Brave New World: Investor positioning changing from “recession” to “early cycle”

Ritesh Jain, a Dalal Street veteran, trend watcher and Global Macro Investor, captures global macro investment opportunities and economic, business and financial trends with charts and commentaries in this space.

This chart is starting to look a little scary for US dollar bulls (including me in short-term).

One reason for the US dollar strength in last decade was rising domestic oil production and hence lower oil imports.

We should see higher oil imports in the US, lower production and consequently lower US Dollar this decade.

The investor positioning is changing from “recession” to “early cycle”. This is similar to divergence developed in 2008/09. At the time, no one really knew how committed the US Fed was to QE. Now we know better.

Fed has now started using its $500 billion facility to bail out municipal bonds.

It seems like nobody is allowed to default.

Foreign central banks, governments, companies, commercial banks, bond funds, other funds, and individuals, all combined added $90 billion to their holdings in June compared to May. Over the 12-month period through June, they added $413 billion. They now hold a total of $7.04 trillion, a huge record pile.

But given the incredibly spiking US treasury debt ($26.45 trillion on June 30), their share of this debt plunged to just 26.6% — the lowest since 2008. The quarterly chart shows foreign holdings in billion dollars (blue line, left scale); and the percentage of total US debt (red line, right scale):

What if this $7 trillion of Fx reserves starts converting this into real assets?

American Express loans that are 30-days past due in July dropped to the lowest level in a year.

The person who has tweeted this is the editor of Financial Times.

We will see this exodus from other major business centres and this will start reflecting in prices over the next few months.

The insider buy/sell ratio in energy stocks is just off the charts.

The trend had already started even before Covid

Now this trend is accelerating with government subsidies