Global View 2021 Outlook The Great Monetary Schism A Weaker US Dollar A Stable Asian Dollar and a Rising Euro - November 2020
2021 Outlook: The Great Monetary Schism - A Weaker US Dollar, A Stable 'Asian Dollar' and a Rising Euro?A consensus is emerging that the US dollar will weaken in 2021. Our work agrees, but for very different reasons. Capital flows frequently drive currencies and the starting point of a large US$5½ trillion bulge from recent cross-border inflows is a shadow that looms large over the US unit. On top, we suspect that Fed policy will have to take on even more of the policy burden in 2021. Dollar weakness is likely to be most obvious against the Euro, largely because Eurozone policy lacks the flexibility to hold its currency down. This will be amplified by the newfound stability of Asian units, which suggests that exchange rate targeting is a central part of regional policy.
CrossBorder Capital Ltd (CrossBorder) is a London based, FCA registered, independent investment firm founded in 1996. It is owned by its partners and has no affiliations with banks, stockbrokers or other financial institutions.
CrossBorder's core competence is the measurement and analysis of global liquidity flows. Liquidity is a source of funds, in contrast to money which is a use of funds. It is defined as the flow of cash plus credit, or more explicitly as savings plus the change in base money plus the change in bank credit. Liquidity is therefore a more comprehensive measurement of fund flows than the monetary aggregates used traditionally. Liquidity research is applied to determining the outlook for a range of asset classes including equities, fixed income, currencies and hedge fund styles over varying time horizons.
Central to this analysis is the monthly collection and analysis of balance sheet data from over seventy of the world's central banks to quantify the level and direction of liquidity in each country. This data is publicly available, aggregate as opposed to sample, and rarely significantly revised. It is also little used by investors, and CrossBorder's prime utility is bringing this set of data to investors in a timely and user-friendly way.
CrossBorder's insights rest on two philosophical assertions: first, there is a regular cycle of liquidity, and asset class price movements tend to move sequentially over the cycle. By measuring where we are on it, we can significantly reduce 'fat tail' outcomes in our predictions for asset price movements. Secondly, weightings of asset classes held by investors in aggregate tend to revert to the long term mean. By measuring the variance from this mean, we can understand whether a particular trade is 'crowded' or the reverse.
CrossBorder offers these insights both as the Liquidity Research research service, and in the form of systematically allocated in-house funds. Clients of the Liquidity Research service include leading banks, fund managers (both traditional and hedge) and insurance companies located worldwide. CrossBorder additionally manages and advises on tactical asset allocation products for third parties.
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