My favorite long idea currently is going long dollar (not in terms of return to risk expectation, but as far as likelihood is concerned) for the next 12-24 months. This is not to say there can’t/won’t be counter-trends along the way. If/when there are, I recommend buying the long dollar on the dip. Here are the reasons I believe we go higher for the dollar within the next 12-24 months, surpassing the highs in 2008:
Long Dollar Position: Four Reasons
- Capital has been fleeing, is fleeing, and has good reason to continue fleeing Europe, China, and the rest of the world. The economies outside of US are not doing well, and their central banks face pressure to ease…all clearly good for the $.
- The US economy has seen better days (especially as far as employment, median/average wages, etc go), but it is by far the best house in a bad neighborhood. Economic growth and the drivers of economic growth are superior to the rest of the world. Even as other countries’ central banks/governments face pressures to ease, The US Federal Reserve faces pressure to tighten (and for good reason). Higher rates and/or the expectation of higher rates is clearly attractive to the inflow of capital.
- US banks are far stabler than their counterparts in Europe and China. Interest rate and yield curve expectations/trends in the US are also favorable as far as forward expectations on bank profitability/safety are concerned.
- The US remains far more politically/socially stable compared to Europe, China, and the rest.
The implications of a strong dollar within the next 12-24 months on the real economy, commodities, US equities, and other asset classes are probably a lot more interesting, but will leave that for you to figure out. Also, I would recommend studying correlations, but to the extent it helps you think about causation.
On April 9th 2021, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. Q1 2021 hedge fund letters, conferences and more Read More