Deutsche: "Nobody Can Understand What's Going On With The Dollar... The Answer Is Simple"

Earlier this week, the bizarre, unexplainable, ongoing plunge in the dollar and US bond prices in the aftermath of the stronger than expected CPI print which also sent equities surging, prompted at least one trader at Citi to explode: "Wake Up Folks, It's Not Risk Positive"

Then again, maybe it is not all that unexplainable.

As Deutsche's FX strategist, George Saravelos, writes, he has been getting numerous inquiries as to how can it be that US yields are rising sharply, yet the dollar is so weak at the same time?

He believes the answer is simple: the dollar is not going down despite higher yields but because of them. Higher yields mean lower bond prices and US bonds are lower because investors don't want to buy them, or as he puts it "this is an  entirely different regime to previous years."

Below we repost his simple explanation, while highlighting that maybe...

... just maybe, the bottom for the dollar is now in?

From Deutsche Bank:

Blame the dollar on yields

We are well into 2018 and our feedback from recently attending the TradeTech FX conference in Miami is that the market is still struggling to understand or embrace dollar weakness. How can it be that US yields are rising sharply, yet the dollar is so weak at the same time? The answer is simple: the dollar is not going down despite higher yields but because of them. Higher yields mean lower bond prices and US bonds are lower because investors don't want to buy them. This is an entirely different regime to previous years.

Dollar weakness ultimately goes back to two major problems for the greenback this year. First, US asset valuations are extremely stretched. As we argued in our 2018 FX outlook a combined measure of P/E ratios for equities and term premia for bonds is at its highest levels since the 1960s. Simply put, US bond and equity prices cannot continue going up at the same time. This correlation breakdown is structurally bearish for the dollar because it inhibits sustained inflows into US bond and equity markets.

The second dollar problem is that irrespective of asset valuations the US twin deficit (the sum of the current account and fiscal balance) is set to deteriorate dramatically in coming years. Not only does the additional fiscal stimulus recently agreed by Congress push the fair value of bonds even lower via higher issuance and inflation risk premia effects, but the current account that also needs to be financed will widen via import multiplier effects. When an economy is stimulated at full employment the only way to absorb domestic demand is higher imports.  Under conservative assumptions the US twin deficit is set to deteriorate by well over 3% of GDP over the next two years.

The mirror image to all of this is that the flow picture into both Europe and Japan has been improving dramatically anyway. We have previously written about the positive flow dynamics in Europe as the flow distortions caused by extremely unconventional ECB policy are starting to adjust. But the Japanese basic balance has also shot up to a 4% surplus in recent years helped by a big improvement in the services balance (Chinese tourists) and a collapse of Japanese inflows into the US: treasuries simply do not provide enough duration compensation any more. To conclude, embrace dollar weakness, it has more to run.


lester1 Fri, 02/16/2018 - 07:19 Permalink

Fucking retards can't figure it out?..


Just look at the budget deficits, trade deficits, unfunded liabilities, and massive increase in M2 money supply that's chasing a finite amount of goods. That's why the dollar is sinking!


Look at the insane amount of M2 money printing that's still going on..



MEFOBILLS rccalhoun Fri, 02/16/2018 - 11:59 Permalink

USA is only insolvent in terms of satisfying the claims of creditors.

Creditors are those who are holding debt instruments, who then jump up and down as say "pay me" some unearned income.

If you actually examine the debt instruments, many of them are non performing.  TBills held by the FED have their interest paid to Treasury.  Treasury then recycles the interest back into the economy.  

So, looking at debt needs to have subsequent questions.  What kind of debt, where is it, and what kind of claims are being made?

If any "monetary" pundit cannot ask those questions, then they need to shut up.

The author of this piece also displays ignorance in his comment:

Dollar weakness ultimately goes back to two major problems for the greenback this year

U.S. doesn't use greenbacks, it uses FRN's.  Federal Reserve Notes are very different than Greenbacks.  Greenbacks are Treasury money.  FRN's adopting Green color is an accident of history, probably done on purpose.

Here is the linkage:  TBill price high, dollar price held high, interest rates low.  Or, put another way.  Interest rates driven low, Dollar Price held high, TBill Price High.

This author is assuming the linkage is sacrosanct and must work always.  Not True, it is easy to manipulate exchange rates, there is front running on stocks, and collusion between central banks, especially collusion by buying and selling of each others currency.


In reply to by rccalhoun

You Only Live Twice MEFOBILLS Fri, 02/16/2018 - 18:17 Permalink

Debt is of course the problem. But the US debt functions only by means of the Petrodollar System. In a low Oil price environment, that system is falling apart. As less dollars and therefore less US debt to get dollars are needed to purchase Oil (and the dollars from Oil sales are not being recycled in US treasuries), then problems occurred in first the rise of Treasury Yields, but then also in the need for less dollars which is now making its appearance. It's the double-whammy. High Oil prices made QE possible, but without them, then gradually the problems are migrating to the higher levels.

So, it's more the unraveling of the Petrodollar System and the consequences of the sustained low Oil prices that is causing the present situation to happen.

In reply to by MEFOBILLS

All Risk No Reward GeezerGeek Fri, 02/16/2018 - 16:33 Permalink

1. They aren't Trump's policies, they are the Money Power policies executed through their Money Power Agent Trump - they guy to whom they gave $2 billion in free advertising.

The guy to whom the Money Power orchestrated a phony October Surprise to upend Hellary, AND EVEN DID IT THROUGH A SO-CALLED DEMOCRATIC ADMINISTRATION.


“The new law will create inflation whenever the trusts want inflation. From now on depressions will be scientifically created.”
~Congressman Charles A. Lindbergh, after the passage of the Federal Reserve act 1913.

“This Act establishes the most gigantic trust on earth.…When the President signs this Act, the invisible government by the Money Power, proven to exist by the Money Trust Investigation, will be legalized.…The money power overawes the legislative and executive forces of the Nation and of the States. I have seen these forces exerted during the different stages of this bill.…”
~Congressman Charles A. Lindbergh, referring to the act which established the Federal Reserve. Congressional Record, Vol. 51, p. 1446. December 22, 1913.

In reply to by GeezerGeek

Sphira All Risk No Reward Fri, 02/16/2018 - 18:32 Permalink

Lindbergh (Lucky Lindy's father) was a fine example of a true statesman.

Money as Debt" tells in very simple and effective graphic terms what money is

His blunt identification of this money trust gives one pause to consider; was the Lindbergh baby kidnapping and murder an act of revenge; or to limit or eliminate a bloodline as with the czar Nicholas II?

I suggest a look into Col. Edward House

Wilson's primary advisor.

In reality House was Wilson's handler -- the one calling the shots.

And look into Cecil Rhodes (Rohdes Scholars) and his roundtable of which HG Wells was a member and affiliated with Fabians

Congressman Larry McDonald takes on Pat Buchanan and Tom Braden on Crossfire 1983



In reply to by All Risk No Reward

All Risk No Reward SirBarksAlot Mon, 02/19/2018 - 01:22 Permalink

>>But the bank corporation went bankrupt in May of 2016, when Puerto Rico defaulted on its payment.

I'd like to read more about how Trump has saved the US 24 billion by withdrawing from the UN Refugee Assistance program and 5 trillion by cancelling the climate accord.   You know the corporate deep state was not happy with those decisions.<<

As an aside, I went to the same high school as Sir Mix-a-Lot.

Bankruptcy doesn't matter, ONLY THE RECOGNITION OF BANKRUPTCY. 

The OWNERS of the Mega-Banks finance and control government, and they told their political hand-maidens to not recognize their bankruptcy in 2008-2009.  They spent the last decade looting society to resolve their Mega-Corporate Bank bankruptcy problems.

Tyranny is a process.  The Money Power Tyrants aren't setting up their complete and total tyranny overnight.  You bet they wish they could, but they can't.  They have to deceive the 100s of millions, if not billions, in order to eventually secure their control over the globe.

The correct way to view what Bankster promoted and financed ($2 billion in free advertising, a completely orchestrated and phony October Surprise against Hellary) has done is to promote the false narrative that he is "outside" the system.

Trump doesn't do anything of import outside the purview of his handlers.  And he has handlers.

In reply to by SirBarksAlot

All Risk No Reward galant Mon, 02/19/2018 - 01:29 Permalink

“The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

"The youth who can resolve the money question will do more for the world than all the professional soldiers of history."
~Henry Ford, Sr.

“The people are naturally conservative. They are more conservative than the financiers. Those who believe that the people are so easily led that they would permit printing presses to run off money like milk tickets do not understand them. It is the innate conservation of the people that has kept our money good in spite of the fantastic tricks which the financiers play — and which they cover up with high technical terms. The people are on the side of sound money. They are so unalterably on the side of sound money that it is a serious question how they would regard the system under which they live, if they once knew what the initiated can do with it.”
~Henry Ford, My Life and Work, p. 179

"Throughout our history some of America’s greatest men have sought to break the Hamiltonian imprint (Alexander Hamilton’s debt-money policy) on our monetary policy in order to substitute a stable money supply measured to the nation’s physical requirements. Lack of public and official understanding, combined with the power of banking interests who have imagined a vested interest in the present chaotic system, have so far thwarted every effort.

"Don’t allow them to confuse you with the cry of `paper money.’ The danger of paper money is precisely the danger of gold — if you get too much it is no good. There is just one rule for money and that is to have enough to carry on all the legitimate trade that is waiting to move. Too little and too much are both bad. But enough to move trade, enough to prevent stagnation, on the one hand, not enough to permit speculation, on the other hand, is the proper ratio...

"If the United States will adopt this policy of increasing its national wealth without contributing to the interest collector — for the whole national debt is made up of interest charges — then you will see an era of progress and prosperity in this country such as could never have come otherwise."
~Thomas Edison

In reply to by galant

MoreFreedom skbull44 Sat, 02/17/2018 - 13:04 Permalink

" how can it be that US yields are rising sharply, yet the dollar is so weak at the same time? "


When no one wants the dollar, then treasury yields will rise, and the dollar will fall.   The question is why no one wants the dollar.   And it seems to me, we've got a lot of cooked in inflation given what the Fed has been doing.   And it matters how much printing other central banks are doing as well, relative to the Fed's.   The bond vigilantes are always present, and who wants to loan money at low/negative interest rates, when they'll be paid back in money that's losing value at a faster clip?

In reply to by skbull44

All Risk No Reward ktown Fri, 02/16/2018 - 17:27 Permalink

"Worthless fiat" is the propaganda narrative behind the single most sophisticate weapon of warfare on the planet.

So many people are simply incapable of discerning reality.

Does the following scenario appear "worthless" given that most of the planet is collateralized to this prima-facie fraudulent debt-money scheme?


Money is issued as debt (yes, specie isn't, but it is negligible)

Bank of England Admits that Loans Come FIRST … and Deposits FOLLOW…

OK, with that out of the way, let's simplify the example in such a way that people aren't confused by the complexity.

Let's say I, the private internation banking cartel, loan you, society, $20 @ 5% interest.

In one year, you will owe me $21 due to double-entry bookkeeping adjustments that add $1 interest liability to your balance sheet and $1 interest asset to my balance sheet.

Let's summarize:  In one year you will have access to $20, you will owe me $21, AND I WILL CONTROL THE $1 YOU NEED TO PAY ME BACK, OTHERWISE, PAYBACK IS IMPOSSIBLE.

BTW, the 5th grade level math works the same even if you add millions, billions, trillions, or quadrillions after the amount.

Behold, the Debt-Money Artificial Zero-Sum Monetary System Game where the debt-money instantiators collect interest on the world's money supply.

Who said there isn't money for nothing and chicks for free!

Can you reason out the absolute necessity for inflation or else the debtors go bust?

You will be bust in one year if I just hold onto the $1 interest asset.  I will effectively steal your collateral and you will be to monetarilly illiterate to know - at least, that's the case for almost everyone I've ever met or conversed with (not all, but darn near!).

But, I don't want to steal $20 worth of stuff one time.  I want to steal much more over time and, simultaneously, occult the methodology that does it.

So I lend another $20 to someone else.  Now, technically, you can earn $1 and pay your debt to me, so you think the system is equitable - after all, you paid your debts, right?

But the guy who gave you a $1 only has $19, and still owes me $21.  The $1 of inextinguishable debt turned into $2 of inextinguishable debt as the gross debt as the debt-money supply grew from $20 to $40.  Errr, inflated.

This is why they inflate... to manage the money supply to only bankrupt the number of people they determine to bankrupt.  They asset strip those they bankrupt, roo.  It is literally a societal asset stripping conveyor mechanism.

However, debt can't grow exponentially forever, so the debt-money bubble will bust and the asset stripping will accelerate well beyond the Great Depression level of ordinary person asset stripping.

BTW, a "bailout" is when the Debt-Money Monopolist Mega-Corporate Fronts lend $20, stick the proceeds in their corporate front "pockets," tell you they did it for you, and then send you a bill for $21 after the year is up and they gave you exactly ZERO DOLLARS.

There is a reason they train us to think "ignorance is bliss."

Is that enough data and logic for ya?  Be sure to ask questions if you don't comprehend reality.


"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."
~Lord Acton

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
~Napoleon Bonaparte

"Let the American people go into their debt-funding schemes and banking systems, and from that hour their boasted independence will be a mere phantom."
~William Pitt, (referring to the inauguration of the first National Bank in the United States under Alexander Hamilton).

How To Be a Crook

Poverty - Debt Is Not a Choice

Renaissance 2.0 The Rise of [Debt-Money Monopolist] Financial Empire

Debunking Money

Krugman (and each MIT economist professor - THEY KNOW AND THEY OCCULT!) is a Goebbelsian propagandist as he covers the crimes of wolves with his fake sheep suit and lisp.

Krugman to Lietaer: "Never touch the money system!"

And It's Gone

People with good intentions but limited understanding are more dangerous than people with total ill will.
~Martin Luther King, Jr.

"Although the so-called "moral issues" were raised, in view of the law of natural selection it was agreed that a nation or world of people who will not use their intelligence are no better than animals who do not have intelligence. Such people are beasts of burden and steaks on the table by choice and consent."
~Silent Weapons for Quiet Wars

In reply to by ktown

SilvaDolla All Risk No Reward Sat, 02/17/2018 - 00:10 Permalink

Mark Knopfler. Mark Knopfler was the one that coined the phrase in ironic mockery of Folks that think the music business is all fun and games.  “Money for nothin’ and chicks for free”. 

It’s ironic because music is really one of the most thankless businesses in the world; A place where fools spend $10’s of thousands of dollars and a lifetime collecting gear, perfecting their art, working 40 hours per week so they can afford to work another 30 hours a week ‘building the brand’ and once all that is put into place, for most, nothing happens. 


Some sacrifice health, family and all just to ride the lightning for s fee hours per per week. 


In reply to by All Risk No Reward

SDShack MilwaukeeMark Fri, 02/16/2018 - 14:58 Permalink

You are forced to continue to underwrite it because you failed to mention that your boyfriend is the son of the local corrupt sheriff, and all his friends are corrupt deputies that behave just like him, plus he has left a trail of dead bodies everywhere he has gone in the past, and never been arrested, let alone prosecuted for even one of them. FIFY. 

In reply to by MilwaukeeMark

el buitre Vlad the Inhaler Sun, 02/18/2018 - 11:59 Permalink

Only if you believe the phony CPI.  If you take Shadowstats or the Challenger's basket, price inflation has been running at least 6% since the 666 event, and maybe as high as 9%.  Plug that into the bond market and GDP and smoke it.  If the CPI were truthful, it would add at least a trillion a year to the deficit with the SS COLA and federal workers' contracts alone.

In reply to by Vlad the Inhaler