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Last year we predicted that the world had reached peak centralization and
that going forward things would begin to fracture.
What is centralization?
Centralization is the process by which the world grows
increasingly centralized, relying on Centralized organizations (Central
Banks, sovereign governments, etc.) to determine the direction of capital and
focus.
From an investment perspective, from 2008 to mid-2014, the primary driving
force for the markets was Central Banks. In the US, the S&P 500 tracked
the expansion of the Fed’s balance sheet closely.
 
However, once the US Dollar carry trade began to blow up in mid-2014, this
period ended. From that point onwards, the US Dollar was the driving force in
the financial system.
How is this possible?
The US Dollar carry trade is $9 trillion in size. To put this in
perspective, it is as large as the economies of Japan and Germany combined.
If you’re unfamiliar with the concept of a carry trade, it occurs
when you borrow in one currency, usually at a very low interest rate, and
then invest the money in another security, whether it be a bond, stock or
what have you, that is denominated in another currency.
Everyone from currency traders to emerging market corporations were doing
this from 2008 onwards. Emerging Market corporations alone have over $3
trillion in US Dollar dominated bonds outstanding. It those bonds
were a country it would be the fifth largest in the world.
Now, a carry trade only works if the currency you borrow stays flat or
falls in value. If the currency begins to rally, you blow up VERY quickly as
the debt (the money you borrowed) quickly becomes more expensive or less
serviceable.
As a result of this, when a carry trade begins to blow up, a
feedback loop quickly hits as those who borrowed in the original currency
either A) default B) restructure or C) return the money, forcing the currency
even higher which triggers more defaults, restructuring and margin calls.
This is why when the US Dollar began to rally in mid-2014, it went nearly
vertical.
The first wave of the US Dollar carry trade blowing up crushed commodities
and the emerging markets that rely on them for growth. I’m talking about
Brazil, Russia, and the like.
However, it is the second wave that will be even more damaging.
That wave began last year in August when China was forced to devalue the Yuan
against the US Dollar. At that point the US Dollar bull market was no longer
forcing individual asset classes to collapse… it was imploding one of the
largest economies on the planet.
This crisis has only just begun.
The 1997 Asian Crisis was triggered by Thailand devaluing the baht.
Thailand’s economy is the 30th largest in the world. And it nearly
blew up all of Asia.
China, by way of contrast, is either the second or third largest economy
in the world depending on how you measure it. And it is now actively devaluing
the Yuan. Just based on this alone, you can expect this crisis to be
significantly larger than the 1997 Asian Crisis.
However, this is just China. Remember there are $9 trillion in US Dollars
floating around in various carry trades. So China’s devaluation will be just
the tip of the iceberg as every fiat currency in the world derives a portion
of its value based on where the US Dollar trades. What’s happening in China
will be rippling throughout the system taking down entire countries/
currencies/ and stock markets.
Another Crisis is coming. Smart investors are preparing now.
We just published a 21-page investment report titled Stock Market
Crash Survival Guide.
In it, we outline precisely how the crash will unfold as well as which
investments will perform best during a stock market crash.
We are giving away just 1,000 copies for FREE to the public.
To pick up yours, swing by:
https://www.phoenixcapitalmarketing.com/stockmarketcrash.html
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