The CrossBorder Capital Blog

Will MMT Work And Can the US Fed Control the US Treasury Bond Market?   We have long-standing concerns about the US Treasury market. Bonds are in bubble territory and look vulnerable to the use of MMT and the absence of an effective YCC. 10-year Treasury yields could get forced upwards towards 2% given the scale of the economic rebound and the whopping size of Treasury issuance.       See our latest published research, Global View - Will MMT Work And Can the US Fed Control the US Treasury Bond Market? - August 2020  

Global Capital Is Quitting The Dollar   Evidence from capital flows indicates a sharp slowing and signs of a reversal in capital flows into the US dollar. Capital is swinging towards Europe and at the same time capital outflows from Asia are stabilizing. These outflows do not represent a loss of confidence in US economic prospects. Rather they reflect the changing supply conditions: both the increased supply of dollars printed by the US Fed and the step-up in European ‘safe’ asset supply, as part of the COVID response, as well as the likely slowdown of capital flows from China into US assets following the renewed ‘capital war’. Our conclusion is that at least a 10% and may be a 20% fall in the US dollar is possible.       See our latest published research, Global View - Global Capital Is Quitting The Dollar - August 2020  

What Drives Gold Prices?   We previously targeted gold to hit US$2,500/oz. The target is getting closer. Many investors are excited because they associate falling real interest rates with higher gold prices. Not only does the statistical evidence point to liquidity rather than real interest rates as the causal factor, but, with nominal policy rates already effectively at the zero-lower bound, much higher inflation is anyway needed to justify even today’s gold price. Instead we focus on the effect of a liquidity trend on gold, with cyclical swings explained by investors’ risk appetite, Fed QE policy, and accelerations and decelerations in the rate of inflation. This model suggests gold is currently ‘fair-value’ at US$2,100/oz. and could even test US$3,000/oz. by late-2021.       See our latest published research, Global View - What Drives Gold Prices? - August - 2020

Asia Is The Liquidity Cycle To Watch   Asian investments have disappointed for several years. This can be explained by the long-term slide in regional liquidity, itself the result of the strong US dollar and tight Chinese monetary policies. Looking ahead, the key news is that the Asian Liquidity Cycle is finally picking up strongly for the first time in 8 years. What's more, it looks set to outpace similar liquidity cycles in the US and Europe by lasting possibly up to three years longer. It looks like a great time to re-invest in the region.    

No Asset Is Cheap, But Stocks Are Certainly Not ‘Expensive’. This is Not Y2K   Many claim this is a dangerous liquidity bubble, but the data do not bear this out. Valued against liquidity, multiples are undemanding. What’s more, there appears to be a demand for long duration assets that only equities can easily fulfil. Admittedly, it is hard to make a case that stocks are cheap, but, in terms of risk premia, Wall Street is far less stretched than US bonds and the US dollar.