Dollar shearing, understand the truth of capital chasing profit from a financial perspective
The reason why the United States dominates the world is because it has two fists: one is military and the other is currency. The combination of these two fists is almost invincible, and one after another, the world's economic hegemons have been knocked out. Next it is China's turn to take the stage, but China is playing Tai Chi, focusing on using softness to overcome rigidity, and pulling a thousand catties with four ounces...
Next, I use a very alternative financial thinking logic to analyze how the US dollar is sheared in the process of international capital flow!
What constitutes the strength of the dollar
The US Dollar Index (USDX) is an indicator that comprehensively reflects the exchange rate of the US dollar in the international foreign exchange market, and is used to measure the exchange rate change of the US dollar against a basket of currencies. It measures the strength of the U.S. dollar by calculating the comprehensive rate of change of the U.S. dollar and a selected basket of currencies, thereby indirectly reflecting changes in the U.S. export competitiveness and import costs.
The U.S. Dollar Index is originally published by the New York Cotton Exchange (NYCE). In 1998, the New York Cotton Exchange and the Coffee Sugar Cocoa Exchange merged to form the New York Board of Trade (NYBOT). In September 2006, the New York Futures Exchange merged into the Intercontinental Exchange (ICE) and became a subsidiary of it. Currently, U.S. dollar index futures are traded on the Intercontinental Exchange. The exchange is responsible for publishing real-time data on the U.S. dollar index and U.S. index futures prices.
The real-time data of the U.S. dollar index (that is, the spot price corresponding to ICE U.S. dollar index futures) is updated by Reuters every about 15 seconds based on the real-time exchange rates of each component currency that constitutes the U.S. dollar index. The calculation uses the average of the highest bid and ask prices for the currency as calculated by Reuters. The calculation results are sent to Intercontinental Exchange, and then distributed to various data providers by the exchange.
The Three Levels of Money
A. The first circleimage description
2020 US dollar index weight table of each currency
B. The second circle: Except for the developed countries in the first circle, or the currencies of moderately developed countries
For example, Australian dollar, Norwegian krone, New Zealand, Korean won, or New Taiwan dollar, etc.;
C. The third circle: Currency of developing countries
For example, Brazilian real, Mexican peso, Russian ruble, Turkish lira, etc.;
Why is the RMB not divided into these three circles? Because the renminbi has a very special reason and relationship, and it has a very deep relationship with the US dollar.
image description
secondary title
2.1. A list of major events of the US dollar index (1971-2014)
In August 1971, the Nixon administration was forced to announce the abandonment of the U.S. dollar "gold standard" that was exchanged for gold at the official price of $35 an ounce, and the free float of gold and the U.S. dollar was implemented. The era of flooding of U.S. dollars began and the high inflation period of the 1970s .
In July 1973, the U.S. dollar index strengthened after hitting a low of 90.53 points. The oil crisis broke out this year.
In January 1974, the U.S. dollar index peaked at 109.5 points and then weakened, and oil prices peaked that year.
In March 1975, the U.S. dollar index hit a low of 92.82 points and then rebounded.
In August 1978 the U.S. dollar index fell below the 1973 low.
In October 1978, the U.S. dollar index hit a record low of 82 points so far that year, and began to hover at a low level.
In October 1980, the U.S. dollar index resumed its upward trend, and in the following years it showed the strongest trend in history.
In December 1981, Federal Reserve Chairman Paul Volcker raised the federal funds rate to 20%, and the U.S. dollar index continued to strengthen.
After the federal funds rate fell to 8.5% in December 1982, it hovered between 8 and 10, but the dollar index continued to strengthen.
In February 1985, the U.S. dollar index reached an all-time high of 164.72 points. According to U.S. data, U.S. trade with China turned from a surplus to a deficit this year. In the past, the bull market for the U.S. dollar was due to the fact that China had just started reforming and urgently needed to import various equipment from the U.S. and raw materials from the world. At that time, China had not yet Foreign exchange reserves have resulted in strong demand for US dollars, coupled with Volker's prudent currency injection.
From the 1985 high, the dollar began its longest bear market in history.
Paul Volcker left the Fed in 1987.
In September 1992, the U.S. dollar index hit a record low of 78.33 points, which was 3.67 points lower than the previous historical low of 82 points.
In August 1995, after another three years of lows, the U.S. dollar index resumed its upward trend. This time, it was because the information network era kicked off in the United States, and funds chasing high-margin emerging industries returned to the United States to pursue information network companies and the value of these companies. stock. Emerging industries have contributed to the strong growth of the U.S. economy, and there is a demand for capital to flow back to the United States.
In October 2000, the U.S. dollar index reached a high of 119.07 points. The bubble of technology and Internet stocks burst the following year, and U.S. stocks plummeted.
In July 2001, the U.S. dollar index reached the second highest point of 121 points in history, and then began to weaken in early 2002, starting the second big bear market of the U.S. dollar index, which has not yet ended. The 9/11 incident broke out this year.
In March 2008, the U.S. dollar index hit an all-time low of 70 points. Because the Federal Reserve implemented an ultra-loose monetary policy after the September 11 incident, a large amount of dollars flowed out of the United States into emerging countries and commodity markets, resulting in asset bubbles in emerging countries and a commodity bull market second only to the 1970s.
In July 2008, the U.S. dollar index began to rise sharply. Two months later, the financial tsunami broke out.
During the appreciation stage from July 2008 to March 2009, the market demand for U.S. dollars became very strong, which led to the continuous rise of the U.S. dollar against the British pound, the euro and the U.S. dollar index. In November 2008, the U.S. dollar index once rose to 86.43 points, a short-term high.
From March 2009 to December 2009, the US dollar weakened again, but then strengthened again. After reaching a short-term high in June 2010, it weakened again. Until May 2014, it basically showed a stable and volatile trend.
secondary title
2.2 Behind the two dollar index rises
First, see the two historical highs of the U.S. dollar index from the above picture (144 points in 1985, 121 points in 2001):
1. The first one, from 1980 to 1985, the US dollar index rose by 84.08%.
Beginning in August 1979, the U.S. federal funds raised the benchmark interest rate to 11%, and then increased it successively, reaching 22.36% in July 1981. High interest rates have attracted a large amount of foreign capital into the United States. At the same time, President Reagan implemented tax cuts, tight monetary policy and proactive fiscal policies to promote strong growth in the US economy. Large twin deficits on the current account and the government budget were the prominent features of this period. Attracted by the appreciation of the dollar, a large amount of funds flowed out of Latin American countries, resulting in the Latin American debt crisis.
2. The first one, from 1980 to 1985, the US dollar index rose by 43.86%.
In this rally, the U.S. current account deficit continued to grow, and the fiscal deficit was effectively improved during the Clinton years. The Internet economy bubble in the United States, the stock market has a big market, and the interest rate has been raised six times, all of which have attracted the inflow of global funds. At this stage, as the U.S. entered into a cycle of raising interest rates, most countries followed suit, and the U.S. became more and more influential globally, and the flight of a large amount of funds triggered the Asian financial crisis.
secondary title
2.3. The Rise of China's Powerful Economy
Take the decline of the U.S. dollar index from 2001 to 2012 to analyze:
China joined the WTO in 2001, ushering in the next golden decade. During this period of high light, China has attracted a large amount of global capital inflow from overseas. At this time, no matter where international capital goes to any corner of the world, it is not as fast, more profitable, and easier to earn than China's capital wealth effect. This is the real gold rush era in the history of the US dollar, even comparable to the United States in the 1920s, when the United States was known as the Coolidge prosperity and roared into the 1920s.
At this time, the United States' global GDP dropped from 28% to 21%, while China's GDP quickly rose from 4% of global GDP to 10%.
Principles and Understanding of Dollar Shearing
In fact, whenever the global economy is getting bigger, the country’s dollar capital flows out of the United States, such as flowing into China to dig gold, and tap the opportunity to make money from the wealth effect of international capital, which leads to the decline of the US dollar index; according to the above analysis Two points, when the Latin American debt crisis and the Asian financial crisis occur, the dollar capital will flow back to the United States to seek the stability and safety of capital, which is also the economic law of capital hedging.
In the end, it is actually such a expansion and contraction of US dollar capital to realize what the world thinks of as shearing. Having said that, this sheep shearing is not applicable to all economies. There is a saying in China that "flies don't bite seamless eggs." Only economies with weak economic systems and full of loopholes are easy to be sheared. For example, Germany has a very strong manufacturing industry, relatively conservative and stable finances, and a fiscal surplus. How can Germany have the same population size and scale as the United States? Germany’s national strength may not be inferior to that of the United States; In countries like Japan, the manufacturing industry is also very strong. It has experienced the real estate bubble in the 1990s, and its economic system is very complete in the world. Moreover, the Japanese yen is also known as the global safe-haven currency, so it is difficult to Become the target of the US dollar index being clipped.
secondary title
3.1 The principle case of dollar shearing
The elite class or elite capital of the country to be sheared (wool) actually has a position or advantage that is easier to shear (others) wool. The funds of many elite capitals in their own countries will be positioned for global overseas allocation. When they are in their own country When there is a problem in the economy, as capital sensitivity is high, it is faster and more accurate than all the middle and lower classes. Their global allocation strategy will immediately adopt deployment, and they will promptly exchange for US dollars and flee.
For example, in 2015 and 2016, China's capital predators were frantically selling their own assets. For example, Li Ka-shing kept selling real estate projects in mainland China and transferred funds to the UK to allocate various assets; Keeping RMB debt assets at home, and then leaving foreign currency assets such as US dollars overseas, this is a classic sheep-shearing behavior. From the perspective of financial game theory, these powerful classes are betting on RMB assets or RMB in the future. If the Chinese currency depreciates, it will return from US dollar assets and acquire cheap assets in the country. (At that time, the Chinese government decisively stopped it, which was a serious threat to China's financial stability and security)
secondary title
3.2. The correct understanding and conclusion of dollar shearing
The U.S. dollar index falls, and capital flows out of the United States (when the U.S. dollar expands to the world and the global economy grows, making the global pie bigger), the ratio of U.S. GDP to global GDP shrinks, and it is time for U.S. dollars to flow out to chase international wealth opportunities;
When the U.S. dollar index rises and capital flows back to the United States, it is often the time when the global economy begins to shrink and the U.S. GDP as a percentage of global GDP rises, and U.S. dollar capital seeks safety.
