Saudi Arabia will be part of it. Russia will be part of it. Iran may be part of it. India may be part of it. And that currency will be—unlike all other currencies—not be a fiat currency, but a currency backed by commodities these member nations produce. And what I hear is, I think, it will come to the market in the mid-’20s or something like that. So, in a few years’ time. It’s another two to three years away.

Once that comes and becomes reality, then I think this is an important source and currency unit to settle trade and to store certain reserves for countries that are not very close friends with the US. And once that currency unit gets established, that could be a big problem for the US dollar.

I don’t think it will happen overnight. I think it will happen step by step, but it’s a first step. So, I’m concerned that the US dollar is in a topping process. They could stretch into next year and then begin a decline. I do not believe that the decline will be dramatic in the first next few years, but I think from the second half of the ‘20s onwards, I think we could see the dollar in an accelerating decline, yes.

Eoin Treacy's view

Here is a link to the full interview

I agree the world is in a state of flux. There are significant competing themes evolving and not every cherished theory is going to be successful. The biggest consensus in the market today is there is going to be a soft landing. I have my doubts.

Instead, I agree with Felix Zulauf. It is reasonable to expect the pendulum of market sentiment to swing back and forth for a while yet. You cannot print copious quantities of currency, ignite a new inflationary trend, and think there will be no repercussions when the tap is both turned off and the direction of flow reversed.  

Felix Zulauf repeated, almost verbatim, the views expressed in the above interview in his video with Jeff Gundlach this morning and in this YouTube video from last month. He expects very choppy markets for the next few years where those able to get in and out during volatile swings will do well. He also shares my view that 2% yields on the 10-year are a real possibility next year. 

Viewed from the perspective of the guardians of the Dollar’s reserve currency status, the Fed has no choice but to put the inflation genie back in the box. The debasement of the currency, first in response to the credit crisis, then through successive rounds of QE, reached a crescendo during the pandemic. Countries saw the value of their Dollar holdings diluted by massive issuance.

The US government’s (pandemic) emergency powers have not yet been revoked. That means spending is still running unchecked. Into that environment, the Federal Reserve has no choice than to continue to tighten policy. Eventually unemployment figures will break higher and they will abandon concern for inflation. Then the market will be flooded with liquidity again and buy the dip will come back in force but so will inflationary pressures. That suggests shorter more violent cycles are to be expected over the coming years.

How credible a fight against inflation the Fed puts up now will go a long way to supporting the Dollar’s reserve currency status.