BRICS, Dollar Drama, and Wall Street's Dance: Bankers' Bold Ballet in South Africa
Abraham George Macro Musings
Ah, the 15th BRICS meeting in sun-soaked South Africa from Aug 22 - 24. It's set to rival the Oscars in terms of drama and attention. You might say this is the first in-person meeting since 2019, and rumors abound about BRICS nations plotting to dethrone the dollar’s celebrity status as a reserve currency. How delightfully scandalous!
Yes, our darling dollar has seen a dip in popularity, slipping from a 72% reserve hold in the 90’s to a modest 58%. But let's not pen its eulogy just yet. If it falls from grace, it'll be a slow waltz, not a cliff dive.
Interestingly, countries are now dancing to their own tunes, bypassing the dollar for bilateral trades. Notable performances? France and China have sealed a deal in Yuan over some bubbly gas, while Saudi Arabia and China are swapping oil like old records. Even India is trading oil beats with UAE.
A brief history lesson for our younger readers: the dollar became the king of the financial prom after a heart-to-heart with Saudi Arabia on June 8, 1974. This lovely soirée birthed the 'petro dollar'. The consequence? A whopping 95% of all commodities got priced in Dollars. Good for the dollar, even better for the US treasuries.
Now, there’s spicy gossip that Saudi Arabia is giving the US the cold shoulder, looking for new friends in the BRICS. But I wouldn’t bet my vinyl collection on it. Especially since India seems to be playing both sides, buying discounted Russian oil while also being the West’s BFF. It's a geopolitical ménage à trois.
Shifting our spotlight to Wall Street's runway, the S&P 500 index has had a little stumble, down by 4% since July 31. I did warn you to watch your step. With its current trajectory, it might even dip its toe below its 200-day moving average. But fear not, it won't go belly up.
Central banks have been dancing through a financial minefield for the last five months, but remarkably, their shoes remain untarnished. Their ability to move away from zero interest rates amidst an economic soap opera? A riveting plot twist. And if we’ve learned anything from the last 15 years, these banks sure know how to keep the party going, even if they need to fudge the music a bit.
Remember when the 10-year yield was the quiet kid in school, sitting under 4%? Now, post-Fitch downgrade, it's joined the cool kids, chilling at a 4.32% hangout. The last time it stood this tall was when BOJ had to play the big brother, calming interest rate tantrums last October. Déjà vu, anyone?
Though, here's some food for thought. In 2008, the US debt to GDP was a demure 62%. Now? It's flexing at double the size. The Fed's purse was $800 billion then, and it's now an eye-watering $8 trillion. I’ll just leave that tidbit here.
With the Chinese markets acting like moody teenagers and global equities throwing tantrums, will our central bankers meeting in Jackson Hole on Aug 25th have a change of heart about interest rates? Well, my hunch is they will, but then I do get paid to speculate.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.