Secretary of State are more ominous, because the Cold War was an event that defined decades of US foreign policy and history in which a few moments came in which the world came to a hair trigger to annihilation.

As a child for a few years I lived in WEST Germany, because my Dad was in the US army helping defend the forces of “freedom” against Soviet attack, which was more imaginary than real. He rose up to become a Colonel with a 20-year career in the military.

For us 2020 has also been a year of huge gyrations in the financial markets. It’s the year that gold and silver have come alive as the US dollar has rolled over as the US economy has gone into the worst contraction since the 1930’s.

One thing I ask myself is how in the world can the US win a new Cold War against China when the US government deficit is completely exploding and it has a higher debt/GDP than China does? What is the strategy to win? Is this going to lead to currency wars?

How much of a threat is China really?

I talked about this topic and this question with Chuck Ochelli and Carmine Savastono on The Ochelli Effect a few days ago. Carmine is the author of the book Human Time Bomb. You can listen to our discussion via MP3 download or this Youtube video version.

Gold and silver become safe havens in a time of turmoil. What I know is that the US dollar has rolled over. Inside the futures market according to the commitment of traders report the giant commercial hedgers and producers prepared themselves for a period of sideways consolidation coming into this week. Gold trades opposite to the US dollar and has had a huge run this year, but corrected this week as the US dollar came into this week in a very oversold condition as you can see from this chart of the UUP ETF, which tracks the US dollar index.

Both the daily stochastics and RSI indicators on the US dollar index became deeply oversold two weeks ago to forecast a bounce. In a bull market such oversold readings become buy points, but in a bear market they lead to mere bounces. Currencies trade a bit different than stocks, because they are less volatile and when they get locked into a long-term bear market oversold readings do not lead to big rally, but instead weak bounces and pauses within a strong downtrend.

That is exactly how the US dollar index oversold rally is playing out. It’s so small that they don’t even talk about it on TV – it’s only people like me telling you about it.

It is also the reason why gold and silver pulled back this weak – and why ultimately their dip is a simply a massive buying opportunity for those that can take advantage of it. And the best big cap mining stocks will go up more than gold and silver and the right small caps will totally soar as we go forward.

History is turning. I wrote a book about the origins of the Cold War and its first few decades titled The War State. It details how the end of World War II led to a new power elite and military-industrial complex that took hold inside the United States. And now we are turning the page to a new chapter in our own lives.

-Mike



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