The Dollar Endgame

Published on
September 10th, 2020
Duration
38 minutes


The Dollar Endgame

The Expert View ·
Featuring Keith Dicker

Published on: September 10th, 2020 • Duration: 38 minutes

Keith Dicker, founder and CIO of IceCap Asset Management, joins Real Vision to give a strategic overview of the U.S. Dollar. Dicker breaks down the Eurodollar system to analyze the pressures on non-dollar currencies: negative rates, extreme debt borrowings, and government deficits spiraling out of control. Dicker takes a look at what is in store for the Turkish Lira as well as other emerging market currencies and discusses the fate of the DXY currencies as well. Dicker then provides a guidepost for how investors can position themselves to take advantage of asymmetric opportunities. Filmed on September 8, 2020. For additional charts from Dicker's long dollar fund (which he co-manages with Brent Johnson), click here: http://icecapassetmanagement.com/wp-content/uploads/2020/05/2020.05.21-Special-Presentation-Santiago-IceCap.pdf

Comments

Transcript

  • WS
    William S.
    12 September 2020 @ 01:53
    I just wanna know if anyone else kept finding their focus drawn to Keith's one unbuttoned collar. (appropiate emoji)
    • MM
      Matt M.
      15 September 2020 @ 03:23
      Now, it’s all I can see
    • MR
      Michael R.
      23 September 2020 @ 22:35
      I kept fixating on his pronunciation of "Kinesian" economics
  • PV
    P V.
    12 September 2020 @ 08:51
    While the thesis may be correct, the speaker fails to make a compelling case on "how" such thesis may come to bear. Granted that one of the reasons for DXY weakness is misdirected increased optimism on the future of the EU, however when it comes to EM, the alleged "catalyst" for a USD rally, why would the Fed not intervene with Swaps and other liquidity efforts if they were to perceive a risk to global financial stability?
    • LS
      Lemony S.
      15 September 2020 @ 15:02
      I have never understood the optimism of the EU, either. It is far more unstable than even the USA, no matter what anyone says. It's not like they don't have easier ways of influencing and introducing the destructive elements of marxism. Quite the contrary, they've been far more effective of importing outsiders and playing their own people for decades longer than the US, and if not during the same time period, doing it to to a maximum degree.
  • RM
    Robert M.
    11 September 2020 @ 00:37
    Is there a possibility that alternative forms of currencies like gold and bitcoin rise alongside the dollar? Normally a higher dollar hurts gold prices, but if the stimulus is money fleeing risk markets into the dollar, would appear to create the rising dollar, rising gold scenario that we have been experiencing since 2019.
    • VD
      Violeta D.
      11 September 2020 @ 11:59
      The way I think about it is that if you live in a country where the currency is collapsing, you will try to buy whatever hard asset you can to keep the value of your savings. It will be lakely that you don't have access to USD, as much as to PM and Bitcoin. I also think if such even happens in one country, psychologically will drive people of other countries to act in a similar way . I personally lived in Eastern Europe when the 'socialism' collapsed and there was massive hyperinflation in many of those countries. PM and Bitcoin should rise on demand in every currency including the USD.
    • AD
      Antonio D.
      14 September 2020 @ 12:24
      Yes. Value of Gold tends to be inversely correlated to real rates. With interest rates pegged near or close to zero, real rates are likely to be low or negative (depending on the geographic region) - this bodes well for Gold/BTC price to rise in nominal fiat terms. You would prefer to have a zero-yielding asset of infinite duration and finite issuance (Gold/BTC), rather than a zero-yielding asset of finite duration and infinite issuance (USTs) (see Luke Gromen of FFTT, LLC).
  • RA
    Ralph A.
    11 September 2020 @ 11:44
    Brent Johnson, is that you?
    • CM
      Cory M.
      12 September 2020 @ 16:43
      Agree, Ralph, I believe this is a Brent Johnson in slow mo— which is valuable. Did you catch the Santiago Capital graphic?
    • AD
      Antonio D.
      14 September 2020 @ 12:21
      They now included the entire presentation: http://icecapassetmanagement.com/wp-content/uploads/2020/05/2020.05.21-Special-Presentation-Santiago-IceCap.pdf
  • NT
    Nicholas T.
    11 September 2020 @ 23:15
    This was so good. Finally someone who wasn't afraid to actually describe what could happen and when and how! Fantastic.
    • AD
      Antonio D.
      14 September 2020 @ 12:19
      Have you seen Brent Johnson, he works in conjunction with Keith Dicker of IceCap and so they are both talking about the same process - "Dollar Milkshake Theory": https://www.realvision.com/rvir/the-dollar-milkshake-theory It's basically Brent Johnson/Keith Dicker vs. Luke Gromen/Lyn Alden - all in good fun, because all agree that endgame assets are real assets (Gold, BTC), but the "how we get there" is a different path for the two teams.
  • MS
    Michael S.
    11 September 2020 @ 17:01
    Keynesian : KAYN-zee-ən
    • SB
      Stewart B.
      14 September 2020 @ 11:48
      People frequently use either pronunciation.
  • AK
    Alex K.
    10 September 2020 @ 17:43
    Hey dollar bulls, do you ever look at the trade-weighted advanced FX dollar index? https://fred.stlouisfed.org/series/DTWEXAFEGS Do you see that really, really dollar index spike in March of 2020 to all-time highs, followed by an immediate reversal which then broke a ten-year trend line which in might in fact be the final blow-off top you are still waiting for? Have you considered the possibility that you might now be like gold bugs circa 1981, waiting for the "final" spike in gold when it already happened in 1980? Have you considered that Germany is actually going to start running budget deficits now, and German 30-year bunds are trading at negative yields? Have you considered that the ECB is going to start issuing debt too? Have you considered that Europe might recover faster than the US in a post-pandemic landscape, and that capital may well start flowing into European safe assets, via the supply provided by Germany running budget deficits and an ECB running newly mutalized debt issuance? Have you thought about the fact that, when you reference talk of the dollar going to zero, you are setting up a straw man argument by referencing what wannabe traders on Twitter think? Have you considered that the real direction of the dollar will be determined by what central bank reserve asset mangers do, and whether or not the heavily, heavily overweight US dollar asset mix becomes less weighted toward treasuries over time? Have you considered that the Federal Reserve has all but abandoned its mandate to rein in inflation, and that the US government is likely to be fiscally wild in the next few years, and that Europe with Germany controlling the ECB will be fiscally conservative in comparison? Have you thought about how this could impact the flow of capital out of dollar assets and into European-based safe assets? Have you considered that the dollar shortage around EM denominated debt could be a red herring, because there are plenty of sovereign wealth funds and large reserve asset managers who would like to swap their extra dollars for stakes in EM assets? Have you thought about a scenario like this? — A copper mine in Chile owes $100 million worth of dollar-denominated debt — The copper mine gets into trouble, oh no, how will it pay its debt — China says hey, we will pay your debts with some of our extra dollars — Now China has fewer dollars (good) and a stake in an EM asset (better) — Repeat scenario for SWFs with dollar asset holdings everywhere — EM-denominated debt is swapped for equity stakes in EM assets — Reserve managers and SWFs dump their dollars for something they want Also, dollar bulls, have you thought about the fact that not only is the dollar the world's reserve currency, but it has already had that status for a long, long, long, long time now? Have you considered that the dollar has experienced, and can still experience, multi-year downward trends even while remaining a premiear world reserve currency? Have you considered the need for dollars as a trading vehicle and trade finance vehicle is going to be reduced at the margins in future years by: Lower oil demand; reshoring of goods and services; broken supply chains; greater use of non-dollar assets between heavy commodity users and producers (e.g. Russia and China); the digitalization of trade, which makes more fungible currency possibilities a more reasonable proposition Have you considered that America has lost its sense of exceptionalism in terms of interest rate advantage on its bonds and equity attractiveness in its stock market (because the FANGS are already bid to stratospheric values)? Have you considered that sitting around waiting for the dollar to spike could also be a bit like waiting for the next market crash after 1987, e.g. you could be waiting a long, long, long, long time? Have you considered that the next US administration in Washington might actually want a weaker dollar? Might actually encourage the Federal Reserve to engage in weak dollar policies for the sake of helping the US manufacturing sector? Have you considered that the last great hurrah of the US dollar as the world's reserve currency might be America screwing the world with "exorbitant privilege" one last time, by borrowing and borrowing and borrowing until the holders of US Treasuries see their eyeballs bleed, because why not, the slower they are to react the more "privilege" the US can accrue via financing? Have you considered that the dollar short squeeze theory and expectation might be, just might possibly be, completely and utterly and profoundly and absolutely wrong? Have you considered that gold pushing $2,000 and Bitcoin above $10K, along with the trade-weighted dollar index having broken a ten-year trendline after a spike to all-time highs in March, with the Fed now going to crazytown having abandoned any pretense of inflation controls, all combine as a powerful set of influences to loudly suggest that maybe dollar bulls are peddling yesterday's theory and need to do some Bayesian adjustment to what the world, and the market, is telling them?
    • nw
      nicholas w.
      10 September 2020 @ 17:52
      Wow; thanks for your time. All entirely valid points I guess, and over the long term very difficult to argue with. However, in the shorter term, one must ask oneself why the spike in March, and whether that reaction will be repeated in the near future as we get another huge shock -as we very probably will. Maybe the Euro will pull in funds as a safe haven too, but its difficult to see the Dollar not being seen as a refuge again...and Spike as a result.
    • SD
      Steve D.
      10 September 2020 @ 17:56
      Excellent rundown. For whatever it's worth, I agree with just about everything you say here. As an American grandfather, that's more than a little sad. In the sands of time we reap what we sow.
    • JS
      John S.
      10 September 2020 @ 18:55
      Have you considered the use of bullet points?
    • DS
      David S.
      10 September 2020 @ 20:19
      Alex K. - Thanks for summarizing some possible $US FX situations in a most skillful way by asking “have you considered.” The FX market will take care of the currency winners and losers as events occur. FX markets are huge with skin-in-the-game traders owing allegiance to no one. Since I do not play the in the FX market, my major long-term investment concern is where investors will be comfortable keeping their surplus capital. What could I do to protect a billion dollars not needed for operations and/or groceries.? We are already seeing inflation from excess world capital investment. Companies with cash flow visibility in the stock markets have doubled normal P/Es. Real estate investments fleeing certain places and causing inflation in others. Gold, silver Bitcoin increasing year over year. Where will the massive amounts of excess funds not yet lost in world markets be stored for protection? That is the question we should continue to ask. DLS
    • SS
      Sam S.
      11 September 2020 @ 00:35
      Short term bias: long dollars, short risk assets. Long term bias: short dollars, long risk assets. Nothing says one needs to be hold (or be bullish/bearish) on a specific asset class between now and the end of the system 🙃.
    • DW
      Dean W.
      11 September 2020 @ 01:02
      I’m not a dollar bull or bear but I don’t see anything convincing in the speculation presented above.
    • SS
      Sagan S.
      11 September 2020 @ 02:46
      Honestly this might be the best comment I've ever read on RV. As an investing newbie, the number of double-clickable 'considerations' mentioned here not only gives a fuller framework of how to think about this, but each one provides a serious jumping off point to go a hell of a lot deeper.
    • AR
      Anthony R.
      11 September 2020 @ 04:43
      Gave this a thumbs up.... but not because I totally agree w your critique. You make great points, but the guest making the point that the dollar is the cleanest dirty shirt and why doesn't make him a 'doll bull' per se. It's just that the facts around the status of the dollar are what they are.
    • SP
      Seahyung P.
      12 September 2020 @ 04:31
      Have you considered that Germany is actually going to start running budget deficits now, and German 30-year bunds are trading at negative yields? Have you considered that the ECB is going to start issuing debt too? - Yes, and that's why I think the USD will strengthen against them because government debt issuance only creates transient increases in economic development but then accelerate again towards the downside, Refer to Steve Keens as to why/how this happens. Have you considered that the real direction of the dollar will be determined by what central bank reserve asset mangers do, and whether or not the heavily, heavily overweight US dollar asset mix becomes less weighted toward treasuries over time? - Central banks have no control over the Eurodollar market, it is out of their jurisdiction and the idea that magical "money printing" on their part has any release mechanism into non-US USD-indebted entities is a fiction, Refer to Jeff Snider as to why/how this happens. Have you considered that the Federal Reserve has all but abandoned its mandate to rein in inflation, and that the US government is likely to be fiscally wild in the next few years, - The Federal Reserve is incapable of creating inflation as the past 40 years have shown. The Federal Reserve has said on NUMEROUS occasion words to the effect of "We are going to try make inflation go higher for longer" for the past decades and have proven time and time again that they are neutered and structurally unequipped to create inflation. All of the FEDs tools can only quell inflation, yet somehow there are people who still believe in the magical omnipotency of the FED to be able to steer and change economic/financial gravity; Refer to Jeff Snider to ALL the times in the past that the FED has tried to create this narrative and failed time and time again. The Bond market hasn't blinked at any of this inflation narrative and continue to trade at pre-CoVID yields. If inflation were coming back to levels that are going to overshoot what we had pre-CoVID, why is the bond market calling BS? We know what happens to people who try to argue with the bond market, don't know? Go short on TLT, EDVs and ZROZ for the next couple of years and see what happens. Inflation is caused by commercial bank LENDING. Have you looked at the H.8 Data? Can you tell me how bank lending has changed? In a debt based monetary system, when banks lend less and extend less credit, is this inflationary or deflationary? US fiscal spending bleeds into foreign markets through what mechanism? I trust the US government to use fiscal spending in ways that dont reach the economy because they are the most incompetent and corrupt political coterie in the US I have ever had the displeasure to witness first hand. Fiscal spending from either party will go to special interests who will pocket the money for themselves, rather than actually use it any way that might actually create inflation. And again, government deficits crowd out public spending (Refer again to Steve Keen) and thus worsen economic conditions which further disincentivises banks from lending. Have you considered that the dollar shortage around EM denominated debt could be a red herring, because there are plenty of sovereign wealth funds and large reserve asset managers who would like to swap their extra dollars for stakes in EM assets? - Who are these funds? Markets demand on-the-run US T-bills to sustain repo and leverage to run their portfolios, because they are the most liquid/safe instruments that money markets will always demand as collateral. If people were so quick to discard their USD, why are foreigners still buying US T-bills in bucket loads and haven't been slowing at all, when ACTUALLY look at the TIC data. (I am talking about OTR US T-Bills) Have you considered the need for dollars as a trading vehicle and trade finance vehicle is going to be reduced at the margins in future years by: Lower oil demand; reshoring of goods and services; broken supply chains; greater use of non-dollar assets between heavy commodity users and producers (e.g. Russia and China); the digitalization of trade, which makes more fungible currency possibilities a more reasonable proposition - Hah, the Eurdollar market and therefore the USD is a SYSTEM not just a currency. Its not just a matter of magically deciding that we're going to denominate everything in another currency. Maintenance of levered portfolios in the financial system are not structurally designed to magically denominate things in different currencies because the entire system itself was designed to revolve around the USD, this is not something that can be magically changed through pure volition and willpower; again, refer to Jeff Snider. Other arguments you made I did not feel were worth addressing. In the end, price will be the final arbiter and I know where I am positioned.
    • AK
      Alex K.
      12 September 2020 @ 13:33
      @Seahyung P. If you think government debt creates problems and can lead to slowdown, we agree that is generally true. But it's weird for you to use that as a pro-dollar argument because the ratio of federal debt to GDP held by the public right now is around 100% for the United States and 60% for Germany. This means that, on pure debt-to-GDP terms, the United States has significantly greater danger of being overleveraged than Germany does. The United States also has a far larger quantity of federal debt outstanding in quantity terms. Relative supply and demand issues are not hard to understand here. If a country with a far cleaner balance sheet, and lower leverage, decides to issue more debt, then the pool of institutionals currently forced to overinvest in a much larger sovereign, with far larger debt, will be inclined to shift some of those assets. Your statement "central banks have no control over the eurodollar market" also makes no sense. The eurodollar market refers to dollar deposits outside the jurisdiction of the United States, and thus not controlled by the Federal Reserve. Central banks, sovereign wealth funds, international corporations that hold dollars, and so on all contribute to the net size of the eurodollar market, which is, again, just dollars outside the US basically. Therefore it doesn't matter if anyone "controls" the eurodollar market, what matters is if aggregate demand for US dollars goes down at the margins because reserve managers choose to have a smaller percentage of dollar denominated assets in their asset mix, sovereign wealth funds choose to be less invested in dollar assets relative to other assets, and so on. And central banks in aggregate have a big impact on dollar demand because, well, they hold large quantities of dollar assets. My comments on international trade flows also matter because, if reasons to conduct trade in dollars or use dollar-based financing go down in the coming years, for various reasons, then the demand for dollars will wane. So when you say "central banks have no control of the eurodollar market," you are not even making a counterpoint so much as demonstrating the possibility that you don't really have a firm grasp on the mechanics of the system, because this is about supply and demand at the margins, not control issues. As for the Federal Reserve being incapable of creating inflation over the past 40 years, you again miss the point of comparing the Fed to the ECB. The Federal Reserve has explicitly, as a matter of policy, moved away from controlling its inflation target, whereas the ECB has not, and will not, because Germany would not let it. Germany is still, deep in its bones, an anti-inflation hawk, at the banking level, and societal level too, because of what happened in Germany 100 years ago with Weimar. That is in contrast to a Fed who has told us, explicitly, that the plan is to cut loose. Then, too, the past 40 years have represetned a giant build-up of credit and leverage in a long-term debt cycle that also gave capital primacy over labor in the United States; that whole cycle is now reversing. And as for inflation creation, the name of the game in creating inflation is not monetary policy alone, but monetary plus fiscal — if you really get the fiscal going along with the monetary, that is when inflation can spark. Guess which government is most likely to be hyperaggressive on the fiscal side in the coming years? The US. As for trade and finance need for dollars, you are mixing timeframes. We are talking about a secular shift in demand for dollars at the margins in the bigger picture and the longer term — and on that front the charts are with my perspective, and against your perspective. This is observable, again, as I said, through the action of the trade-weighted dollar index, which peaked and reversed in March, and then broke below decade-long trend support. Re Jeff Snider, I like Jeff Snider, but many of you guys invoke his name like a kind of cult incantation, which is weird to me. He is great at understanding the plumbing of the system; we are talking more here about sea change shifts in aggregate demand for dollars at the margins, which is a different thing than plumbing issues here and now. As for price being the final arbiter, this is the weirdest part of all: You guys are also in direct opposition to the charts. Look at what EURUSD is doing. Look at what the trade-weighted dollar index is doing. Those charts are very dollar bearish, not just on a near-term basis but in a big, powerful, trend-breaking basis. If one had to trade currencies and metals on price alone, taking no consideration of fundamentals into the picture at all, one would logically conclude that EURUSD and gold and copper and a bunch of other things are now in big picture bull markets, and the dollar is in a bear market. For you guys to go against this, and then claim you are price-governed, is again, strange. The dollar bull camp is weird to me. You guys aren't Bayesian, meaning you aren't adjusting your conviction for real-time signals that are discrediting it; you aren't chart-based, because you are going against basic trend signals available on many charts; and you aren't really fundamentals based either, as evidenced by the stuff you say about the eurodollar market which is a non sequitur and other stuff the dollar milkshake guys have said that makes no sense.
    • SP
      Seahyung P.
      13 September 2020 @ 09:20
      But it's weird for you to use that as a pro-dollar argument because the ratio of federal debt to GDP held by the public right now is around 100% for the United States and 60% for Germany. - 1st; As I understood EU federal debt to GDP was closer to 80% last time I checked. 2nd Two numbers to note here, Debt and GDP. What happens if EU (Not just Germany) GDP falls dramatically in comparison to any increase in debt of decrease in GDP in the US?; you can work out where the rest of the argument goes, we dont need to argue over whether the EU or US will experience greater GDP declines/greater Debt increases over the next few years. And central banks in aggregate have a big impact on dollar demand because, well, they hold large quantities of dollar assets. - I obviously misunderstood your argument as a supply-side argument, if your argument was purely based on lack of demand in the Eurodollar market; I've argued too much with people arguing from the whole FED printing side which is what made me erroneously assume you were making same argument. But again, what lack of demand is there? Financial system is structurally designed to conduct operations using USD and US OTR T Bills as the most prime source of collateral; no other system exists to replace this and you seem to be arguing that people can just Choose to not hold US T bills, rather than the fact that they are Forced to hold them in order to obtain appropriate repo for their everyday operations. The problem is structural one of the financial system not a problem of people choosing /wanting to park their assets in US-denominated assets. TIC data supports these conclusions; no decrease in foreign ownership of US OTR T Bills. The Federal Reserve has explicitly, as a matter of policy, moved away from controlling its inflation target, whereas the ECB has not, - Again, the FED has said this explicitly numerous times, last time it was "Symmetric inflation" now they reworded it to "average inflation". They have failed time and time again and the bond market for the past 40 years proves it; talk about lack of sensitivity to price action. This is the same reason I confused your argument to be a supply-side one because this whole "FED will create inflation" narrative seems to imply that you think any of that can leak into the Eurodollar market, hence the entire speil on it. This is observable, again, as I said, through the action of the trade-weighted dollar index, which peaked and reversed in March, and then broke below decade-long trend support. - I dont see this break of a decade long resistance in broad USD, we are back to where we were in beginning of year. https://fred.stlouisfed.org/series/DTWEXBGS Re Jeff Snider, I like Jeff Snider, but many of you guys invoke his name like a kind of cult incantation, which is weird to me. - Again, the fact you were making arguments about "FED will create inflation!" Seemed to suggest that you werent familiar with his work, if you were familiar, then I guess I was wrong, but you'll forgive me for assuming so when you make statements that the FED will now magically create inflation since they expicitly stated they will do so (Even they have done so time and time again). You guys aren't Bayesian, meaning you aren't adjusting your conviction for real-time signals that are discrediting it; you aren't chart-based, because you are going against basic trend signals available on many charts; - Zoom out a bit, and look at the big picture. EURUSD peaked during 2008 and has trended down and down since. Whos the non-Bayesian here? Wake me up when the EURUSD trades above 1.6 again rather than look at a few months of price action as a signal to think a multiyear trend has suddenly broken. you aren't really fundamentals based either, as evidenced by the stuff you say about the eurodollar market which is a non sequitur - Again, if you understood the Eurodollar market, why make the FED explicitly stated that they will create inflation argument?
    • AK
      Alex K.
      14 September 2020 @ 08:19
      @ Seahyung P. You continue to underscore the logic of the dollar bear case, not the bull case. If Europe’s debt to GDP is 80 pct, that is still substantially lower than the debt to GDP of the United States. What’s more, in the coming years it is reasonable to expect the US will worsen its debt GDP ratio at a faster rate than Europe, which means even as Europe adds debt, the spread will either hold or widen. This is reasonable to price in because Germany's Bundesbank is an aggressively moderating influence, and the US has no such moderating influence — if anything they are going the opposite way, as Powell has demonstrated supreme flexibility and both US political parties are open to wild deficit spending, though on different things (GOP on tax cuts, Dems on green infrastructure and labor gains). Against that backdrop, note that dollar assets are historically overweighted in global markets on both a portfolio percentage basis and a quantity basis. As such it is wholly logical to expect an aggregate rebalancing away from dollar assets to ease the overweight condition. This rebalancing has been held up in the past due to lack of supply on the safe assets; Germany and the EU are now more willing to provide that supply; and meanwhile various reasons cited that will lessen, though not remove completely by any means, the dollar's trade-centric role further support the aggregate rebalancing notion. As for the Fed being unable to create inflation, you continue to miss the point that fiscal policy, not monetary policy, is the potential game changer. If the US government puts cash directly in the hands of the lower middle class, through COVID relief or higher wage mandates or whatever it is, that cash will have a propensity to get spent on goods and services where limited supply exists (we are already seeing early signs of this; look at new car prices and the housing market). Currency in the hands of consumers who will spend it, with goods shortages or pressure at the margins creating a rising price feedback loop, is all it takes for the public to perceive rising prices to a point of igniting inflationary psychological expectations. If this is happening against a backdrop of, say, minimum wages going up and COVID relief being talked about in the press as a kind of default UBI -- which is what they have right now in Brazil -- the psychological shift to inflationary expectations can happen all the faster. This fiscal side changing consumer expectations is something Japan never did, by the way — they tried to use monetary policy alone, which is like trying to cut something with half a pair of scissors, and let the policy benefits accrue in corporate accounts rather than enabling domestic spending power. The dollar bear argument also founders on the reality that a severe dollar squeeze is an existential threat to the entire financial system, and as such the Fed is hyper actively determined not to let it happen. Jay Powell learned a key lesson in December 2018; if you aren’t proactive enough in maintaining accommodative conditions, all hell can break loose. The Fed can certainly lose control, and will at some point, but when this happens it will be in the inflationary direction, not the deflationary one, because deflationary impulses are countered with massive fiscal impulses, and those are available without limit in a real panic situation. This means that any squeeze is likely to be a short lived pop, rather than a real trend reversal, because the Fed and Treasury will join forces to nuke it with the monetary-fiscal equivalent of an anti-deflationary hydrogen bomb. What Powell and Mnuchin did in March is not the limit of what those guys can do — it is a foreshadowing. It is interesting to me, and confirmatory in a way, that you don't have better counterarguments, and that you also continue to misconstrue key aspects of what is being laid out (monetary plus fiscal for example). But of course this makes sense in that, if your template is assuming a regime of the past 40 years, without having access to a prior regime (e.g. what came before the arly 1980s) or ways that the mechanics can shift, of course you will default toward a static model without recognizing we are heading into a changed era where pre-1980 models apply, and where historical imbalances built up over multiple decades are increasingly likely to mean revert as the pendulum swings the other way. See you on the other side of the trade.
  • JE
    Jonathan E.
    10 September 2020 @ 10:46
    This is a similar argument to Brent Johnson and contrary to views of Julian Brigden. Would be good to have a RV overview as to which is likely to play out and over what timeframes.
    • nw
      nicholas w.
      10 September 2020 @ 17:57
      Raoul argues that the Dollar has one more bounce in it, and I am reluctant to disagree; if only because one suspects that there are more shocks on the way, and the $ will bounce in those scenarios. Otherwise, and longer term one has to Question if DXY can hold at these levels.
    • AI
      Andras I.
      11 September 2020 @ 00:39
      RV is doing a great job at covering the dollar with a variety of contradicting views and a variety of timeframes: Brent Johnson, Lacy Hunt, Julian Bridgen, Raoul, Teddy Vallee, Luke Gromen, Jeff Snider, Lyn Alden, Komal Sri-Kumar, Marco Papic...just in the last few weeks But one thing RV cannot do is to commit to our own path.
    • JE
      Jonathan E.
      11 September 2020 @ 06:51
      Andras - Agreed but worth highlighting that they are two polar opposite views on what is possibly the most fundamental driver of markets and asset classes. As has been said my many of the commentators get the $ right and everything else falls into place. My personal conclusion is that there are merits to both views so probably best to expect a broad range on DXY (as per Peter Brandt) and time investments accordingly.
    • AI
      Andras I.
      12 September 2020 @ 02:44
      Agreed about the consequences. Seems like views are somewhat converging (expectedly as things unfold) and on a longer timeframe there is not that much contradiction anymore - it's mostly about this year and early next year. For clarity, new viewers and Essential subscriber's sake an overview might be a good idea - but then it's a hard format without putting things in the mouth of previous guests who might have updated their views since. Sounds like a good project for the Exchange community.
  • BD
    Blake D.
    11 September 2020 @ 20:54
    I heard a guest say recently they think the dollar will stay flat, wouldn't that be the most interesting outcome given how strong opinions are.
  • JG
    Jonathan G.
    10 September 2020 @ 17:28
    These chaps (Keith and Brent) are so toast, fighting the last battle, very late to the game, but I suppose they have to keep their narrative to promote their fund and that's fine, that;s their business
    • BD
      Blake D.
      11 September 2020 @ 20:49
      Their dollar bull fund isn't their business, it's a SPV they create to hedge a scenario they think could play out.
  • RI
    Ryan I.
    11 September 2020 @ 18:36
    Great interview thank you. Why was the interview cut when Keith was just about to explain his viewpoint on China and why they don't meet the criteria to become the next global reserve player?
  • BK
    Brigitte K.
    11 September 2020 @ 14:53
    Comprehensive and compelling presentation; I am glad I chose this strong dollar fund as one of the risk hedges for my portfolio.
  • TR
    Tobi R.
    11 September 2020 @ 14:52
    great interview - tks i was just shocked that Eurozone growth in Q2 was down by 46ish% - which is wrong, according to Bloomberg that was -14.7% - however, i enjoyed listen to your views "In Q1, the US GDP declined 5% on annualized phases, and the EU was down 12%. In Q2, US GDP was down about 32%, and the EU economy declined 46%"
  • SM
    Sergio M.
    11 September 2020 @ 13:05
    How can I intern for you Keith Dicker?
  • DB
    Daniel B.
    11 September 2020 @ 02:49
    That was awesome!! Have him back again please.
  • AB
    Adam B.
    11 September 2020 @ 02:13
    Great interview, and great comments!
  • MW
    McChicken W.
    10 September 2020 @ 07:59
    Thank You, VERY good and fact-based information. I have to as a (North) European that most European Countries/ Governments are broke. However, the reason we up in the North of EU are against helping is that our Countries / Governments have decent Economy while "the people " have no savings as we rely on the "System" However South European Countries / Governments are broke but the "the people" have personal savings. Look at it as a Country have two Bank accounts Private / Government. In other words, The Countries up North will drain the only funds we have ( Governmental) to the South Countries Governments were "the people" have their Euros stashed private. Sadly I cannot link to any Graph stating this. IMO forget EU as a "strong economic zone"
    • DS
      David S.
      11 September 2020 @ 01:28
      Good comments. Thanks. DLS
  • AW
    Andrew W.
    10 September 2020 @ 06:50
    1) Why couldn't gold be used again as it once was? If it was good enough for the world until 1971, why couldn't it work now? 2) Why does a currency need military protection? It would seem that only fiat currencies need military protection. 3) Why is BTC not the solution? It has all the ideal properties needed of a money supply and monetary policy from an Austrian point of view. 4) Why would the Fed/Govt not take advantage of a strong dollar to engage in more deficit spending? It seems they are already doing so. How do you know the Fed won't be directed by law to start issuing digital dollars to all residents, before other countries start doing the same, thus not giving the dollar a chance to strengthen?
    • MW
      McChicken W.
      10 September 2020 @ 08:55
      1/ There isn't enough Gold available present US$ balance, then Gold has to be something like $50k/ ounce (2) Even Powell has mentioned quite recently that we ( USA) have a large Military force to back the US$ (3) BTC isn't owned by the Governments, if there should be any Crypto ( like in China) it has to be a brand new one where the same "Crooks" as today have to be in charge ( 4) All Governments like their currency to be cheap, that is why thy like/ want inflation. (4B) US Fed is Privately owned by the "Crooks" JP Morgan, Wells Fargo, CitiBank, Deutsche Bank, HSBC... nuff said
    • DM
      David M.
      10 September 2020 @ 15:18
      @Connectech A. It isn't that there's not enough gold. Like you said, it's just a matter of price. Grant Williams did a great presentation called Cry Wolf and discussed this, you can find it on YouTube. Luke Gromen expects something similar, a binary repricing of gold much higher than today, with a floating rate, rather than a fixed rate like it used to be (ex. $20/ounce, $35/ounce etc.) It's certainly doable, though, the question is do the authorities want it...
    • AR
      Alexander R.
      10 September 2020 @ 16:17
      The short answer is : you can not print gold, so it takes freedom from all the government to be fiscally promiscuous Think about it Lenin, Hitler, FDR all hated gold Probably the only thing they had in common
    • AB
      Alastair B.
      10 September 2020 @ 16:28
      Apart from all being financed by Wall Street, according to Anthony C. Sutton in the ‘Wall Street Trilogy.’ It’s a bit too revisionist for my taste, but there are certain parts that make you wonder.....
    • nw
      nicholas w.
      10 September 2020 @ 17:59
      It's difficult to see Bitcoin as a solution, and one has to question its role as a stable unit of value surely?
    • MB
      Matt B.
      10 September 2020 @ 18:20
      My argument is: Before the modern era, population grew relatively slowly so (although it decreased) total gold per unit capita declined at a relatively slow rate that was manageable. Population growth only took off post-oil and with modern healthcare & technology. In the modern era, an exponentially growing population means that total gold per unit capita means horrendous deflation - which can't be managed. Therefore, paper currencies (which are backed by future government taxation revenues - not "nothing" as is popularly misconceived) are the only way to handle this. Paper currencies have a lot of flaws, but with a mushrooming population I can't see another way to fend off hard-money-per-capita deflation. Counterarguments encouraged - I'm hungry for them.
    • DS
      David S.
      10 September 2020 @ 23:51
      1. Gold is freely bought and sold now with most fiat currencies. If one or more countries went on a pegged gold standard the FX market would attack the peg like Soros and the Sterling until it was broken. 2. If fiat currencies were pegged to gold, a military might be a good idea. 3. Bitcoin may be a solution, but still new and untried in many situations. It will take a while to see if it makes the grade on its own. Governments cannot adopt Bitcoin themselves as politicians would not do what they do best. 4. I do not know that governments have the luxury of worrying about the strength of their currency anymore. They just put out fires as they arrive and hope they will be gone before the explosions begin. I do have some faith that the FX market can be an attenuating factor on MMT as sovereign reason has flown. DLS
    • SS
      Sam S.
      11 September 2020 @ 00:44
      Connectech A. brings up an often underappreciated point: the American military is ultimately what backs the American dollar. That is to say, the ability to show up at almost anyone else's doorstep and make life very, very, difficult, and be gone the next day, even if the firefight doesn't end in your favour.
    • RM
      Robert M.
      11 September 2020 @ 01:09
      David M: Great recommendation on the Cry Wolf presentation. Grant did a great job. Matt B: Would have 2 questions: 1. If currencies are based on a call on future tax collections, how does that relationship change as the printing of currency overwhelms the collection of revenues? And if much of the world is running large deficits, then you have negative net tax collections, which suggests a collapse in a currency versus supporting a currency. 2. As far as population growth, understand this point. But interestingly, world population growth is declining from +20% in 1960s to 5% in 2040s. So what made sense when population was growing quickly in the 60s and 70s may be less important as major economies see collapsing growth rates and overall world growth is dramatically slowing.
  • DS
    David S.
    10 September 2020 @ 21:12
    Solid, informative viewpoint. Mr. Dicker mentioned, "We have a very unique view on the dollar, and that we do believe that eventually the dollar will absolutely experience a crisis and it will be stressed." When the $US is under major stress, where do you think investors will increase investments to protect excess assets? Anything unexpected? DLS
    • NS
      Nathan S.
      10 September 2020 @ 23:41
      Bitcoin 😉
    • DS
      David S.
      11 September 2020 @ 00:55
      Nathan S. - Cute. DLS
  • MB
    Mickel B.
    10 September 2020 @ 18:34
    To echo other comments, this was a FANTASTIC piece. Well done, and well delivered Mr. Dicker! One of the top best interviews I've seen on RV.
  • Nv
    Nick v.
    10 September 2020 @ 12:07
    Why do people link Dollar reserve currency status with a Dollar bear market? Are you implying its impossible to have a Dollar bear market while remaining a reserve status. Dollar has had two 37-42% bear markets in last 4 decades, and we are quite probably at the start of number 3 It has grown as a reserve currency during this period All the Dollar bulls focus on debt I suggest you focus on the larger USD longs by investors via US equities being 59% of MSCI All World (ATH) and US bonds making up 40% of Barclays global bond index The investment Dollars is much greater than offshore Dollar debt A rotten US election could change this...quickly
    • SF
      Stefano F.
      10 September 2020 @ 13:48
      I wonder if he or Brent Johnson use stop losses or at which level they start to have doubts... (with respect :-))
    • MB
      Matt B.
      10 September 2020 @ 18:04
      Quite right. A reserve currency has to be equally relevant in bull & bear markets. If it's a good-times-only currency, then it's not a reserve currency.
  • MB
    Matt B.
    10 September 2020 @ 18:03
    This is an astoundingly clear & insightful analysis. Thank you.
  • SD
    Steve D.
    10 September 2020 @ 17:42
    I like this guy. Very well thought out positions that he also explains very well. But, I'm not sure that a weaker dollar and an inability to maintain reserve status necessarily have anything to do with one another. It seems like it is more of a rate of change function if you assume that currencies are priced correctly today on a relative basis; I don't know that they are but have to assume so. Everything that I hear and read, and this guy confirmed at least part of it with his discussion of the small scale of the European assistance plans, makes me believe that the US will increase money supply at a much faster clip than the rest of the world. I love the US but I also believe we are the most spoiled society in the history of mankind and not open to suffering any of the pain required to "fix" the mess we're in. I may be trying to oversimplify something that I know is more complex than I can understand but it sure seems to me that on a rate of change basis this should cause the dollar to weaken all else being equal as I believe the Fed will have to take unbelievable measures over the coming couple of years to continue kicking the can.
  • PD
    Paul D.
    10 September 2020 @ 17:16
    Crypto native investors can short the Lira stablecoin with leverage on FTX. My forex broker stopped taking leveraged lira shorts.
  • AB
    Alastair B.
    10 September 2020 @ 16:25
    So I assume TLT would be a good play on this thesis?
  • JJ
    John J.
    10 September 2020 @ 16:14
    Smart guy, but the whole presentation could have been done in less than 10 minutes.
  • JF
    Jess F.
    10 September 2020 @ 15:02
    $21 Trillion of unaccounted for currency that all financial pundits except CA Fitts choose to ignore will eventually create a wily-coyote moment for the dollar. When FASB 56 was passed how can anyone have faith in the currency?
  • JL
    Jimmy L.
    10 September 2020 @ 13:46
    Didn't this USD stress scenario took place in March? when USD got too high for the rest of the world, ROW responded by selling on USD assets to get hold of USDs...freeze up the whole US credit markets and next you know, you saw FED react the quickest they have ever done!! and what has happened to the USD since? what if FED;s balance sheet continues to expand at a rate and size bigger and faster than any other CBs? I somehow feel the playbook for USD stress has been established in Mar...The FED hates a strong USD more than the rest of the world!! what if the trading market is now conditioned to think...ya...a strong USD is probable...but should be quick and brief.....
  • av
    ajit v.
    10 September 2020 @ 09:40
    Phenomenal interview!
  • JS
    Jon S.
    10 September 2020 @ 09:28
    Splendid... I have no words 😶.
  • DB
    David B.
    10 September 2020 @ 08:19
    Excessive use of the phrase “we believe”
  • AC
    Andrew C.
    10 September 2020 @ 06:31
    Would be good to see more evidence to support this POV. Any links to papers or decks would be appreciated