There Is A Profound Danger to The Dollar’s Reserves Status
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Marko Kolanovic (JPMorgan Chase) says that the outperformance of US equities vs. the rest of the world is over, and he recommends emerging markets, which have recently made profits. They have found a floor and outperformed the developed world; whether or not this continues will depend on the Fed, the trade war with China, and various other intangibles.
Kolanovic shares his thoughts on Europe’s ongoing desire to circumvent SWIFT, and Trump’s ability to weaponize the dollar in order to maintain commerce with Iran and to bypass Washington’s veto on global commerce and transactions that involve the US dollar.
Kolanovic’s preferred trade is going long gold, not only for strategic reasons, but for tactical reasons as well, since current positioning in gold is extremely short.
Aggregated investment in gold ETFs and futures is currently near the lowest point in a decade. There were only two other instances this low level was reached: shortly before the market crash in 2008, and shortly before the market rally in early 2016. Being long gold worked well in these scenarios.
Remarkably, we now have reputable bankers contemplating a world in which the US dollar is no longer the reserve currency, a thought experiment that until recently was on the fringe of financial commentary. That this line of thinking is becoming increasingly more mainstream and acceptable is perhaps the most troubling observation from Kolanovic’s latest note.