Esoteric Signals Highlight Dollar Funding Shortage

Featuring Paul Mylchreest

Cross asset strategist Paul Mylchreest, from ADM Investor Services International has a considered view on most markets and in this interview with Ned Naylor-Leyland from Old Mutual Global Investors, Paul outlines some of the esoteric indicators that are signaling stresses in the plumbing of financial markets.
Focused on dollar liquidity, Paul examines how a structural shortage of the US currency and funding issues will impact market participants from Europe to Asia.

Published on
30 November, 2016
US Dollar, Macro, Financial System
20 minutes
Asset class


  • JL

    Jordan L.

    11 12 2016 04:30

    3       0

    This is one of the best videos and I couldn't agree more with the premise. Strong dollar, rising rates, deflation. Just as a spike in FFR has preceded every recession of the last 70 years so it will again.

  • SB

    Sam B.

    5 12 2016 13:46

    5       0

    @Sundeep D... that's what's been happening for the last 18 months. Foreign central banks have been selling USTs in huge amounts in order to supply dollars to their banking sectors which are all short of dollars and can't source them from anywhere else. US TIC data supports this:

  • SD

    Sundeep D.

    5 12 2016 09:04

    1       0

    What about the potential USD supply that could come from selling of foreign ownership in UST's? I don't have the numbers but I would think foreign UST ownership (especially by EM governments) isn't small? Would appreciate any colour here...thanks

  • LR

    Luigi R.

    4 12 2016 01:58

    0       0

    My sense from this and other interviews on RV is that Yellen has to go. Is it really true that dollar stress in China could be relieved in part by simply setting up a swap line. WTF hasn't the Fed done this? Besides moral suasion, what should they be doing to stem the rise in the dollar?

  • RR

    Raj R.

    3 12 2016 23:24

    1       0

    Wonder if the dollar strength is here to stay. Hawkish fed would bring the market down strengthen the dollar and cause more headaches to trump. All of his campaign promises will be down the drain then

  • PB

    Pieter B.

    3 12 2016 13:19

    1       0

    Great interview! He is indeed very, very smart.

  • RP

    Raoul P.

    3 12 2016 00:02

    4       0

    Great interview. Ned did a great job. Thanks guys

  • BH

    Ben H.

    2 12 2016 04:57

    0       0

    Agree that he is way too smart... never thought to monitor some of the risk factors he looks at

  • db

    don b.

    2 12 2016 04:16

    0       0

    Great interview Paul!! Let's try to get Real Vision to interview Daniel Oliver of Myrmikan Capital who you turned me onto. Thanks for your insight Paul!

  • ca

    cyavash a.

    2 12 2016 03:57

    1       0

    Way over my head. My takeaway was sounds like sh*t is f*ckd up.

    Where does one find the swap data?

  • MF

    Martin F.

    1 12 2016 06:44

    0       0

    @ Sam: you're absolutely right.

  • T~

    Tshort63 ~.

    1 12 2016 06:07

    5       0

    Another great interview and timely. I can't help but feel addicted to the drama of a train crash in progress until I snap back and realize I am on the train too. Would rather brace for impact then be dismembered.

  • SB

    Sam B.

    1 12 2016 02:59

    6       0

    @Martin F. that BIS paper is on my reading list. As I understand it, Shin basically states that the widening of cross currency basis swap spreads violates covered interest parity. Refreshing that an economist with mainstream credentials finally pointed out that CIP doesn't hold in the real world where banks don't have unlimited balance sheet capacity and there is a dichotomy between onshore and offshore dollars. As far as the USD being a more appropriate risk indicator than VIX, I definitely agree. However, I don't think the standard DXY (or even a trade-weighted DXY) is necessarily appropriate either. Since its based on spot cross rates, and heavily weighted towards the EUR and JPY, dollar weakness as measured by the DXY could driven by JPY carry trades unwinding, which as Mr. Mylchreest points out are actually driven by a shortage of dollars. So "weak" DXY can often times signal "strong dollar." Early 2016 is a good recent example. I completely agree with Paul's notion that basis swap spreads and IR swap spreads are the best indicators to look at in terms of eurodollar funding stress.

  • FG

    Fred G.

    1 12 2016 01:57

    2       0

    So good! the latest round of interviews have tied in very well with each other. A pleasure to watch

  • dw

    douglas w.

    30 11 2016 22:22

    13       2

    Guys fantastic work, i've watched every video, i know weird right? prob. not the only dude here thats done that. Although the dollars continued surge seems inevitable going into 2017 might we have someone that isn't as bullish on the $ for an opposing view? I think Mark Yusko is someone who may have a good counterpoint to Raoul's thesis. Also, a swing back around to visit Ronald Stoeferle's inflation deflation thesis would be an eye opener now that Trumpnomics has arrived. Cheers to the team, and keep up the wonderful conversations!

  • MF

    Martin F.

    30 11 2016 21:31

    2       0

    Great interview. @George B.: couldn't agree more. See also Shin from the BIS, speech 11/15/16. USD now the risk indicator (not VIX anymore)

  • JC

    John C.

    30 11 2016 20:27

    0       0

    very informative thanks!

  • SB

    Sam B.

    30 11 2016 20:17

    13       0

    Huge props to RV for having Paul on... Eurodollar contraction underpins everything important in financial markets. Ironically, I think the regulations imposed on the banks to combat the leverage excesses of the last crisis (Basel III and 2a7 money market reform, most notably) will end up starving a market that's structurally short eurodollars, ultimately precipitating the next crash. Anyone interested in learning more, watch Jeff Snider's preso here and read his Alhambra blog. Grant or Raoul, please interview him!

  • RA

    Robert A.

    30 11 2016 19:35

    5       1

    Excellent interview. As I watch the US $ breakout I can only wonder what the ramifications are going to be. This interview is quite helpful in that regard. I don't know if Kyle Bass and Mark Hart have been "timed out" yet on their Yuan devaluation trade, but based on the charts in this video we seem to be approaching either the "one off" they are betting on, another August type chunky devalue or perhaps a pickup in the tempo of the weekly gradual devaluation drip we have been seeing.

  • IJ

    Ian J.

    30 11 2016 19:04

    6       0

  • DK

    Daniel K.

    30 11 2016 15:37

    0       0

    Thank you guys!

  • RI

    R I.

    30 11 2016 14:21

    1       0

    "...if you like..."

  • rt

    remi t.

    30 11 2016 13:39

    15       0

    Great coverage of the eurodollar market.