Core Thesis: The market is colossally underestimating the risk of a deliberate US dollar devaluation. Contrary to popular belief, a weaker dollar in this specific context will not boost risk assets but will instead be the source of massive volatility, potentially exceeding 2008. The collapse will come from the unwinding of a global dollar-centric carry trade.
The Pillars of the Storm:
The Structural Imbalance (The Fuel):
The US, as the world's largest importer, sends dollars abroad. To maintain their export-oriented economies, foreigners reinvest these dollars into US assets (especially the top 7 S&P 500 stocks).
This has created a structural "carry trade": global investors are overexposed to US assets and, trusting that the dollar rallies in crises (like 2008), do not hedge their currency risk.
This continuous flow is a primary reason for extreme US equity market valuations. Global liquidity, not just fundamentals, has inflated prices.
The Trump Agenda (The Trigger):
The Trump administration is actively pursuing a weaker dollar to gain an upper hand in the economic conflict with China, using tariffs as leverage.
Since Trump took office, we have already seen episodes where the dollar and stocks sell off simultaneously – a warning sign that the traditional correlation is breaking.
The Federal Reserve (The Accelerator):
Trump needs a dovish Fed to weaken the dollar. The appointment of Steven Miran to the Fed, with his interest rate projections 100bps below other members, is a clear signal of this direction.
A new Fed Chair, more aligned with Trump, will likely take over in 2026 to implement a more aggressively accommodative monetary policy.
The Crisis Mechanism:
The trap is set in the following scenario:
The Fed cuts rates aggressively to weaken the dollar, following Trump's agenda.
The dollar devalues significantly.
For a foreign investor, the return is: (S&P 500 Return) + (FX Change). With the dollar falling, their gains are eroded or turn into losses.
This triggers a mass exodus of these foreign investors, who start selling US assets to protect their returns.
The selling is amplified by the structural fragility: everyone is positioned the same way. Liquidity evaporates.
Panic sets in when the typical "Fed put" (intervention to save the market) fails, because more liquidity injected by the Fed would depress the dollar even further, amplifying the equity selloff instead of containing it.
Warning Signals to Monitor:
Primary Signal: Equity selling occurring simultaneously with a depreciating dollar.
Confirmation Signal: A rise in implied volatility (skew) in the currency market.
Market Signal: Underperformance of high-beta and low-quality stocks, indicating that risk capital flows are drying up.
Critical Signal: Any Fed intervention that, instead of calming the market, causes an even larger selloff in the dollar and stocks.
Current Positioning & Conclusion:
In the short term, the author maintains long positions in equities, gold, and silver, as liquidity tailwinds are still favorable. However, the storm is forming. The market is as complacent about a weak dollar as it was about mortgages in 2007. When the signals above flash, indicating that cross-border flow risk is materializing, it will be time to position defensively: short equities, long volatility, and short the US dollar.
The crisis is not a matter of "if," but "when" these structural flows begin to reverse. Awareness of this mechanism is the single greatest edge an investor can have today.
The Pillars of the Storm:
The Structural Imbalance (The Fuel):
The US, as the world's largest importer, sends dollars abroad. To maintain their export-oriented economies, foreigners reinvest these dollars into US assets (especially the top 7 S&P 500 stocks).
This has created a structural "carry trade": global investors are overexposed to US assets and, trusting that the dollar rallies in crises (like 2008), do not hedge their currency risk.
This continuous flow is a primary reason for extreme US equity market valuations. Global liquidity, not just fundamentals, has inflated prices.
The Trump Agenda (The Trigger):
The Trump administration is actively pursuing a weaker dollar to gain an upper hand in the economic conflict with China, using tariffs as leverage.
Since Trump took office, we have already seen episodes where the dollar and stocks sell off simultaneously – a warning sign that the traditional correlation is breaking.
The Federal Reserve (The Accelerator):
Trump needs a dovish Fed to weaken the dollar. The appointment of Steven Miran to the Fed, with his interest rate projections 100bps below other members, is a clear signal of this direction.
A new Fed Chair, more aligned with Trump, will likely take over in 2026 to implement a more aggressively accommodative monetary policy.
The Crisis Mechanism:
The trap is set in the following scenario:
The Fed cuts rates aggressively to weaken the dollar, following Trump's agenda.
The dollar devalues significantly.
For a foreign investor, the return is: (S&P 500 Return) + (FX Change). With the dollar falling, their gains are eroded or turn into losses.
This triggers a mass exodus of these foreign investors, who start selling US assets to protect their returns.
The selling is amplified by the structural fragility: everyone is positioned the same way. Liquidity evaporates.
Panic sets in when the typical "Fed put" (intervention to save the market) fails, because more liquidity injected by the Fed would depress the dollar even further, amplifying the equity selloff instead of containing it.
Warning Signals to Monitor:
Primary Signal: Equity selling occurring simultaneously with a depreciating dollar.
Confirmation Signal: A rise in implied volatility (skew) in the currency market.
Market Signal: Underperformance of high-beta and low-quality stocks, indicating that risk capital flows are drying up.
Critical Signal: Any Fed intervention that, instead of calming the market, causes an even larger selloff in the dollar and stocks.
Current Positioning & Conclusion:
In the short term, the author maintains long positions in equities, gold, and silver, as liquidity tailwinds are still favorable. However, the storm is forming. The market is as complacent about a weak dollar as it was about mortgages in 2007. When the signals above flash, indicating that cross-border flow risk is materializing, it will be time to position defensively: short equities, long volatility, and short the US dollar.
The crisis is not a matter of "if," but "when" these structural flows begin to reverse. Awareness of this mechanism is the single greatest edge an investor can have today.
Penafian
Maklumat dan penerbitan adalah tidak bertujuan, dan tidak membentuk, nasihat atau cadangan kewangan, pelaburan, dagangan atau jenis lain yang diberikan atau disahkan oleh TradingView. Baca lebih dalam Terma Penggunaan.
Penafian
Maklumat dan penerbitan adalah tidak bertujuan, dan tidak membentuk, nasihat atau cadangan kewangan, pelaburan, dagangan atau jenis lain yang diberikan atau disahkan oleh TradingView. Baca lebih dalam Terma Penggunaan.