BIS and The Federal Reserve

Both issuing warnings about gambling with US Treasuries

BIS report

Countries dumping Treasuries

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The timing is interesting. We can assume these funds have been with us for at least a year. The 2000 Y2K period needed to unwind an excess money supply. We have that unwinding now because of Covid.

Regardless of when and regardless of a strong economy this unwinding will cause financial problems. Simply put capital drying up is consequential.

I have not tried to time this but it fits my narrative…frankly many people’s narratives now.

It’s not so much that the funds that are the problem but the levaraged positions in the derivatives market:

From the BIS site:

Speculative positions by leveraged investors in US Treasuries are back

The dollar securities are a problem due to runaway US debt. I’ve just spoken to a relative who works for a large UK investment house and was informed that there are no dollar assets in their Discretionary fund manager (DFM) portfolio.

You’d need to be clearer. Leveraged? Government debt or private debt? The amounts and relative differences?

Read the articles - very clear

This stuff is very complex. It is not that clear. There is no better summation by the reporters.

The FED won’t be lowering interest rates by much later. Meaning the gambit will be missing some of the differential.

The proportion of shorts to the needed actions is not clear.

Do I think it is a problem? Probably.

I don’t think that is quite accurate; or the reason for the falling dollar.

The dollar has been on a tear for years and for the first time ever last year - while both debt and inflation were hitting historic levels, was worth about the same amount as the Euro. The dollar was way overvalued - well in excess of the past trend.

Even after coming back down a bit, the dollar is still worth more today that it was back in 2020.

If those portfolios have gotten rid of dollar assets, it probably is more a reflection of the still historically high value and the fact that the Euro and a few other currencies are probably still a bit oversold.

No, but add that to the derivative bonbshell identified by the BIS and The Fed. and you can see why the concern.

Related update:

Producers of metals and other raw materials fell sharply as the dollar strengthened to test its highest levels of the year to date.