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Jeff Gundlach Correctly Predicted The Dollar Would Break Out — Here's What He's Saying Now
FYI: The US dollar has been ripping higher. In the last six months, the dollar index has pushed to a six-year high, and it's at a seven-year high against the Japanese yen and a record high against the Russia ruble. Regards, Ted http://www.businessinsider.com/jeffrey-gundlach-on-dollar-2014-12
Here's DXY (US Dollar Index) The US Dollar has been used extensively in transactions of "Carry Trade".
Here's an article on what may be changing due to the strength of the USD: raoul-pal-dollar-chart
Article's final line: "$5trn carry trade — with China at the epicenter."
Others chime in on the strengthening US dollar: Jeff Saut: 2015?
Worth Wray (quotes from Kyle Bass):
"In the autumn of 2009, Kyle Bass told me a scary story that I did not understand until the first “taper tantrum” in May 2013.
He said that – in addition to a likely string of sovereign defaults in Europe and an outright currency collapse in Japan – the global debt drama would end with an epic US dollar rally, a dramatic reversal in capital flows, and an absolute bloodbath for emerging markets.
Extending that outlook, my friends Mark Hart and Raoul Pal warned that China – seen then by many as the world’s rising power and the most resilient economy in the wake of the global crisis – would face an outright economic collapse, an epic currency crisis, or both."
Some good points made I think, but I wonder what happens with all the liquidity Japan is and Europe presumably will add to the system. From what I've read Japan's QE is much bigger than what the US did and I wouldn't be surprised if Europe's has to be similarly big as well. A lot of that money is going to come to the US and that's a big part of what's going to make the dollar stronger along with US investors pulling money out of emerging markets, but the point is also made the US rates may rise slower because of the stronger dollar, so it would seem like there should be enough liquidity to soften the impact on emerging markets and maybe even completely offset it. In addition, some emerging markets are commodity-dependent economies and it would seem they would be hurt more if commodities weaken due to a strong dollar. But there are quite a few emerging markets that have to import commodities and they would seem to be benefited by the lower cost.
Maybe this stuff is just way over my head and I'll be sorry for my allocation to emerging markets. It would be interesting to write to a few emerging markets fund managers and see what they have to say, and maybe I'll try that in the coming days/weeks.
According to Schwab's 11-page 2015 global outlook, we can throw out everything we think we know about EMs, commodities, and a strong dollar. Excerpts:
"A strong dollar, weak commodity prices and solid emerging market stock performance ... can coexist in the environment we foresee for a few key reasons:
"There are now far more commodity consumers than producers among emerging market stocks. ... Nearly 50% of the value of the companies in the MSCI Emerging Market Index is now in the financials and technology sectors. ... By and large, emerging market companies are not the commodity producers they are often believed to be—or were in the past.
"The China-driven commodity boom that coincided with strong emerging market performance is ending ... as China refocuses its growth. The transformation of where growth is coming from in China has been dramatic. Resource-heavy State Owned Enterprises now represent only about 25% of China’s GDP. ... A testament to the decoupling of Chinese stock market performance from commodity prices is the fact that over the past three years ending November 25, 2014, commodity prices ... are flat to down while the Hang Seng Index of Chinese stocks is up about 50% ....
"Emerging market countries have made structural changes. Smaller trade and budget deficits, larger foreign currency reserves, debt denominated in local currencies, and flexible exchange rates are leaving these countries much less vulnerable to an extended rise in the dollar than they were in the past."
Hey, TB- I'm beginning to think that you might actually be becoming an MFO asset after all. In the last couple of weeks I've appreciated quite a number of your comments. Drink whatever beer you want!
Comments
The US Dollar has been used extensively in transactions of "Carry Trade".
Here's an article on what may be changing due to the strength of the USD:
raoul-pal-dollar-chart
Article's final line:
"$5trn carry trade — with China at the epicenter."
Others chime in on the strengthening US dollar:
Jeff Saut:
2015?
Worth Wray (quotes from Kyle Bass):
"In the autumn of 2009, Kyle Bass told me a scary story that I did not understand until the first “taper tantrum” in May 2013.
He said that – in addition to a likely string of sovereign defaults in Europe and an outright currency collapse in Japan – the global debt drama would end with an epic US dollar rally, a dramatic reversal in capital flows, and an absolute bloodbath for emerging markets.
Extending that outlook, my friends Mark Hart and Raoul Pal warned that China – seen then by many as the world’s rising power and the most resilient economy in the wake of the global crisis – would face an outright economic collapse, an epic currency crisis, or both."
how a stronger-dollar-affect-emerging-markets
Ivy Funds:
stronger-us-dollar-may-have-far-reaching-impact
Kyle Bass (dollar to $1.20 in 12 months):
video.cnbc.com/gallery/?video=3000322711
Schwab Insight:
strong-us-dollar-changes-everything
Forbes:
strong-dollar-weak-china-puts-gold-in-crosshairs/
5 US dollar etfs:
etf-us-dollar/
Maybe this stuff is just way over my head and I'll be sorry for my allocation to emerging markets. It would be interesting to write to a few emerging markets fund managers and see what they have to say, and maybe I'll try that in the coming days/weeks.
"A strong dollar, weak commodity prices and solid emerging market stock performance ... can coexist in the environment we foresee for a few key reasons:
"There are now far more commodity consumers than producers among emerging market stocks. ... Nearly 50% of the value of the companies in the MSCI Emerging Market Index is now in the financials and technology sectors. ... By and large, emerging market companies are not the commodity producers they are often believed to be—or were in the past.
"The China-driven commodity boom that coincided with strong emerging market performance is ending ... as China refocuses its growth. The transformation of where growth is coming from in China has been dramatic. Resource-heavy State Owned Enterprises now represent only about 25% of China’s GDP. ... A testament to the decoupling of Chinese stock market performance from commodity prices is the fact that over the past three years ending November 25, 2014, commodity prices ... are flat to down while the Hang Seng Index of Chinese stocks is up about 50% ....
"Emerging market countries have made structural changes. Smaller trade and budget deficits, larger foreign currency reserves, debt denominated in local currencies, and flexible exchange rates are leaving these countries much less vulnerable to an extended rise in the dollar than they were in the past."
And Jeffery is (almost) ALWAYS RIGHT!.....tb
Read more: http://www.businessinsider.com/jeffrey-gundlach-on-dollar-2014-12#ixzz3L4vIxaXQ