The Fed’s Dollar Debasement Will Trigger an Unprecedented Structural Shift
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Whether it is continued dollar debasement by a Fed gone crazy with money printing, or a historic transition away from the current global reserve currency, the dollar’s recent sharp drop is all Wall Street is talking about. There are real concerns about the US dollar as global reserve currency (and that’s a reason why the bank is buying gold instead).
Durden looks at the year in numbers and then in terms of returns, where gold, unsurprisingly, is the best-performing asset.
Tying it all together, he shows why $20 trillion is the most important number for 2020: That is the total in global policy stimulus unleashed so far in 2020. It consists of $8.5 trillion in monetary stimulus and $11.4 trillion in fiscal stimulus (it does not include any of the Phase IV US fiscal stimulus that Congress is fighting over now).
With this fiscal and monetary tsunami, it is hardly a surprise that investors are flocking to the safety of gold and bonds, and dumping the dollar—the currency in which all this new liquidity is being created out of thin air.
When looking at dollar bear markets, new highs in gold tend to emerge on dollar debasement themes, and the two great dollar bear markets were in the 1970s and 2000s. Outperforming assets in those decades were emerging market equities, commodities, small cap and value stocks.
Of course, gold—as a hard currency—is expected to outperform everything, and recent inflows into gold funds are off the charts with $16.7 billion allocated over the past 6 weeks.
Meanwhile, looking at Bank of America’s private clients, there is a lot more gold buying going on: the current asset allocation is 58.7% equities, 22% debt, 13% cash, reducing cash holdings for three consecutive weeks. BoA’s precious metal ETF holdings are on the rise, but remain below the 9.3% peak of 2012. So it can (and will) buy more.
Meanwhile, the most important asset over the short term is not gold, nor the dollar, nor risk assets, but oil, which is now key for the autumn rotation.