This post was originally published on this site.
00:00 Speaker A
We have to take this conversation to what’s going on in currency markets where also
00:07 Speaker A
things have been interesting and may, you know, and and I guess there too the question is, you know, are we seeing a sea change with regard to, you know, real debasement concerns about the US dollar
00:23 Speaker A
that mean and also a policy maybe here in the US that wants the dollar to be lower. So does that mean that the downtrend there is going to continue?
00:39 Jane
You know, I I don’t think debasement is really happening, but I do think that there is a theme of diversification going on in the markets and I also think that many people, even if they’re not diversifying away from US assets, they want to hedge their dollar positions. And I think this is fairly obvious in FX markets, but it’s also, I think, um obvious in in some of the, um equity indices if you look overseas.
01:21 Jane
So, for instance, you know, from the global financial crisis all the way up to 2024, there was very much a focus on on buy America. American assets were really absorbing a lot of those portfolio inflows coming from Asia, from Europe, etcetera, that were really growing at that in that period.
01:42 Jane
And if you look at, um say stock markets we based to the start of last year, you see how the S&P is underperforming. I mean, particularly an index like the Cospi in South Korea, but also, you know, the Nikkei. and this is evidence that investors are sort of looking elsewhere. They’re thinking, look, if the buy America trade has is faltered, should we be diversifying? And you can see it very much in foreign exchange too, where there is much more interest in currencies with really strong fiscal positions.
02:18 Jane
So we’re talking about the Swiss Frank, we’re talking about the Swedish Corona and a lot less interest in currencies with large amounts of debt like the dollar or the Japanese yen. So I I think this is a really good period for other countries to sort of lay out their wares if you like and attract attract those those investors into them. And I think Japan has been doing that pretty well in terms of the reforms, excuse me, in its stock market. um, and if it can turn around confidence in its fiscal position, I think also we can see the end of being well this year too.
02:44 Speaker A
And and just to go back to the beginning of what you said, Jane, um, just to get a little bit of precision here, why how do you tell the difference between a debasement trade, a true debasement trade and this sort of like hedging diversification trade? What’s the tell for you?
03:09 Jane
Well, well really, I think if debasement was happening, the market would foreign investors would be really dumping US Treasuries and there is no evidence of that. So we had a story at the start of the week that Chinese the the Chinese authorities were telling Chinese funds to to sell or or not to hold so many um US Treasuries. But if we look at the data provided by the US Treasury, what we see, and we have it until November, what we see is that foreign investors in November were holding record amounts of US Treasuries.
03:46 Jane
And actually whilst Chinese investors have uh seen a decline in their holdings, well, investors even in Canada, but but Japan particularly where when that’s the largest non-domestic holding of Treasuries. Japan, also the UK, Belgium, other countries were seeing their holdings go up.
04:06 Jane
If there was real debasement, you’d see a real move out of sovereign assets. Sovereign assets being government debt but also fiat currencies. and yes, we’ve seen gold go up and and some um speculators or investors might be saying, yeah, you know what, that’s evidence of of debasement. I don’t think it is. I think that’s just the market following what a lot of central banks have been doing, which has been buying gold.