‘Mystery Chart’ time…
No, it’s not Volkswagen, or even Tesla.
This is the world’s reserve currency and this is what happens when a global margin call reveals there is a $12 trillion short squeeze.
This is the biggest 7-day gain for the USDollar since Black Wednesday in 1992 when George Soros “broke The Bank of England,” crashing the pound and forcing Britain to withdraw from the European Exchange Rate Mechanism.
It is also on par with October 1978’s surge in the dollar when the Fed clamped down hard on monetary policy – after the signing of the Full Employment and Balanced Growth Act, better known as the Humphrey-Hawkins Act, mandating The Fed to crack down on inflation (which Volcker then did by drastically raising rates) – sending the stock market into the infamous “October massacre.”
As a reminder, according to JPMorgan’s calculations – the global dollar short that has doubled since the financial crisis and was $12 trillion as of this moment, some 60% of US GDP.
And, as we noted previously, the events of last week so ominously demonstrated, the dollar shortage is back with a vengeance, as confirmed by last week’s concurrent surge in both the Bloomberg Dollar index and the FRA/OIS spread, a closely followed indicator of interbank dollar funding availability.
And it may come as a shock to some but ever since the financial crisis nothing has been actually fixed, and instead the Fed stepped in at every market stress event to inject more liquidity, aiding the issuance of even more debt, and kicking the can while while helping mask the symptoms of the crisis, only made the underlying financial instability even more acute. Meanwhile conventional wisdom that the US banking system was rendered more stable now are dead wrong, with the public and countless financial professionals fooled by the nearly two trillion in excess reserves (we all saw what happened when this number dropped to a precarious “low” of “only” $1.3 trillion in September of 2019) injected by the Fed in recent years. All this liquidity upon liquidity has only made the system that much more reliant on the Fed’s constant bailouts and liquidity injections.
One thing of note, the intraday timing of the dollar’s surge strongly suggests whatever is dominating this dollar margin call appears to be emanating from Europe…
Your guess is as good as ours on the specifics…
Is that the bottomless pit that continues to suck up every drop of liquidity any central bank can spew with seemingly no interruption in the crisis.