With the Dollar's New Leg Down, It's No Longer Possible
to assert that the cash rate on USD deposits is even barely covering the loss of purchasing power, of the USD. This is not news, of course. Many of us have been playing the dollar-hedge trade for years now, regardless. My point here however is for the average person's understanding, the mainstream understanding, of real interest rates. While the USD is not a Funding Currency at this time, like the CHF or the JPY, because of the nominal cash rate on USD deposits, I have to believe this multi-year USD weakness and the new leg down are potentially making the USD a funding currency. USD cash is essentially free. I think the FED would have to hike now at least 100 beeps to get the real rate back above zero. And probably would have to hike 200 beeps.
The US stock market therefore has become a place to hedge USD exposure, especially in real asset type stocks like energy, and materials, and equipment makers. (Notice now that companies with vast land holdings are also getting picked out from the crowd, whether they be retail, homies, or casinos). Again, none of this is news to those of us who've been watching and playing this, for 3-5 years now.
What I sense however, is that this theme is now headed towards Main Street.
Gregor |
