🇺🇸🚨 The U.S. Dollar is Under Attack
Happy Wednesday all,
We are looking to add one writer to the Hump Days team for longer-type articles that are more in-depth on the topics of investing, individual stocks, business, and economics. So if that’s something you’re interested in - you can apply here: Apply!
We came out with our best video on YouTube to date, in terms of production quality, research, and scripting. I do hope you enjoy it, it will be linked at the end of this newsletter. In short, it’s about the U.S. Dollar and in my opinion how it should remain a dominant force for the foreseeable future, contrary to what some articles and YouTube videos have been saying. Of course, my goal is to inform you with the data and then present my findings, and then it’s up to you to formulate your own opinion!
Let me know what you think of it and enjoy this week’s edition of Hump Days 🤘
- Humphrey, Rickie & Tim
The Weekly Brief
Buffett Ramps Up Japan Stock Bets, Weighs Buying Even More (Bloomberg)
Buffett said he raised his holdings of Japan’s major trading houses from 5% to 7.4% and is looking to increase his exposure to the Japanese market. Japanese indexes jumped on the news, although, Buffett did not name any specific companies. Buffett is currently in Japan meeting with different company leaders. Shares in Mitsubishi, Mitsui & Co., Marubeni Corp., Sumitomo Corp., and Itochu Corp. all edged higher.
Why Does it Matter?
Buffett knows that his words move markets so he's calculated with everything that comes out of his mouth. He sees something in Japan. Historically, he's been right.
U.S. Begins Study of Possible Rules to Regulate AI like ChatGPT (Reuters)
The Biden administration is seeking public comments on accountability measures for AI systems as concerns about its impact on national security and education continue to grow. ChatGPT became the fastest-growing consumer application in history to hit more than 100M monthly active users and government agencies want regulation to make sure that these AI systems are legal, effective, ethical, safe, and otherwise trustworthy.
Why Does it Matter?
With how quickly ChatGPT took the world by storm, the good that can come from AI is undeniable. But who's going to be the grown up in the room and address some of the risks?
Job Growth Totals 236,000 in March, Hiring Pace Slows (CNBC)
March added 236,000 jobs, coming in close to the estimate of 238,000. The unemployment rate came in slightly below expectations at 3.5% (compared to 3.6%). The majority of the jobs came in the leisure + hospitality sector as well as the healthcare sector. Retail jobs and construction jobs saw a decline.
Why Does it Matter?
"Everything is moving in the right direction," said the chief economist for ZipRecruiter. This is a positive for inflation and a positive for the Fed.
Hump Days Scoop
There’s been a lot of coverage in the news and on social media lately about the global economy’s potential “de-dollarization” (i.e., China is leading the charge to try and dethrone the USD as the world reserve currency). Naturally, this is stirring up a lot of fear that China will soon shake up the world economic stage and the U.S. will no longer be the economic powerhouse it’s been for the last century. Today, we go deeper into the politics of the world reserve currency and trade as a whole. Buckle in.
How is China trying to overtake the U.S. dollar?
China has been very busy in the last few months in a political sense, recently brokering a historic truce between Saudi Arabia and Iran as well as meeting with Vladimir Putin to “promote a peaceful settlement” of fighting in Ukraine. Beijing is playing the unusual role of peace broker, in an attempt to make political friends as part of a larger plan to wean reliance off of the U.S.
Nothing came more of a shock, however, as when Saudi Arabia, a key strategic ally in the Middle East, entered into talks with Beijing to price some of its oil sales to China in yuan. Saudi Arabia, the world’s top crude exporter to Asia, exports more than 25% of its oil to China and is considering implementing the petroyuan into the pricing model of Saudi Aramco. The Saudis have grown increasingly frustrated with Washington over their lack of support for their intervention in the Yemen civil war and Biden’s attempt to strike a deal with Iran over its nuclear program. This is significant because as it currently stands, the U.S. dollar is the only currency used to settle oil transactions. Saudi Arabia’s willingness to potentially accept another currency could turn out to be a huge blow to the U.S.’s dominance of the oil market and shows a growing political influence from China.
The BRICS collective (Brazil, Russia, India, China, and South Africa) is also moving towards a common currency to push back against the U.S. largely after western sanctions froze Russian foreign currency reserves and expelled Russian banks from the SWIFT payments system. India and China have shown that they were willing to continue trade with Russia after the invasion of Ukraine and have started to settle trade in rupees and yuan.
This is just scratching the surface but, as you can see, China is doing a lot to try and head toward de-dollarization.
How big is the risk of the U.S. dollar collapsing?
There does exist a risk of the U.S. dollar collapsing but barring nuclear war, there isn’t much in the short-term that would bring upon its downfall, in contrast to what many creators and news platforms would have you believe.
The case for another country such as China to take over as the world reserve currency is not impossible but it’s also not likely either. The U.S. still holds strong the three major criteria for world reserve currency status:
A strong and stable economy. While China is growing, the U.S. remains the largest economy in the world with free-flowing capital markets and innovation in large, key sectors.
Political stability. This is likely the weak point of the U.S. but aside from the political divide amongst Congress, the U.S. has a robust legal system and a strong, independent central bank in charge of monetary policy. Additionally, the U.S. also has major allies all around the world including Japan, Taiwan, the EU, and Canada.
Military strength. The U.S. is more than capable of defending its standing as the world reserve currency as the largest military spender in the world.
On the global scale, the yuan does not currently have the strength that it seems to project, falling below the Euro, Yen, the Pound sterling, and even the Swiss Franc. The yuan is only the 8th most traded currency in the world at 2.16% of global trade.
The U.S. isn’t perfect, but to believe that China can just step in to be the world reserve currency is just sensational. The systems in place for the U.S. dollar as the world reserve currency took many decades to fully establish and for as long as the world still wants access to the U.S. economy, they’re going to have to play by American rules. For more on this topic, watch the latest video on the YouTube channel, linked at the bottom of the newsletter!
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