Putin, the Cook, His Mate and His Lover

Putin has announced that he wants all former Soviet republics to stop using the US dollar.

The US dollar has been the world’s reserve currency for quite some years now, and it gives the US an unfair advantage. When they print money it goes into a pool much bigger than their domestic economy. Basically they print money and foreign reserves take most of the hit. It’s doubtful this situation will persist for the whole of this century. When it stops being the reserve currency will dependent either on attrition, as countries like Russia and China wean themselves off the dollar standard, or it’ll be the casualty of a destructive effort to undermine the dollar. China has so much of the stuff they could simply flood the market and destroy confidence in it if they so desire.

If the US weren’t going to raise interest rates anyway, they’d be thinking about it in response to Putin’s paper-rattling. Putin seems to like rattling all manner of things, particularly sabres. If you haven’t seen the copious Putin-the-Strong publicity, then have a look for some because it’s hilarious. This week there’s a video of him giving away his secrets about keeping fit, working out with his bezzy mate Dmitry Medvedev. Obviously being ‘real’ men in a country where absolutely no one is gay, (that’s official), they also grill steaks because they can control fire and that’s why they’re in charge of Russia. The film was issued by the Kremlin so it’s for real. To us in the West this film will seem more like Brokeback Kremlin.

So the US will defend/strengthen the dollar by raising rates, and that in turn will make things here in the UK worse, or in my terms of reference, better. Better because we can start having the recession that has been held off like a deferred interest mortgage for the last seven years, and hopefully lead to a new era of growth. There’s an excellent place online to look for how likely that rate rise is going to be: The CME Group FedWatch Tool. As I write the implied probability of a September rise to ¼% stands at 67.9%. Interestingly, it should be noted that last month it was at 74.29% probability. However, the probability of a rise to ½% has become more likely, standing at just 25.71% last month and 32.14% today. As time goes by, the rise to ¼% becomes less likely because the hike is then expected to jump straight to ½%.

The Bank of England will probably dally a month or two to make it look like they make decisions themselves, and then follow suit. So by the end of 2016 the FCA’s ridiculous rules of not allowing non-status borrowing (which would have made mortgage lenders’ balance sheets stronger), and allowing loan sharks to run pay day loan scams virtually unhindered, will be exposed as people start to get repossessed, etc.

One Savings Bank [OSB] looks like it’s been going up a bit too fast. Of course, you might say that they’re showing strength against what has been a falling market. But it does look a lot like over-heating to me. They’re in residential and personal loans and savings, and that sector’s going tits up big time once interest rates start to rise, so perhaps one for the shorting watchlist. There’s support at 275p but then a bit of a gulf below that. A fall to 200p would be a nice result. A nice head and shoulders developing over the next three months would be a nice entry signal.