In the last monthly borrowing report, the U.S. has added $275Bn of debt to a whopping $33.4Tn. In a single day, the U.S. has increased its debt in an equivalent to half the market cap of Bitcoin (10 mill BTC at $27k). Read that again. In that environment, you would expect the U.S. dollar to weaken vs peers, since the full faith and credit of the country is deteriorating rapidly. Well, not only that’s not the case, but it has shown 12 consecutive weeks of gains in terms of the U.S. dollar index (trade weighted). The reserve currency status, the liquidity, and now, the rates (real and nominal) are attracting foreign capital, which also says something about the status of other big economies. But perhaps this trust on the green buck is only temporary, as it’s not befriending the long end of the curve. Foreigners may park their reserves in T-bills for 3 months but maybe not in T-bonds for 10 years. If this phenomenon continues, the curve is going to flatten even more. And it doesn’t look like foreigners are looking for equity risk either.
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Chart source: Bianco Research
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