While Wall Street stocks may well be on their way to fresh highs, the dollar has been taking hits from all comers.
That buck weakness is largely due to speculation the ECB may be nearing its own quantitative-easing unwind. The dollar is also sagging a bit as investors fret about the upcoming G-7 and Trump-Kim Jong Un meetings next week.
But try to imagine a not-so-distant future, where King Dollar sits on the Iron Throne, while the world burns in chaos.
That’s the vision laid out in our call of the day from Santiago Capital CEO Brent Johnson, who predicts the dollar will go “much, much higher” over the next one to two years. That in turn should trigger a global currency crisis and drive investors into U.S. stocks, he argues.
“What it means is we haven’t seen the blowoff top yet. I think equities are going a lot higher. This isn’t a Polyanna view — I’m not saying to go out and buy equities because things are good. I’m saying buy equities because things are bad,” says Johnson in a recent interview with Real Vision .
Johnson sees big blowback from the Fed’s unwinding of quantitative easing, already underway and well ahead of the rest of the world’s central banks. That will leave fewer dollars sloshing around the global financial system, even as the world still has a big need for them. He estimates demand for the buck tops $1 trillion a year, just to pay interest on dollar-based debt.
As the Fed tightens and injects less liquidity into the system, it will cause the dollar to go higher and higher, driving more investors toward the buck and then U.S. stocks as well. And a super strong dollar will just cause chaos elsewhere, as other currencies crumble. Just ask emerging-market central bankers how hot it’s getting in the kitchen right now.
In Johnson’s opinion, global financial trade revolves around the dollar, which is why it matters so much if it decides to take off in a big way.
“And when that money flows into the dollar, it eventually goes into U.S. assets, and I think it is going to push equities to all-time highs,” he says.
The market
The Dow DJIA, +0.38% and S&P 500 SPX, -0.07% are higher, but the Nasdaq COMP, -0.70% may break its win streak. U.S. gains inspired Asia ADOW, -0.53% and Europe stocks SXXP, -0.24% have also been getting a nice bump.
The dollar DXY, -0.02% is in some pain as the euro EURUSD, +0.0424% hits a three-week high. Gold GCQ8, -0.16% is holding steady, and crude oil CLQ8, +0.17% is moving up.
The chart
Yesterday was a great day for the Tesla TSLA, -1.07% faithful, as shares surged on renewed faith in fearless leader Elon Musk.
But it was a “very forgettable day for the $11 billion of short sellers in the stock, as they are down over $1 billion in mark-to-market losses on Tesla’s 9.7% price move,” says Ihor Dusaniwsky, managing director for predictive analytics at S3 Partners.
Dusaniwsky points out that Tesla is the most-shorted U.S. stock and the most-shorted in the global automobile sector.
The first five months of the year were pretty terrific for those bears, as they made $572 million in mark to market (when an asset’s value is adjusted on a daily basis to reflect a market price). But they’ve lost $1.7 billion since May 22, as Tesla’s share price has risen by 16.6%, Dusaniwsky says in a note to clients. Here’s his chart:
The buzz
It was a bumpy morning in Old Blighty, as the London Stock Exchange LSE, -1.14% delayed the open of trade by one hour after being hit with a “technical issue.” It is just the latest in a long line of glitches for traders here, there and everywhere.
In earnings, Conn’s CONN, +24.56% shares are soaring premarket after the furniture retailer swung to a profit, topping estimates.
Amazon’s AMZN, -0.38% dedicated posse of shoppers will buy almost everything, but not this.
Could this be the tensest G-7 ever? While U.S. allies grumble away about those tariffs, Trump looks ready to dig his heels in at this weekend’s meeting in Quebec. It seems he’s already had one testy phone call with host Justin Trudeau, in which Trump invoked the War of 1812.
Berkshire Hathaway’s Warren Buffett BRK.A, +0.75% BRK.B, +0.81% and J.P. Morgan’s JPM, +0.40% Jamie Dimon have teamed up with nearly 200 other CEOs to try to get companies to stop making forecasts for quarterly profit.
In deal news, Fortive FTV, +4.03% has offered $2.7 billion for J&J’s JNJ, +0.44% medical-equipment sterilization business.
Updates on weekly jobless claims, quarterly services and household debt are out. Consumer credit data is later.
The quote
“I don’t think there is ever been a, ‘We gotta get more pussy on the block, OK?’” — That was real estate mogul Sam Zell, whose insights on the industry at a conference yesterday were pretty much overshadowed by that comment in a discussion about promoting women. Zell was actually talking about how he has promoted more women on merit.
The stat
20% — that how many U.S. opioid-related deaths in 2016 were millennials, the hardest hit among several age groups, according to a new study from medical journal JAMA Network Open.
It also found that deaths linked to opioids in the U.S. increased 345% between 2001 and 2016, and again, the biggest jump was in the 24 to 35-year old age group.
