No major economy in the world today is pursuing such an aggressively expansionary fiscal policy while shouldering an unsustainable cost of debt service. pic.twitter.com/J7QOca997s
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
This trajectory, in our view, is untenable and will inevitably lead to policies of interest rate suppression and constrained government spending—signaling a pivotal moment for the US dollar’s strength. pic.twitter.com/RBkFsUsE5p
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
In interviews, he aligns with Trump’s goals: preserving the USD’s reserve status while devaluing it against other currencies, noting these aims are “not mutually exclusive.”
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
During a conversation on the Capital Allocators podcast, Scott Bessent remarked:
“Over my career, some of my best investments have been when a policy, a government, or a management is driving 90 miles an hour toward a brick wall, and you assume they are going to hit the brakes.”
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
Keep in mind:
The likely policy response—a combination of reduced government spending and lower interest rates—has historically weakened the dollar, especially relative to hard assets and other currencies.— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
Now let’s step back:
History serves as a clear example of the cyclical nature of the US dollar often aligns with broad secular shifts in global asset markets.— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
During this time, commodities and natural resource companies thrived, while US equities underperformed relative to international markets.
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
The eventual collapse of this speculative phase represented a reversal of the preceding trend, aligning with a prolonged bottoming process for the dollar and a gradual revaluation of US equities.
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
Commodities, long neglected, began a powerful bull market, and emerging markets, notably driven by China experienced historic expansions.
For instance, in US dollar terms, Brazil’s Ibovespa index surged 1,871% including dividends between 2002 and 2008.— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
This era exemplifies the Milkshake Theory by our friend @SantiagoAuFund , which suggests that the dollar’s global dominance stems from its ability to draw liquidity from other markets, reinforcing US economic resilience.
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
Dollar uptrends often align with periods of US equity outperformance, particularly in growth-oriented sectors supported by technological advancements.
These phases are marked by elevated valuations and concentrated capital flows into US markets. pic.twitter.com/NH3uwTQZUH
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
This chart is remarkable:
The 10yr rolling performance of the USD demonstrates a strong correlation (0.85) with the ratio of the S&P 500 to the MSCI World Index over the past 3 decades.
Both lines now appear to be reversing direction. pic.twitter.com/VZO38qvuFq— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
In our perspective:
Gold, commodities, non-US equity markets (particularly emerging markets), natural resource companies, alternative fiat currencies, and value-oriented companies are poised to regain prominence, driven by a long-term weakening trend in the US dollar.
— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
Lastly:
The recent cover of The Economist is a striking reflection of current market sentiment.
Investors often have short memories, believing that recent trends will persist indefinitely, creating the illusion of a “new normal.” pic.twitter.com/ZNILdGpJO8— Otavio (Tavi) Costa (@TaviCosta) December 9, 2024
🇺🇸 THE DOLLAR HAS PLUNGED — AND IT’S GETTING WORSE
Since 1913, the U.S. dollar has lost over 96% of its value.
That means today’s dollar is worth less than 4 cents compared to when the Federal Reserve took over the banking system.
How? By printing endless money without… https://t.co/T2Gygx98CN pic.twitter.com/MKnDhIN2zC
— Mario Nawfal (@MarioNawfal) December 9, 2024
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