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Zoltan Pozsar: G7 Investors Should Worry About Gold-Backed Renminbi Eclipsing Dollars, Commodity Encumbrance

December 29, 2022

Zoltan Pozsar: G7 Investors Should Worry About Gold-Backed Renminbi Eclipsing Dollars, Commodity Encumbrance

Credit Suisse contributor Zoltan Pozsar has continued his ongoing series about Bretton Woods III where commodities will dictate the new world order. For his last dispatch of the year, he described how the world is now shifting to a multipolar order “being built not by G7 heads of state but by the ‘G7 of the East’ (the BRICS heads of state).”

BRICS stands for the group of five nations: Brazil, Russia, India, China, and South Africa. But Pozsar said that with the poised expansion via rumored applications for Saudi Arabia, Turkey, or Egypt, he took the liberty to round up the current “G5.”

The author focused on Chinese President Xi Jinping’s speech at the recent summit in the Arab states, which for Pozsar is very telling on how Beijing plans to outmaneuver the West in global economy.

“Fixed income investors should care – not just because the invoicing of oil in renminbi will hurt the dollar’s might, but also because commodity encumbrance means more inflation for the West,” Pozsar said.

In the next three to five years, China is ready to work with GCC [Gulf Cooperation Council] countries in the following priority areas: first, setting up a new paradigm of all-dimensional energy cooperation, where China will continue to import large quantities of crude oil on a long-term basis from GCC countries, and purchase more LNG. We will strengthen our cooperation in the upstream sector, engineering services, as well as [downstream] storage, transportation, and refinery. The Shanghai Petroleum and Natural Gas Exchange platform will be fully utilized for RMB settlement in oil and gas trade, […] and we could start currency swap cooperation and advance the m-CBDC Bridge project.

Pozsar quoted Xi’s speech

…click on the above link to read the rest…

Zoltan Pozsar’s Gold-mageddon Deconstructed

December 27, 2022

Zoltan Pozsar’s Gold-mageddon Deconstructed

“[B]anks have been managing their paper gold books with one assumption, which is that [Nation] states would ensure gold wouldn’t come back as a settlement medium.” -Zoltan Pozsar

Before we go any further, we read ZeroHedge’s report on this letter Dec 7th entitled: Zoltan Pozsar: Gold To Soar…When Putin Unveils Petrogold (ZH Prem) and have been  thinking on it since. Here is one of those thoughts pertaining to Gold’s  evolving  market structure

The statement at top is arguably the most important sentence in Zoltan’s recent post entitled: Oil, Gold ,and LCL(SP)R. It is how he closes that note.

If you have read his letter (excerpt below) you may prefer quotes pertaining to Gold’s price jump from $1800 to $3600 or Pozsar’s follow up statement to the price of Gold potentially doubling where he wrote:  Crazy? Yes. Improbable? No.

Those statements certainly are nice to read for real-money advocates; especially coming from one of the most respected economists on the street these days. We cannot lie it makes us smile as well.

However, for anyone with precious metals exposure, like a bank or presumably you reading this piece (thank you for that), the quote at top should rule them all. Here’s why…

Why Banks Short Gold

Zoltan, possibly inadvertently, gives readers the rationale by which banks have been profitably shorting Gold since the 1990s. Here is our translation of that same sentence at top.

Translated from the original Zoltanese:

Banks have been using rehypothecation for decades fearlessly with approval of global governments who promised them Gold would never be used as a settlement medium—i.e. have a practical use — again.

…click on the above link to read the rest…

Zoltan Pozsar: Gold At $3,600 Is Not Improbable If US Refill Reserves With Russian Oil

December 6, 2022

Zoltan Pozsar: Gold At $3,600 Is Not Improbable If US Refill Reserves With Russian Oil

In his latest dispatch, Credit Suisse contributor Zoltan Pozsar shifted focus on his ongoing series about Bretton Woods III where commodities will dictate the new world order.

Instead, the author zeroed in on the depleting Strategic Petroleum Reserve (SPR) of the United States, posing the query of what comes next after the White House shipped its last scheduled release.

“Now that SPR releases are over, production cuts by OPEC+, re-routing [of Russian crude oil from Europe to Asia], and price caps (not to mention the risk of China re-opening due to protests), the question for the U.S, becomes what to do with the SPR? Release more? Refill?” pondered Pozsar.

Back in September, as well, US President Joe Biden’s administration said it is looking at refilling its oil reserves should crude oil prices drop below US$80 a barrel. The prices have traversed the levels below that said mark but the White House moved the price target lower in October after it announced its plan to release 15 million barrels of oil more.

“The Administration is announcing its intent to use SPR repurchases to add to global crude oil demand at times when the price of West Texas Intermediate (WTI) crude oil is at or below about $67 to $72 per barrel,” the White House statement then read.

After the US Department of Energy sold the last batch of crude oil from the historic SPR release, the reserves continue to bleed in the hopes of managing rising inflation and local energy prices. The current level is now below the 400-million barrel-mark, poised to hit a nearly 4-decade low.

…click on the above link to read the rest…

Trading Houses Will Collapse As “Margin Call Doom Loop” Goes Global, Trafigura CFO Warns

March 23, 2022

Trading Houses Will Collapse As “Margin Call Doom Loop” Goes Global, Trafigura CFO Warns

Sometimes repo guru Zoltan Pozsar is so far ahead of his time, it takes the “experts” weeks just to read up on all the required source docs to even grasp what he is talking about.

Last week we reported that the Bloomberg news that one of the world’s largest independent energy merchants – the secretive Trafigura which trades hundreds of billion in commodities every year – was facing “margin calls in the billions of dollars” meant that the commodity “margin call doom loop” idea floated more than three weeks ago by Pozsar who warned that commodity traders and clearinghouses could be facing a liquidity crisis of historic proportions, was coming true and despite Barclays’ earnest attempts to minimize its impact, could threaten broader financial stability and was manifesting itself in broad liquidity squeezes which could be observed in the surge in such unsecured funding markets as the FRA-OIS.

That was just the start, because the very next day Zoltan was proven correct again, after the FT reported that Europe’s largest energy traders have taken the place of Europe’s insolvent banks in calling on governments and central banks to provide “emergency” assistance to avert a cash crunch as sharp price moves triggered by the Ukraine crisis strain commodity markets.

Yes, that’s what happens when a “margin call doom loop” goes global.

The FT wrote that in a letter it had seen, the European Federation of Energy Traders, a trade body that counts BP, Shell and commodity traders Vitol and the margin-call stricken Trafigura as members, said the industry needed “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function”.

…click on the above link to read the rest of the article…

Zoltan Pozsar Warns Russian Sanctions Threaten Dollar’s Reserve Status

March 2, 2022

Zoltan Pozsar Warns Russian Sanctions Threaten Dollar’s Reserve Status

Over the weekend, the world gasped in shock when Western powers announced that the nuclear option would be used against Russia in retaliation for its invasion of Ukraine – sanctions against the country’s central bank and targeted expulsions of key banks from SWIFT, a move which has effectively locked Russia out of the western financial system and left its vast oil export industry – a key lifeline for the Putin regime – in limbo. But the real reason for the shock is that this was the first time the global reserve currency was weaponized against a G20 economy, setting a clear precedent for how the west would and could respond to any other nation that followed in Russia’s footsteps (something which China is clearly contemplating vis-a-vis Taiwan, and is carefully studying just how the west responds to Moscow),

As a result, and following this week’s dramatic freeze of the Russian central bank overseas assets, has prompted some to question just why countries build foreign currency reserves at all and, more broadly, whether the unprecedented western response to Russia hasn’t jeopardized the dollar’s reserve status.

In what one Washington lawyer described to Reuters as the “biggest hammer in the toolshed”, the G7 and European Union governments blocked certain Russian banks’ access to the SWIFT international payment system and also went a step further than many expected by paralyzing about half the Russian central bank’s $630 billion worth of foreign currency and gold reserves. In doing so, the west has undermined Moscow’s ability to defend the ruble – which has lost up to a quarter of its value since Friday alone – and recapitalize sanctioned banks as they face nascent bank runs. In fact, as some admitted, it was the explicit intention of the west to spark bank runs and to crash the Russian financial system from within.

…click on the above link to read the rest of the article…

Pozsar Warns Of Another “Lehman Weekend” As Russia Sanctions May Trigger Central Bank Liquidity Flood

February 27, 2022

Pozsar Warns Of Another “Lehman Weekend” As Russia Sanctions May Trigger Central Bank Liquidity Flood

In a remarkable show of force and unity, western powers cast aside all their previous concerns about Russian energy supplies and uniliaterally announced the nuclear option of imposing sanctions on the Russian central bank coupled with targeted exclusions from SWIFT of key Russian banks.

  • *EU APPROVES BANNING ALL TRANSACTIONS WITH RUSSIAN CENTRAL BANK

The move has sparked a bank run in Russia, as locals scramble to pull out whatever hard currency they can get their hands on before it runs out, and is certain to trigger chaotic moves in FX and commodities when markets reopen in a few hours. Already some Russian banks are offering to exchange rubles for dollars at a rate of 171 rubles per dollar on Sunday, compared to the official closing price of 83 on Friday before the European/US announcement about targeting the Russian central bank. In other words we are looking at a 50%+ devaluation of the Ruble. Additionally, widespread announcements of divestments in Russian equities by the likes of BP pls and the Norwegian sovereign wealth fund mean that the Russian market will be a bloodbath on Monday.

As Bloomberg notes, commodities are heading for a manic start to the week as investors scramble to assess how the West’s latest sanctions on Russia will affect flows of energy, metals and crops.

The coming days are fraught with event risk for crude, even aside from the sanctions fallout. There’s a midweek meeting of OPEC+ on output; the Biden administration may tap stockpiles; and Iranian nuclear talks look to be nearing a conclusion. On top of that, American crude inventories at the key Cushing hubcould sink to the lowest since 2014 if there’s another modest draw.

…click on the above link to read the rest of the article…

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