That Time the Dollar Tide Went Out…
Welcome to the Dollar Rally to end all rallies. This week’s action in the U.S. dollar puts paid all of the moves by the Fed and the ECB over the past three months to forestall this from coming.
First it was January’s FOMC meeting where the Fed completely reversed course after a very unpopular December rate hike threw equity markets into a tailspin by Christmas.
Of course our Narcissist-in-Chief thought it was all about him and implored the Fed to stop raising rates. It was interfering with his ability to shake down the world at his sanctions and tariffs party.
But it wasn’t about him at all. It was about the Fed’s need to normalize rates into a coming global slowdown after a central-bank-induced, decade-long recovery of dubious merit.
They’d done their job of recapitalizing the banks, somewhat, and now it was time to start trying to address the massive pension system and municipal bond crisis that was on the horizon.
Or at least that’s what they thought.
Moreover, at some point the Fed had to show the markets something positive. That unwinding its balance sheet alongside significant shift in capital flows thanks to Trump’s tax cuts going into effect in 2019 was a signal to U.S. corporations to invest in something other than balance sheet manipulations themselves — buybacks, special dividends, etc.
Trump can talk a good game about the ‘greatest economy evahr!’ but reality is even today’s 3.2% GDP print is marred by one-off items like an anomalous contraction of the trade deficit and huge inventory builds as Zerohedge pointed out.
Let’s not forget how easy it is to get a big GDP print when you’re running the biggest deficits in history.
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