• DXY (where Euro to dollar exchange makes up 57.6% of the fund) has shown value of US dollar plummet
  • Looking at “trade weighted US dollar index” instead (based on trade with all countries) shows the value of the dollar holding steady
• imports into the US haven’t recovered since corona (data on imports for July comes out August 5th)
  • less imports to US means less dollars in the countries that export to US and the value of these currencies seem to be low relative to the US dollar
• There is $12.6 trillion dollars of denominated debt outside of the US
  • what happens if the countries default on the debt and can’t pay it back?
• When fed engages in Quantitative Easing (in 2008 and 2020) and buys a lot of shit, it seems that the value of the dollar (trade weighted US dollar index), actually goes up a lot right around the time the fed starts buying stuff and then after a little bit of time the dollar value goes back down to more normal
  • in these scenarious it also seems that the stock market crashed during this time
    • so does quantitative easing cause the stock market to crash?
• Poster claims that gold (insert random gold index) and bond prices (TLT) are good indicators of upcoming financial crises when they go up
• M2 money stock (supply of money available in the market including real money and savings deposits, money market securities, mutual funds, and other time deposits) shot up rapidly at the beginning of corona, but recently like start of June we see the velocity start to decrease
• Author argues that quantitative easing initially decreases liquidity in the market because the Fed takes liquid assets (mortgage backed securities) from the commercial banks and gives them money that must be held at the fed and the only way they can make money off it is to lend some of it (they need to retain some amount with the fed)
  • Commerical banks and still afraid to lend money so economic recovery is stalling, which may force the fed to spend even more in quantitative easing
• Looking at treasury auctions on July 28th for the 7 year treasury note, we see that foreigners took 64% of the auction (28/44 billion dollars). This means there is very high demand for the dollar by foreigners who are trying to keep the price of the dollar high
• Author says hedge funds are playing the long game, shorting 30 year bonds, and shorting the VIX
  • so the author thinks that there will be more quantitative easing –> bond prices go up–> hedge funds need to sell stocks to get money to buy out of short positions–> VIX goes up –> hedge funds are fucked over even more and need to buy VIX to exit –> pushes VIX and implied volatility so also options prices up up up.
  • dollar price may also go up because hedge funds are long the euro and so they may need to sell out of these positions

What Dad Said

• Foreigners are unable to buy treasuries because the price of the insurance of getting a minimum return from the treasury in the case of the US dollar goes down (and therefore the people in different countries get less of their local currency when they convert the treasury dollars to their local currency) is more than the interest on the treasury since interest rates are so low
  • not sure if this is true
• if dollar goes up–> better for emerging markets (developing countries) to export to US because US will want to buy more but bad for US exports
  • companies in the US that sell a lot overseas will be screwed when they have to sell their products in another currency and then convert back to US dollars because they will get less dollars back

Interesting Note

• Author says that the stock market reflects the 1st or 2nd derivative (velocity or acceleration) of how the economy is doing