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The Dollar: It’s Complicated
There was a lot of talk last week about a purported regime shift for the dollar.
Cooler-than-expected US inflation and a sharp decline in real yields catalyzed the worst week for the greenback since November, prompting some to speculate on "the end of an era," as Bloomberg put it. The dollar, some reckon, is poised to enter a "multi-year downtrend."
Suffice to say this debate, like every other market and macro debate in the 2020s, isn't easy to settle. If the question is "Where to now?" the an
China is slowing significantly, the Eurozone has been lagging U.S. economic performance for the better part of a decade, and everyone would like to have our military, our tech sector, and our relatively unconstrained economic system (as imperfect as it may be). When it comes to a weakening dollar or, more improbably, its replacement as the world’s reserve currency, count me in the noise-and-fury-signifying-nothing camp.
Not hearing the narrative yet, but expecting to soon: “this is as good as it gets.” We can call it the Jack Nicholson Economy.
It feels like we’re going to look back on June/July in 3-6 months time and feel this narrative was correct. Everything has gone “right” for the economy. Markets and economies are not linear, this makes me think we have 2 paths from here:
1- back to stagflation
2- Retracement
We just had a fantastic mini economic boom. There are numerous dynamics about to pivot meaningfully. Plus, economic booms don’t tend to live long when total households are contracting.
https://fred.stlouisfed.org/series/TTLHHM156N#
You might be right. On your last point, I would argue that, over the next 20-30 years, demographic trends in the U.S. are the most favorable of any developed country + China. (Keep an eye on India, where demo trends suggest it could pretty quickly become one of the five, if not three, largest economies in the world.)
Interesting point RE demographic trends, however, the data I’ve seen show Millennial HH formation peaking in 2027; though the analysis was a top down macro generational view and did not take into consideration HH contraction due to overall economic trends. Essential I believe the read to draw both theories 2027 Millennial HH peak and current HH contraction is esoteric dynamics (Pandemic housing demand) have pushed HH formation above macro secular trend and the recent contraction is a reversion to trend.
Are there other demographic trends you are thinking support your perspective? I’ve been re-thinking a lot of thoughts RE retiring Boomers based on new theories regarding spending wealth transfer, etc.