Capital Misallocation
Founder of Deductive Capital, Co-Host of Benny & The Squirrel
The dollar should catch a monster bid before any structural weakness, because fiat is a menu of bad choices and in a deleveraging no one reaches for euros or renminbi. If the US concludes it will not win in AI, there is a high probability the next step is to tank everything, and the dollar and US bonds would then be bid; the yen could also rise as carry trades unwind. Dollar strength comes first and leads to structural dollar weakness on the other side. x.com x.comÂ
The dollar should keep strengthening because the consensus debasement view is wrong on every axis at once. The dollar is ripping while gold dumps, commodities tank, inflation expectations collapse, the curve flattens and bitcoin breaks below $60k. Any eventual debasement trade must first be preceded by one last dollar blowoff, credit event or major risk-off move. x.com x.comÂ
The US dollar looks more bullish than bearish because it is priced against other currencies that are hit harder by oil. Most countries' bond yields are rising, not just America's, and the US has the world's most dominant economy, which AI is accelerating relative to others. Still, trading currencies makes little sense when stocks are rising 25%+ a year. x.comÂ
The US dollar is becoming a black hole for global liquidity, driven by Fed Chair Kevin Warsh's hawkish stance and a wave of AI-driven capital flowing back into US tech. Net long dollar positions have surged to $29.4 billion. BofA cut its EUR/USD target to 1.15 from 1.20 and now expects three more hikes this year, while Man Group sees another 5% dollar upside by year-end. This is an AI-monopoly story as much as a rate story, with capital leaving stagnant overseas markets to fund US computing. … Show more
The dollar's longer-term prospects are very negative: 2008 showed the dollar-based system was built on quicksand, and 2026 showed the US has lost its leadership of the Western-oriented world. Both are very positive for gold. First, though, the dollar might rise on a flight to liquidity. x.com x.com x.comÂ
The US dollar is the key long against other currencies in a secular disinflationary era, with demographic decline worsened by years of QE and overly cheap money. More currencies should hit record lows against the dollar, with non-dollar bond markets breaking and financial assets repricing toward demographic decline. Japan is entering a demographic-collapse regime where the BoJ has no power left. Dollar/yen just hit a 40-year peak of 162.68, per FinancialJuice. x.comÂ
Potential spending cuts and AI-related deflation make long-dated US Treasuries an asymmetric opportunity. A Democratic sweep could cut spending; an AI-trade blowup could cause deflation, while the AI trade hurts employment. Ending the Iran war could reduce spending and oil prices. Further crude gains could damage the economy hard and quickly enough to outweigh the inflation threat. x.com x.comÂ
The US dollar looks set for a multi-year bear cycle because a multipolar world needs fewer dollars. Reserve managers are diversifying, trade settles in more currencies and central banks accumulate gold instead. Against an equally weighted basket, the dollar's half-century sequence of lower secular highs is topping again on its 7-to-10-year cycle. Every major commodity bull of the past century ran alongside a falling dollar, which could also bring a second inflation wave. x.comÂ
The US dollar should strengthen over the long term as the US makes other countries reliant on its oil, a strategy that is working. The US is exporting more oil than it has in a long time. The bond move reflects rising energy prices, not a weak US economy, which is not actually that bad off. x.comÂ
The US dollar is about to move higher, and a rising rate of change in the 10-year yield is a risk alongside oil. Selling is picking up under the surface, beyond a breadth breakdown, with rotation into tech delaying the risk. @LJKawa notes the last time the S&P 500 was this close to a record with so few members above their 200-day averages was March 27, 2000, the day after the dot-com closing peak. Index resilience could mean an air pocket lower, or a bounce in equal-weight and small caps. x.comÂ
The US dollar is overvalued and weakening as Asian surplus countries stop recycling their surpluses into dollar reserves, an external drain. Without that recycling, both yields and the currency are in price discovery. Ken Rogoff concluded that Asia not recycling would mean a lower dollar against Asian surplus currencies and higher nominal rates, both now happening. Per @DrDavidKass, Ed Yardeni blames the global bond rout on the yen-carry unwind; the explanations are not mutually exclusive. x.com … Show more
The US dollar will keep dominating until another nation becomes a world power. @CryptoTeca__ notes that 98-99% of the roughly $310-315B stablecoin market is dollar-denominated. x.comÂ
