The US Dollar Falls To A 27-Month Low, What’s Attractive Now?
While bitcoin underwent a fake breakout, again, shaking out “over-eager bulls,” the S&P 500 struck an all-time high.
Wall Street’s benchmark stock index has rallied over 50% since the coronavirus crisis and, on Tuesday, touched an intraday high of 3,395, eclipsing the February record.
But of all the crazy market movements, according to analyst Mati Greenspan, the most significant was the US dollar, which slipped to 27 months low.
While the US stocks have rebounded sharply amidst the fears about the economy because of the damage inflicted by the pandemic, the US dollar has been hit hard, putting the disconnect between Wall Street and Main Street in glaring light again.
This disconnect is the result of Federal Reserve printing money, asset inflation, and of course, retail FOMO. Also, “rotation out of the bond market and into everything else,” is another culprit here.
According to Greenspan, the ultra-low interest rates and increased liquidity injections have sent the bond yields through the floor, making bonds that constitute about 60% of a traditional portfolio – a “less attractive” asset class.
For him, the biggest fear is a “big bond blowout” as other than Fed, there is no one purchasing US debt. He said,
“As much as bitcoin would likely experience a full moon, the consequences to society would almost definitely not be worth it.”
The US dollar index has been falling for nine straight weeks, since mid-May after enjoying the multi-asset March sell-off. The dollar has been losing its ground against not only the majority of the currencies but also assets.
While the dollar has started falling only now, the matter of fact is, not only USD but “the purchasing power of all fiat currencies has been falling steadily for many years, a process that has been vastly accelerated by recent events,” noted Greenspan.
Both bitcoin and gold have moved in the same direction as the US dollar this time. However, they have been enjoying a rally for the past few weeks. With 60% returns YTD, the largest cryptocurrency is one of the best-performing assets.
Still, the US central bank might not be done helping the world’s largest economy, which would further weaken the world’s reserve currency.
This is why ex-prudential CEO George Ball who hasn’t been a cryptocurrency supporter, recently declared that it is time to buy Bitcoin as the digital asset is becoming an “attractive class” in the current environment and would benefit from both Fed’s more money printing and an end to it.
Although expected to be a new bull market, the foundation of the stock market’s rally might not be that sturdy as it is led by a handful of tech giants, and with a few areas too crowded, pitfalls are to be expected, as such making digital gold more attractive.