What We're Reading

When we talk about the giant size of Apple, the fortune of Warren Buffett, or the massive amount of global debt accumulated – all of these things sound large, but they are actually extremely different in magnitude.

That’s why visualizing things spatially can give us a better perspective on money and markets.

How Much Money Exists?

This infographic was initially created to show how much money exists in its different forms. For example, to highlight how much physical cash there is in comparison to broader measures of money which include saving and checking account deposits.

Interestingly, what is considered “money” depends on who you are asking.

Are the abstractions created by Central Banks really money? What about gold, bitcoins, or other hard assets?

A New Meaning

However, since we first released this infographic in 2015, “All the World’s Money and Markets” has taken on a different meaning to us and many others. It’s a way of simplifying a complex universe of currencies, assets, and ot

Rhetoric has already had an impact on currencies in a big way

Targeting companies or entire nations on Twitter is an unprecedented and controversial method of communication for a President-elect – but one can’t argue with its effectiveness so far.

In today’s chart, we take a look at Donald Trump’s rather unconventional form of “monetary policy”, and how it has potentially influenced the U.S. dollar and five other major currencies since his election in November.

Ready, Aim, Tweet

A preview of President-elect Trump’s “America First” directive can already be seen on Twitter.

Trump’s infamous account, which is followed by 18.8 million people, is being used every day to highlight the potential winners and losers of future policies.

And markets are listening.

The above table shows change in the value of foreign currencies ag

Since the election the financial markets have been trying to price in “Trumpflation.” This is the idea that the combination of infrastructure spending, tax cuts, rising deficits, immigration curbs and protectionist policies could reverse the disinflationary trends we have witnessed over the past few decades and more dramatically since the financial crisis. The selloff in the bond market amid surging interest rates might be the single most important piece of evidence in this regard.

Over the summer I noted we were likely witnessing the final blow-off stage of the bond bull market (see this and this). Since then the long bond has fallen nearly 15% leading many pundits to conclude it has already begun pricing in the prospect of Trumpflation. However, if you look at the data, it appears it’s just not pricing in as much deflation anymore. In fact, by some measures the yield 10-year treasury bond would still need to double in order to finish the job.

A simple model based on #inflation, #ISM

As global central banks continue their race to devalue their currency in hopes of supporting their own weak economies (most recently Bank of Israel unexpectedly cutting their base interest rate overnight by 15bps from 25bp to 10bp) global money flows continue to seek safe haven in the U.S. dollar.  And everyone agrees there is no end in sight near term.

In fact the daily chart is in a beautifully, tight bollinger band squeeze which I feel is going to break even higher.

Pressure looks to continue for large cap multinationals as currency strength will continue to pressure balance sheets with overseas sales.  A great time for the consumer to take a vacation across the pond however as your greenback outperforms every currency out there.

Bragging rights in a weak economic recovery.  You have to take it when you can get it.

As polls continue to swing around ahead of the Swiss gold referendum on 30^th November, we expect increased volatility in the FX and gold market.  After the implementation of the EURCHF floor, gold’s share of the SNB balance sheet has fallen to 7.5% from around 30% in 2007 (top chart).  The SNB has already pointed out the untenable nature of the peg should the referendum pass, but the impact on the gold market would also be significant.  Taking the current balance sheet of 522bn CHF and spot gold prices, the requirement to hold at least 20% of assets in gold would necessitate buying 1,800 tonnes of gold over 5 years.  Total global production in 2013 was 2,982 tonnes, thus the SNB would need to buy at least 10% of the annual production every year for the next 5 years.

The bottom chart shows the latest composition of the SNB’s FX reserves.  The requirement to buy gold will necessitate selling reserves, mainly EUR (which makes up 45% of all reserves).  Should these euro selling flows come