Global View Is The Greenback At A Tipping-Point What The Fed And Capital Flows Could Mean For The US Dollar In 2019 - January 2019
Is The Greenback At A Tipping-Point? What The Fed And Capital Flows Could Mean For The US Dollar In 2019The US dollar is the centrepiece of the global financial system and periods of a strong (weak) US unit are equivalent to an additional tightening (loosening) of Global Liquidity. USD strength has lately squeezed international markets, particularly Emerging Markets and commodity prices. What’s different about the US dollar outlook in 2019 is that forces are building against a stronger USD. Specifically, we argue that the US Fed is already far too tight and will be forced to ease substantially over coming months because of a likely US economic slowdown. On top, the US$4-5 trillion of speculative foreign inflows that have flooded in since 2012, now look close to spilling out.
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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