Hey There Income Hunter,

 

It’s ironic to think that Don McLain’s American Pie documentary came out in 2022 – the same year we saw the … Day the Petrodollar Died.

 

You’re probably familiar with McLain’s sprawling 1971 tune, a tribute to Buddy Holly, Ritchie Valens and “The Big Bopper” J. P. Richardson, who were all killed in a plane crash in the late-1950s.

 

Coincidentally, American Pie was released just as the American Petrodollar launched.

 

Now that system – under which OPEC accepted US dollars as settlement for all global energy transactions – is meeting a similar end.

 

This week, Chinese President Xi Jinping made a speech at the Gulf Cooperation Council (GCC) Summit and announced the purchase of oil and gas from the Gulf states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates).

 

However, instead of settling the transactions in dollars – as has been the case over the past 50 years – it will be in yuan.

 

In other words … the Petroyuan.  

 

This is massively important for markets going forward …

 

Here’s why.

 

(Petro) Dollar Bills, Y’all

In the early 1970s, the US was forced to default on its promise to exchange gold for dollars.

 

This triggered a crisis that nearly imploded the global monetary system. 

 

The US made a tactical move to save dollars by forming an alliance with OPEC. America promised to protect OPEC nations with military power in return for the collective’s promise to only accept US dollars as settlement for all global energy transactions.

 

This resulted in a switch from dollars backed by gold to dollars backed by oil.

 

Now, 50 years later, this agreement is null and void

 

The pictures below are worth trillions of barrels of oil. 

 

 

On the left is President Biden on his last visit with Prince Salman bin Abdulaziz in Saudi Arabia. On the right is President Xi of China during his recent trip to see the Saudis.

 

This critical shift in the settlement structure for global energy transactions will have the following three major repercussions and market impact: 

 

• Saudi Arabia can now control the price of oil they export with little fear of US sanctions. That is bullish oil.
• A huge part of the Petrodollar system was that nations exchanging oil for dollars would invest their excess dollars in US Treasury bonds. That is bearish bonds.
• Most importantly, over time this shift in energy settlement away from dollars will weigh on the dollar’s value. That is bearish dollars.

 

Bring It Home 

The times, to quote another wordy musician, they are achangin’ …

 

I have been on this endgame for the US dollar as the sole global reserve currency for the past year.

 

I have said all along to watch for Saudi Arabia to break their alliance with the US as the signpost that change is ahead. Now it is done.

 

One thing is for sure 

 

Change is great for volatility, which translates to massive trading opportunities. 

 

Short-term shorting bonds is a high probability trade and that was the first thing I did late last week. I would not short dollar ETFs here because they are very oversold. Wait for a 3-5% rally then sell.  

 

I also think oil is close to bottoming and I am looking to buy the United States Oil Fund (Ticker USO) on a break below $60.

 

Stay tuned for more updates in the weeks ahead, and in the meantime …

 

Live and Trade with Passion My Friend,

 

Griff