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Future of USD 30 July 2014

War Room. Future of USD 30 July 2014. HiddenLevers War Room. CE Credit. Macro Coaching. Idea Generation. Archived webinars. Open Q + A. P resentation deck. Product Updates. Scenario Updates. Future of USD. Market Update Future of USD Scenarios USD Economic Relationships

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Future of USD 30 July 2014

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  1. War Room Future of USD 30 July 2014

  2. HiddenLevers War Room CE Credit Macro Coaching Idea Generation Archived webinars Open Q + A Presentation deck Product Updates Scenario Updates

  3. Future of USD • Market Update • Future of USD Scenarios • USD Economic Relationships • Reserve Currencies of the Future

  4. HiddenLevers Market update

  5. Market Update Q2 GDP – a perfect 4.0 Obama Checked Out QE Ends in October Russia Sanctions Piling Up sources: HiddenLevers, WSJ, CNBC, Real Clear Politics, Guardian, Bloomberg

  6. Macro Snapshot Is RUT a harbinger or just mean reversion and why is 2/10 spread narrowing?

  7. HiddenLevers Future of USD – Scenarios

  8. Benign Decline USD index = 70 similar decline to 2002-07 market upswing slow + steady USD decline Europe currencies + gold increase modestly USD decline + GDP growth would boost commodities USD decline would match 2008 low USD = -13% source: HiddenLevers

  9. End of QE Strengthens Dollar USD Index = 90 rising rates mean higher demand for USD equities correction would further boost USD USD post-QE 2 has been volatile but up USD = + 11% USD strength would match mid 2000s highs growth scenario muted impact on commodities Europe currencies + gold suffer source: HiddenLevers

  10. Reserve Currency No More USD Index = 55 global power structure is changing drastic unwinding + viable options USD decline would match early 2000s decline plausible triggerUSA/Chinageopolitical tension plausible trigger debt default USD = -32% sources: HiddenLevers

  11. Scenario: Future of USD • Good • benign decline • Neutral/Bad • end of QE strengthens USD • Ugly • reserve currency no more As the economy strengthens, the dollar might fall as it did in the 2002-2007 period. Rising rates may drive investors to hold more USD securities, raising the dollar’s value and forcing commodities down. If US fiscal issues or other concerns cause foreign holders to dump USD, an inflation shock could derail the markets.

  12. $ HiddenLevers USD Economic Relationships

  13. USD + Interest Rates Pre 2008 rising rates = rising USD Post 2008 inverted relationship Why? USD as safe haven for EU crisis 2014 another inflection point? sources: HiddenLevers

  14. USD + Quantitative Easing QE 1 + 2 USD driven down QE 3 + TaperUSD only gets stronger QE 1 QE 2 QE3 Taper Note for your ignorant clients: increasing money supply has not killed the greenback sources: HiddenLevers, Financial Sense

  15. USD + Equities During flight-to-safety period starting in early 2008, USD + S&P had strong inverse correlation Rolling correlations show that this relationship flips over time, and turned positive with latest S&P leg starting late 2012 But a correction could quickly restore flight-to-safety dynamic sources: HiddenLevers, Bespoke Investment Group

  16. USD + Commodities/FX USD generally has a strong inverse relationship to oil and other commodities – traded in USD terms • Euro/USD: perfectly inverse • GBP inversion with USD strengthened since 2008 • JPY non-correlated to USD sources: HiddenLevers

  17. HiddenLevers Reserve currencies of the future

  18. USD = The Classic Reserve Currency 1/3 of US Treasuries Held Abroad Currency Composition (%) of Foreign Exchange Reserves USD makes up 61% of Foreign Exchange Reserves Foreign banks hold 10x more USD + Treasuries than gold source:US Treasury, IMF, Planet Money

  19. BRICS Bank – announced July 2014 28% BRICS share of world GDP 19% USA share of world GDP global power structure changing Obvious response to IMF imbalances IMF type institution for EM, by EM China contributing 50% of money BRICS Bank currency TBD source: Forbes, IMF, Banker Magazine

  20. Reserve Currency of the Future – Yuan? World’s Top 10 Banks 1994: 5/10 banks in Japan 2004: 10/10 banks in USA 2014: 5/10 banks in China Yuan + USD travelling together past 12 months bank profits surpassing pre-crisis peaks globally China’s banking system may be world’s largest by 2020 Japan bank capital now 50% of China China bank profits accelerating as economy slows only comparable bank profit recovery = USA sources: HiddenLevers, The Finanser, Banker Magazine,The ABC

  21. Future of USD – Recap USD strong through equities rally Interest rates + USD back to direct relationship China banking might think present, not future USD resilient through changing times

  22. HiddenLevers Use Cases Future of USD scenario Future of USD scenario End of QE scenarioGlobal Deflation data center Currencies macro themeStronger USD

  23. Product Update • Portfolios – support for models of models • Portfolios – portfolio can be in multiple households • Faster servers – improved performance, especially report generation • Coming Soon: • - Lightning Fast Portfolio Entry – paste right into grid • - Landscape redesign of HL

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