Dear Reader,
The United Stated Dollar(USD), the currency of the United States of America is the current global reserve currency. Due to the stability and stature of USD central banks all over the world keep much of their respective countries' reserve money in USD. 40 % of hard currency USD are outside the US.
In March 2020 when the coronavirus pandemic erupted the EUR/USD exchange rate fell to 1.07 and the Standard and Poor's 500 stock market index, the de facto global stocks benchmark was down 30 % from its recent peak. Bitcoin's price in USD was down more then 50 % from its recent peak.
Then, the Federal Reserve, the central bank of the United States, went all in, announced several shock programs to support the economy and basically started creating money, printing money to execute its announced programs to support the US economy. What is more, the Federal Reserve opened up its USD swap lines with the European Central Bank, Bank of Japan, Bank of England and other leading central banks which basically meant the Federal Reserve is ready to take in Euros, Yen, Pounds and several other select currencies and pay out United States Dollars.
All this helped alleviate investors' fears, the panic died down and investors went back investing heavily in stocks and Bitcoin. As a result stocks, technology stocks especially, and Bitcoin staged remarkable rallies since the depths of the fall in March. Now at 1.22 USD per EUR there is talk that the USD might strengthen again which exerts pressure on stocks and Bitcoin which wobbled recently.
Yes, if the USD strengthens markedly against a basket of other leading currencies, stocks, especially technology stocks and Bitcoin will crash. Being as it is stocks and Bitcoin are overvalued, so any catalyst, especially a significant one like USD appreciation, could lead to bursting of the technology stocks and Bitcoin bubble.
Before 2007 the flows in the financial system were going mainly through commodities prices driven by China's rise. Currently the financial system is being driven by the movements of the USD exchange rate. A currency is like an index for a country itself. And USD rise back to prominence means obviously that the United Stated of America are as great as they have ever been.
The US consumer needs a strong dollar since the US economy is 75 % consumption. And it seems the new incoming US Treasury Secretary and former Federal Reserve Chair Janet Yellen is prepared to give a stronger USD to the US and global consumer.
I am of the opinion, though, that the coming USD strength in the next two years will not be excessive and some pockets of the US and global stock markets will perform very well. This seems especially true for value stocks like energy and materials companies, banks and other financials and industrial companies.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
1 comment:
Recently I have been looking at Hugh Hendry's thesis about US negative interest rates:
https://www.youtube.com/watch?v=9CKuQf3bFxk
However, in order this to happen, first we should have a market crash.
Actually I think the FED easing is putting other central banks at pressure to print even more and buy US assets.
The thing is that sometimes it does not work, as was the case with the Swiss Bank throwing the towel against the CHF/EUR peg.
It is indeed quite a race to debase. That is why bitcoin, gold and silver, but also stocks surge. Interest rates going negative? It is already the new normal.
Cheers,
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