How We Are Going to Be Betting on a USD Decline (Gold, Bitcoin, Oil or Stocks? | ABT, IHS

Summary

Highlights

• The US dollar is weakening due to secular changes influenced by monetary policies and tariffs. 📉
• Tariffs impact global trade, reducing the demand for USD, thus potentially weakening it further. 💼
• Gold's current rise may not be sustainable as it appears overbought in this weak dollar environment. 🏆
• Bitcoin is a strong alternative investment in weak dollar conditions, given its decentralized nature. 🚀
• Oil prices aren't rising despite a weakening dollar, due to negative growth forecasts affecting the market. ⛽
• Invest in foreign stocks or US stocks with extensive international exposure to capitalize on a weak dollar. 🌍

Key Takeaways

• The US dollar is weakening, driven by monetary policy changes and global trade dynamics, particularly US tariffs. 📉
• A weakening US dollar provides opportunities to diversify investments, especially through foreign stocks and Bitcoin. 🌍
• Gold has surged but might be overextended, while oil isn't reacting as expected due to low growth expectations. ⛽
• Bitcoin is positioned as a 'weak dollar bet' and could benefit as a decentralized alternative amidst the weakening dollar scenario. 💰
• Investors are advised to look at foreign stocks or US companies with significant foreign revenue for better gains. 📈

Overview

Chapters

• 00:00 - 00:30: Introduction In this introductory chapter, the host Peter of Braavos Research discusses the potential weakening of the US dollar. He aims to explore the scenarios that could lead to the dollar's decline in the coming weeks and months. The chapter also seeks to clarify common misconceptions about the current state of the US dollar and to illuminate the underlying factors influencing its value.
• 00:30 - 01:00: Asset Positioning for a Weakening Dollar Discusses asset positioning strategies in anticipation of a weakening US dollar.
• 01:00 - 02:30: US Dollar vs Euro Analysis The chapter discusses an analysis of the US Dollar (USD) versus the Euro (EUR). It mentions the importance of understanding currency strength, with a focus on the US Dollar index, also known as the 'Dixie,' and its trade-weighted version. These tools are crucial for assessing the relative strength of the USD in the global market. The chapter introduces the subject by setting the stage for examining trade setups in the Forex market, particularly looking into the interaction between these two major currencies.
• 02:30 - 06:30: Factors Driving US Dollar Weakness The chapter discusses factors influencing the US dollar's strength or weakness, focusing on the US dollar index, primarily driven by the US dollar to euro exchange rate. It highlights the significance of analyzing technical charts to understand the trends in the dollar's movement.
• 06:30 - 13:00: Investment Impact of a Weak Dollar The chapter discusses the exchange rate between the US dollar and the euro, highlighting its significance as one of the most traded currency pairs globally. It emphasizes the attention it receives from traders, institutions, and investors. The chapter details a notable breakdown of a long-term upward trend in the US dollar, signifying a significant development. As a result, there is a growing conviction towards expecting further changes or trends associated with a weakening US dollar.
• 13:00 - 18:30: Gold, Oil, and Foreign Stocks Analysis In this chapter, the focus is on analyzing the movements of gold, oil, and foreign stocks with a particular emphasis on the weakness of the US dollar. A breakdown in the bullish structure of the US dollar is identified, which might span across weeks, months, or even years. The importance of monitoring price signals is highlighted as an essential aspect of financial market analysis. The narrative underscores the significance of technical analysis in forming trading decisions, emphasizing the necessity of gathering substantial price information before reaching any conclusions regarding trades.
• 18:30 - 23:30: Bitcoin and the Dollar The chapter titled 'Bitcoin and the Dollar' discusses the breakdown of the US dollar compared to the euro, as observed from a technical standpoint on the weekly chart. This weakening of the dollar is considered a long-term signal and influences a bearish market bias. As a result, the trades initiated today and those planned for the upcoming weeks are based on these observations, highlighting the flexibility and responsiveness to price signals.
• 23:30 - 26:00: Conclusion and Future Trades In the chapter titled 'Conclusion and Future Trades,' the discussion centers around the recent changes in the perception of the US dollar's performance. Previously perceived to be rangebound, the narrative has shifted to acknowledge potential weaknesses in the dollar. This change in perspective marks a significant shift as the focus now is on the US dollar's potential to weaken further. This analysis incorporates price signals which are considered instrumental in forecasting future trades and financial strategies.

How We Are Going to Be Betting on a USD Decline (Gold, Bitcoin, Oil or Stocks? | ABT, IHS Transcription

• 00:00 - 00:30 Hello and welcome back to Braavos Research. This is your host Peter. The focus of this video is going to be on the US dollar a weakening, the potential there is for the US dollar to keep on weakening over the next few weeks, over the next few months. We're seeing lots of stories, lots of narratives out there regarding what that actually means, what would be the driving force behind that. I think there's lots of misconceptions regarding what is actually happening right now. And I think shedding some light into what is happening on the US dollar could be helpful. And also
• 00:30 - 01:00 regarding how to position. Should you be positioning in gold? Should you be positioning in oil, stocks, Bitcoin? What is the best asset to own if the US dollar is going to be weakening? We've already talked about the dollar weakening over the last few weeks. Of course, that has been a big part of financial markets recently, but I want to do a deeper dive in this video and really understand what's happening. We're also going to talk about our recent additions to our active trades. We initiated two new trades this
• 01:00 - 01:30 morning. I want to quickly go over these and then talk about what types of trades in what areas we're looking for trade setups right now. So, without further ado, let's get right into it. I wanted to start this video off with this chart of the US dollar versus the euro. When we talk about the strength of the dollar, most people reference the Dixie, the US dollar index or the trade weighted dollar is another version of this looks very very similar. When most people are referencing the US dollar
• 01:30 - 02:00 strength or weakness, they're talking about the US dollar index. And as you can see the index, this purple line here is very very intimately tied to the US dollar versus the euro. In other words, the biggest component within the US dollar index is the US dollar versus euro exchange rate. That's what really drives the US dollar strength or weakness. And so this is a chart that we really want to be looking at quite carefully in terms of the technicals because this is of course the foreign
• 02:00 - 02:30 exchange rate that is probably the most traded in the world. There's a huge number of traders, institutions, investors paying attention to what the US dollar is doing relative to the euro. And so, as you can see here, the most simple basic picture of what I think is happening right now in the US dollar is that we're seeing a breakdown of a secular uptrend on the US dollar. This is quite a significant development. And this is why we're more and more convinced or leaning towards additional
• 02:30 - 03:00 US dollar weakness over the next weeks, months, maybe even years as signaled this breakdown of the bullish structure on the US dollar. As you guys know, we pay attention to price first. Price signals are the most important aspect of financial markets that we take into account in our analysis. You want to see price offer us a piece of information before really making up our minds on a trading decision. The reason that we do that is well first of all we know technical analysis quite well. So we
• 03:00 - 03:30 understand what price signals look like and it also gives us an extreme amount of flexibility. What I mean by that is right now the US dollar is breaking down and so we can have this bearish bias because of this breakdown here on this weekly chart. This is really a long-term signal that we're getting from a technical standpoint on the US dollar versus euro exchange rate. And so here as this is happening, we are adopting and trades that we initiated this morning and the trades that we're going to be initiating probably over the next few weeks are going to be taking into
• 03:30 - 04:00 account this view that we have of a weakening dollar or potentially additional weakness on the US dollar. A view, by the way, that we haven't really had over the last few years because our opinion on the dollar has been more or less that it should be rangebound. That yes, you could bet on the dollar strengthening at support and you could bet on the US dollar weakening at resistance, but overall there wasn't a huge bias to have on the dollar's exchange rate. That has changed now. And the fantastic thing about price signals
• 04:00 - 04:30 is the flexibility that I talked about tells us that if the dollar is able to snap back above this channel right here, snapping back above these levels of resistance, what has now become resistance here, that that would look like a false breakdown and that would negate the bearish signal that we've had here. Of course, right now that's not the case. So, we have this bearish signal on the US dollar from a technical standpoint. Now, let's zoom out and think about why this is happening. You're seeing lots of different types of stories regarding the US dollar. Some
• 04:30 - 05:00 people are saying, well, this is the loss of reserve status of the US dollar that's pushing the dollar down. Now, I think this is a little bit misleading in terms of looking at it through that lens. The US dollar has strengthened and weakened and strengthened and weakened over and over again since the 1980s. And yet it has been the reserve currency this entire time. So this narrative of the fact that the US dollar is weakening
• 05:00 - 05:30 here is a loss of reserve status is a little bit are stretched. Now there is something that's a little bit different about this decline relative to anything that we've seen so far on the US dollar. Most of the time the US dollar strengthens and weakens based on two different factors. The first one is monetary policy. So what is the interest rate that you can get for owning US dollars? That's influenced ultimately by monetary policy and also inflation. And then the second thing is growth,
• 05:30 - 06:00 economic growth. If you have a local economy that's thriving, it attracts lots of capital, lots of investments. It brings about a lot of confidence because with growth comes stability and so that can drive the exchange rate of the currency higher. Throughout most of history, that has been the biggest drivers of the US dollar. And of course, monetary policy impacts growth and growth impacts monetary policy. So both of these are very interconnected. And by the way, there's a lot of that happening today. The weakness in the US dollar is
• 06:00 - 06:30 partly being driven by weakness in growth expectations. The tariffs that have been announced will ultimately lead to lower growth down the line. Probably already happening, but tariffs are a form of tax. right now. Whether they're good or bad, that's a whole different debate. But from an economic standpoint, tariffs are a form of tax and higher taxes negatively impact economic growth. Again, whether they're good or bad, a jump in taxes will ultimately lead to
• 06:30 - 07:00 lower growth. And so there is some of that that's happening is growth expectations are being repriced to the downside. that is leading capital to move away from the US dollar as it usually would whenever you have perhaps relative weakness of the US economy relative to well in this case the European economy but generally we're talking about the rest of the world but again there's another factor it's at play right now and that is global trade and that is where this argument about the reserve currency status of the US
• 07:00 - 07:30 dollar really is coming into play as you probably know global trade is conducted in US dollars. Vast majority of the trade that happens around the world is conducted in US dollar terms. And tariffs, not only do they impact economic growth to the downside, but they also impact global trade in a big way. And so lower global trade means lower demand for dollars, less demand for dollars. And so that's really the theme that's probably a little bit more
• 07:30 - 08:00 worrying than the growth story because the growth story could be temporary. It could be more longer term. That's really up for debate. There's arguments to suggest that the US will continue to outperform in terms of economic growth the rest of the world by a wide margin. And then of course there's arguments to suggest the opposite with tariffs now in the picture which do lead the bias a little bit more towards the downside risk of growth in the US. But the story of a broader decline in global trade as
• 08:00 - 08:30 a result of tariffs and the ensuing decline in demand for US dollars, that's a much more structural theme that could have a lot of lasting power in our opinion and it could be the reason why this breakdown is happening right now at the same time as all of these tariffs have been announced. I mean when you look at the precise moment where the breakdown has happened, it literally happened just in the couple of weeks following liberation day when this type of huge technical breakdown coincides
• 08:30 - 09:00 with a title shift in policy that tells you that you know there's something big happening. Now obviously this is a story that a lot of people are already covering and so you could also argue that well this is already in the price that sentiment on the dollar is very depressed and so all of this is already priced in. But I would be careful with that narrative because the potential impact of a broader decline of secular decline in global trade could be huge. It could indeed really damage the US
• 09:00 - 09:30 dollar's dominant role in the global economy. And along with this breakdown, it could mean that we're not quite done pricing this in in the near term. Remember, sentiment is a great contrarian tool, right? When sentiment is very bullish, you want to be selling the asset that everyone is bullish on. And when sentiment is very bearish, you want to be buying that asset. That's the usual buy when others are fearful and sell when others are greedy. It's a great general template, especially for
• 09:30 - 10:00 longer term investors, right? It's really when there's blood on the street that you want to be buying a certain asset and when everybody's bullish on that asset, you want to be selling it. But it's not a great timing tool. It's a great general template, but just because a lot of people are bearish on the dollar right now doesn't necessarily mean you should be buying dollars. Sentiment can stay bearish for months while the dollar continues to weaken. So yes, there's headlines that are bearish on the dollar right now, but that doesn't mean that we can't see more
• 10:00 - 10:30 weakness. So what does this all mean? What does a weak dollar environment actually mean from an investment standpoint? It does mean lots of things. First of all, if you have lots of US dollars and you're exposed with a large cash allocation to US dollars and you're concerned about this type of weakening, broader structural weakening in the US dollar, then I would consider diversifying your currency risk. Whether that's diversifying through the euro, we talked about the Swiss Frank as well in
• 10:30 - 11:00 a recent episode. That's just generally a very strong currency. The US dollar has been weakening against the Swiss Frank since 2000 on a pretty systematic basis. It's a very very strong currency and the US dollar seems to be breaking down here relative to the Swiss Frank just like the dollar is breaking down relative to the euro. So in terms of currency risk, there is currency risk now associated with the US dollar. The Trump administration has hinted at
• 11:00 - 11:30 really using and squeezing out the juice from the US dollar. The idea is that the US dollar's exchange rate is too strong relative to what it should be. And this is why the US has a large trade deficit and by weakening the currency, the US can reduce its trade deficit, bring back manufacturing to the United States, make American goods more competitive on the international market. And really there is a lot of truth behind these arguments. As with most things that Trump does, there's always a lot of push
• 11:30 - 12:00 back. But when you look at previous reserve currencies like the British pound or the Dutch Gilder, the exact same thing happened with those reserve currencies. Meaning that as the world used the British pound and the Dutch Gilder and global trade was conducted in those currencies, it increased demand for those currencies which made those currencies very strong but ultimately made British goods less competitive, Dutch goods less competitive and basically outsourcing manufacturing and
• 12:00 - 12:30 production to the rest of the world and making those countries have a large trade deficit that works for some time until it doesn't and the country needs to essentially give up its reserve. of currency status either deliberately or through a war through currency devaluations through large amounts of inflation and money printing or by deliberately reducing global trade. So that's the overall story and that's the risk to holders of US dollars. But what does it mean for assets? Does this mean
• 12:30 - 13:00 that you should be buying gold? Does it mean that you should be buying Bitcoin? Does it mean that you should be buying stocks or oil? Those are really the big things that we're going to look at. In general, when the US dollar index is weakening, you want to typically be long on gold, right? So, that's something to consider is that the huge appreciation in gold prices, if the dollar continues to weaken, could actually get even more severe. And it's very much possible that that happens. We've decided to cut our exposure to gold because gold has had a
• 13:00 - 13:30 absolutely massive run. It's overextended and we just don't find it an extremely attractive place to be anymore. There's more downside risk of a potential snapback rather than upside reward. Everything that I talked about has already been priced into gold. So that's our opinion on gold. It could continue as the dollar weakens, but overall it's a little bit overextended and we just don't find it an attractive place to be anymore. Believe it or not, oil tends to be a great place to be when the dollar weakens. And I can show you
• 13:30 - 14:00 that by adding the Euro US dollar pair on top of oil. And I can put oil on a log scale chart. So you can see when this purple line is rising, it means the dollar is weakening. The vast majority of the time it does mean that oil prices will rise. What's happening right now is actually just the opposite. So we really have this disconnect that's happening right now where despite the fact that the US dollar is weakening, oil prices are also moving down quite aggressively.
• 14:00 - 14:30 So you can really see how this tariff situation that's happening is impacting markets in a very very different way to what usually happens. Now by the way, this this combination of weak oil and a weak dollar is very good for the economy. It's very stimulative. So could it produce inflation down the line where these lower oil prices, lower cost of living and weak dollar creates an environment where the economy can thrive and ultimately leads to inflation down the line? That can be the case. But at a
• 14:30 - 15:00 first glance, it seems that oil isn't really the big bet to make on a US dollar weakening environment. Could further weakening of the US dollar eventually support oil prices that are priced in dollars and are clearly heavily influenced by the strength of the US dollar. It's possible that that happens again when economic growth expectations eventually stabilize. It's possible that oil begins to look like an attractive weakening dollar trade. But right now, oil is in a pretty vicious
• 15:00 - 15:30 downtrend. It's broken down above a key support here following the April 2nd Liberation Day announcement. And you know, there's perhaps signs of maybe a local bottom developing here, but overall, I would say it's a little bit too early and premature to say that we're really seeing the oil bottom out here. A bullish development on oil would be to see a snap back up like this. This would be a bullish development. We've been waiting for one for a while. Oil is
• 15:30 - 16:00 a very very attractive trade. When it goes your way, energy companies can thrive and significantly outperform the rest of the market when oil prices are rising. But you really need to be on the right side of the trend on oil for that to happen. And that's not the case right now. So I wouldn't be saying even if we believe that the US dollar has a good chance of weakening, I wouldn't say that oil is the best place to be betting on that right now. So if it's not gold, it's not oil. What is it? Well, another
• 16:00 - 16:30 typical, very, very typical trade that you can make on the US dollar weakening is actually foreign stocks. Not necessarily the stock market itself. Although, as I mentioned, when the dollar weakens, that can have a very stimulative effect both on the economy and mechanically on earnings, especially on multinational corporations. Companies that have lots of revenues coming from abroad, they're going to benefit from a weak dollar. And the most extreme way to really bet on that theme of revenues
• 16:30 - 17:00 from abroad looking better is by simply betting on foreign stocks. And the DAX relative to the S&P 500 is a great example of that. We can simply add again the same chart of the euro against the US dollar on top of this chart. And you can see the very intimate relationship that these two have. And of course, the DAX has been outperforming very very significantly recently as you've had this weakening of the dollar. It's probable, I would say, that if the
• 17:00 - 17:30 dollar continues to weaken, you're going to continue seeing the DAX outperform. The DAX being the German stock market. By the way, we've had very lengthy periods of outperformance on the DAX relative to the S&P 500. In this case, the DAX from the same level as today continued to outperform the S&P 500 by 30%. And I can show you what that looks like on a chart of the DAX. That was in the early 2000s bull market. But it was a massive bull market on the DAX going
• 17:30 - 18:00 from 4800 points all the way up to 8,000 points. So almost doubling during that time period. The DAX has already had a pretty good run. it run higher, especially if the dollar continues to weaken. Absolutely. So, that's the first real trade that you can look at if you're expecting a weak US dollar, which is right now the case for us. So, we're interested in foreign markets, stocks, strong stocks that are relatively uncorrelated to the S&P 500 and that are
• 18:00 - 18:30 really look like they're benefiting from the weakness in the US dollar. Those are parts of the market that we like and that's where these trades on IHS that we made and on ABT that we made this morning come in because both of these companies have pretty significant revenues coming from abroad. This is really an American company that has the majority of its operations coming from abroad. So it is benefiting from this weakness in the US dollar. It also has a beautiful technical structure and seems
• 18:30 - 19:00 to be so far breaking out of up about 6% since we initiated that trade this morning. So, so far so good. We'll see if it's able to stick the breakout here, which is really what I want to see. Now, let's move to the more interesting part of this video, and that is the potential for Bitcoin to be a beneficiary of the dollar weakness. Now, if you go over to our forecasting models here and you look at the first chart, which is our Bitcoin valuation model, I wouldn't pay
• 19:00 - 19:30 attention to where we are right now. We're pretty much at fair value on Bitcoin. This is the data for April. We're going to be updating that for May. But when you look at how we derive the fair value for Bitcoin, this is a very powerful chart, by the way. When Bitcoin is very significantly above fair value, it's a great moment to sell. when it's below fair value like in these instances right here or in early 23 in 2020 for example those were great moments to be buying Bitcoin. So it is a model that works and it's actually based on the S&P
• 19:30 - 20:00 500 and the US dollar index. Now there's many reasons for this. One of the big reasons for why the US dollar index has a big influence on Bitcoin is because Bitcoin is priced in dollar terms on most exchanges, most international crypto exchanges. And so when the dollar weakens, that increases the purchasing power of the rest of the world to buy Bitcoin. And so a weak dollar increases inflows of capital to Bitcoin. So Bitcoin is a weak dollar bet. It thrives
• 20:00 - 20:30 in environments where the US dollar is weakening. And I can show you that a little bit more visually by just simply adding again the same chart of the euro against the US dollar. You can see that the big bull markets on Bitcoin occur at the same time as the dollar is weakening and the big bare markets on Bitcoin occur when when the dollar is strengthening. So that's the first way that Bitcoin can benefit. And then naturally you of course have the question of well if the dollar is losing
• 20:30 - 21:00 its reserve status if that's really what's happening right now as demand for dollars is going down because less trade is being conducted in dollars and so foreign countries, foreign businesses, institutions don't really have a need to own US dollars anymore. And so where is all of that capital going to go? Well, part of it is going to go into other currencies. So maybe the euro, maybe the Chinese yan, the yen, the Swiss Frank, the dollar is going to fall relative to
• 21:00 - 21:30 other global currencies in that scenario. But clearly there's not one big currency that stands out. It's not like when the British pound lost its reserve status, most of the capital fled to the dollar because the US, especially after the Second World War, was really the source of stability. Whether that's geopolitical stability, military stability, or economic growth stability. Today, we don't really have that. China
• 21:30 - 22:00 has its own problems when it comes to both geopolitical and economic stability. Europe also has significant risks, both from a geopolitical and an economic growth standpoint. So, the two major currencies that could potentially rival the US dollar, the yuan or the euro, don't really seem like they're ready yet or ever will be to replace the dollar as a dominant global currency. And so, that's when flight to decentralized forms of value really become interesting. That's why gold has
• 22:00 - 22:30 been skyrocketing recently because gold is a decentralized form of value. Right? When you own gold, you're not associated with any kind of government, country, institution. You're really protected from geopolitical and economic risks. Gold is generally a safe haven asset that is completely decentralized from the rest of the financial system. And now the second option is of course Bitcoin, digital gold. Now, it's less of a perfect safe haven asset compared to
• 22:30 - 23:00 gold because it is tied to the S&P 500's performance and know that the track record is pretty clear on that. Bitcoin performs well when the S&P 500 performs well. And this is part of the reason, mainly the reason why Bitcoin has actually been going down recently despite the big dollar weakening and why it's been lagging behind gold significantly because of the S&P 500. But if all of a sudden we're in an environment where the S&P 500 maybe is underperforming a little bit, but it's chopping around, maybe bottoming out,
• 23:00 - 23:30 can that be an environment where capital flows into Bitcoin, whether that's straight from the US dollar or investors booking profits off their gold and diversifying into Bitcoin? It could very much be that Bitcoin becomes a huge beneficiary of Donald Trump's tariff policies. And so we've seen that clearly be the case that it's been resilient over the last couple of months. It's been incredibly resilient here and we're going to be looking to increase our exposure to Bitcoin as soon as we have a good trading opportunity. So, that's
• 23:30 - 24:00 something that I wanted to highlight in this video. Just as a quick summary in regards to what we're thinking about the US dollar and the opportunities that could come out of a broader weakening of the dollar, gold's run seems a little bit overextended. Again, it could continue, but we're not really looking to bet on that. Oil is suffering from low growth expectations. So it doesn't look great. Foreign stocks look fantastic. Whether that's actual foreign stocks or American companies with lots
• 24:00 - 24:30 of revenues coming from abroad. Both of those look great in terms of benefiting from a weak dollar environment. And then finally, Bitcoin is the second big weak dollar trade. We're not going to be basing all of our trade ideas on these two themes, but I think these are relevant themes to keep in the back of our minds in this environment that we're heading into. Otherwise, as we mentioned in the trade alerts that we posted this morning on ABT and IHS, we're looking for trades in quote unquote safe areas
• 24:30 - 25:00 of the market. So any stock that is really showing signs of correlation to the S&P 500, we're looking to get exposure to utility stocks, healthc care stocks, even staples. If they're showing strength and uncorrelation, we're very happy to initiate trades on those. IHS is a great example of an uncorrelated stock. As you can see, when you have the S&P 500, you have just zero connection between the two. If anything, they have an inverse correlation where IHS has
• 25:00 - 25:30 actually been outperforming ever since the S&P 500 has started topping out. So, this is a great way to diversify. We have exposure to stocks. We have exposure to the S&P 500, but it's enough. We're going to be initiating more trades again on the website, but they're either going to be completely uncorrelated or they're going to be focused on the weak dollar theme. So, if you enjoyed this video, make sure to click on the like button down below. That's very much appreciated in terms of whether you guys are enjoying the
• 25:30 - 26:00 videos. If you have any questions, make sure to leave them in the comment section down below. We do our best to get back to all of your requests. In the meantime, I wish you good luck on your trading and see you next