China Just Ordered It s Banks to Dump The Dollar

China has now ordered companies and the banks to start dumping dollars. This is happening at the same time that the Bank of Japan is also dumping dollars. And I want you to understand why this matters. Because this isn't just about the world going away from the dollar. This is about the impact it's going to have on the bond market, the stock market, and the U.S. economy. Because over the past few years, since around 2022, we've seen the dollar and treasury yields move in the same direction. So as the dollar fell, yields dropped as well. But now it's starting to decouple. And this is a huge problem. Because when you have a spike in energy and a spike in interest rates, well, for the stock market and the economy, well, it means the game is about to be up. So if you're short-term on this upside in the market like I am, or maybe you're a long-term investor, you need to understand what's going on right now with the dollar. And we're going to take a look at what's going on in the markets today. I'm going to talk about why every dip is being bought right now. Because right now, China has ordered its companies to ignore U.S. sanctions, an unprecedented act of defiance that threatens to trap a vast banking sector in the crossfire as tensions rise between the world's largest economies. And those tensions? It's all about the dollar. Because remember, what is the global reserve currency? So what's at stake here is the dollar's dominance and its value. China's saying, look, we're getting tired of this and our companies are being held captive by the dollar. Well, no more. It's time to get rid of it. And workarounds for the banks can include transactions in the yuan. So how are they going to get that if they have companies that have dollars that are being trapped on their balance sheet? Simple. You swap those dollars for yuan, you dump those dollars, and you buy yuan on the marketplace. Now you can see the setup here of why China is going to be dumping dollars en masse. And what that does is it makes those transactions less visible to U.S. authorities. But here's the issue. It's about the refiners. It's about oil. Of course, we know that oil trades in dollars. And we can see that the refiners and several other privately owned processors have been facing asset freezes and transaction bans. Well, there's a simple way around it. Stop transacting in dollars. Get your trading partners to say, look, we're going to take something else. And that's exactly what China is moving to do right now. Dump dollars and buy yuan. On top of the fact, again, the Bank of Japan is dumping dollars. We see the UAE is in need for dollars. So there's all kinds of dollar issues right now that could send us plunging. But the problem, as you're about to see, is the decoupling between rates and the dollar and what that means for the markets. Now, as the scope of these sanctions continue to expand, it's going to disrupt the stability of China's energy supply and jeopardize China's energy security and development interests. And this is serious because what they're saying right now is we're not going to let the dollar stand in the way. Now, let's take a look, because I want you to see this relationship. It's absolutely critical. Now, I've got the nominal broad dollar index in blue against 10-year treasury yields in red. Now, let's go all the way back to around, say, 2006. And I want you to see what happens is the dollar starts to fall. And what happens is it puts upward pressure on yields. But we know around 2008, as we headed into recession, yields came tumbling down. But let's move forward. Look, you can see the lagging effect. You see the dollar dropping around 2009. Yields go up. You see it happen again around 2010. You can see it happen again around 2016, 2018, 2021. And then look what happened. And this is pretty unusual. You see them sink up. So as the dollar goes up, yields go up. Dollar goes down. Yields are going down. And right now, here's the issue. You're starting to see early signs of this decoupling, where the dollar's looking to drop and yields are looking to go higher. And if you think about the U.S. economy right now, and you think about the stock market, the stock market's okay with rising yields. We're going to look at that here in a moment. But there is a point where it says no more. And when you couple that with higher energy prices, and you think about businesses and consumers, you can see clear signs of stagflation in the future. Plus, tonight's show is sponsored by BitZero Holdings. You can find them on the CSE under the symbol BITZ.U and on the OTCQB under the symbol BTZRF. And the company is backed by Kevin O'Leary and locking in ultra-cheap 100% renewable power to fuel the AI boom and Bitcoin mining. Now, their stock is sitting right above its six-month volume profile and looking to cash in big on the AI boom. I appreciate if you take a moment to support our sponsors. Click on that Yahoo Finance at the link below or in the pinned comment. Stay tuned to the end of the show for more information. A sudden surge in the yen has ensured traders remain on edge over the potential for Japanese authorities to step back into the market after last week's intervention to curb declines. So we have on top of China now ordering companies and banks and giving them the green light. Go ahead and dump dollars. Get Yuan. Change how the world is trading in money. Look at what Japan is doing. It's trying to keep its currency from plunging off of a cliff. They're now dumping dollars. And the evidence is very clear in this chart. You can see the Japanese yen spot tumbling down back on April 30th. You can see it again on May 1st and on May 4th. A clear signs of intervention going on here. But the problem is we already know this stuff doesn't work at all. And that's the issue. And I want you to see here because there's not just China. It's not just Japan. I want you to understand what's going on in Europe and how it's going to impact the dollar. Because Japan, it doesn't have a lot of firepower left. Now, according to analysts at Goldman Sachs, the nation has firepower to intervene 30 times at last week's scale, though officials are expected to guard their reserves and step in at more effective moments. So what is the risk if they run out of their currency reserves? It means they start to sell treasuries in Japan. They've got a ton of them. So now you can see the issue. Japan's saying, look, we're going to defend our currency at all costs. We're going to sell off our reserves. And if that doesn't work, and we know historically it doesn't tend to work, we can start selling off our treasuries, drive interest rates higher, drive the dollar lower. We're going to break the U.S. economy and the stock market all at the same time. Because the resumption of a longer term appreciating yen trend, similar to ones following past interventions, appear unlikely at this juncture, particularly as overseas central banks are striking a hawkish tone amid inflationary pressures. So there's the other issue. It's not just about Japan. It's not just about the dollar. It's about what other central banks are doing. And the one that matters the most right now is the European Central Bank, because what they're about to do next month could change the scope of the dollar for decades. Now, it's highly likely the European Central Bank will have to raise interest rates as next meeting in June due to the Iran war. This from governing council member Peter Kazimir. And that is a big issue because we've been talking about the DXY index. And let's take a look at that. Because what it is, it's mostly the dollar against the euro. Yes, the yen's in there and there's some other currencies, but the big issue is the dollar and the euro. So if the ECB raises rates, what does that mean for the dollar? You got it. It's going down even more. Let's take a look at the DXY. And what we're looking at here is a range of about the last year and a half. And you can see the dollar trades upwards around 100 and then sellers come in and drive it all the way back down to 97. And you can see it's going in this sideways pattern, which is why back on April 1st, I said, look, I think the dollar is going down. I think the stock market's going up. And sure enough, what happened? The dollar broke down below its 200-day moving average. And that's that orange line going across your screen. It rallied up. Everyone said, ah, it looks like you're wrong. And then it comes crashing back down. Today, it's up. It's looking like it's holding resistance at its 200-day. But if all this dollar selling continues through, what's going to happen is you're going to see it likely come down to 97. The risk is from there that it breaks down even more. But the impact, the risk here, and again, whether you're short-term in the market like me and maybe worried, is it time to get out? Or maybe you're a long-term investor saying, look, is it time to cut my risk exposure here? Let's take a look at the relationship between rising yields in the market. Now, let's go all the way back to 2000. What happens? We're racing into the dot-com bubble. Yields are rising. Nothing's holding back the market. And next thing you know, yields hit a point where the market says no more. And next thing you know, the bull market comes to an end. The same thing happens going into the financial crisis. Yields are staying elevated. The market's rallying. And then it reaches the point and says it's not going to happen anymore. Again, we looked around 2010, 2011. You see it around 2018. Even in 2022, that drop in the market was this just unprecedented surge in yields. Now the risk is a weakening dollar decoupled from the treasury market. You see rising yields and that risk breaking the market. But there's one key point on this chart that I want you to understand. Let's go back and look because this is key. You'll notice it takes a lot of rising yields here to eventually break the market, suggesting perhaps we do have a blow-off move in the markets to come. And yet, if we see yields stay elevated or rise on top of energy prices, we know what is eventually coming. And that is the big risk here. But the dollar, it's all about not just what's going on in China, not just what's going on in Japan, but also the UAE. And they're looking with swap talks with the US. They're about joining an elite group of people who, if they need dollars, can go get them without having to sell assets. Because in the end of the day, that's what Treasury Secretary Scott Besant doesn't want. He doesn't want them selling stocks. He doesn't want them selling bonds. If you need dollars, just come get it from your swap line and pay us back later. And still officials from the UAE, one of the world's richest nations, with trillions of dollars of sovereign wealth fund assets. Again, a lot of those are US-based. So again, dollar goes down. They need dollars. They're going to sell them to get them. Not a good sign. We're quick to say the country wasn't in need of external financing. But here's the thing, and what I really want you to understand why this matters so much is because if everybody starts selling the dollar and then they need more, so they start selling treasuries or stocks, guess what you need? Someone to buy them. So what the UAE is potentially setting up for is to be a buyer here. Hey, give us a swap line. We'll come in. We'll get dollars. We'll buy things on the tip. We'll keep things propped up for you. And yes, that is a potential move here. But there is another buyer right now picking up all the dips. I said this was coming. And it's not just, of course, the vault control funds. Remember, they still have a lot to buy. It's corporate share buybacks. Authorized repurchases are now estimated to reach $1.55 trillion in 2026, a figure that would eclipse last year's record. So this is why you're seeing every dip get bought, because about 40% of corporates are currently in the so-called open buyback window. And every day, as companies report, that number is going to go up. And it's expected to remain open till around June 12, according to Goldman Sachs. But here's the key thing. If you look at these buyback deaths and what they do is they buy the dips. They look for drops and they come in and huge corporate buybacks come involved. Now, it's not the companies directing it. It's the investment banks. So on top of the fact that you have these vault control funds that are keeping things under control, you have corporate share buybacks coming in play. And on top of that, you have risk parity funds that still have opportunity to lever up here. But with equities back at their all-time highs after a V-shaped recovery from the Iran war shock, investors are increasingly caught between left and right tail risk. And that risk is the energy side of one. And now it's going to be the dollar and potentially rising yields. On the other side, it's AI and the semiconductor rally. And we know how this eventually ends. It's what happens before it ends that matters. That's why, again, I still think there's potential for a blow-off move. Let's take a look at this next chart. Because we've got the NASDAQ 100 against West Texas intermediate crude oil prices. This is what is eventually coming. We can see periods where crude oil prices rally. You get the 91 recession. Same thing happens going the dot-com bubble. But again, notably, you see energy prices rising. Just like you saw with yields. The stock market blows off. And then at some point, it gets to be too much. Same thing with the global financial crisis. You can see rising energy prices eventually had a hiccup in the markets around 2015, 2016. Same thing around 2018 and 2021 into 2022. And now everyone's sounding the alarm. But what they're missing is the bigger picture is that the market can still go higher. And yet, over the weekend, I got a call. Someone said, look, Steve, there's no way you can't be buying this market. You're going to get clobbered. Have you seen the Ziller BE ratio? It's sitting at 41. Only a fool would be buying at this level. In fact, it's only been higher since December of 99, right before the dot-com crash. And I said, yes, you know what? I am. I'm all in here. And I still think it goes higher because the market isn't the same then. It's now all about systematic flows. And on top of that, as we talked about on Sunday, what are the other issues here? Flows are kicking back in. Corporates are kicking back in. And as markets go higher, people have to play chase. You're going to see mutual funds have to reallocate and buy the high-flying stocks before the end of next quarter. Hedge funds. We talked about them. They're only around 51% long the market because they're still heavily short. And what's going to happen is all these pros are going to find out the reality of being behind the market as it goes up. And they're going to have to play chases. How do you get these blow off tops? Well, I still think the S&P hits to 8,000. But you can still see now the clear risks ahead. If China continues to dump the dollar on top of it with Japan doing it, the risks are yields now go up. At the same time, we have a spike in energy prices. And then at some point, everything keeps crumbling down. 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It's holding right above its six-month volume profile. That's the horizontal red line going across your screen and looking to race higher on the AI boom. Keep an eye on BitZero Holdings. They're tackling one of the biggest problems in tech with serious momentum. And you find them on the CSTN symbol BITZ.U and on the OTCQBN symbol BTZRF. And as always, with any company we feature on the show, you're in no obligation to purchase their stock. Be sure to research before placing any trades and use your risk control levels when you do. And with that, I'm Steve Van Meter. Thanks for watching. Thanks for being fans. Bye now.