I have done what I shouldn't have, namely time the market, and significantly reduced my holdings in the stockmarket, and as an European , I have really decreased my USD part of the portfolio. Does anyone have any opinions on the commentators I often follow; are they excessively negative on the US?
Explanation of Terms:
- Short USD: Betting that the US Dollar (USD) will decrease in value.
- Long EM: Betting that Emerging Markets will increase in value.
- Long EU: Betting that the European Union (specifically, likely European stocks) will increase in value.
summary of the Visual Economik video, focusing on practical tips for investors:
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Monitor the Dollar/Bond Correlation Anomaly: Pay close attention to the highly unusual situation where the US dollar and US Treasury bonds are falling simultaneously with stocks [00:04 - 00:52]. Normally, bonds and the dollar act as safe havens and strengthen during market turmoil. This break suggests a potential loss of confidence or a different market regime.
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Track US vs. German Bond Spreads: Observe the yield difference between US Treasuries and German Bunds. The recent widening favoring Germany [04:28] indicates capital may be flowing towards perceived safety in German debt as an alternative to the US.
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Recognize Loss of Confidence as the Core Issue: Understand that the market turmoil may stem less from the tariffs themselves and more from a broader loss of confidence in the US as a reliable economic and political partner due to unpredictable policies and disregard for international trade rules [05:31 - 06:04]. This is harder to reverse than specific tariffs.
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Be Aware of Foreign Holdings Risk: Significant foreign ownership of US assets (approx. $7T Treasuries, $19T Equities [06:33]) represents a major source of potential selling pressure if this loss of confidence persists or deepens.
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Factor in Potential US Capital Controls: Note that the idea of the US imposing controls on capital outflows (taxing financial asset exports) is being considered within the administration [07:36 - 08:07]. This possibility adds another layer of risk and could incentivize preemptive capital flight.
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Consider the US Fiscal Situation: Rising US deficits and spending increase the likelihood of future inflation and potentially higher interest rates needed to combat it, putting downward pressure on existing bond prices [08:07 - 09:02].
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Don't Dismiss Market Moves as Solely Technical: While deleveraging (like the Basis Trade unwind [09:31]) is occurring, understand that it's likely triggered by the underlying fundamental problem – the erosion of trust in US assets [12:32].
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Assess Europe as a Potential (Imperfect) Safe Haven: While Europe (Germany) may benefit from US turmoil [04:28, 12:32], be aware that the Eurozone has its own structural problems and challenges (e.g., current rearmament costs).
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Prepare for a Potentially Multipolar World Order: The current events could signal a longer-term shift away from US dollar dominance towards a more multipolar financial system. This transition is likely to involve significant volatility and pain [13:01].
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Tariffs' Counterintuitive Effect: Note that under normal circumstances, tariffs should strengthen the domestic currency (dollar) by reducing demand for foreign currency. The fact that the opposite is happening reinforces the idea that deeper issues (loss of confidence) are at play [02:23].
summary of the Mel Mattison video, focusing on practical tips for investors:
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Expect an "Inflationary Boom": The most likely scenario is continued high government spending and deficits leading to nominal GDP growth driven by inflation, not necessarily strong real growth. Equities tend to perform well in nominal terms during such periods. [03:07, 05:48, 12:20]
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Position for US Dollar Weakness: Anticipate a weaker US dollar due to global portfolio rebalancing away from the US and the inflationary environment. The DXY index is expected to potentially fall below 100. [12:58, 57:03]
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Overweight Gold and Bitcoin: These assets are seen as key hedges against dollar debasement and inflation. Significant long-term upside potential is envisioned (e.g., $10k+ gold mentioned as plausible). Monitor their price action closely; gold's resilience on pullbacks is noted as bullish. [02:40, 15:51, 17:02, 21:17, 58:10]
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Favor Emerging Markets (EM) Over US/Developed: Global portfolios are seen as overallocated to the US. Expect a rotation into EM equities and currencies, driven by lower relative debt levels and potential benefits from a commodity-positive environment. [04:32, 05:09, 44:21, 54:29, 56:23]
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Be Cautious with Bonds (Especially Long Duration): Expect "Yield Curve Distortion" (YCD) where authorities manipulate yields lower than fundamentals suggest (e.g., via Treasury buybacks [14:29, 39:16, 49:28]). This makes bonds lose purchasing power ("negative real yields"). The bond market gets "killed" in this scenario. [20:16, 21:17, 40:19, 51:50, 1:00:32]
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Distinguish Nominal vs. Real Returns: While equities (like the S&P 500 potentially reaching 7000 [02:01]) may rise significantly in nominal dollar terms, their value relative to gold or real assets might decline. Understand this difference when evaluating performance. [12:58, 13:34]
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Discount Austerity Narratives: Do not expect significant cuts to US government spending or deficits ("Doge" fading [06:54]). The fiscal impulse is likely to remain strong, fueling nominal growth and inflation. Monitor actual Treasury spending/issuance data. [09:05 - 10:45, 11:15]
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Look Through Short-Term Tariff Noise: While tariffs can cause volatility and act as a catalyst for corrections in overvalued markets [03:07], the bigger drivers are underlying fiscal/monetary dynamics and global capital flows. Don't trade solely on tariff headlines. [29:19, 30:19]
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Anticipate "Surprise Inflation" (Longer Term): While a short-term dip in inflation is possible [47:10], the medium-term outlook (3-7 years) is for sustained, higher-than-expected inflation (e.g., 5-6% [20:44]) as a way to manage the sovereign debt bubble.
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Monitor for a Potential Short-Term Inflation Dip: A surprise decrease in inflation might occur in the near term (driven by factors like oil), potentially leading to Fed rate cuts. This could present a buying opportunity before the longer-term inflationary trend takes hold. [47:10, 47:48]
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Be Aware of Global Reallocation: The shift of capital out of US assets (where global investors are overweight) and into other markets (like EM/Europe) is a major ongoing theme driving relative performance and dollar weakness. [03:50, 43:43, 44:21]
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Acknowledge Policy Makers' Power: Don't underestimate the ability and willingness of Treasury/Fed officials to use unconventional tools (balance sheet expansion, buybacks, potential yield curve control/distortion) to manage debt and prevent systemic collapse, even if it means inflation. [34:07, 34:45, 51:15]
summary of the Julian Brigden video:
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The Dollar's Importance is Central: Understand that the dollar's trend drives "absolutely everything" [00:00, 1:17:40]. An expected further weakening of the dollar (potentially another 10-20% [10:52, 11:02]) has major implications for the value of international investments and commodities. Follow the dollar's trend closely.
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Be Extremely Cautious About Overweighting US Stocks: The world has been (and still is) massively invested in the USA [02:03, 04:32]. There are now signs that foreign investors (incl. large funds [15:31]) are starting to sell down ("money is going home" [15:31]) and rotate into other markets (Europe, Japan mentioned [15:31]). This selling pressure from foreigners could last a long time [25:34].
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Risk of Significant Correction in US Stocks: Even though the market has corrected, there's a risk of a deeper decline ("true capitulation event" [17:24]), potentially down towards the low 4000s on the S&P 500, especially during a recession [20:36]. US retail investors have aggressively bought the dip [11:50], but foreign selling pressure remains.
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Stagflation Risk in the US: The tariffs have a stagflationary effect – higher prices/inflation [38:38, 44:20] combined with weaker growth (demand-destructive [39:24]). This is a challenging combination for the economy and markets.
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Consider Rotation to Non-US Markets and Value Sectors: Given expected dollar weakness and policies favoring "Main Street" over "Wall Street" [59:24], US stocks (especially tech [19:22]) are likely to underperform relative to the rest of the world. Consider increasing exposure to Europe/Asia [15:31] and sectors like energy, mining/metals [19:22, 20:00].
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Recession Risk is Real: The combination of a weakening labor market (low new hires [40:45]) and a stock market correction historically increases recession risk [41:20]. A recession typically leads to a stock market decline of around 30% [20:36].
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Be Cautious with Long-Duration US Treasuries: Structurally and long-term (next 20 years [1:07:00]), the trend for bond yields is likely upwards due to large global financing needs and diminishing global savings surpluses. Although yields might fall temporarily in a recession, the long-term outlook is challenging. Shorter durations are safer [1:09:37].
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Hold Gold (Long-Term), Consider Buying the Dip: Structurally and secularly bullish on gold [1:10:57]. However, it's technically overbought in the short term, and a stock market correction might force "weak hands" to sell gold [1:12:17]. A potential dip towards 2600-2800 [1:11:42] could be a good buying opportunity.
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Monitor Foreign Capital Flows: Look for signs of foreign selling. Weakness in US stocks during the "overnight" (Asian/European) session, followed by US investors buying the dip during the cash session, can be a warning sign [1:13:53, 1:14:28].
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Track ETF Flows (as an Indicator): Look at "shares outstanding" in popular ETFs (e.g., MAGS for tech [1:15:52]). If the number of shares remains high or increases despite price drops, it indicates that retail investors are still buying, while smart money (potentially foreigners) may be selling.
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Be Skeptical of Private Equity/Credit: Rising interest rates and potential economic downturn create risks in this opaque market [1:29:24]. Changes in the regulatory framework (e.g., taxation of university endowments [1:30:03]) can also have an impact.
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Don't Underestimate Policy Consequences: The administration's goals of re-industrialization, a lower dollar, and trade balance have significant consequences for asset prices, even if the goals are "laudable" [07:42, 08:23]. Don't assume things will continue as before.
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Be Critical of Financial Media: Be wary of "talking heads" who are often US-centric and don't understand/ignore the dollar's significance and global capital flows [1:17:40].