Big Money Flowing Out Of U.S. Dollars

McAlvany Weekly Commentary

Content provided by McAlvany Weekly Commentary. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by McAlvany Weekly Commentary or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://staging.podcastplayer.com/legal.

7d ago 27:16

MP3•Episode home

Buffett Eyes Japan As A Stronger Currency Trump Is Isolating Iran From Its Perceived Friends Register For Thursday's Webinar "What we will look for as the final element in the international investor trifecta spurring on increased capital flight is when the US economy slows considerably. So if you then combine a slowing economy on top of a dollar in decline and throw in a rising rate environment, regardless of what the Fed is doing at the fed funds rate, you will see money rush out the door." —David McAlvany * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. David, for years we've done bank ratings for people, and one of the aspects that we look at with banks is something called hot money. Hot money is money that goes in for a reason, maybe it's a return, and it can come right back out. And so you always have to be careful with hot money because it's not loyal. It's money that could just as easily disappear as it appeared. David: Typically, it's there for some benefit, maybe a yield differential or maybe a Sunbeam toaster. You got it as you walked in the front door, and you walked out with the toaster and your money. It was that fast of a turnaround. Kevin: So here's a question because we're seeing downgrades here in the United States. Is there hot money that has come into the United States that could just as easily leave? David: I think that's what we get to test as the year goes by. We had the Moody's downgrade last week. They complete the trifecta of downgrades, and no, it's not of great consequence. Fitch and S&P concluded that our government was dysfunctional and we had a debt and deficit problem a long time ago. So why it took Moody's so long is more surprising than the downgrade. If any of the three agencies were to take their gradings down two to four notches, now that would be of consequence. Bond yields merely reached to the Wednesday highs, as if to acknowledge the shift, but more as a shrug of indifference than really any acute concern. They actually closed lower on the day of the announcement by 3.2 basis points. And just as a reminder, S&P Global lowered their ratings in 2011. Kevin: So 14 years ago. It sounds like Moody's is a little clueless, like Comey is about messages on the beach. It's like they're a little late to the party. David: I don't know what the numbers mean. Kevin: Yeah, that's right. But okay, so let me ask you though, other countries, the United States is seen as the reserve currency. Good as gold, isn't that the whole idea? The Treasury is supposed to be as good as gold. Do other countries have higher ratings than the United States at this point? Yeah, well, in terms of consequence, there was none. But appearances may over time diminish the sheen of US assets, whether that's Treasuries or stocks or what have you. There are now 10 other countries with higher ratings than the US. The setup in 2011, going back to the S&P downgrade, I think the setup was quite a bit different. The 2011 downgrade coincided with an incredibly weak dollar. It was trading in the seventies, which was actually en route to much higher levels. We were putting in the lows and we've had since then a tremendous move higher. Maybe this time ends up being different. Certainly the backdrop is distinct. If Moody's downgrade coincides with a secular trend of US weakness and lack of foreign support for Treasury purchases, the result will be very different indeed. So the current administration and the desire for reserve managers to diversify out of Treasuries and into gold, that's a hallmark of 2025, and it's somewhat at odds with what the current administration would like to see in terms of lower rates and a lower dollar, because frankly they're just adding fuel to the fire. They're motivating, if you will, those reserve managers to make haste to the exits. Again, this was hardly the case in 2011.

282 episodes

#Trading #Business #McAlvany Weekly Commentary