#1017 - Is the U.S. Dollar Still a Safe Haven? | With Greg Weldon

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0:50Is the U.S. dollar still a safe haven? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Greg Weldon, CEO of Weldon Financial and a partner in our marketplace. Hi, Greg. It's great to have you back on. Oh, thanks. Anytime. Good to see you. So I'm excited to chat with you today because there's so much going on right now in global markets. And you look across every asset class in every country and give both the big picture fundamentals as well as a lot of granular trading levels and strategy. So there's a lot to dig in on here. Let's start first with U.S. stocks because we know they're in so many people's portfolios.

1:28They're down again today, fourth day in a row for the S &P 500. Does it feel like there's more to go on the downside? Yeah, I mean, to me it does. And I think you can really hone it down to something. We did a piece, I think it was last Friday, KISS, K-I-S-S, keep it simple, stupid. It's that simple. When the dollar goes up, stocks tend to go down. When the dollar goes down, stocks tend to go up. And right now the dollar is breaking out. It's breaking out against a broad amount of currencies. and at the same time declining against gold. So to get back to your top of the hour question about is it a safe haven, I think it's bearing out not to be, but in the context of how it affects stocks is quite negative.

2:13And you see this globally too because it affects different places of the world differently depending on what the currency is in an exporting or importing country. So when you look at something like the US, really what you don't have in the stock market right now is a strong consumer. You can talk about the consumer being strong, and a lot of people do, and that just kind of blows my mind because the statistics don't bear that out at all. When you look at the most recent retail sales number, for example, the increase, it's not price-adjusted numbers, number one. So the increase, 85 % of the year-over-year growth was because of inflation.

2:47So when you take that into account, you see the growth is much lower. It's the same with earnings. We destroyed the labor market report in terms of the household survey where people are losing their jobs, people are dropping out of the labor force again, where you see wages are hovering around four, but inflation is hovering around four. So you're not making any more money specifically in terms of your wage gains. Savings are depleted. Credit card debt's through the roof. And now banks are going to be tightening on auto loans and credit card loans, according to the senior loan officer survey, through the end of the year.

3:18So relying on the consumer doesn't work, especially when the XRT, the retail ETF, and the XLY, the consumer discretionary ETF, are breaking down relative to the market. And that is really key because that ratio tends to be a leader. When you see the consumer break versus the overall market, that's a bad sign. So then you are left with two other things. It's been the consumer. It's been AI and high tech. And when you look at NVIDIA, you get NVIDIA below 830. And it's kind of like it has so much space just to have a normal correction. I would think anyone that wants to own this stock owns it already.

3:55And I see the whole kind of market in that vein of, and I wrote a piece today, and we called it the liquidity, rather the liquidation virus, where you have some of these stocks where the volume is kind of dried up because the stock prices are so high. The unbalance volume and any measure of ownership is true to Roof. and if you have just want to take some money off the table first quarter gains are are massive you know and all of a sudden it's like there's no volume on the buy side and that could be a real kind of trap door here for the market as well and then you start talking about the fed and you went from okay six or seven rate cuts to now maybe they'll cut once not even really twice is even fully priced right now so i think the pendulum swung too far on the east side and it's kind of swung too far the other way, but then it depends on inflation because we do see the economy kind of starting to crack, even though people, it's not generally aware.

4:47It's not in the headlines. It's not at the top line data yet, but it's under the surface for sure. And when you start to see that and the dollars rallying, because the Fed is tight here, if they, if inflation comes back, which I think it is, all right, and we said this on the show the last time, you were going to hit of low. And we've seen that everywhere around the world and various things from the monthly numbers now picking up, for example, all kinds of different little tells within the data. So I think that that's kind of a problem for the Fed. And all of a sudden, people start to become aware that the consumer is not as strong and the market's not as strong and the leadership's not there anymore.

5:22And the housing market's, you know, really gone down here too. And home builders led now, they're kind of cracking as well. You have a lot of downside room for correction. And the dollar would be a major catalyst for this kind of to just cascade a little bit to the downside. Yeah, it's so interesting because the fact that you're talking about things being weak is kind of a contrarian call right now, where if you look at where we came in at the beginning of the year, it's not the case. So you're right. It's been, and this is, by the way, what happened last year too, right? It's been a fast move as people pivot.

5:55And now I think I saw March 2025 is when the market or some in the market put the first easing income. So you could see it's like – Yeah, you're looking at four and a half by the end of next year. That's three to four rate cuts depending on where you want to work. So you're saying that that narrative could carry even though the support is crumbling underneath and cause a stock market correction because you've got the fundamentals caving. And then you've got higher interest rates, potentially higher inflation causing trouble as well, if I'm hearing you correctly. Is that right? We asked this question the last time we talked, and it was kind of like the Fed kind of keeps pushing.

6:33And even when you get some signs of life that maybe inflation is coming down, which, of course, it was going to anyway. It was a mathematical certainty just from the energy-based effect. Now that's starting to reverse. That's one of many things now that suggests that inflation is going to be bottoming here. And that is hand-in-hand with the things I've been saying now for the past really 18 months. that it's a 40-year downtrend in interest rates and in inflation that has turned. And now you're going to have higher lows. And this is going to be the way it is. And you're in the higher low period right now.

7:01And if that kind of handcuffs the Fed, then it really becomes, especially in an election year, not that that's going to happen that quickly. But the question then becomes, at what point do they acquiesce to higher inflation? And do they change the narrative from fighting inflation to protecting the economy? And that's the key question. And I don't know what the answer to that question is. Nobody does. And I will tell you this, Powell has been spot on in telling us what he's going to do and then doing it. He hasn't let us on in any real way. This has been the market's call. And what's interesting is for that 40-year period, the market was always right.

7:36Whenever the Fed was hawkish and the market was dovish, it turned out to be a dovish result because it was always lower lows. Now we're starting to see the reverse of this and people aren't used to that. And you drive these rates down thinking the market can kind of lead the Fed lower. and it didn't happen and it's probably not ready to happen yet. And we'll see what happens with inflation because if that scares people about the Fed and that drives the dollar through 107.5, stock market will be in a different position, no doubt about it in my mind. Hey, everyone, we're going to take a quick break right now to hear a word from our partners.

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10:23Yeah. So before we get to the dollar, and there's so much important stuff to unpack there, what levels are you looking at for S &P 500? What would make you nervous that this sort of, you know, air pocket could really get some momentum to the downside? Well, I think you have some momentum to the downside right now, kind of on a medium term basis. So in the S &P, I mean, all kinds of different things come in around 4 ,600. So I think it's probably some kind of fast and furious shakeout down to 4 ,600. And then we reassess and see what the reaction is and see what the vibe kind of is if we get that low and it happens quickly.

10:59I think the NASDAQ is at greater risk. And when you do, even some of the angles, and I mean, if you look at like a chart of NVIDIA against the NASDAQ as a ratio spread, it goes like this. It's straight up and down and to a length that seems insane to me. And the point really is that you would have a normal correction here that's gonna seem more dramatic because of how much money it represents now that prices are so high in everything. So I think there's a lot to be said for that too. But we'll see. And I mean, let alone what you could have in terms of political risk just here in the U.S., in terms of social unrest in the U.S.

11:37because of this divided country in a political situation that's going to be a circus for sure. And, you know, let alone the geopolitical risk, you know, on the other side of the world. So, yeah, I mean, and that's what, you know, it is a very, very difficult macro environment we're in. We had we took a close look at geopolitics on Monday because of everything that happened transpired over the weekend. And one of our guests, Marco Papich, said that it's the U.S. election that's the biggest risk. And he called it a macro black hole because of all of that. And I thought that was brilliant. Yeah, and very telling as to where we are.

12:12So let's talk about the U.S. dollar. And we've got some questions coming in. They're awesome. Keep them coming on the chat on the platform, and I'll get to them. But let's talk about the U.S. dollar. And this is super important because, Greg, you do so much great work here. It has been rising as people have been switching this and sniffing out this Fed that may be higher for longer. Does it seem – what would – it sounds like you expect – you think there's a risk the dollar could strengthen from here. What would be the catalyst for that, and what are you looking at in terms of upside targets? Well, I mean, 107.35 is really the key level, and it has such long-term implications.

12:52This is a really critical juncture when you look at the history going back to the 70s on the dollar, frankly. Because if you get through this 107.35 level, you're looking at 114. And above that, it's like the upside is going to be huge, technically speaking. You have so much room to move. And it would be some kind of blow-up scenario. When you talk about a black hole, I mean, I talk about the debt black hole all the time. And how we have crossed the macro event horizon. And now, you know, when you cross over the event horizon, you can't get out. You don't know you're in the black hole. but you can't get out 307 trillion was the latest number from the IIF on global debt so when you talk about the dollar and how it affects all the currencies against which it's rising and their debt and their economies and their inflation you take a country like Japan and all of a sudden you know crude oil has come off a little bit here in the U.S.

13:42it's it's breaking out in the end terms because the end is so weak so think about what that means for the BOJ and the inflation in japan there's so many moving pieces here and it's just interesting because you know at the end of the day to some degree it does come back to the fed so the dollar black hole links back to the debt and i think that that is where and we've been kind of reviving a theme that i actually used in my book that i wrote like in you know 1920 uh that was um the dollar ultimately looks like the emperor with no clothes you know he's exposed i mean we have debt we're talking about you know we public public borrowing is through the roof all right it's going to be trillions of dollars this year but not only that it's the means of financing the debt which is borrowing from the public which is more right now than the public debt has been in the first five months of the fiscal year i mean that is pure insanity in february they spent twice as much money as they took it in revenue twice as much so when you look at that and the world sees this and they see kind of the weakness in terms of our dealings with other countries on a political you know global stage, that takes away from the clothing that the dollar has been wearing.

14:47This armor, it doesn't have the armor on anymore. I actually like that even better. I mean, the armor has been stripped from the dollar here. So square this for everybody, though, because I think these are two about timeframe, because longer term, there's this problem with debt and the dollar, but shorter term, it's strengthening and it may continue to do so based on those interest rate differentials, Right. Right. And it could precipitate what you're saying. So it is because ultimately the dollar has to go a lot lower and it will. I mean, this is kind of the situation of the leading edge towards becoming, you know, an emerging market currency for all intents and purposes.

15:23The fundamentals would support that thought process. And a lot of smart people out there know this is something that's been talked about for a while. Now it's actually happening. The debasement of currency. The other issue, though, is everybody's got a lot of debt, right? I mean, maybe it doesn't. I mean, the whole world has the same problem to a certain extent. Well, that gets back to another theme, again, from the book that I wrote years ago. I mean, it is, we used to call it the competitive currency devaluation speedway. And it is like, you know, at one point, you know, you kind of had the currencies were all lined up.

15:53Say it's like a NASCAR race and the currency is lined up behind the pace car and you're driving around, you know. And this was the gold standard, right? And you had the pace car and nobody really moved out of place. You took the pace car off, you took gold out of the equation. All of a sudden, these cars are all racing at top speed to out lap one another when it comes to currency depreciation. And I think we're entering that phase. And I think gold is telling us that because gold is rallying against every paper currency on the planet right now. And that is the biggest tell of all. When the dollar is rallying on this kind of interest rate dynamic, when it's rallying on the geopolitical risk, when it, you know, all of these things and you see gold rallying anyway, and the gold adjusted value of the dollar just hit a 13 year low.

16:35So from that perspective, that's screaming to us that, you know, people are really now going to gold in the way that a lot of people have always said they would, and we're pissed off that they didn't and all this kind of thing. And a lot of people are not on board this move. This move has largely been Chinese buying, the enlarged part, the open interest on the futures market has been low. People were liquidating ETFs, All the bullion centers had lower imports for the last, you know, six to eight months. So when you see that, this is the kind of move where the U.S. investors and the ETF guys are going to be chasing this market higher at some point.

17:06We said that a couple of months ago. Now you're in that phase two. And that is speaking volumes towards the dollar. So, yeah, it is. It's bifurcated and polarized like everything else is. So I think higher and then, man, it could get really nasty. And then crazy. So I want to sort of circle up on the short term because this idea of the pressure, you know, we know the theory of the dollar wrecking ball, but the pressure that it's putting on so many currencies, especially in the Asia region. And you really detail this in your global macro strategy note. So talk to us a little bit about are we going to see devaluations?

17:42I mean, we know there's been pressure on the yen. We know there's been pressure on the yuan. So let's start with those two. What are we expecting there? What happens from here with those currencies? That's a good question. And I mean, you really hit on the head. It makes me think because I was just thinking this myself earlier this morning, actually, that what it comes down to is not even really that. And it's kind of like I wrote when I was writing a piece this morning. I said, oh, no, Mr. Bill and some of these currencies and the dollar is Mr. Hand. He's about to come down and squash a little climation figure.

18:12But when you think about it, the key really to this is intervention. Will they intervene? Will they take some of their dollars and put them back in the market? And I could see a situation where this is, and I wrote this today, that this is very similar, not in the rise in the dollar even close yet. It's not really up that much over certain timeframes, okay? It's just now breaking out technically and could become a problem if it gets higher. But it feels very much like 1985 before the Plaza Accord. And I remember that like it was yesterday, getting on the train that morning to go downtown Manhattan into World Trade Center and hearing that they had signed the support to devalue the dollar.

18:50And it was down something like 56 % over the next three years. And it was huge. And it was necessary. And I think the problem is to get to that point, you'll have a lot of pain in the meantime. And then the reverse of that will be exciting in some ways. Stocks will soar. So wait, are you talking about a decision to devalue the dollar or could the devaluation come from Japan deciding to devalue the yen, China, or everyone? Either way, and I think ultimately it could be, look at this one of two ways or both ways. Because yes, it absolutely could be these currencies get devalued. We've seen plenty of cases just in the last 18 months.

19:27I could list countries that have devalued their currencies. Vietnam, Pakistan, Turkey, Angola. I mean, the list is long. All right. And when you take that the other way, when it gets to a point where you are talking the yen or, you know, some of the sterling or Canadian dollar, Aussie dollar, that's when you start to see where could the tables turn here, that it becomes an issue for the dollar and the Fed and the Treasury to manage this because you're hurting these other countries so much. think about this too if you have a geopolitical event in the middle east which i don't understand the complacency around this to begin with i mean we i won't even talk about it right now we get off track but whatever whatever might happen there if you do see you know rent crude get through 95 it's going to 125 and if that happens think about the currencies being divided how much energy is going to cost in those countries inflation will be true to roof so there's a lot of tentacles here that need to be managed we're going to take another quick break to hear a word from our partners.

20:24We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

20:33So a couple of comments on that. One of the things I really love about reading your reports is that there are always these nuggets and information that's missing from my radar. And this is a perfect example. I went through all the charts of what's happening with the Asian currencies. And it's just not stuff you see because we know people talk about the yen. We're talking about Malaysia, Indonesia, Korea, everything that's happening. And it's just the kind of stuff that we need to be aware of. There's deep history in what happens when you start to see this kind of pressure on currencies. So super appreciative of that.

21:14And I know that there's some chatter in the chat that I'm watching. If you want more or you want to see some of Greg's work for all you RV members, there's a really easy link to access his reports in the marketplace on the RV platform and you get a special rate. So go check that out. Really, really fantastic stuff. And the other thing I'll mention, Greg, is that I just sat down and did My Life in Four Trades with Dan Tapiero, who worked with everybody, right? All of the big macro whales that we read about in books, Stan Druckenmiller, you name it. He worked at Tiger, and he was involved in trades when both the ERM busted and the Asian currency crisis.

21:58It was a global crisis when these things happened. And we're not saying there's going to be one, but if you're sitting here thinking, I own NVIDIA, what do I care about Asian currencies? It's so interconnected, And I know this is why you watch it. If these things happen in a disorderly way, there are massive tentacles through the global economy on this. So it's really important. And, you know, not a lot of people are across this kind of currency action, but it's super important. And it seems like things are like it's a very risky time right now. I would add one, too, by the way, is Korea, because the yuan is usually a very stable currency, and it is kind of coming unglued, particularly against gold.

22:36And when you start to see under the cover of what's going on in the Middle East, Iran, wink, wink, from China, all of a sudden China is in North Korea, and now they've got a new strategic pact. I mean, if you really look at China and the South China Sea, you see Korea, you see some of the southern islands in Japan. There is really bad flood, clearly, between Japan and China, and they talk about it all the time. These islands are right there, man. You want to go up into the main shipping ports in China. You've got to go right through this area. That's why the Philippines, Vietnam, and all these countries are at risk.

23:07And these are the currencies that are all of a sudden the weakest, you know, at the same time that China is really kind of trying to manage their currency. There's another whole overlay here that is China. And what are they doing? And what are they trying to achieve with what they're doing? And we could talk about that for a half hour alone. Yeah, I know. We keep running out of time to talk about China. Don't worry, guys, we will because there's just so much stuff to go over here. So, Ralph asking, what's your view on base metals? I'm going to get some of these questions in. I want to get back to some of the gold targets because you've been a longtime gold watcher.

23:41But what about base metals? I like them. And, you know, we liked them before they just started to break out, too, on this Russian news. So that's a nice little catalyst, event catalyst. But you have low inventories, especially of copper. You have a situation where the swaps have been in contango and deep contango. That really doesn't make sense relative to the supply. And if you want to say, well, Shanghai supplies are up, they are certainly of nickel. But that's not like supply that's necessarily coming out of China. I mean, these are strategically held supplies that are probably not coming back into the market.