The dollar

[sdholloway56]

without editorializing, why I think it will not revisit much of the territory where it spent most of 2002-14.

In 2001, the US took interest rates well below the EU, UK, and even near Japan.

Today, the US 10 yr. is sharply above Japan, the German Bund, even the UK Gilt.

That will pull money toward the US, and also provide plenty of buyers for US borrowings. Sort of a virtuous circle for now.

Editorial note: I suppose the Reds will storm the Winter Palace, drag you out into the snow and shoot you someday. But probably not now.

[sdholloway56]

We’ve already had a rate raise- the Fed and PTB chose not to fight the long bond and let it rise a full point.

They did stop it dead at 1.75 but it hasn’t pulled back much at all. I think there’s enough ammo to hold it here for a while. But when the recovery gains more steam I expect they’ll let it move up another step. All long before they raise the FF rate or stop QE.

[sdholloway56]

QE is overhyped, both for and against.

All it, and a pledge of 0 forever are is the Fed screaming for everybody and their sisters to go whole hog Risk On with wild abandon.

They did, and I think virtually every asset class has already pretty fully priced it in, or beyond.

[sdholloway56]

At the wildest point of the previous cycle CPI hit 5% for one quarter in ‘08, and 4% for one during the echo bubble in ‘11.

I expect something similar.

It hit 0 for one quarter during the mini-recession in ‘14 following the sharp rally in the dollar when the Fed tried tiny baby steps toward normalization and running down the balance sheet.

I don’t expect to see that either, maybe never.

[erikjohnson61y]

It seems you are simultaneously arguing that (relatively) higher rates in the US will attract capital, while ZIRP will encourage a "buy it now before the price jumps further" mentality.

Von Mises had a word for this -"Katastrophenhausse" - the "Crack-up Boom" (before the real consequences of money printing fall become evident.)  Many governments throughout history have tried to increase wealth by printing money. Hasn't worked yet. Do Saint Jerome and Auntie Janet have the magic potion? Don't count on it. Governments don't exist to solve problems or help people, they exist to perpetuate themselves. Politicians will do whatever it takes, no matter how stupid in the long run, to ensure consequences are avoided during their watch.

[sdholloway56]

Some amendment to my memory.

The very strong dollar ‘94-‘01 was only driven below these levels over a multi-year downtrend.

So the folks who drove commodities to the sky with short dollar carry trades were raking it in coming and going.

I don’t see that here- thus my skepticism on the Commodity Supercycle thing.

Mini cycles are nice, too. But important to know the difference.

[sdholloway56]

Pretty tough to have hyperinflation in an economy that is laden with debt at every level. 

The only scenario that I can arrive at is if a deflationary panic greater than ‘08 or ‘20 strikes- or perhaps an escalating series, and “they” decide to literally print money as the final resort.

There will be a debt reckoning some day, but Fed Guv debt is the least of the problem. In fact it only tends to get expanded in various schemes to prop up private debt and the private wealth it represents.

Which is actually most of it. A problem.

Debt relief for the masses? Communism!!!!!!! Think of the poor billionaires who are the Real Victims!!!!

[sdholloway56]

Anyway.

Barring an actual ratings downgrade* on account of rising default concerns, relative currency levels are mostly just a matter of interest rate differentials.

*did used to concern me when the world’s #1 deadbeat was POTUS. But our financial and monetary institutions proved equal to even that.

[sdholloway56]

Loading corps with debt for buybacks was an increasing problem during the Obama years but only increased even with the Trump tax cuts.

Meanwhile, manufacturing employment and fixed investment fell, and the trade deficit rose.

[sdholloway56]

Little known fact that the first act of the incoming administration was to send Postal Team 6* to USDA and capture Sonny’s Magic MAGA Money Machine before retreating sappers could blow it up.

*the American Heroes who rappelled from a chopper onto the Chinese Billionaire’s fleeing yacht to apprehend not yet pardoned Steve Bannon.

Whatacountry!!!!