If you have to park your capital or your money in just two asset classes; one long and one short for the rest of the year over the next 12 months, where will you go short and where will you go along?
I cannot think of many places where I see prices really deserving to go down a lot because the ones that were extremely overvalued say, a year ago, they have deflated quite significantly. I think we are not recommending something like a cryptocurrency or I do not know what but anyway, no, I do not see anything to be very short against right now. And broadly speaking, I think financial assets will continue their road higher, especially given that interest rates have peaked in the United States.I can understand why gold is going higher but what I cannot understand and I really want to understand and please help me understand, is why Bitcoin is going up?
I do not understand either but I would just say that the Bitcoin tends to be viewed as a alternative currency, is not it, and so if you feel the dollar is going to continue to go down then you should think that Bitcoin is the inverse of that. I do not really know what else to say apart from that, it is considered a bit like a digital gold, if you will. So people buy it when they think the dollar is going to go down.
Warren Buffett at the Berkshire AGM did indicate that US dollar is unlikely to lose its status of a reserve currency because there are no alternatives. If that is the underlying thought that the US dollar is unlikely to lose its status as a reverse currency, what implications do you think it will have on the dollar index and then on emerging market currencies?
Well, the dollar has been the world’s reserve currency for many decades and yet during those decades it is not been a one way street. It is gone up and down like a yo-yo so I do not think the reserve currency status of the dollar, by definition, determines where it is going to go.
So there are two functions of a reserve currency primarily; one is a store of value, one is a medium of exchange and as a medium of exchange, one could say that it is probably peaked and going to go down because more and more countries are saying they are just going to trade amongst themselves.
But ultimately, I do not think Brazilian companies, for example, want to keep a lot of Renminbi. What are they going to do with that money? They probably will end up putting it in dollars and as a store of value, well there just really are not enough alternatives, which probably explains why gold is going up because there is no yield in Japanese bonds, China’s currency is a controlled currency and the bond market there is not much transparency, so you do not really know what you are holding.
I do not think anybody has a great deal of interest in owning lots and lots of Euros and then you have got some smaller currencies that are quite decent, like the Australian dollar or the Canadian dollar but you cannot own loads and loads of them. So anyway, I do think probably as a medium of exchange the dollars importance is going to gradually decline but I do not think that will be a big factor in determining where the dollar goes.
The most important factor is where the Americans are in the interest rate cycle versus the Europeans and there I do think is a reason for the dollar to go down because Americans are not going to raise any rates more and the Europeans will probably raise rates by another 75 basis points from here.