The Currency Cold War Is Just Heating Up: Saut


During the cold war between the U.S. and the former Soviet Union, when thousands of nuclear warheads were aimed at each other, the concept of mutually assured destruction was born. The term was used to convey the idea that both sides would be destroyed should a full-scale clash occur. Although those tense times have subsided, we now find ourselves in the midst of another global skirmish — albeit one that's happening on multiple fronts and involves money instead of the military.

Yes, it's the currency cold war, and it has already gotten serious enough to garner reaction from the G-7 earlier this month and from the G-20 last week. While foreign exchange traders would say the hostilities began with the debut of the Fed's unprecedented quantitative easing policy, many observers say the battle took a turn for the worse under the direction of Japan's new Prime Minister Shinzo Abe.

"I think it's a warning shot," says Jeff Saut, chief investment strategist at Raymond James, noting the yen's 20% decline since October. "The warning shot here is the new Japanese Prime Minister's efforts to push his central bank to flood their economy with yen, and the yen has absolutely collapsed over the past six weeks."

To be fair, since bottoming out in 2008 the dollar index (^DXY) has mostly traded in a range of 75 to 80, except for a few periods of risk aversion that stoked dollar demand. But if you go back 10 years or more, the dollar's decline is much more pronounced, having fallen from a range of 90 to 110.

So even though the geopolitical groups have acknowledged the problem and have pledged to pursue growth rather than use exchange rates to achieve their fiscal and monetary goals, it's a statement that is far removed from reality and, in many circles, is downright laughable.

"What I am worried about is if politicians kick the can down the road," Saut explains of the ongoing budget negotiations and the risk that a negative outcome would impact the economy and, in turn, "cause Bernanke to flood the system, and crank up the printing presses again." It's a scenario that he predicts would cause the dollar index to go back down again and likely cause other nations to follow suit to offset the impact of a weaker dollar.

How it all ends is anybody's guess, but if I had to make one, I would say that this race to the bottom will not end well.


View Comments (163)

Recommended for You

  • SHOE COMPANY: Our Ex-CEO Who Disappeared With All Our Money Called Us Over The Weekend, And Said He's Coming Back

    The missing CEO of show company Ultrasonic — who last week disappeared with the company's money   — says he's going to give it back. In a press release on Monday, Ultrasonic CFO Clifford Chan said  Qingyong Wu, the company's former CEO who was dismissed at a board meeting late last week, called him…

    Business Insider
  • Things To Know About Parks And Recreation

    Whether you're a Swanson devotee, a Leslie enthusiast, or a die-hard Anne fan, ramp up your trivia knowledge with this list of Parks and Rec facts!

    AdChoicesAnswers ScreenSponsored
  • When the Dealership Steals Back the Car They Just Sold You

    You bought a car and a couple days later the dealership comes by in the middle of the night and steals it back from you. JT went to a car dealer and found a late model used vehicle he liked. The salesman and the others involved in the deal kept coming and going from the desk where he was sitting,…

    Oppositelock from RSS
  • The Kawasaki Ninja H2 - Understanding the Hype

    Here's what we know for certain about the Kawasaki Ninja H2: it will be officially unveiled next month at the INTERMOT bike show in Cologne, Germany… that's about it.  Is the Ninja H2 the most-hyped motorcycle in recent memory? The answer is debatable - the cruiser world certainly heard the…
  • View

    A Look inside Alberta’s Oil Sand Industry (16 photos)

    In 1967 Suncor helped pioneer the commercial development of Canada's oil sands, one of the largest petroleum resource basins in the world.Canada's oil sands industry is shrugging off declining world oil prices as some of the world's highest-cost producers

    Yahoo Finance
  • The point where you might want to buy Tesla

    This has been a great year for Tesla. For founder Elon Musk, that means his shares have lost over $1 billion in value since the start of this month. Musk’s 28.3 million Tesla shares mean he still has $7 billion worth of shares.

    Talking Numbers
  • Cramer: As stocks slide, should strategy shift?

    More than a few bulls spent the session battling an upset stomach as stocks tumbled for the third time in three days. Given the circumstances, Cramer says it's only logical to question whether your stocks have topped out for the year. Looking out to the horizon, Cramer says there are plenty of…

  • Yahoo acquires Bangalore startup, sparking excitement all around

    This story has been updated to include Yahoo’s official response to our email.  Yahoo has followed Facebook and Google in acquiring startups based out of India. The deal is sparking excitement that global tech majors will look at Indian companies more closely as acquisition targets. Yahoo has…

    Quartz from RSS
  • Troy Baker: King of Voice Acting and His Roles

    Slowly, but surely, Troy Baker has risen from an anime voice actor to adept voice of video games. He's currently on fire so learn more about him.

    AdChoicesAnswers CelebsSponsored
  • 5 Mistakes Renters Make

    Whether you are new to the renting game or a renting lifer, you’ll want to avoid common and costly renter’s errors. A lease is the contract between renter and landlord that specifies the rights and responsibilities of each party involved in a property. Every rental property and experience is…

    Good Morning America
  • 4 Ways to Avoid Running Out of Money in Retirement

    Compared to the length of retirement, 15 minutes is no time at all. But that's all you need to learn the basics of developing a plan to make your savings last as long as you need them. Still, many investors don't take this time—putting their retirement

    Fisher Investments
  • Washington DC Could Light Up the Debate on Legalized Cannabis

    Whitefish, MT / September 23, 2014 / Washington DC voters appear overwhelming ready to legalize recreational cannabis, based on a recent poll sponsored by NBC4, Washington Post, and Marist. The poll found that 65% of respondents supported Ballot Initiative

  • Transocean Fleet Update: 2014 Out-of-Service Time Higher

    Offshore drilling giant, Transocean Ltd. (RIG), has provided a fleet status report for the period commencing Aug 21, 2014 to date. The value of all the new deals and extensions in contracts, during the aforesaid time frame, is estimated at roughly

  • Play

    Cramer: Don't flip out on Alibaba

    CNBC's Jim Cramer shares his thoughts on Alibaba, Yahoo and tax inversions.

    CNBC Videos
  • Retire Calculator

    This retirement readiness calculator is intended to provide a rough idea of how long your retirement savings and income will last. As a general rule of thumb, people should expect their annual expenses during retirement to be roughly equivalent to what they are today. If you set aside $10,000 per… from RSS
  • 10 Players to Watch in the 2014 NFL Season

    These guys are posed for a rise next year and should make a tear through the NFL. Or so we think anyway. Let us know what you think in the comments

    AdChoicesAnswers SportsSponsored
  • Meet the Enemy of Retirement Security: Procrastination

    Young people have the world's most powerful investing tool at their disposal. Image source: Sakeeb Sabakka via Fotopedia. Last year, I signed up for a program called "Connections" through my alma mater . The program is designed to bring

    Motley Fool
  • The Debt That’s Robbing Seniors of Their Social Security

    The Senate failed to vote this week on a bill that would have allowed millions of Americans to refinance their student loans at today’s low rates. The amount of student debt held by Americans age 65 and older reached $18.2 billion last year, up from just $2.8 billion in 2005, according to a report…

    The Fiscal Times
  • Silicon Valley talent wars: Engineers, come get your $250K salary

    In Silicon Valley, even the smallest team of talented engineers can hit the jackpot. Take Instagram, which entered into tech folklore when its 13 employees -- only half of whom were developers -- created a simple photo-sharing app that wound up getting bought by Facebook for a $1 billion in 2012.…

  • RadioShack may not have enough power to recharge its business

    Not long ago, RadioShack Corp. launched an effort called “Fix it Here,” an in-house service repairing mobile devices such as your smartphone or tablet. “That was the original mission for what RadioShack was, to do things like repairs,” said Stephen Baker, an analyst with the NPD Group.

  • Why Smart People Take Social Security Benefits Early

    Most self-described retirement experts will advise you to wait as long as possible before applying for Social Security benefits. The argument in favor of waiting goes something like this: By holding out until full retirement at age 66, if not longer, you increase the chances of maximizing your…

    The Motley Fool from RSS
  • Chef Who Blamed Picky Customers for Shutter Says He's Tired of Trying to 'Satisfy Patrons'

    The San Francisco restaurant owner who blamed picky diners for the closure of his restaurant is defending his actions. The San Francisco chef that fired back at difficult customers last week with a very sassy sign is at it again. According to ABC7, James Chu — the owner and chef of SO Chinese…

  • Russian assets firm on China data, newspaper report on sanctions

    MOSCOW, Sept 23 (Reuters) - Russian assets firmed on Tuesday, buoyed by positive economic data from China, a major market for Russia's raw materials, and by a report that the European Union might review sanctions imposed against Moscow over its role in