Problem is, the Saudi's don't have an unlimited supply of dollars and while they do have some supply, it is growing smaller by the day because of the collapse in oil prices. In fact, anecdotal evidence says they might be in trouble because as Matt Franko pointed out in an earlier post, their oil monopoly, Sudid Aramco, is thinking of selling shares via an IPO.
Bottom line...looks like they could be in trouble.
If this peg breaks the riyal is going to implode. You could even get hyperinflation there, which means that a small investment could quite possibly make you a lot of money. Talk about "The Big Short!" Wow!!
Oanda has a USDSAR contract. You buy that, which means you are effectively shorting the riyal.
One caveat, which Matt Franko and I discussed privately...if this were to happe the idiots at the Fed may give the Saudi's unlimited dollar swap lines like they did with the Europeans. If so, that would kill our profit potential. It's definitley a possibility since the necoons in Washington would ot want to see the Saudi regime collapse and they would put a lot of pressure on the Fed to keep the Saudi's afloat.
Even so, I think there is little risk. Just time risk.
P.S. If you don't know how to trade Forex, do yourself a favor and buy my video course.
4 comments:
What do the Saudis use riyals for with all that USD sloshing around?
Even their borrowing has been all in USD for the last year.
Saudi foreign reserves are over $600 billion.
I suspect they may deal with this with more 'government austerity'.
I've been thinking about this for some time now, Mike. Your post prompted me to put on a small position here. Saudis are definitely in trouble, and the new regime is making some serious waves. I think your scenario is not too far fetched.
Neil, quite right. The Saudis will just enforce more austerity. If they can quite back on spending in eastern Saudi Arabia (a predominantly Shia area), they will. It'll be fresh red meat to throw to their jihadi base.
In any case, as we all know pegs are stupid and even the Saudis shouldn't have one, but if the Saudis want to keep it what will stop them? The markets? Be serious. Suppose the Saudis were down to their last riyal, what makes you think the US won't help them out and supply as many dollars as the Saudis want or need? Or pressure the Federal Reserve create a swap beneficial to the Saudis (for example, a swap over fifty years)? Presumably there are a hundred and one ways to get the dollars to the Saudis. And the US isn't going to leave its most important ally pissing in the wind over a few digits that can be punched into a computer at no cost.
On the face of it Mike is making a very astute financial speculation, but I suspect he's totally wrong on this. After all, politics trumps markets any day of the week. Then again, Mike's a rich, successful trader, and I'm a penniless nobody who's never traded a penny in his life. So why listen to me?
I would call you out for just one statement: "politics trumps markets any day of the week.", which is simply not true. No government has ever beaten the business cycle. Not even once.
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