The Dutch Disease

 Week ended October 6, 2023, interesting news items to look at this week were:

 1. The Dutch Disease: Dutch disease is an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors. It is also often characterized by a substantial appreciation of the domestic currency. Dutch Disease is so named following the effects of the Netherlands' gas discovery in the North Sea. What they have not known until recently is how easy it is to catch it. (Fig. 1).

Symptoms include a rising currency value leading to a drop in exports and a loss of jobs to other countries. But reserves of natural resources is subject to depletion and we have seen many once prosperous regions have now gone into decline like UK with her North Seas oil and Mexico with her Cantarell’s fortune (Fig. 2)

. Saudi Arabia and UAE, are not blind to the problems associated the Dutch Disease and their political realignment to BRICS is no less choosing a partner that would help them to come out of the Dutch Disease in a healthier diversified state.

In the context of US, her “resource” was the “Reserve Currency” status. Although US had a cardiac arrest in 1971 with her default of the Bretton Woods agreement, she rather drug herself with pain killers than amend her lifestyle. The 3 lethal pain killers US took were:

(a) Enforced USD to be the only currency allowed in international oil trade. The enforcement took the form of killing Iraq and Libya and near fatal would to Syria. Heavy sanctions against Venezuela, Iran and Russia to the point that virtually all energy exporters know it is lethal to further go along with the Petrol Dollar route. Unknown to most except a few in international finance, the price US paid for Saudi Arabia’s acquiesce in 1978 was Saudi would only accept half of oil settlement in USD, the other half was in gold. Hence, the birth and opaque gold leasing, gold carry trade and the pseudo London Gold Fix and Comex derivative trades.   

(b) Substantially increased USD interest rate to over 20% to stem the outflow of USD and thereby decimated her domestic economy and industry (Fig. 3)

(c) Broadly distribute USD internationally to most nations via trade deficits. This could only be achieved through a DE-industrialization process. In one sense, US made her choice for financilization over industrilization, feeding Wall Street at the expense of Main Street.

For a season, those who followed US footsteps enjoyed high GDP as US gave away her markets. The virtual economy seemed to blossom when more and more people are sucked into trading pieces of paper at higher and higher prices. Of course, such South Seas Bubble or Tulip Mania won’t last. So today, America’s gold is gone, her industries disappeared, her commercial real estates vacant and the Anglo Americans ended up with Zombie like people trading virtual assets with virtual rule of law under a virtual government and virtual everything. 5 Years ago, Chinese engineers predicted cities who failed to manage their economy will resort to housing their citizens in pods and enchant them through 3D headsets on virtual reality. That predication is now fulfilled and I am not talking about over crowded Hong Kong but Melbourne Australia with a population density of 503 per square kilometer as compared with Hong Kong’s density of 6,659. (Fig. 4). Australia is undergoing its worst housing crisis since her nationhood and not as a result of war or natural disasters.

2. Changing World Order: In March 2022, Ray Dalio, Founder of Bridgewater Associates, world biggest Hedge Fund, published his research of a changing world order through a study of 500 years of Western history and concluded a change of world order is inevitable. The stages of rise and fall of an empire is summarized in Fig. 5.

18 months later, the scenario fits the Anglo American Empire like a glove. The final stages of the fall as described by Ray Dalio were large debts, printing of money, internal conflicts, loss of reserve currency, weak leadership and civil war. There is no redemption so long as the Anglo Americans are unwilling to treat their Dutch Disease.

This week’s financial markets:

A. Stock Market: (Fig. 6): Dow closed at 33,407 for the week, a loss of 100 points or -0.3%. S&P 500 +0.14% and NASDAQ +1.65%..

The continued rout in the bond market caused panic in the stock market with initial job data showing September added a whopping 336K jobs created further anxiety. When the market had digested later on the detailed job numbers, it shows 885,000 Full-Time Jobs lost, 1.127 Million Part-Time Jobs added, Record Multiple Jobholders, the stock market recovered most of its losses through CTA (“Commodity Trading Advisory Funds”) flipping to bullish. Apple (+3.72%), Nvidia (+3.93%) and Microsoft (+3.49%).

B. Debt Market: (Fig. 7): USGG10YR ended the week at 4.795%, a rise of 21.6 basis points.

Just in the past 30 days. The 10YR Note lost 3.17% or an annualized 38% this week, the 20YR Bond lost 7.03% or an annualized 84% and 30YR Bond lost 8.97% or an annualized 107% this week. Some described the panic in the long bond market is on par with the Lehman Crisis in 2008. (Fig. 8).

Commercial Banks continued to be under extreme stress as loan volume tumbles and Money Market Funds git record high. (Fig. 9)

 

C. Commodities and Precious Metals: Trading results for the week: (Fig. 10) Bitcoin (+3.10%), NASDAQ (+1.65%), GBP (+0.30%), Eur (+0.26%), SPX500 (0.14%), Rmb (+0.01%), JPY( -0.03%), Gold (-1.63%), Rubble (-3.37%),Silver (-4.05%), Uranium (-4.50%), Oil (-10.75%).

With all markets in China closed for the Golden Week, the Anglo American Empire strike back with a full scale derivative suppression of Rubble, Oil and Precious Metals following the previous week’s Powell’s script of “higher for longer”. Needless to say with such blunt instrument, the blood letting spilled into the Long Bond and Equity Market. CTA were reluctantly activated by the Plunge Protection Team on both the Equity and Fixed Income Market before Friday close. Silver bounced back by 3% on the last 3 hours of trading. I suppose when Shanghai trading resumed on Monday, things should progressively revert back to their natural state.

^{Ezekiel 18:31}  Cast away from you all the transgressions which you have committed, and get yourselves a new heart and a new spirit. For why should you die, O house of Israel? ³²  For I have no pleasure in the death of one who dies," says the Lord GOD. "Therefore turn and live!"