Wednesday, January 6, 2021

The Blue Wave and the Dollar

The Blue Wave and the Dollar

It looks like Democrats will have a chance to win both seats in Georgia. So Democrats will have a chance to control both the Senate and the House. The Biden administration is in for an easier life to implement their policies.

  • Green Energy and Cannabis pops this morning.
  • QQQ suffers with Large Cap tech firms will be facing heaving tax policy.
  • USD Index dropped to near 89.5
  • Gold price hover near high at $1910
  • Bitcoin pops back to $34,750 level
  • 10yr and 2yr spread widen. 

BlackRock predicted USD will be getting stronger in 2021. I believe this is not a prediction but a strategy. It is clear that the US will fall if the dollar falls given the economic and geopolitical challenges from China and Europe. In the 2020 Quantitative Easy (QE4?), 2/3 of the newly printed money has flowed into emerging market's assets. Only 1/3 stayed in the US market. In order to rescue the dollar while it's not possible to slow down the printing of the dollar due to the pandemic, the US will have no other way but to jack up the asset price so much that the foreign money will rush into US assets and bid up the US dollar.

Last year the Fed Powell already made it clear that the Fed will not increase interest rate until 2023 and openly said that given the low interest rate environment the equities valuations are not really high. This is a clear sign of how desparate US is in rescuing the dollar from the foreseeable fall!

Considering Biden administration may have a chance to push infrastructure projects, there is a chance that US will be attracting foregin dollar back to these projects. However, given the political structure of the US, successful execution of long term strategy still seems an unlikely picture.

Anyway, given that the dollar has already fallen quite a bit and if the US has a wish to jack up the dollar price, it seems that Gold as a hedge to the dollar may be at a junction. Not sure if Gold is a good hedge from this point on. However, equities seem a much more certain thing to be in. 

Green Energy and Cannabis are two obvious sectors to receive the benefits of the Biden administration policies.