![]() dollar strength remains to be seen.Īs Luke Gromen (Forest For the Trees, ) noted, rising interest rates against a backdrop of falling inflation would likely be based on an unfavorable market assessment of U.S. What slice of that supply overhang leaks into the market as governments rush to defend their own currencies battered by U.S. Treasuries to the normalization (via quantitative tightening) of the $8.8 trillion Fed balance sheet, this tallies $16.3 trillion. If you add foreign holdings of $7.5 trillion in U.S. Treasuries, resulting in a 3% one-day decline (September 26, 2022) in long-dated U.S. To support the yen's decline, the Central Bank of Japan sold $21 billion of U.S. Treasuries to support their sinking currencies. In addition, the Fed monetary MENSAs did not consider that foreign Central Banks would resort to selling their holdings of U.S. Quantitative tightening will add to supply already swollen by trillion+ dollar deficits. The days of the Fed purchasing 60-80% of annual government borrowing needs through balance sheet expansion have been decreed over. ![]() ![]() Past performance is no guarantee of future results. 1-Month Basis Point Change in Interest Rate Paid on Debt (2011-2022) Interest Expense (12mo sum, not Fiscal YTD) vs. Treasuries to defend their national currencies.įigure 1. ![]() Factors that would accelerate this monthly creep to a gallop would be the continuation of Fed hawkishness plus sales by foreign holders of U.S. The average maturity on the debt is 6.7 years. The latest 12-month interest bill of $716 billion is based on a minuscule average annual interest rate of 1.971%. When annualized, that rate of gain translates to a nearly $300 billion addition to the fiscal deficit. debt will accelerate from its current monthly upward creep of 8.7 basis points (Figure 1). Should the Federal Reserve (the "Fed") stick to its Kamikaze inflation-fighting mission, the interest rate on U.S. In our view, the dollar "wrecking ball" may well represent the last stand for paper currencies in general, all of which are the ever-increasing issuance of fiscal decay. It is the reverse image of all other paper currencies' weaknesses. Overcrowded consensus trades are often top-ticked by magazine covers, a long-standing media tradition in keeping with Business Week’s "Death of Equities" cover in 1979.Įxtreme Dollar Strength May Lead to Instabilityĭollar "strength" is a mirage. The kiss of death for the strong USD may well have been delivered by the Bloomberg Businessweek cover below. What comes next? Could it be the rediscovery of gold, the one and only safe haven still relatively unscathed? government debt securities which are down 12.47% year-to-date through October 3, 2022. It is the latest and maybe final refuge of safety certain to disappoint clingers on as much as the late lamented "ultrasafe” refuge, U.S. As noted by economist Mohamed El-Erian, the "relentless appreciation of the dollar is terrible news for the global economy." ( Fortune, ). The facade of USD strength foretells a comeuppance for all paper currencies: A steep devaluation relative to gold. It is akin to the panicky overcrowding of a leaky lifeboat. dollar (USD) against all currencies and commodities, however, contains the seeds of its own demise. The wait for gold to be rediscovered as a safe haven is nearing an end. dollar lifeboat is no longer safe for occupancy. Technical charts bear this out, with the metal breaking to a three-year low. The investment consensus appears to be one of highly convicted bearishness. Already sagging under the weight of hawkish Fed speak, receding financial liquidity, competition from crypto and disappointment from its failure to rise to new highs on the back of high inflation. dollar" has been, of late, the most topical affliction for gold.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |