Dollar Rises As Capital Seeks Returns

Dollar Rises As Capital Seeks Returns

“Davidson” submits:


History shows that the rises in US$ occur with capital seeking better/safer returns. The early 1980s saw Volcker raise rates to quash inflation and capital shifted to the US. The late 1990s saw an Internet Bubble and capital sifted to the US. The 2008-2009 market collapse drew capital to US seeking a safety as did Russia’s 2014 invasion of Ukraine and the rise of ISIS and terrorism.

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What we have seen is a rise in debt globally and a fall in 10yr Treasury rates to levels deemed ‘lowest in 5,000yrs’. Every event on this chart pushed capital to the US and drove 10yr Treasury rates ever lower. Emerging market investors have borrowed locally and transferred capital to Western nations espcially the US. Much of this has been a safety trade. It has overwhelmed the historical cultural expectations for investment returns. If the current administration’s actions improve safety for global capital, then we will see some of this flow reverse. But, it is likely that Western rates will be unusually low for an extended and upredictable period.

One needs to read the historical record and make the connections between policy decisions and investor responses over the long-term to understand trends such as these. The majority of investors are short-term and the media’s self-interest in promotion of short-term analysis reinforces misperceptions to cause and effect. If your perspective is long-term, then you can see how long-term policies impact markets even though you cannot predict them. Fortunately, long-term shifts are not only significant but they develop slowly which provides the perceptive investor to take advantage well before markets become aware.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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