1. I tell you what's happening - I'm having one of those days. All set to @RealVision a major hedgie, the guy cancels with an hour to go! Lame to cite trading fatigue. Just how many right decisions do you expect to make in a day? And he's a $ bear and the $ is on its ass.
2. in the bad old days, as my Fund was careering to its end, I remember holding interviews with the legendary @ttmygh and @EricSTownsend and no one was the wiser about my imminent demise. Macro has always been about double or triple parallel plays. Whatever...
3. I was going to ask my prancing tiger how the $ could go lower from here without official US Treasury endorsement? Otherwise, I think it has largely run its course. I know you all cite the exorbitant privilege to print $ money, limitless seignorage, but I don't see it.
4. Sure US banks are free to pump endless new $s into the global system, there's even a dark web off-shore, the euro-dollar market, which prints many times more $s than on-shore. But those $s are rarely redeemed. Rather they're hoarded in the FX reserves of mercantilist nations.
5. They 're careful not to sell them for fear a dollar devaluation that would diminish their own wealth. For those $s have got to keep them o'seas factories loaded to the brim. Not believe me? The USD HKD has been pegged around 7.75 for an eternity.
6. Trade economics would have the Yuan trade closer to $5 than $7. Try running a giant Chinese CA surplus then? Now sure Vs gold it's a different matter. An ounce that once cost $35 now gives little change from $2,000.
7. But you can't swing yards in the gold market and the vol can be 6x the FX market; you see the problem my big hedge fund friends have? Better if the $ just took a dive. Took it on the chin. Plenty more profit upside in that scenario. But it just ain't gonna happen.
8. Cause other countries got central bankers that print their currencies only to buy $s; remember you may scream and bitch about the falling value of the $ bill in your pocket but these guys horde them. So what to do? You need a weapon that has no equal; that delivers servitude.
9. And that my friends is Treasuries with large negative yields. I've said before that Treasuries dominate the FX reserves of other sovereigns cause a. it keeps their currencies in play and b. because they are as close to riskless both in liquidity and in terms of credit risk.
10. And so if others are to deny you the right to devalue your realm then it makes perfect sense that you should impose an economic rent upon them for their exorbitant privilege in return - your ability to determine your $ level. Sound complicated? Not really.
11. Let's steal a metaphoric mile. Present monetary policy is ludicrous. The Fed has inverted the yield curve - zero spot rates are greater than those further out in the curve. It's as though the Fed wants to slow the US economy! Dadaism perhaps?
12. Now for sure I'm taking liberties, and comparing nominal Fed rates with the market's real rates, but you get the drift (or not?) Now with all the election nonsense and blue tides behind us it's obvious that the status quo remains i.e. that deflation is still in the ascendancy
13. If I were running the Fed, first stop would be -100 bps Fed Funds with a declaration that seeing as I am the bank regulator of the US that I insist that deposits of $100k or more should automatically incur the new policy rate. Heck you get deposit insurance for free!
14. And if you can afford to have surplus cash of that magnitude simply sitting around you can for sure afford to pay 1, 2 or even 3pc for the privilege. Dare? I dare you to withdraw the money cause you ain't happy. I dare you to keep it under your mattress. Go on...I dare you.
15. I dare you to take on the drudgery of paying household bills with $ cash. Go on! I'm mad as hell. You folk have had a great run and I've given you an asset bull market that keeps giving. Now it's other folks' turn.
16. Here's my alchemy formula. You take real $ rates, -100bps and you multiply by total debt to GDP, 450pc, and you get a negative real cost of debt at the macro level of -4.5pc of GDP, a trillion bucks.
17. Compare to real GDP growth, and forget, for a moment, that commerce is being crucified on a cross of covid, I estimate recurring real growth of maybe 0.5pc, and so I would conclude that we're presently transferring 4pc of GDP away from the money bazaars of the creditor class
18. Push policy rates to -200bps and who knows but that transfer to ingenuity, to square pegs in round holes, to permanently higher real GDP growth might start knocking on 10pc of GDP. Heck we don't need Marxism to redistribute income. We need an effective and courageous Fed.
19. The 1st biz cycle i.e. you losing your dependancy for reasons other than war or famine was c. 1830. Blame London bank exuberance in the years shorn of the gridlock of the gold standard. That was a mean son-of-a-gun depression. Arguably ended with the find of Californian gold
20. The depression of the William Jennings Bryan era and its litany of rail road insolvencies was upended by the discovery of cyanide gold leaching which brought the huge gold deposits of S Africa on stream to goose the int.l economy.Depressions call for monetary serendipity.
21. This time is NO different. The US could impose an economic transfer by targeting negative Treasury bond yields on the int.l gaggle of mercantilist nations that thwart at every turn its desire to restore balance via a $ devaluation. Get smart. Trade sanctions are for smucks!
22. Effectively it would be a trade tariff. Maintain obstacles like the Chinese and their unwillingness to float their currency and pay a surcharge as you hoard $s to maintain a super competitive exchange rate. Simple. Pay the negative yield on Treasuries...no hard feelings.
23. In 2006/7 by my alchemy formula and on the eve of the financial calamity that ushered in the ensuing depression that goes nameless, the US was transferring upwards of a trillion dollars of GDP from its poorest folk to the sovereign nations of Saudi Arabia, S.E Asia and Europe
24. The absurdity of it all brought us Trump and Brexit. Let's learn the lesson second time around. Negative rates are the next major gold discovery. And if you are sitting there befuddled. Buy eurodollar futures. Buy lots of them. Assuming you already own gold.
25. As Obi-Wan Kenobi may have taught me, have no fear of death or that which shall pass because shorn of my Fund I feel more powerful. Thank-you Mr Big Shot hedgie that didn't even have the grace to call. Tonight I cried in my brother's arms and it was better than laughing.
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