In last week’s Bull v Bear, Jason asked Kevin whether the dollar had peaked or if there is more pain to come. Watch his answer in the clip below:
Jason
Real quick, Kev? So what do you think about this chart? Do you think the dollar’s peaked, do you think there’s potentially more pain to come?
Kevin
I think if the dollar is going to rebound from anywhere, it’s here, right? It’s a pretty good time to do it. If you look at even, like, retracements right versus the lows for the last, like, two or three years. It’s again at a pretty clear technical level in terms of potential support or where you would expect if you were to see a rebound.
Kevin
My base case, right, our long term view, our long term thesis, very much is still intact in terms of what the end game is, right. But the report that we put out late last week that had a more updated, I think, tactical approach to how markets could trend this year, my base case right now is that I think we could continue to follow that early 2019 playbook, at least until or through the next Fed meeting, right.
Kevin
Because while there’s economic data that’s going to come in in terms of both inflation and labor market data, barring some type of change in rhetoric or stern rhetoric that comes out of policymakers, financial conditions could stay relatively loose until then, right.
Kevin
So you don’t necessarily have that as a potential headwind, at least in the short term. There has been an expansion in dollar liquidity that we’ve noted over the last several weeks, which, again, was helped to be a key driver behind the recent rally in risk assets. And you can see that both in things like the riskiest stocks, right? The most shorted stocks, non profitable tech stocks. All of those are some of the best performers. Or I should say that is, in aggregate, are some of the best performers year to date, right outperforming even the major indices like the Nasdaq or the S&P. You’ve had this whole craze around AI, obviously, which has spilled over into the crypto markets the last few weeks as well. And so there’s a number of pockets of, I think, just way too speculative behavior right now. And it’s not necessarily purely fundamental driven. It’s more driven by liquidity conditions, at least in my view. And the fact that you have this chart, right, where the dollar peaks. The dollar peaked right around the exact November, the date in which the global liquidity cycle showed signs of finally bottoming out and starting to rebound, right.
Kevin
Now, we know that operates with a lag, which is why we’ve said that we’re more bullish on the second half of this year and really getting closer to 2024 before that’s really going to have a significant impact on financial markets. If we extend that further, I think 2024 and 2025 look a lot better than probably pretty choppy and still volatile 2023 that I think’s in store.
Jason
I think that was a great explanation. Right now, gun to head, I don’t think we get back up there. I do think we might get up here, though, which I mean, that would suck. This move would be –
Kevin
That’s not fun for anybody.
Jason
– That’d be straight pain. Yeah. For assets, for sure.
