NASDAQ/EAFE ratio v. DXY has diverged (Page 2) US headline CPI y/y looks set to fall sharply within the next 6 months (Page 5) “Foreign holdings of USTs hit record high in November” (Page 8) Big-time investors continue to ignore the US fiscal situation in their rate hike analyses (Page 12) “China cuts policy interest rate for first time since April 2020” (Page 14) US oil consumption as a % of GDP nearing levels that

The global economy will fall into recession or worse in 2022, thanks to high energy prices. Yet, no one seems to have noticed.  High coal, oil, and natural gas prices will bring about a prolonged global recession, if not a depression. To put this in context, oil prices would have to rise by $225 per barrel to have the same economic impact alone as that of the combined fuel cost increases. Fossil fuel use will be much

“USD’s once-solid link to higher bond yields is breaking down” (Page 2) How much downside could the USD have if it trades more off of capital flows instead of relative interest rates? (Page 6) “Bullish hedge fund bets on the USD hit the highest since June 2019” (Page 8) “…the Biden Administration is for the 1st time since Jimmy Carter asking the Fed to get more hawkish.”  (Page 10) Fed’s Brainard, Mester both make enormous

The dollar is starting to decouple from the Treasury yields that it tracked so closely last year, adding to signs that the bulk of the currency’s windfall from higher rates has already passed.– Bloomberg, 1/11/22 …a bigger conundrum is emerging in the FX realm where the US dollar has been declining steadily since peaking in late November despite the Fed’s growing conviction in more rate hikes, a balance sheet runoff and general tightening…Standard Chartered FX strategist

Happy New Year! We are excited to be back in the saddle for what promises to be an exciting 2022. Here are this week’s “10 Most Interesting Things We’ve Read Recently”: “Fed’s Kashkari, citing inflation risks, sees two rate hikes this year” (Page 2) Year/Year change in trailing 12-month US Treasury receipts up 20%, highest in 40 years (Page 3) Elon Musk: “If history is any guide, many of the 936 tech ‘unicorns’ won’t make

The Fed and most market participants appear to believe this rate hiking cycle is little different than those of the past 40 years.  We think that view is wrong, for numerous reasons: The US still has a Balance of Payments (BoP) problem caused by insufficient foreign demand for USTs into high and rising US debt; all else equal, Fed rate hikes into this US BoP problem will likely be good for the USD and bad