The Dollar’s Fate (In the Coming Year)

With apologies to Henry Wadsworth Longfellow

Listen, my children, and you shall hear
Of the dollar’s fate in the coming year
In the wake of a time that’s ne’er been seen
Since the Spanish Flu of Nineteen Eighteen
Perhaps Twenty-One will bring joy, not fear

Recapping Twenty shows that despite
A plague of biblical magnitude
The printing press revealed its might
As governments everywhere, debt, accrued
And flooded the markets with cash untold
(The better their citizens be controlled)
But all of that money was used, not for,
Increased production of goods onshore
Instead, for the purchase of stocks galore

Thus, equity markets at home rose higher
With Asia, too, on proverbial fire
Though Europe lagged, as the ECB
Was late to the party with more QE
Risk was embraced with a multiplier
Government bonds, though falling of late
Had seen yields tumble, year-to date
And lastly, the dollar, is now descending
As traders await this trend extending

Looking ahead, what can we expect?
Has Covid passed? Will ‘normal’ return?
Or are there surprises we’ve yet to learn?
Will stocks continue their flights of fancy?
Will bonds, inflation, at last detect?
Will dollars, everyone, start to spurn?
Will gold and bitcoin still seem chancy?

Regarding the virus, it’s not dead yet
Though hope springs eternal, and at last
The vaccines imply the worst has passed
But life, as we knew it, has been reset
Working from home (or living at work)
Is mainstream now, and not just a quirk
Office demand will certainly slide
And travel for business will lessen worldwide
Normal has changed, for boss and for clerk

Let us now speak of growth and inflation
Will growth improve on last year’s “success”?
Or will it instead fall flat and regress
Lockdown renewals bode ill for salvation
Policymakers constantly flail
As policy efforts constantly fail
Stimulus, fiscal, continues to flow
Interest rates are now forevermore low
Central banks tell us that this combination
Is perfect to counter a fearful stagnation
But in their efforts, good times to hail
The rising of prices will bypass their gaze
Leading to many more difficult days
GDP this year will struggle to One
Inflation, however, at Four, will not stun

How, then, will markets respond to this fate?
Equity prices at first will inflate
By spring, though, ‘twill be clear something’s amiss
Traders, their holdings, will start to truncate
While we shall not tumble into the abyss
Do not be shocked if the market does fall
Some twenty percent, at the least, is my call
What about bonds? How will they react?
Powell will ne’er let their prices contract
Yield Curve Control is the future we’ll see
Alongside the horror of pure MMT
Hence, ten-year bonds when December arrives
Will keep up their value, a cat with nine lives
One percent will be the height they attain
Implying the real yield most certainly dives
And so, the dollar will suffer great pain

Starting in Europe where Madame Lagarde
Is trying to keep up with Fed Chairman Jay
Sadly, what’s clear, at the end of the day
The ECB’s structure will make it too hard
While Fed and the Treasury work hand in hand
Pushing more money throughout all the land
Treaties in Europe have outcomes, unplanned
PEPP’s not enough for a rebound unscarred

Even though growth throughout Europe will sag
Even though prices will still be a drag
Nothing Lagarde can create will impact
The outcome, a euro that’s sure to move higher
Thus, if it’s something you need to acquire
At year-end, One-Thirty, you’ll need, that’s a fact

Tumultuous best describes last year’s UK
Twixt Covid and Brexit, the nation felt pain
Unhappily, this year, to Johnson’s dismay
Could worsen for every old bloke on the street
With growth in the toilet while prices show heat
It doesn’t seem much like Pound Sterling could gain

But real rates keep diving throughout the US
Offsetting those troubles, so if you need quid
Come Christmas, One-Fifty, if I had to guess
Is what they will cost as the dollar’s declined
Looking elsewhere, perhaps north of the border
Canada still seems a bit out of order
Oil’s rebounded but still seems confined
Meanwhile, housing there is quite well bid

However, again, it is Fed Chairman Jay
Who’s promised support for considerable time
Thus, when we get to our next Boxing Day
One-Fifteen for Loonies you’ll see on your screen
Eastward now, let’s turn our gaze as we glean
Whether the yen can continue its climb
Long-term, the dollar, its trend has been clear
Even before the debasement of late
Several percent, like a clock every year
Why would this year, something new, demonstrate?

Frankly, it won’t, as the Fed’s in control
Rather, the yen, will continue to roll
So, Winter Solstice this year will reveal
Dollar-Yen, Ninety-Six, where you can deal
Let us turn now to both future and past
Bitcoin and gold, which have both been amassed
Can both their prices continue to rise?
Certainly, as they’ve restricted supplies

For centuries, gold has defined what’s secure
Its glitter unblemished while paper’s debased
So, don’t be surprised if the relic’s embraced
As buyers pay Three Grand their wealth to insure
But youth has ideas which to many seem odd
And bitcoin is one such that’s been called a fraud
So, is it? Or is Bitcoin digital gold?
An updated version important to hold
As fiat debasement continues apace
This digital token gains further allure
And this year it seems Bitcoin’s making its case
As something that everyone needs to procure

It’s starting this year right around thirty grand
And hodlers believe that ‘tween here and the sky
Unless countries call for Bitcoin to be banned
A doubling or tripling’s the gain they’ll apply
One last thing I’ll highlight in digital space

The DCEP is now leading the race
This digital yuan, the first CBDC
Is coming soon courtesy of Mr Xi
It’s impact initially is quite unclear
But I guarantee that inside of a year
Nations worldwide will each roll out their own
And each will define a DC trading zone

While last year was filled with surprises galore
This year we’re likely to see many more
And finally, thank you, my readers and friends
For listening to all the twists and the bends
Now looking ahead to Twenty Twenty-One
Let’s all keep perspective and try to have fun.

Good luck, stay safe and have a wonderful new year
Adf

DCEP = Digital Currency / Electronic Payment
CBDC = Central Bank Digital Coin

Powell at the (Printing) Press

With apologies to Ernest Lawrence Thayer

The outlook isn’t brilliant for the dollar late this year
As Powell’s pushed his printing press into a higher gear
Just like we’ve seen each time the Fed has started up QE
The consequence is weakness in the greenback you will see

Despite the fact that growth at home is better than elsewhere
It seems Jay feels the need to do some more so just beware
The idea that with stocks at highs the Fed will further ease
Is crazy, but, this President, he feels he must appease

So with this as a start let’s take a look around our orb
And see which things we should ignore and which we need absorb
Our first stop is in Europe where the continent’s a mess
With interest rates still negative and banks under duress

The ECB’s new president, the elegant Lagarde
Will quickly find omnipotence was simply a canard
The toolkit there is empty, while unrest proceeds to build
And likely it is that her goals there cannot be fulfilled

So GDP most surely will remain near one percent
And prices, as they’re measured, will not make a real ascent
As to the euro which has slowly ebbed the past two years
Its time has come to rebound somewhat as QE appears

So come December next if you should gaze upon your screen
Don’t be surprised if what you see is One point Seventeen
North of the Channel is the Kingdom near a century old
Where Boris is Prime Minister and Brexit will unfold

The question now at hand is how that nation will perform
Will growth see sunny days or will there be a thunderstorm?
The Old Lady of Threadneedle now has a brand new boss
Who’ll quickly find his toolkit, too, is mostly filled with dross

And don’t forget that Boris promised by December next
A new trade deal with Europe will be written into text
But what if talks on trade devolve into a great morass?
A not unlikely outcome that could clearly come to pass

Then once again the pound will suffer greatly, like ‘Nineteen
When everybody feared the worst would come on Halloween
While that crisis was dodged, come New Year’s Eve some twelve month’s hence
The pound could once again be subject to some real suspense

But in the end QE is what will drive the dollar’s price
As Boris will not risk collapse of his new paradise
So Christmas next when thinking if, to London, you should go
Look for the pound to trade somewhere near One and point Four-Oh

In Asia two great nations vie to lead the world in trade
Both China and Japan, though, know the sting of Trump’s blockade
In China growth keeps slowing as their exports further sink
As well, the People’s Bank has seen supply of money shrink

And China finds itself with debt exploding nationwide
While bankruptcies are multiplying cross their countryside
The Phase One trade deal’s likely not enough to make a dent
And Xi will surely look for ways, the deal, to circumvent

While tariffs may not rise, much further cutting’s not the call
And even though the Chinese really need the Yuan to fall
The Fed’s QE will dominate the market dialogue
So look for Six point Sixty as investors, dollars, flog

Meanwhile the archipelago where Abe rules supreme
Is desperate to develop an inflationary scheme
QE on steroids hasn’t been enough to change the rate
Nor how people behave there while price levels won’t inflate

The population there is not just aging but reduced
And Abenomics hasn’t been enough, it for to boost
As well Japan continues, C/A surpluses, to run
Which history has shown leads yen to mime a rising sun

Combining this with Powell’s move, the balance sheet to build
A wish for weaker yen this year will just not be fulfilled
A year from now expect to see the yen climb to a peak
Of Ninety-five (or stronger) by the end of Christmas week.

North of our border, nervousness has much increased of late
As GDP is slowing and employment feels the weight
Of interest rates now higher even than in the US
While housing debt keeps growing, an old sign of new distress

The central bank has paused its modest path toward tighter rates
But not yet seen the light that everybody advocates
By late this year you can be sure the BOC will cut
Alas the Loonie will already have increased somewhat

Twixt QE here and tightness there the thing that I contrive
Is that come Boxing Day CAD will trade One point Twenty-Five
Next turn your gaze south of the border, to old Mexico
Where growth is nearly stagnant but inflation, too, is low

The central bank’s been cutting rates, though they remain quite high
And I would look for four more cuts ere we wave ‘Twenty bye
As well the prospects for investment there have just improved
As USMCA, in all its glory’s, been approved

Thus higher rates, investment flows and QE will all mix
To drive the peso higher, think Eighteen point Twenty-Six
Two other nations further south, Australia and Brazil
Bear watching, too, as many of you hedges need fulfill

Down Under growth continues, on the Chinese, to rely
As well as on the prices of the metals they supply
The RBA has only two more rate cuts to support
Their growth, which means that QE might just be their last resort

But they will wait till rates are nought ere buying Aussie debt
While Jay is wasting no time growing balance sheet assets
Despite their slowing growth, you ought not be too thunderstruck
When Aussie finishes the year Three Quarters of a buck

The largest nation in LATAM, Brazil, is working hard
To pass reforms in order, Socialism, to discard
Their growth has suffered lately and employment’s been a drag
Encouraging the central bank to cut rates, with a lag

But pundits everywhere believe with rates at record lows
No further cuts are coming lest a black swan moment shows
This leads me to believe that like most currencies around
The Real will get stronger as the dollar still heads down

So, Summer Solstice in Sao Paolo, next, don’t be dismayed
When Three point Six real you get for each greenback you trade
While that completes the currencies, I’d like to spend some time
On equities and bonds and gold, in this new paradigm

The Dow Jones, S&P and Nasdaq all seem overpriced
With stock buybacks supporting EPS and the zeitgeist
And with the Fed still adding cash to help expand reserves
Most pundits see a market rally and steeper yield curves

And while this seems quite reasoned for the first part of the year
Inflation moving higher will have consequence, I fear
As summer wanes, election nears, and chill invades the air
Don’t be surprised if equities have turned from bull to bear

The Dow begins the decade nearly, thousand, Twenty-nine
But I fear it is set for a nine thousand point decline
As well, the 10-year trades right now at One point Nine percent
But when inflation rises look for quite a sharp ascent

The Fed has shown they’ve lost control of money market rates
With repo volatility a cause of great debates
So as QE evolves to coupons from its T-bill start
Beware a steeper curve as bullish bets all fall apart

At Christmas do not be surprised if 10-year Treasuries
Are yielding Two point nine percent completing a short squeeze
And finally there’s gold which will see growth in its demand
As dollars are debased and stocks sink into a quicksand

Though modernists and technophiles all will say pooh-pooh
Our history has shown that even central banks accrue
The barbarous relic as part of assets that they hold
So at year end Two Thousand ought to be the price of gold

And so complete my current thoughts on how, will, markets trend
A weaker dollar, weaker stocks, is how I fear we’ll end
Regardless, though I want to say I do appreciate
Your readership throughout the year, to me, you all are great!

Good luck and have a very happy, healthy and successful 2020!
Adf

 

A Year So Dreary

(With apologies to Edgar Allen Poe)

‘Eighteen was a year so dreary, traders studied hara-kiri
As they pondered every theory, algorithm and z-score.
Interest rates were slowly rising, growth no longer synchronizing,
Brexit’s failures mesmerizing, plus we got a real trade war
Italy, meanwhile explained that budget limits were a bore
Europe looked aghast and swore.

Thus instead of markets booming, (which most pundits were assuming)
What we got was all consuming angst too great to just ignore
Equities reduced to rubble, high-yield bonds saw their spreads double
As the Fed inspired bubble sprung a leak through the back door
Balance sheet adjustment proved to be more harsh than heretofore
Stock investors cussed and swore.

But the New Year’s now commencing, with the markets’, trouble, sensing
Thus predictions I’m dispensing might not be what you wished for
Life’s not likely to get better, ‘specially for the leveraged debtor
Who ought write an open letter to Chair Powell and implore
Him to stop his raising rates so assets grow just like before
Would that he would raise no more.

Pundits far and wide all wonder if Chair Powell’s made a blunder
Or if he will knuckle under to entreaties from offshore
Sadly for mainstream investors, lest our growth decays and festers
Powell will ignore protestors though they’ll raise a great uproar
Thus far he has made it clear that neutral’s what he’s shooting for
Jay, I fear, sees two hikes more.

At the same time Signor Draghi, who’s EU is weak and groggy
Using words in no way foggy, told us QE’s dead, he swore!
Plus he strongly recommended that when summer, this year, ended
Raising rates would be just splendid for those nations at the core
Even though the PIGS keep struggling, this he’s willing to ignore
Higher rates might be in store.

Lately, though, are growing rumors, that six billion world consumers
Are no longer in good humors, thus are buying less, not more
This result should be concerning for those bankers who are yearning
Rates to tighten, overturning years when rates were on the floor
Could it be what we will see is QE4 as an encore?
Maybe low rates are called for.

What about the budget shortfall, in the States that’s sure to snowball
If our growth rate has a pratfall like it’s done ten times before?
While this would be problematic, growth elsewhere would crash to static
Thus it would be quite pragmatic to assume the buck will soar
Don’t believe those euro bulls that think rate hikes there are in store
Christmas next we’re One-Oh-Four.

Now to Britain where the story of its Brexit’s been so gory
Leaving Labour and the Tories in an all out civic war
Though the deal that’s on the table, has its flaws, it would help cable
But when PM May’s unable to find votes here’s what’s in store
Look for cable to go tumbling well below its lows of yore
Next December, One-One-Four.

Time to focus on the East, where China’s growth just might have ceased
Or slowed quite sharply at the least, from damage due to Trump’s trade war
Xi, however’s not fainthearted, and more ease he has imparted
Trying to get growth restarted, which is really quite a chore
But with leverage so extended, how much more can they pay for?
Not as much as days of yore.

With growth there now clearly slowing, public cash is freely flowing,
Banks are told, be easygoing, toward the Chinese firms onshore
But the outcome’s not conclusive, and the only thing conducive
To success for Xi is use of weakness in the yuan offshore
I expect a steady drift much lower to Seven point Four
Only this and nothing more.

Now it’s time for analyzing, ten-year yields, so tantalizing
With inflation hawks advising that those yields will jump once more
But inflation doves are banking that commodities keep tanking
Helping bonds and Bunds when ranking outcomes, if you’re keeping score
Here the doves have better guidance and the price of bonds will soar
At what yields will they sell for?

Slowing growth and growing fear will help them both throughout the year
And so it’s not too cavalier to look for lower yields in store
Treasuries will keep on rising, and for now what I’m surmising
Is a yield of Two point Five is likely come Aught Twenty’s door
Bunds will see their yields retreat to Zero, that’s right, to the floor
Lower ten-year yields, look for.

In a world where growth is slowing, earnings data won’t be glowing
Red ink will, for sure, be flowing which investors can’t ignore
P/E ratios will suffer, and most firms will lack a buffer
Which means things will just get tougher for investors than before
What of central banks? Won’t they be able, prices, to restore?
Not this time, not like before.

In the States what I foresee is that the large cap S&P
Can fall to Seventeen Fifty by year end next, if not before
Europe’s like to see the same, the Stoxx 600 getting maimed
Two Fifty is where I proclaim that index will next year explore
Large percentage falls in both are what investors all abhor
But its what I see in store.

Oil’s price of late’s been tumbling, which for drillers has been humbling
OPEC meanwhile keeps on fumbling, each chance to, its strength, restore
But with global growth now slowing, storage tanks are overflowing
Meanwhile tankers, oceangoing, keep on pumping ship to shore
And more drilling in the States means lower prices are in store
Forty bucks I now call for.

One more thing I ought consider, Bitcoin, which had folks on Twitter
Posting many Tweets quite bitter as it tumbled ever more
Does this coin have true potential? Will it become influential?
In debates quite consequential ‘bout where assets you may store?
While the blockchain is important, Hodlers better learn the score
Bitcoin… folks won’t pay much for

So instead come winter next, Bitcoin Hodlers will be vexed
As it suffers from effects of slowing growth they can’t ignore
While it might be worth Two Grand, the end result is that demand
For Bitcoin will not soon expand, instead its like to shrink some more
Don’t be fooled in thinking you’ll soon use it at the grocery store
Bitcoin… folks won’t pay much for

Fin’lly here’s an admonition, if these views do reach fruition
Every single politician will blame someone else for sure
I’m not hoping for this outcome, I just fear the depths we might plumb
Will result in falling income and recession we’ll explore
So if risk you’re managing, more hedging now is what’s called for
Fear and risk are what will soar!

For you folks who’ve reached the end, please know I seek not to offend
But rather try to comprehend the state of markets and some more
If you read my thoughts last year, I tried to make it very clear
That economic trouble’s near, and so that caution is called for
Mostly though I hope the time invested has not made you sore
For you, my readers, I adore!

Have a very happy, healthy and prosperous New Year
Adf