A Dollar Melt Up?
Courtesy of The Nattering Naybob
- Discussion of the effects of a potential dollar melt up or maelstrom on capital and asset markets.
- Examination of Bitcoin as a potential conduit for Chinese capital outflows.
- Discussion of metrics for Asian "dollar" and Euro "dollar" liquidity.
- Examination of DXY dollar and recent divergences with equities and bond yields.
Excerpt:
Regarding Chinese capital outflows, there are conduits that circumvent PBOC banking regs. BITCOIN's action since Jan 2015 explains who, what, why and when. Watch the measures of liquidity for those transactions, i.e. what is in demand or short on supply. To ascertain flows in the China or Asian "dollar" watch ON (overnight) SHIBOR, HIBOR and onshore RMB vs offshore RMB FX rates and forwards, in particular 1 year vs USD. To ascertain flows in the "petrodollar" or ED market, watch Eurodollar and 3 month Libor.
Above note, Since Oct 15 Libor has been rocketing to the upside, indicating rising intrabank lending costs.
Above note, since Oct 15 a sharp decline in the Eurodollar index. Lower price means higher future borrowing costs which have been rising steadily since mid 2014.
Above note, since Oct 15 the 10-year UST Yield increasing 25% as bonds have sold off increasing borrowing costs, another confirmation. As for FX reserves, China and others are selling USTs, but not to the extent previously thought. Rather than liquidate FX reserves, these central banks are kicking the can forward with forward dollar swaps. For those who attempted this recently, it has not ended well for their currency. Just look at the trade weighted dollar vs any currency. [Paraphrasing a wise friend]: "If the Dollar goes over 100 then sure, there's nothing stopping silver from dropping 20% as the Dollar goes to 120."
Above note, since Oct 15 the USD streaking back to visit 99 and diverging with bonds. Will it break its recent multi year high of 100? This too shall come to pass, … 99.504 and rising not for economic reasons.
