Thread by @TheBubbleBubble

I want to discuss why the U.S. Dollar is surging...

This is because a massive bubble in emerging markets that formed from 2009 to 2019 has burst, which is creating a short-squeeze in Dollars.

$UUP $FXE $EEM

See this thread for more details about the emerging markets bubble that is currently imploding:

https://twitter.com/TheBubbleBubble/status/1239727980928270338

The emerging markets bubble formed due to the extremely stimulative actions of central banks after the '08 Crisis.

Record low interest rates & QE caused a "tsunami of liquidity" to flow into EM bonds, pushing yields to record lows.

That created property & credit bubbles in EMs.

Since the 2008 Crisis, institutions borrowed Dollars at very low interest rates and plowed them into higher-yield EM bonds and pocketed the difference.

Those institutions were basically "shorting" Dollars, but are now forced to scramble & pay back loans as the EM bubble bursts.

The institutions that were shorting Dollars are now forced to buy back those Dollars at any price to pay back their loans - this is creating a short-squeeze in the Dollar (hence its surge).

They are also jettisoning EM assets, which is causing the crash in EM currencies/assets.

Even before the coronavirus outbreak, I had highlighted emerging markets as one of the bubbles that would burst, leading to the coming recession/depression.

That's exactly what is happening, unfortunately...

forbes.com/sites/jessecol…

This is a gigantic U.S. Dollar carry trade bust that we're experiencing.

There were also carry trades in Canadian and Australian assets (which had higher yields like EMs).

That's why those currencies/assets are sinking so hard too.

That carry trade was behind MANY bubbles.