Janet Yellen’s SI Curse

April 13, 2023

It may be an urban legend, but it does have a notable batting average…

In April 1987 the cover of Sports Illustrated featured Cleveland Indians with the headline “Indian Uprising.” The Tribe ended the season with baseball’s worst record.

In January 2010, quarterbacks Brett Favre and Mark Sanchez both made the covers of SI in different regions. Both lost their ensuing playoff games.

There are dozens of stories like these.

It’s called the “SI curse.”

It says an appearance on the cover of Sports Illustrated almost guarantees frustration and failure.

Janet Yellen may be becoming the financial version of the same…

The Yellen Curse?

Back in June I wrote an article called “Janet Yellen is Wrong Again.”

It mentioned her stellar predictions on the transitory nature of inflation… and her driving the Treasury toward green and social justice goals.

Last week, apparently looking to wreak more havoc, she stepped into the US dollar arena…

“I don’t think the dollar has any serious competition, and is not likely to for a long time.”

That gem came after she was asked about the global surge in non-dollar trade. 

Specifically in the area of oil.

Investors rarely think about the implications of the dollar/oil link… 

In 1970, after the gold window closed, leaving nothing to stabilize our currency, a small team led by Nixon’s Secretary of State, Henry Kissinger, struck a deal with the Saudi royal family. 

According to the agreement, the United States would offer Saudi Arabia military protection for their oil fields and the Saudis would agree to price all of their oil transactions in US dollars. (They’d refuse all other currencies as payment for their oil.) 

The “petrodollar” was born.

For decades the US Dollar has been the go-to currency for oil purchases. And this “backing” by Saudi oil that has supported the US dollar (not to mention the US Treasury market). 

That Backing is Starting to Come Undone

Since the Russia/Ukraine conflict started, the US has been trying to squeeze Russia via a bunch of sanctions. Last year they tried to impose caps on the price that could be paid for Russian oil. Predictably, Russia didn’t take it lying down.  They responded by saying they would accept

payment for its energy in the currency of “friendly” countries and last year ordered “unfriendly” EU states to pay for gas in roubles.

And just because the US says don’t buy Russian oil, it doesn’t mean the rest of the world is going to go along. They’ve got the security of their countries and the well being of their citizens to think about. 

India is the third largest importer of oil in the world. Russia has become their largest supplier. 

And they’re not paying for it in dollars.

Reuters

Instead they’ve been using the UAE currency, the dirham, as well as Russian rubles.

Saudi Arabia has also been looking to secure a larger share of China’s demand (who also does a ton of business with Russia) by steering away from the dollar. According to the Wall Street Journal…

The Wall Street Journal

Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia.

This is not necessarily the end of the world as we know it. There are a number of international protocols that would prevent the dollar from losing its reserve status entirely. But it could be the start of a slow motion death of an economy that is only backed by $30-plus trillion in debt. 

Cassandra She Ain’t…

Six years ago, after the dust had settled on the GFC of 2008, Janet Yellen made another prediction on the likelihood of another financial crisis…

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.”

Maybe she should just stop making predictions…

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily