You can listen or read to this article. The US dollar has been on a massive bull run for the last year or so. But when it turns there will be mad scramble, says Dominic Frisby. Here, he looks at what might halt the runaway dollar.
Jul 8, 2022·edited Jul 8, 2022Liked by Dominic Frisby
In addition to the long ramble I've just posted, I remember what a revelation it was to me in 2014 on my investment journey when I watched the following presentation on the USD by Raoul Pal on Realvision:
1. Start investing small amounts in 2008. We know what happened next.
2. Find Gold in 2009. I have a strong history as a Saver and I subscribed to the money printing = Gold up view. Up until September 2011, that view made the Peter Schiff's of the World look like geniuses, so I paid too much attention to them via sites like King World News (a site I have not bothered with since 2013).
3. The 2013 Gold washout hit at the same time I'd been reading Grant Williams TTMYGH newsletter for a few years; back in the days when it was free. I remember the disorientation and "How the f*** can this be happening when they're printing money?!" bewilderment I felt. Answer: I'd had no knowledge of how real yields play into the Gold price, and the impact USD monetary policy can have on this. In other words, I was clueless. Having aligned myself with the Peter Schiff view that "The Dollar is Toast", I had not realised the depths of my ignorance when it came to the Dollar and the associated carry trade. Via Grant, I inevitably found Realvision in 2014 and joined as a founder member The above presentation by Raoul that November was a revelation to me, and I suspect many other retail investors do not understand the dynamics he described. Eight years later, he's been right about an awful lot; even if the court of Twitter is now torching him for some recent poor calls on Crypto.
4. I'll cut a long story short by saying I think I've come a long way over the last 8 years. The most important lesson has been to never underestimate my own prospective ignorance, and all the ways I could be wrong if my World view is not correct. Another important lesson is that if you blindly follow the Peter Schiff's of the World because you happen to agree with their views on monetary policy, you'll likely lose your shirt.
Long USD has been by far the most effective portfolio hedge for me this year; particularly as the area of my portfolio I actively manage is SIPP and ISA-based; meaning the only available hedging tools for me in a bear market when US Treasuries don't work are inverse ETF's. I've had some luck with the NASDAQ, but shorting indices is hard when done via this method. Currencies are easier, and I've found the triple-leveraged ETF's SJP3, SEU3 and SGB3 of particular help, although I'd caveat this with the fact that these are swap-based, so any sign of a banking crisis will see me exit. On this front, we currently have Credit Suisse CDS's showing some signs of early stress. I'd also caution anybody using the above tools to position size appropriately, given the leverage. FX trades are one of the only places leverage makes sense.
I agree Kuroda-san backing off on YCC could be a catalyst to puncture the long USD trade, but this new ECB yield stabilisation fund for Italian sovereign debt looks like another incarnation of this, so I'm happy with the "Euro to Parity and Beyond" trade. The Pound is a trickier beast, but given the financialisation of the UK Economy, in a liquidity crunch Sterling will be sledgehammered. Our trade deficit makes us extremely vulnerable.
I'm a happy subscriber to Hedgeye's Macro Show and Risk Range products, and these have proven to be invaluable to me this year in addition to a trial subscription of their Early Look daily note. Got me into the short Yen trade at ¥1.20 and the Euro at $1.12 or so. Been riding them since. IMO, the current bear market ends when the USD takes a bath. Riding the Yen down further is risky though, because if the bear continues to deepen in the US Markets, the Yen carry trade is likely to reverse; strengthening the Yen in the process. Also got to consider the "Mrs Watanabe's" of the Japanese trading World (the ordinary punter, who owns US stocks, and potential panic sellers) for the same reason. I'm therefore only planning to stay in the trade for another month of Kuroda doing YCC. Targeting ¥1.40 as a level at which I'll dramatically cut my short Yen exposure, and I also want to see what happens when the Fed raise again this month. No particular reason for ¥1.40 - just a nice round number. ;)
In addition to the long ramble I've just posted, I remember what a revelation it was to me in 2014 on my investment journey when I watched the following presentation on the USD by Raoul Pal on Realvision:
https://youtu.be/JK_cc_1UNT0
My journey up to that point had been:
1. Start investing small amounts in 2008. We know what happened next.
2. Find Gold in 2009. I have a strong history as a Saver and I subscribed to the money printing = Gold up view. Up until September 2011, that view made the Peter Schiff's of the World look like geniuses, so I paid too much attention to them via sites like King World News (a site I have not bothered with since 2013).
3. The 2013 Gold washout hit at the same time I'd been reading Grant Williams TTMYGH newsletter for a few years; back in the days when it was free. I remember the disorientation and "How the f*** can this be happening when they're printing money?!" bewilderment I felt. Answer: I'd had no knowledge of how real yields play into the Gold price, and the impact USD monetary policy can have on this. In other words, I was clueless. Having aligned myself with the Peter Schiff view that "The Dollar is Toast", I had not realised the depths of my ignorance when it came to the Dollar and the associated carry trade. Via Grant, I inevitably found Realvision in 2014 and joined as a founder member The above presentation by Raoul that November was a revelation to me, and I suspect many other retail investors do not understand the dynamics he described. Eight years later, he's been right about an awful lot; even if the court of Twitter is now torching him for some recent poor calls on Crypto.
4. I'll cut a long story short by saying I think I've come a long way over the last 8 years. The most important lesson has been to never underestimate my own prospective ignorance, and all the ways I could be wrong if my World view is not correct. Another important lesson is that if you blindly follow the Peter Schiff's of the World because you happen to agree with their views on monetary policy, you'll likely lose your shirt.
End of sermon. ;)
Long USD has been by far the most effective portfolio hedge for me this year; particularly as the area of my portfolio I actively manage is SIPP and ISA-based; meaning the only available hedging tools for me in a bear market when US Treasuries don't work are inverse ETF's. I've had some luck with the NASDAQ, but shorting indices is hard when done via this method. Currencies are easier, and I've found the triple-leveraged ETF's SJP3, SEU3 and SGB3 of particular help, although I'd caveat this with the fact that these are swap-based, so any sign of a banking crisis will see me exit. On this front, we currently have Credit Suisse CDS's showing some signs of early stress. I'd also caution anybody using the above tools to position size appropriately, given the leverage. FX trades are one of the only places leverage makes sense.
I agree Kuroda-san backing off on YCC could be a catalyst to puncture the long USD trade, but this new ECB yield stabilisation fund for Italian sovereign debt looks like another incarnation of this, so I'm happy with the "Euro to Parity and Beyond" trade. The Pound is a trickier beast, but given the financialisation of the UK Economy, in a liquidity crunch Sterling will be sledgehammered. Our trade deficit makes us extremely vulnerable.
I'm a happy subscriber to Hedgeye's Macro Show and Risk Range products, and these have proven to be invaluable to me this year in addition to a trial subscription of their Early Look daily note. Got me into the short Yen trade at ¥1.20 and the Euro at $1.12 or so. Been riding them since. IMO, the current bear market ends when the USD takes a bath. Riding the Yen down further is risky though, because if the bear continues to deepen in the US Markets, the Yen carry trade is likely to reverse; strengthening the Yen in the process. Also got to consider the "Mrs Watanabe's" of the Japanese trading World (the ordinary punter, who owns US stocks, and potential panic sellers) for the same reason. I'm therefore only planning to stay in the trade for another month of Kuroda doing YCC. Targeting ¥1.40 as a level at which I'll dramatically cut my short Yen exposure, and I also want to see what happens when the Fed raise again this month. No particular reason for ¥1.40 - just a nice round number. ;)