Even the Mainstream Is Getting Bearish on the Dollar
Peter Schiff has been warning about a dollar collapse for years. Now we’re starting to see some mainstream bearishness on the greenback.
The dollar hit a more than 2-year low on Monday and closed out August with its fourth straight monthly loss. It was the worst August in five years for the dollar and the longest run of monthly losses since the summer of 2017. The dollar is down about 11% from its 2020 peak.
In response to the economic shutdowns imposed by governments to deal with the coronavirus pandemic, the Federal Reserve is printing money to infinity and beyond. On top of that, it has shifted its inflation targeting to allow inflation to run hot meaning there is no end in sight to the currency debasement. The announced change in inflation targeting last week pushed the dollar still lower.
A Commerzbank analyst told Reuters this is “not good news for the dollar.”
If one expects the domestic purchasing power of the dollar to be eroded more quickly (as that is what inflation is) it is difficult to assume that it will maintain its purchasing power on the FX market in the long run.”
During his speech at the Money Show last month, Peter Schiff said the government is trying to replace the economy with a money printing press and he warned that a dollar crisis is looming.
The dollar is going to fall through the floor and inflation is going to ravish the United States. What’s about to happen is that the world is going to go off the dollar standard and go back to the gold standard. That is where we are headed.”
You seldom hear that kind of warning from the mainstream, but we are beginning to see some significant bearish sentiment about the dollar’s future.
Ulf Lindahl serves as chief investment officer of currency manager A.G. Bisset. He told Reuters he believes the dollar will plunge 36% against the euro in the next year. He said recent dollar weakness “is the beginning of a very large move” that could hurt the droves of investors exposed to it through their holdings in US stocks and bonds.
Meanwhile, hedge fund bets against the greenback are at the highest level in a decade, according to data from the Commodity Futures Trading Commission. And a recent Bank of America Global Research survey found that 36% of fund managers said shorting the dollar was their top currency trade for the second half of 2020.
According to Reuters, “most bearish investors expect the dollar to depreciate on the back of stronger economic growth prospects outside the United States, rock-bottom US interest rates, and concerns that programs to allay the coronavirus pandemic’s economic fallout are inflating fiscal deficits.”
None of this will change anytime soon. With the Fed’s pivot to “average inflation” targeting, interest rates will almost certainly stay at zero for years. Meanwhile, the US government continues to borrow and spend at a torrid pace.
Other big mainstream players are also bearish on the dollar. Goldman Sachs says an improving global economy and negative real interest rates in the US are a “sustained recipe for dollar weakness.” TD Securities said the Federal Reserve’s revamped policy approach to inflation will keep the dollar under pressure and estimated the dollar is about 10% overvalued even in its weakened state.
There is even some speculation that the dollar’s status as a reserve currency could be in jeopardy. Goldman Sachs warned about this possibility last month and Wells Fargo said the big gold bull run reveals a “lack of trust” in the monetary system. Michael Gayed, portfolio manager at Toroso Investments/ATAC Rotation Fund told Reuters, “There’s a lot of speculation these days that the dollar will crash and lose its prominence as the global reserve currency.”
On a podcast last month, Peter Schiff noted that the US dollar has lost better than 99% of its original value since the founding of the country, mostly thanks to the Federal Reserve. The price of gold in dollars was relatively stable before the central bank came along.
It’s been collapsing more recently, particularly ever since we went off the gold standard in 1971, and I think it’s about to collapse completely in the coming years, if we even have years. It may even be months. I mean, who knows at this point? I think we literally are living on borrowed time. This is a game of musical chairs and the music could stop at any minute. And if you are not in a chair, meaning out of US dollars, then you are out of this game for good.”