The Greenback Attack; US Dollar Shortage


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Rabbie Gill

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The Greenback Attack; US Dollar Shortage

A strong US Dollar is the arch nemesis of risk assets given its role in funding credit and being the de facto global reserve currency.  The US Dollar has been steadily rising since Feb 2018 when the current business cycle’s growth rate peaked. All the while risk asset valuations have been topping with the S&P500 being the last hold out.  USD strength is now at a point where it is negatively impacting underlying economic growth.


The repo market rates spiked over the last week as those funding markets are seeing a shortage of USD and high-quality collateral such as US Treasuries. This stress in the “plumbing” of the financial system is worrying.


To look at it another way, if we invert the year over year change in the USD there is a high correlation to the phasing of the business cycle as represented by the ISM Purchasing Manager’s Index.  As the USD weakens, we see the ISM PMI increase, and vice versa. When the USD is strengthening the ISM PMI rolls over as does the business cycle.  The Oct 2019 ISM PMI printed 47.8, the weakest print in 10 years. TRI expects the ISM PMI to bottom in the mid to low 40’s in Q1 to Q2 2020, causing further weakness in risk assets.


 US ISM PMI Lower Levels

The TRI’s anticipatory indicators are pointing to further weakness in the ISM PMI.  TRI does not see any material improvement until early 2020.

Source: Bloomberg

 Lower PMI’s Equal lower Yields

US 10-year yield have a high correlation with the business cycle as seen below.  If the ISM PMI bottom’s out in the low to mid 40’s, that implies 10-year US yields are likely to break below the 1% level.


 Yields Downtrend Intact

US interest rate (as well as Canadian) continue their downward moves after peaking in fall of 2018.  Interest rates rolled over about 9 months after peak economic growth rates.   There is no indication that interest rates have bottomed as the downtrend is fully intact.


 Oil – Supply Side Shock Hasn’t Been Enough

Oil has retraced its post Saudi Arabian refiner attack level. The 15+% jump in prices were not sustained as capacity has returned to full.  The weakness in oil is telling, as it is signaling that underlying economic demand is faltering.   Oil is likely to test the low $40 per barrel range as the business cycle continues to weaken. Reminder, this will not be a straight line move down, but rather oscillate lower.


S&P500 Was Last Man Standing

The S&P500 popped higher one last time in September before turning down with the weak Oct ISM PMI print. The S&P500 is likely to move lower into early to mid 2020 as investors reprice valuation multiples as earnings estimates are coming down.


What Are Chances of New Highs

TRI is often asked if the equity markets can make new highs here given the chance if a trade deal is signed or if interest rates are cut or we have more quantitative easing. TRI never says never, as the powers that be can find a way to levitate the markets further. Example is the TSX just made a new annual high… however, fundamentally speaking the drivers of the business cycle are pointing to slower economic growth which tends to lead to lower earnings and valuations…. Many times this topping process is extended and painful. So yes, there is a small chance equity markets can push to new highs… all the while TRI will continue to implement our risk management through our repeatable investment process to preserve capital and opportunistically position to grow our clients wealth.

Stay liquid, stay defensive and follow your investment plan as the markets are about to get a lot more volatile.

TRI Global Macro Fund

TRI will be launching a Total Return Investor Global Macro Fund based on the TRI Cycles & Trends investment process. The TRI Global Macro Fund will be targeting double digit returns.  Stay tuned or please contact me in confidence at for more information or to provide expressions of interest.

TRI Cycle & Trend Signals*

The TRI Cycle and Trend Signals are shown below.  These signals are as of market close on Oct 2, 2019.  Please see the TRI Overview document for further information.

Source: Fieldhouse Capital Management



* TRI Cycle and Trend Signals are dynamic and may change on a daily, weekly and monthly basis, without notice. The indicators are at a point in time and do not imply that the current trend will persist and should not be considered investment advice.

Disclaimer: This material has been provided solely for information purposes for the use of the recipient and Fieldhouse Capital Management Inc. (FCMI). This material does not constitute an offer or an invitation by or on behalf of FCMI to any person to buy or sell any security. It should not be assumed that the methods, techniques, or indicators presented in these pages will be profitable or that they will not result in losses.  Any reference to past performance is not necessarily a guide to the future and the value of investments may fall as well as rise.  FCMI accepts no liability for any direct or consequential loss arising from investments made in accordance with the attached material. The research and analysis contained in the attached material has been procured from sources which are believed to be reliable and accurate.

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