Being long the US Dollar is the cool trade among fund managers according to the most recent BAML survey of fund managers. More popular than FANGs. More popular than BATs. More popular than any semblance of value names.
This matters to me because I'm on the other side of this trade. I believe anything related to being long USD here is a wretched risk/reward proposition:
- The rate increase cycle is set to end
- Deficits are becoming cumbersome
- Government is in a general state of dissary
- USD strength is wreaking havoc in fixed income markets as hedging USD risk is now a net negative return proposition
- The integrity and independence of the Fed will be continually challenged in 2019 as the economy becomes difficult to navigate and the president wants to be reelected in 2020
- The reserve status of USD is under increased pressure globally, especially from China and Russia
All of this spells a series of issues for the USD, which make competing currencies especially attractive. Gold, in particular, has a set of dynamics working for it that create very few avenues for any weakness moving forward. In other words, the risk/reward proposition in metals is more attractive than virtually any other asset class in the markets presently.
Over the past month I have steadily been building a metals portfolio that now consists of AG, SA and GDX. All substantially sized due to the favorable risk/reward conditions that exist.
The news of other fund managers taking the other side of my long gold trade by being long USD is as good as news as one can expect when being in any position. Asset managers of today are trend followers that extrapolate fundamental arguments curve fitted around whatever trend it is they are following at the time. In other words, a majority of fund managers who are long the USD here are only long because it's going up. They pay for uptrends and they pray for uptrends to continue. That's simply the depressing nature of asset management in 2018.
The remainder of this week will likely see some of the wildest swings in an already wild year. While not expecting the market to make being long precious metals as easy a trade as it has been thus far, 2019 has all the ingredients of a bull market in places where there has been a long period of drought. Precious metals being the most obvious beneficiary.
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