Have we seen the top in the dollar?
Abraham George Macro Musings
As expected the July inflation figures came lower and it gave additional support to stock markets across the board. Markets clearly made a bottom at the June 16 to 17 lows. A weekly close above 4200 today in the S&P 500 is very bullish for the markets. The S&P 500 is now trading 16% off the lows of just two months back.
One does not gain this understanding of the markets by listening to the talking heads at CNN, CNBC, or Fox News. Especially Jim Cramer. Reading between the lines of central bank policies and actions is very important. We always have to think about what is happening behind the curtains and not get hung up on headline news. The central banks are handling this like a video game and they will do it as long as they can. In between they go through some crashes when the bad guy pops up to hit them hard. But a day of reckoning is coming and that will be also managed by the central banks. The only thing is we need to be in lockstep with the central banks.
Let’s take an account of what happened so far since the central banks pretended to get serious about inflation. The central banks led by the Fed across the board except one (BoJ) threatened to crush inflation with higher rates. Stocks went down. Were they really serious about their actions? I don’t think so. Jerome Powell already gave us a hint in his most recent statement that the Fed has reached a neutral level on the Fed Funds rate, and softer inflation could be a green light for stocks.
Actually, the June low happened as the Fed, Swiss National Bank, RBA, BoE, and BoC all raised rates and talked tough. But as they say in Texas, it was “all hat, no cattle”.
The fly in the ointment was the BoJ. They actually doubled down on being an unlimited buyer of assets that is domestic and global. That was again a clue that the global financial system cannot withstand a concerted removal of liquidity. The BoJ stood its ground to provide that much-needed liquidity (i.e. they continued printing).
The ECB also talked tough on rates and removing liquidity. But within days they had an emergency meeting where they decided on a new (actually it is the same as the old) to buy government bonds of the fiscally weaker Eurozone countries. They ended QE to start a new one. The confluence of all these actions from the central banks gave us the bottom in the stocks.
The central banks so far have not found a way to get out of QE and they cannot. We will soon move to new world order and that will be a long topic of discussion for another time. Meanwhile, it is time for us to conclude that we may have seen the top in the dollar. When the storm gathers on that front we should also see the commodities take off. It is time to accumulate some physical gold and silver but think of storing them safely as well.
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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.