The U S. dollar, the business cycle and what it means for U.S. vs. international equities
What I also see in the chart above is that, during every other cycle, the dollar tops seem to be more significant. That would imply a 16-year cycle, of which the 8-year period is a half-cycle harmonic. This current cycle would be the weaker type, assuming that this pattern continues. There is an important 8-year cycle in both the dollar and in gold, as I have discussed previously here. We are currently in the ascending phase of the dollar’s 8-year cycle, which should mean a continuing rise until a top ideally due in around August 2024.
As a reflection of this the charts below show the unemployment rates and central bank balance sheets of major countries for as far back as data is available. As shown, all the levels of central bank printing of money and buying of financial assets are near or beyond the previous record amounts in the aveva information management war years. The chart below shows the percentages of reserve assets that are held in all countries’ reserves combined. As has been the case with the Dutch guilder and the British pound, the status of the US dollar has significantly lagged and is significantly greater than other measures of its power.
As only the Fed can be a provider of dollar funds, it opened its swap facilities with several other major Central Banks again . Fed swaps therefore have quickly reached some 385 billion in recent weeks as financial entities across advanced economies are craving short-term dollar funding. From studying history we can see that reversing a declining power is very difficult because that requires undoing a lot that has already been done.
We believe that could change with the reopening of the global economy. The value factor has a high allocation to cyclical sectors, which have lagged miserably but now possess significantly better valuation versus their growth counterpart. The US Dollar Index is climbing up to its highest levels now since 2002, which is getting a lot of currency traders excited. U.S. manufacturers are a lot less excited, because a more valuable dollar makes it harder to sell products overseas. A bigger twin deficit in the US is almost certain for the next few years — not least given the large fiscal stimulus that has been deployed by Congress to fight the US economic lockdown. The US government primary deficit is expected to reach 13.5% of GDP in 2020 (versus 3.6% in 2019) — on par with what was seen during the Great Financial Crisis.
And what about the possibility of official US Treasury FX intervention to weaken the dollar?
The relative attractiveness of alternative currencies hinges on economic variables and varies widely by region. You can ride in-person or virtually so you can show your support and ride anywhere you choose. You can see a summary of the research funded by this event over the years on the Penn Medicine Orphan Disease Center website. MacroMicro does not take any responsibilities for our users’ investment activities, nor for their earnings or losses. All articles, data and content provided by MacroMicro shall not be relied upon for any investment activities.
It is export earnings minus import spending (i.e., the balance of goods and services) that makes the net income of a country that comes from trading with foreigners. To convey that picture for the US, the next chart shows US exports of goods and services minus US imports of goods and services since 1900. As shown the US sold more than it bought until around 1970 and then started to buy more than it sold. The chart below shows the aggregate power indices for the US, UK, Russia, and China since the end of the war, which conveys this big picture. The Blue arrows in my charts point out Cycle Lows but as the charts cover different timeframes, so are the types of Cycle lows that are being highlighted.
However, as is typical, a) those that prospered overdid things by operating financially imprudently while b) global competition, especially from Germany and Japan, increased. As a result, the lending and the finances of Americans began to deteriorate at the same time as its trade surpluses disappeared. A stronger US fiscal condition predicts a higher excess return on the dollar against foreign currencies in the following year, and more so against foreign currencies with higher dollar betas.
The first one shows how conservative Republicans in the Senate and House and how liberal Democrats in the Senate and House have become relative to the past. Based on this measure they have become more extreme, roboforex review and their divergence has become larger than ever before. While I’m not sure that’s exactly right, I think it’s by and large right. David Beckworth and Crowe have dubbed this the monetary superpower hypothesis.
As a result, the US economy and markets were very strong for many years to come. As Figure 5 illustrates, based on the price-to-earnings (P/E) ratio, the value factor has not traded at such a striking discount to growth since the dot-com bubble of the late 1990s. Additionally, the value factor is bolstered by encouraging business cycle trends over the next months. Coincidently, the rotation away from growth and toward the value factor also supports international equities due to their more significant cyclicality. On the growth side, the US economy is not currently expected to be hit worse than the RoW from the Corona Crisis — although it really is too early to call. Our Dollar Smile Theory work shows that global economic recessions yield a strong dollar environment — and this should be the baseline for how the dollar performs in 2020.
Team Castleman Disease rides to raise funds to further our research in our quest for a cure. This research will continue to help those lives impacted by Castleman Disease. The following graph therefore also supports the notion that dollar tightness and global industrial production are correlated. Lower Treasury yields, a sign of dollar tightness, and the global PMI have shown quite a significant correlation over the last decade. Please complete this reCAPTCHA to demonstrate that it’s you making the requests and not a robot. If you are having trouble seeing or completing this challenge, this page may help.
The Penn Medicine Orphan Disease Center will host the 9th Annual Million Dollar Bike Ride on Saturday, June 11, 2022 to raise money for rare disease research. The Penn Medicine Orphan Disease Center will host the 9th Annual Million Dollar Bike Ride to raise money for rare disease research. The ODC is proud to partner with 30+ disease teams made up of patients, caregivers, foundations and family members who tirelessly raise much-needed funds for research grants. Simply adding up the public debt for some select advanced economies gives us an approximation of the global bond market for government securities.
The second chart shows the USD’s 3 Year Cycle Lows and its last two 15 Year Super Cycle Lows. U.S. equities have steadily outperformed international equities since 2008. A depreciating USD trend generally corresponds with international equities outperforming the U.S., and vice versa.
Because I had never seen a devaluation before, I didn’t understand how they worked. Then I looked into history and found that on the evening of March 5, 1933, also a Sunday, President Franklin Roosevelt had given essentially the same speech, doing essentially the same thing, which yielded essentially the same result over the following months . As I looked further, I saw that it had happened many times before in many countries for the same reason—too much debt that needed money to ease the debt burden—with essentially the same proclamations by top government officials. Throughout the prosperous 1960s, the US did the classic things that helped the world to become more dollarized. For example, US banks rapidly increased their operations and lending in foreign markets. By 1970, 79 banks had them, and by 1980 nearly every major US bank had at least one foreign branch, and the total number of branches had grown to 787.Global lending of dollars by American banks boomed.
The information provided by StockCharts.com, Inc. is not investment advice. The dollar has really only been freely traded since 1971, when President Nixon abandoned the Bretton Woods accords and allowed the dollar to float. Before then, it had been relatively fixed by international agreements, and any cyclical behavior would have been crushed by that governmental action. So we cannot really know what this cycle would have been like before 1971. On the flip side, we believe the unique nature of the pandemic shock will remain a constraining factor on how far and fast the dollar can fall.
Double Dollar farm shares
That means thatif the US dollar were to lose its reserve status and significantly depreciate in value it would have a devastating effect on the finances of those countriesholding those reserves as well as private-sector holders of dollar-debt assets. Those with dollar-debt liabilities and those with non-dollar assets would be the big winners.In the concluding chapter, “The Future,” we will explore what such a shift might look like. Cheap mortgages were also available for veterans, which led to a housing boom that fueled the expansion. There was a return to profit making activities, which raised the demand for labor so employment was very strong.
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve. Renewed growth in China’s manufacturing activity, coupled with softening developed market demand, should ease some supply-side pressures – but several other inflation risks remain prevalent.
Consequently, the carriage of bicycles on a given train or for a continuous journey on connecting trains cannot be guaranteed. Explains major cyclical movements from the mega cycle of world power to stock market cycles which last years. Last but not least, the graph below displays our inhouse US financial condition index, courtesy of William Peters. Given the dollar’s central role in our global financial system as well as the sheer size of US capital markets, US financial conditions matter for global liquidity.
Even after the war, it continued to earn a lot of money by continuing to export a lot. The appreciation of the dollar during times of global economic stress does not reflect a strengthening of the US economy but rather a tightening of Fed monetary policy. Moreover, as the dollar is a safe haven, global financial turmoil literally causes a dollar crunch as investors are flocking to safe haven assets. The first set of charts below shows a) the total amount of gold reserves , b) the total value of the gold reserves as a percent of the country’s imports, and c) the total value of gold reserves as a percent of bitcoin brokers canada the size of the economy for the US, Britain, the Soviet Union/Russia, and China. They are meant to convey a picture of how much savings in gold these countries had and have a) in total, b) in relation to their needs to import from abroad, and c) in relation to the size of their economies. As shown,the United States had enormous gold reserves—approximately 10x those in the UK—and was tremendously rich by these standards in 1945, which came about by its large net earnings previously shown, and the US spent down these gold reserves until 1971 when it was forced to stop redeeming its paper money for gold.
The recent USD bear trends of 2002–2008 (-25%) and 2009–2011 (-17%) were both characterised by greater global portfolio shifts towards RoW assets — with US equities underperforming during these periods. Of late, however, there has been a clear preference by global investors for US equities — with the S&P 500 posting an average annual outperformance of 9.8% since August 2011 versus its global peers. This relative outperformance has only accelerated since the Corona Crisis hit global markets . There’s little to suggest that this trend will turn on its head anytime soon — much like the US relative growth story, there would need to be an idiosyncratic US shock from the current crisis that clearly impedes the US recovery relative to the RoW. With the Fed also making sure this doesn’t happen by buying just about anything it can get its hands on — it is highly unlikely that US policy inertia will be such an idiosyncratic shock. Instead, one would have to look to arguments such as a greater risk of a second COVID-19 wave in the US or a bigger US corporate default cycle to justify US equities from materially underperforming the RoW from here.
As you will see when we look at China in the next section of this book, China’s economic reform and open-door policies after Deng Xiaoping came to power in 1978 and the welcoming of China into the World Trade Organization in 2001 led to the explosion of Chinese competitiveness and exports. Note the accelerations in China’s surpluses and the US deficits from around 2000 to around 2010 and then some narrowing of these differences, with China still tending to run surpluses and the US still running deficits. Germany was split into pieces, with the United States, Great Britain, and France having control of West Germany and Russia controlling East Germany.
As I recounted in Chapter 2,I remember the devaluation of the dollar very well. I was clerking on the floor of the New York Stock Exchange at the time.I was watching on TV as President Nixon told the world that the dollar would no longer be tied to gold. I thought, “Oh my God, the monetary system as we know it is ending,” and it was. When I got to work I expected there to be pandemonium, with stocks falling.
It’s too early for anyone to make this their central scenario right now. The Million Dollar Bike Ride brings over 800 cyclists and volunteers to Penn’s campus to ride either 13, 34, or 72 miles starting in the city, and ranging across the Greater Philadelphia region. In six years, the MDBR’s 30+ teams have raised over $10 million to fund research grants on the diseases they represent. Why was I wrong in 1982, and what did I learn that would be an important principle for the future? President Carter, who like most political leaders didn’t understand the monetary mechanics very well, knew that something had to be done to stop inflation and appointed a strong monetary policy maker, Paul Volcker, as head of the Federal Reserve in August 1979. In October 1979,Volcker announced that he would constrain money growth at 5.5%.
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As one can see, the US is the first and foremost provider of safe debt securities, followed by Japan. However, keep in mind that about half of Japanese debt is now already owned by the Bank of Japan, meaning that available net debt is actually much lower. Similarly, ECB and Eurosystem holdings as a share of total debt outstanding are currently much higher than the Fed equivalent (even though the Fed is doing its best to change that with “QE infinity”). Combined with the fact that German debt is relatively low and was on a downward trend before the Corona crisis, Eurozone assets weren’t exactly heading towards becoming a substitute for the dollar. While it is not impossible for one currency to replace another one as the international money standard, the process is never instantaneous.
As shownthe United States produced many times as much as the other major countries produced in 1945, and though its share declined, it remained much higher than any other country until recently when it was surpassed by China. In non-purchasing power parity terms China’s output is about 70% of the US output and growing at a significantly faster pace.Let’s not split hairs over small differences in imprecise measures. The most important headline is thatthe United States was the dominant economic producer in 1945 and didn’t have a comparably sized economic competitor anytime in the last 100 years up until recently and now it does in China, which is of comparable size. China is also growing significantly faster, so if this continues, it will soon be as dominant an economic power as the United States was in 1945. Through it all the dollar remained the world’s leading reserve currency.
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Accommodative monetary policy and an uneven recovery have eroded the value of the U.S. dollar, but unique global conditions could limit its downside. Cycle Farm is committed to making fresh, local, organically grown produce financially accessible to our community and we are grateful to be able to offer dollar-for-dollar matching shares again for the upcoming season. The subsidies for these shares are largely funded through contributions from Cycle Farm customers and friends. 100% of your registration dollars goes towards your team’s research grant. Cyclists must remain in immediate proximity and in full control of their bicycles at all times. All bicycles carried on board must be clean and free of excessive dirt and grease at all times.
But given where we are today — and still grappling with the fallout from the crisis — we may be a good 6–12 months away from even considering this scenario from being priced into markets. ThePenn Medicine Orphan Disease Center will host the 9th Annual Million Dollar Bike Ride on Saturday, June 11, 2022 to raise money for rare disease research. Last year Team CADASIL supporters raised over $90,000 and UPenn matched $30,000 for a grand total of $120,000!
Where is the USD the strongest?
- Vietnam. Phu Quoc, Vietnam.
- Mexico. Credit: © Jonathan Ross Dreamstime.com.
- Thailand. Credit: Bigstock.com.
- Chile. Torres del Paine National Park.
- Belize. Ambergris Caye.
- Jamaica. Credit: Lucky-photographer/shutterstock.com.
- Argentina. Buenos Aires.
In the event of a fresh negative shock to the global economy, low bond yields could weaken the U.S. dollar’s long-standing status as a safe asset. At the same time, we think the Fed’s revealed preference to mitigate dollar funding pressures via dollar swap lines with major central banks should limit the extent to which the dollar rallies in periods of stress. The Bretton Woods Agreement put the dollar in the position of being the world’s leading reserve currency. This was natural because the two world wars made the US the richest and most powerful country by far. It earned this money via its large exports, and by the end of World War II it had amassed the greatest gold/money savings ever. That savings accounted for around two-thirds of the world’s government-held gold/money and was equivalent to eight years of import purchases.
Still there were a couple of times it came close (e.g., Cuban Missile Crisis of 1962).Today, in varying amounts and degrees of capabilities, 11 countries have nuclear weapons or are on the brink of having them. Having nuclear weapons obviously gives one a big negotiating chip in the world power game so it’s understandable why some countries would want to have them and other countries would not want other countries to have them. These were costly in terms of money, lives, and public support for the United States. For the Soviet Union, which had a much smaller and weaker economy than the US, spending enough to compete with the US militarily and to maintain its empire was bankrupting.
That is why gold and reserve currencies have been so important in transactions between countries while people within countries typically exchange this paper with others in the country, oblivious to the fact that that money is not much valued outside the country. It seems clear that new war technologies would be deployed so the war of the future will be very different from the last war in the same ways more recent wars were fought with different technologies than the ones before them. As shown in the chart below the Americans and Soviets invested massively in building up their nuclear weapons and a number of other countries followed. These weapons were never used because of the deterrence of mutually assured destruction.