U.S. Dollar, Interest Rates: Stray Reflections On The Economy by John Mauldin, Mauldin Economics

’Tis the season for making forecasts. I will be sending my own five-year projections this weekend, but today for your Outside the Box reading pleasure we look at some similarly longer-term prognostications from the newest member of the Mauldin Economics writing team, Jawad Mian. Jawad writes a monthly global macro advisory publication called Stray Reflections, which is read by some of the world’s largest hedge funds, family offices, and asset managers. I and my team have become fascinated with his work. Jawad is not, in my opinion, non-consensus or even contrarian, but seemingly comes at macroeconomic issues from right angles, offering a viewpoint far different from almost anything else I read.

Born and raised in the UAE, educated in Canada, and now based in Dubai, Jawad views the world differently from the vast majority of Western-born and -trained analysts. A thoughtful and clear communicator, he is a rising star in the macroeconomic space, and I am glad to have him with us at Mauldin Economics.

As Jawad himself said as we were comparing views on a phone call yesterday, The beauty of Mauldin Economics is that none of our team is constrained to a “house view” but are encouraged to present independent insights. We are gathering a wide-ranging group of sophisticated thinkers so that we can cover all scenarios for our readers, based on our best judgment. 

The truth of that statement will become clear as you read Jawad’s forecast. Over the longer term, he and I are in general agreement, but we see definitely see the world developing differently over the next one to two years. It is decidedly helpful to pay attention to variant views, so that as time unfolds we don’t find ourselves totally surprised if things don’t happen to turn out quite the way our “most likely” scenarios suggest.

Let me share something that Jawad expressed as he and I were communicating about some of our similarities and differences:

My view about the US dollar is “different” from yours, John, in the following sense. There is zen-like certainty about a stronger dollar due to the Fed’s hiking rates and US economic outperformance. I prove that Fed rate hiking has historically led to a weaker, not a stronger dollar and argue that the dollar rally is cyclical, not structural, and will soon end. Both conclusions are contrary to what the majority expects in 2015 and beyond. The consensus is misinformed of history in my view and is wrongly reading fundamentals and technicals. I expect the US dollar to be lower on a one- and three-year time frame versus most currencies, except against the yen. Relative to expectations and views held by the [rest of the] Mauldin team, I’m more optimistic about Europe, Japan, and China. I think both Japan and China are implementing the correct policy responses and are headed in the right direction, and that Europe is not facing a major deflationary bust, and all is not lost. The risk of EM contagion is also way over-hyped in my view, as are the implications of a reversal in cross-border flows. US stock outperformance versus the rest of the world should end sometime in 2015 and will coincide with the peak in the US dollar, which will ultimately result in higher gold and commodity prices and even inflation readings. Therefore I am bearish on the US dollar for at least the next two years.

I will present a considerably different view this weekend, while fully acknowledging that there are possible scenarios by which Jawad could prove to be the more on-target forecaster. Then in two weeks Jawad will join Jared Dillian (who hangs out in New York and South Carolina), Tony Sagami (who will fly in from Bangkok), Worth Wray (now based in Houston), and the rest of our team (scattered all over the US) here in Dallas for three days of what I think will be rather intense discussions. (Patrick Cox is in the final stages of writing a book, so he will miss this week, but we will be getting together when that is done!)

One of the items we will discuss is the rollout and further evolution of a new service called Mauldin PRO, which will be primarily for professional brokers and advisors who are responsible for portfolio management and asset allocation. If you’re interested in finding out about the service, you can give us your email here and we will notify you prior to launch.

Now, I will let Jawad’s writing speak for itself. We have elected to include his entire letter, which also offers some personal musings and the results of his meditation on the long-term outlook for the US dollar. So, omitting my usual personal comments, let’s enjoy the latest edition of Stray Reflections.

Your enjoying being part of a team analyst,

John Mauldin, Editor
Outside the Box

Stray Reflections

December 2014

Jawad S. Mian, CFA, CMT
Managing Editor
[email protected]


There is an old story about a beautiful peasant girl named Layla, who was passing through a farmland while going to another village. There was a man offering his prayers out in the open. The custom was that no one should cross in front of the place where anyone was praying. When the girl returned from the village, this man was still sitting there.

He voiced, “O girl, what terrible sin have you committed earlier!”

“What did I do?” she asked, puzzled.

“I was offering prayers here, and you passed over this place.”

“What do you mean by offering prayers?”

“Thinking of God,” he replied.

“Really? Were you thinking of God? I was thinking of my young man whom I was going to meet, and I did not see you. Then how did you see me while you were thinking of God?”

Over the summer, Science magazine published an instructive report that spoke to the challenges of the disengaged mind. We quote from the editor’s summary:

Nowadays, we enjoy any number of inexpensive and readily accessible stimuli, be they books, videos, or social media. We need never be alone, with no one to talk to and nothing to do. Wilson et al. explored the state of being alone with one’s thoughts and found that it appears to be an unpleasant experience. In eleven studies, they found that participants typically did not enjoy spending 6 to 15 minutes in a room by themselves with nothing to do but think, that they enjoyed doing mundane external activities much more, and that many preferred to administer electric shocks to themselves instead of being left alone with their thoughts. Most people seem to prefer to be doing something rather than nothing, even if that something is negative.

How strange. Perhaps the French philosopher Blaise Pascal was correct in observing that “Distraction is the only thing that consoles us for our miseries, and yet it is itself the greatest of our miseries.” Life is difficult for many of us, but very often we make it even more difficult for ourselves by the way we think. In our age of connectedness and perpetual motion, there is something to be said for cultivating stillness in order to summon some emotional and mental clarity. We suspect that most of man’s problems arise from his abandoning

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