Original Title: What Happens When The Bet Against America Fails?

Original Author: @themarketradar

Original Compilation: Peggy, BlockBeats

Editor's Note: At a time when "de-Americanization" and "de-dollarization" have almost become market consensus, this article attempts to remind readers: the real risk often lies not in whether the judgment is correct, but in whether everyone is already on the same side. From the concentrated crowding in emerging markets and the speculative surge in precious metals to the highly consistent narrative of a weakening dollar, the market is replaying a familiar script.

The article does not deny that long-term structural changes may occur in the world, but it refocuses its perspective to a more realistic cyclical level: once the dollar stops weakening, when monetary discipline re-enters pricing, and the US economy does not slow down as significantly as expected, those trades built entirely on a "single tailwind" may unravel at a pace far exceeding expectations. As we learned from the experience of 2017 to 2018, when consensus becomes too uniform, reversals often come swiftly and fiercely.

Within this framework, the article proposes a contrarian yet seriously considered judgment: what is being overlooked might be US assets themselves. Not because the narrative is overly optimistic, but because when crowded trades recede, capital often flows back to the places with the deepest liquidity and the most stable structures.

Below is the original text:

Currently, a nearly irresistible narrative is prevailing in the market: the US dollar is being diluted; emerging markets are finally having their moment in the spotlight; central banks are selling US Treasuries and increasing their gold holdings instead; capital is rotating from US assets to the "rest of the world." You can call it "de-Americanization," "de-dollarization," or "the end of American exceptionalism." Regardless of the label, this judgment has formed a high degree of consensus.

And precisely because of this, it is exceptionally dangerous.

Last Friday's market performance precisely illustrated what happens when a highly crowded trade encounters an unexpected catalyst. Gold plummeted over 12% in a single day; silver suffered its worst day since 1980, falling more than 30%. The entire precious metals sector experienced market value fluctuations of up to $10 trillion within one trading day. Meanwhile, the dollar strengthened sharply, and emerging markets saw significant pullbacks.

On the surface, this was triggered by Kevin Warsh's nomination as Fed Chair; but the real key is not a single personnel appointment, but rather a positioning structure that has reached an extreme and is waiting for any excuse to "unwind and retrace."

We do not believe the world is abandoning the United States. Our judgment is that the "de-Americanization" trade has become one of the most crowded macro bets of 2026, and it is on the verge of reversal.

In this analysis, we will systematically deconstruct the deep macro mechanisms supporting this view, not only explaining what we expect to happen but, more importantly, why.

Consensus Positioning

First, let's look at how one-sided this trade has become.

In 2025, emerging market asset returns reached 34%, marking the best annual performance since 2017. Even more striking, during the first sustained period of "emerging market outperformance" in over a decade, EEM outperformed the S&P 500 by more than 20%.

The views of fund managers and strategists are almost uniformly aligned. JPMorgan stated that emerging markets have "never looked this attractive in 15 years"; Goldman Sachs expects emerging markets to have another 16% upside in 2026; Bank of America even declared that "emerging market bears are extinct."

In 2025, emerging market securities saw the largest capital inflows since 2009.

Meanwhile, the dollar recorded its sharpest annual decline in eight years. Gold doubled in price within 12 months, and silver's gains approached fourfold. A bet known as the "debasement trade" rapidly became dominant, with its core logic being: the US is printing its way to marginalization through continuous money printing. This narrative has gained widespread popularity among hedge funds, family offices, and even retail investors.

US Treasuries also faced pressure. China's holdings of US Treasuries fell to $689 billion in October, the lowest level since 2008, down 47% from the peak of $1.32 trillion in January 2013. Global central banks have been increasing gold reserves for three consecutive years at a rate exceeding 1,000 tons annually, clearly expressing a need for diversification away from dollar reserves. The "sell America" narrative was thus fully formed.

But all of this is changing. What remains truly unresolved is what will trigger the reversal.

Reasons for Dollar Stability

The core premise of "de-Americanization" is the continued weakening of the US dollar. However, the dollar's decline in 2025 was not due to structural collapse but was driven by a series of specific policy shocks, the effects of which have largely been digested by the market.

The primary catalyst was the so-called "Liberation Day." When the Trump administration announced massive reciprocal tariffs in April, the market quickly panicked, and the "sell America" trade was indeed justified at the time: if the world cannot trade smoothly with the US, why would it need so many dollars and Treasuries?

But the tariff shock has since been gradually absorbed. A series of trade agreements provided anchors for stability; the Xi-Trump meeting in October sent clear signals of easing; the agreement with India lowered Trump's previous 25% tariff to 18%. The lower the tariffs, the stronger the fundamental support for the dollar. The market is recalibrating expectations, and the focus is returning to fundamentals—and at the fundamental level, the dollar still holds key advantages.

The interest rate differential still favors the dollar.

Although the Fed has cumulatively cut rates by 175 basis points since September 2024, US interest rates remain structurally higher than all other developed economies. The current federal funds target range is 3.50%–3.75%; the ECB rate is 2% and has signaled the end of its easing cycle; the Bank of Japan just raised its rate to 0.75% and may only reach 1.25% by the end of 2026; the Swiss National Bank remains at 0%.

This means US Treasuries still offer a significant yield premium relative to German, Japanese, UK, and almost all other sovereign bond markets. This differential continuously creates demand for dollars through carry trades and international asset allocation.

By March 2026, the Fed is expected to complete all rate cuts in this easing cycle; and most other G10 central banks will also be nearing the end of their respective easing cycles. When the interest rate differential stops narrowing consistently, the core force driving dollar weakness will disappear.

For the dollar to continue falling, the prerequisite is that capital must have somewhere to go. The problem is that all alternative options themselves have unavoidable structural flaws.

Europe is mired in structural difficulties: Germany is trying to support growth with fiscal stimulus, while France is moving further into unsustainable fiscal deficits; once the economic environment deteriorates again, the ECB has very limited policy space.

Japan's policy mix is also difficult to support yen strength. The Bank of Japan is normalizing policy at an extremely slow pace, while the government simultaneously pursues reflationary policies. The 10-year Japanese Government Bond yield just rose to 2.27%, a new high since 1999. According to Capital Economics calculations, about 2 percentage points of this come from inflation compensation, reflecting price pressures in Japan's reflationary process. Japan's inflation rate has been above the BOJ's 2% target for 44 consecutive months. This is not a signal of yen strength but rather the market demanding higher yields to compensate for persistent inflation risk.

Then there's gold. In this macro environment, it has undoubtedly been one of the best-performing assets. But last Friday's move exposed its fragility. When gold plunges over 15% in a single day and silver drops 30% on news of a personnel nomination, this is no longer the behavior of a safe-haven asset but a highly crowded trade packaged as one.

The dollar may not be perfect, but as the old saying goes: in the land of the blind, the one-eyed man is king. Capital fleeing the dollar, on a scalable level, has no truly attractive destination. Gold and other metals once acted as a "pressure release valve," and we believe this phase is nearing its end.

Kevin Warsh's nomination as Fed Chair signals a potential shift in monetary policy stance. He is widely seen as the most hawkish among the candidates, having publicly criticized quantitative easing, advocated for balance sheet discipline, and prioritized inflation control. Whether Warsh actually implements tough policies is not the key. What truly matters is: the market's one-sided bet that "the dollar will weaken long-term" was challenged head-on for the first time. Warsh's emergence makes "monetary discipline" a real threat again, whereas the market had already priced in "permanent easing." This is precisely the change the highly crowded "debasement trade" least wants to see.

But there is a crucial detail here. No Fed Chair, not even Warsh, would sacrifice tens of trillions in stock market capitalization just to push inflation from 2.3% or 2.5% down to 1.8%. If inflation is only slightly above target, no policymaker wants to be the one to "knock the S&P 500 down 30%." They are more likely to wait for inflation to fall naturally rather than force the issue. The mere "threat" of hawkishness is enough to disrupt the debasement trade; the actual policy doesn't need to be brutal.

The dollar doesn't need to surge; it just needs to stop falling. And once the core tailwind supporting emerging market outperformance and metal asset rallies disappears, these trades will reverse.

Why US Economic Growth Remains Resilient

Another premise of the "de-Americanization" narrative is weakening US economic growth. But the structural foundation of the US economy is far more solid than this narrative suggests.

Our Growth Index illustrates this well. Admittedly, growth momentum slowed in Q4 2025. The index fell below its momentum line in mid-October, turning the trend bearish for a time, which also fueled the "de-Americanization" narrative. But growth did not accelerate downward into collapse; it stabilized. By early January, the index climbed back above the momentum line, briefly turning bullish before retreating to the current neutral range.

The US economy digested the "Liberation Day" tariff shock, endured higher interest rates, and kept moving forward. Q4 growth did slow and had every condition to "collapse"—but it didn't. The failure to accelerate into a bearish trend is itself a signal. We believe that after months of sideways consolidation in equities, a market "snapback" phase is approaching.

Real GDP is still growing noticeably above trend; unemployment claims have not risen significantly; real nonfarm output continues to rise; productivity resumed expansion after contracting throughout 2024; household consumption alone contributed 2.3 percentage points to growth. This is not an economy about to lose its competitive edge.

And the fiscal dimension, overlooked by most analyses, firmly favors the US. The US fiscal deficit exceeds 6% of GDP, and the "One Big Beautiful Bill Act" is expected to release an additional $350 billion in fiscal stimulus before the second half of 2026. In contrast, Europe's fiscal rules limit stimulus even during downturns, and Japan's fiscal space is long exhausted. Only the US has both the willingness and the capacity to keep spending when the economy weakens.

Why Positioning Unwinds So Violently

The high crowding of the "de-Americanization" trade itself creates a vulnerability beyond fundamentals. When everyone is on one side of the boat, even the slightest change in direction can trigger chain-reaction liquidations. Last Friday's performance in gold and silver was a textbook demonstration of this mechanism.

When news of Warsh's nomination broke, it directly challenged the market consensus—that the Fed would remain accommodative long-term and the dollar would keep weakening. But the subsequent price action wasn't investors calmly reassessing fundamentals; it was the brutal mechanical reaction of positioning structures collapsing.

This dynamic has been playing out across the metals complex. Looking back over recent months, you'll notice a key divergence: copper prices were falling while gold and silver rallied. This is very important. Copper has significantly more industrial uses. If this metals rally were truly driven by fundamentals—like AI data center demand, renewable energy construction—then copper should be leading. But the opposite happened: copper lagged, while "monetary metals" soared. This indicates the market is dominated not by fundamentals but by speculative flows. And speculative trades, when they reverse, often fall the hardest.

The "de-Americanization" trade is inherently reflexive. It reinforces itself: a weaker dollar makes dollar-denominated emerging market assets more attractive; capital inflows push up emerging market currencies; stronger emerging market currencies further weaken the dollar. This virtuous cycle appears to "validate" the narrative with fundamentals, but it's actually positioning breeding more positioning. However, reflexivity works both ways. Once the dollar stabilizes for any reason, the cycle reverses: emerging market assets become less attractive, triggering outflows, pressuring emerging market currencies, and in turn strengthening the dollar. At that point, the so-called "virtuous cycle" quickly turns into a vicious spiral.

The "Trump 1.0" Script

We've seen this movie before, and we know how it ends.

Rewind to 2017. Back then, the dollar fell sharply, recording its worst annual performance in 14 years, down about 10%. Emerging markets were the biggest beneficiaries of this dollar weakness, rising 38% for the year, their best performance since 2013. Emerging market currencies generally appreciated against the dollar. Analysts talked about a "Goldilocks" environment—everything perfectly positioned for overseas assets. Jeffrey Gundlach publicly called for continued emerging market outperformance. By January 2018, market consensus had become so uniform it should have been alarming: emerging markets were a once-in-a-decade trade.

Then, the dollar bottomed.

What followed was a violent reversal. The Fed tightened policy, and the shock quickly transmitted to fragile emerging market economies. The Turkish lira collapsed; the Argentine peso suffered its largest single-day drop in three years. By August 2018, EEM fell to $41.13, nearly erasing all of 2017's gains within months. The so-called "generational opportunity" ultimately became a generational trap for those who followed.

Now look at the present. In 2025, the dollar recorded its largest annual decline since when? 2017. By how much? Again, about 10%. Emerging markets rose 34%, almost matching 2017's performance. Analysts declared "emerging market bears are extinct"; Bank of America proclaimed "the next bull market has begun." This highly uniform consensus should now look familiar.

The momentum structure is the same, the positioning structure is the same, the narrative is the same.

Even the governing administration is the same one that watched it all unravel last time.

This is a template that repeats under the same political backdrop: volatility triggered by tariffs, the same consensus euphoria, and that's exactly what we're witnessing today. The end of the 2017–2018 cycle wasn't due to collapsing emerging market fundamentals or an incoming recession; it ended for one reason only: the dollar stopped falling, and that was enough. When the core tailwind vanished, the positioning built on that tailwind unraveled at a startling pace.

We are not predicting a mechanical replay. Markets never repeat exactly. But when conditions are this similar, history provides a valuable prior: the same trade, the same consensus, the same government. The burden of proof has shifted. Those continuing to bet on long-term emerging market outperformance need to explain why this time is different. Because last time, under nearly identical circumstances, the reversal was swift and the losses were real.

The Underestimated Trade

One point the "de-Americanization" camp consistently overlooks: the S&P 500 is essentially a proxy for global growth.

The world economy largely runs on the infrastructure of US-listed companies. For an overseas pension fund manager or hedge fund manager to make a deliberate decision—to systematically not allocate to US equities—is almost equivalent to declaring they don't want to own a significant chunk of the world economy. To consistently win on such a bet would require a dramatic and profound shift in the global economic structure, which, for now, is unrealistic.

There is no scalable "foreign Google," no "foreign Meta," no overseas rival that can match Apple. The dominance of US tech is so strong it's a fact "de-Americanization" advocates prefer to avoid.

Look at the current market structure: Oracle is down about 50% from its highs; Microsoft is sluggish; Amazon has barely moved. These giants have largely missed this rally, yet the Nasdaq keeps making higher lows. What does this mean? It means the index has held at elevated levels for quite some time without participation from these mega-caps. Now imagine: if Oracle finds a bottom, if Microsoft starts attracting buyers, these companies could still be in a bearish trend even after a 20%–50% bounce; but once they start moving, where do you think the index goes?

The real contrarian trade