The Fed's Dollar Debasement Will Trigger An Unprecedented Structural Shift

Whether it is merely the continued debasement of the dollar by a Fed that has gone full-tilt on money printing or a historic transition away from the current global reserve currency, the recent sharp drop in the US currency is all Wall Street is talking about, with some such as Goldman going so far as to warn that "real concerns are emerging" about the US Dollar as global reserve currency (and is a reason why the bank is buying gold instead).

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BofA's CIO Michael Hartnett also could not resist the temptation of commenting on the dollar, and in his latest weekly Flow Show note, discussed what is rapidly emerging as the biggest story of 2020.

But before we get there, here is Hartnett on 2020, first looking at the year in numbers:

  • Covid-19 deaths >670k
  • Global GDP loss $10tn
  • US claims >50mn
  • US budget deficit >40% of Q2 GDP
  • MOVE index all-time low
  • Cash on sidelines $5tn,
  • US corporates raise $2.7tn,
  • Global stock market cap crashes $30tn, then $25tn rally.

... then in terms of returns, where gold not surprisingly is the best performing asset: 

(Click on image to enlarge)

... and then, tying it all together, showing why $20 trillion is the most important number for 2020: that, as the BofA strategist explains, is the total in global policy stimulus unleashed so far in 2020 and consisting of $8.5TN in monetary and $11.4TN Fiscal stimulus (it does not include any of the Phase IV US fiscal stimulus which Congress is fighting over now).

With this fiscal and monetary tsunami, it is hardly a surprise that investors are flocking to the deflationary safety of gold and bonds, and dumping the currency in which all this new liquidity is being created out of thin air, the dollar.

As Hartnett puts it, when looking at dollar bear markets, new highs in gold tends to emerge on "dollar debasement" themes and notes the two great dollar bear markets were in 1970s & 2000s, with outperforming assets those decades were EM equities, commodities, small cap, and value stocks.

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William K. 1 week ago Member's comment

The bad news is that the predicted "structural shift" will NOT enhance the USA position.