The rise and fall of the US dollar has a crucial impact on the currency market. Therefore, the fundamentals related to the dollar have attracted the attention of many traders. This time, we will use the US dollar as the starting point to talk about the blind spots that exist in the analysis of fundamentals.
The first blind spot. There should be no objection to saying that the US dollar is the heart of the entire currency market. What is the heart of that dollar? It is estimated that many people will not be able to answer.
The heart of the dollar is the five major money markets in the United States, namely the repurchase market, the commercial paper market, the certificate of deposit market, the short-term treasury bond market and the Eurodollar market. If the dollar wants to flow to the world, it has to rely on these five markets. The Fed has the closest relationship with these five markets, and money flows from the Fed to these five markets, and then flows to the world. It can be said that the five currency markets in the United States are the channels through which dollars flow through the world.
We often say dollar shortage. What is the dollar shortage? That is, the world is short of dollars. What you need to know is that the dollar shortage can also be divided into chronic dollar shortage and acute dollar shortage. In short, the former is mainly caused by the relationship between supply and demand, that is, supply exceeds demand. For the latter, there are multiple possibilities. One of the possibilities is that there are problems in the five major currency markets in the United States, that is, the pipeline for the export of US dollars is blocked.
March 2020 is the best example. From March to April, the Federal Reserve printed a lot of money, but why is there still a shortage of dollars? It is because of the problems in these five markets. So it is the heart of the dollar.
What is the second blind spot? The relationship between overseas dollars and the US money market is unknown. For example, the interest rate of commercial paper directly affects the US dollar offered rate in London, which is the LIBOR rate.
The third blind spot is not knowing the relationship between the overseas US dollar and the currency trading market. For example, foreign exchange swaps are the main tool for short-term US dollar financing. Without foreign exchange swaps, how would banks and asset management companies obtain US dollars? Where can I get US dollars? Of course, you can go to London to borrow money, find an American bank to borrow, and find a British bank to borrow. This is a way, but the cost is relatively high. For a company in Japan or China, it is the lowest cost to use RMB or Japanese Yen as collateral to exchange dollars.
The fourth blind spot is not knowing the relationship between the currency trading market and overseas dollar-denominated assets. Why do we need a huge currency exchange market? Every country, including the official so-called sovereign wealth funds, holds tens of billions of dollars in assets, and the scale of the whole world is even larger, tens of trillions. With so many U.S. dollar-denominated assets and liabilities, we mainly rely on foreign exchange swaps in the currency trading market to provide short-term funding. Without this fund lending, the flow of funds will be cut off, and the US dollar and assets and liabilities will not be able to maintain, and they will all die.
Therefore, short-term US dollar financing can only be obtained through foreign exchange swaps. Where does the financing in the foreign exchange swap market come from? Where did those dollars come from? Connect to the Eurodollar market through London, and then connect to the five major currency markets in the United States through the Eurodollar market. The logic in this is relatively complicated, but if you don't understand it, you don't know why.
The fifth blind spot is not knowing the logical framework among the five chains from the Federal Reserve to the U.S. money market, then to the overseas U.S. dollar market, then to the foreign exchange market, and then to U.S. dollar assets. For example, if the national debt basis strategy fails, those who know how to do it will feel that the sky is falling when they see the news; but those who don’t understand will have no reaction at all. Why? Take March of this year as an example, if this strategy fails, it will involve trillions of dollars in hedge funds, and they will all be exhausted and leverage will be released on a large scale.
What is the final result of unleveraging? As a result, the repurchase market in the United States was frozen, and the money in the commercial paper market was drained, and then the impact expanded. For example, Japanese pension funds could not get US dollars in Japan. Because the Bank of Japan, which provided it with U.S. dollars, has no way to raise money in the U.S. money market, and U.S. pension funds have exchanged their yen for renminbi and invested in China’s bond market.
So I don't know that when a certain hedge fund fails, it will affect China's bond investment, because if it wants to unleverage, it will definitely sell a large scale of Chinese assets, whether it is stocks or bonds, it has to withdraw.
The process of retracement involves exchanging foreign currency into yen, and then exchanging yen into dollars, so it will definitely cause the yen to shrink, and the yen will dry up. exhausted. Finally, another global dollar shortage occurred.
This is the correct reasoning logic of fundamental analysis. Instead of jumping directly from cause to effect. For example, from March to April 2020, the Federal Reserve printed money on a large scale. As soon as the average person sees the news, it’s over, and 1.5 trillion U.S. dollars has been printed, and the U.S. dollar must be weak. The results of it? Is the dollar weak in March-April? A fall is a fall, but can you say it is weak? March-April is the worst time for the Fed to print money, but the US index is very strong. explain?
Some so-called experts or teachers often talk about the fundamentals, such as the fundamentals of the Japanese economy, the fundamentals of the Chinese economy, how our exchange rate is, or whether it is a trade surplus or deficit. We are constantly in surplus, so how is our exchange rate? Or the balance of payments, look at China's capital account and financial account, we all have double surpluses. They are all tall, but at the same time fake and empty things. There is not much value for a real understanding of real-time forex trading as it happens.
To give a simple example, the RMB depreciated to 7.19 on May 27, 2020. How to explain this matter? China's fundamentals have recovered. At that time, China had already resumed work. It was the earliest in the world and the best in controlling the epidemic.
At the same time, the double surplus and the balance of payments are normal. Why did the RMB depreciate to 7.13 on May 27? Can this false big empty theory explain it? It is largely useless and largely ineffective for explaining markets as they occur in real time.
What really needs to be understood is what went wrong with the US dollar circulation mechanism around the world at that time, and where is it stuck? In fact, such a depreciation in China is related to the yen. But most people don't think of going here. We not only need to know the conclusion, but also the whole process. Because with this system, you can think for yourself instead of listening to other people's blind analysis.
In fundamental analysis, the most variable is the process. Some people may find some relevant data difficult to obtain. I think it's a bit far-fetched, let's figure out the transfer process or logic first. Otherwise, it will not be useful to get the data.
If you keep track of the balance sheets of various countries, you can see a lot of things. Have you read it? The well-known free data website FRED can not only view the data that you can't think of without it, but also make any data comparison chart you want. For example, ADP and non-farm payrolls. In the past year, the statistical results of ADP were higher than the results of non-farm payrolls in most cases. Does this help the analysis of non-farm payrolls? Read it?
Another example is that under the market panic shown by the VIX, the market’s choice of safe-haven products, only in terms of the nature of hedging, gold has the worst performance this year and is almost abandoned by the market, although gold has indeed risen sharply this year. But the sharp rise must be caused by hedging? Can not be other reasons? These things, make a comparison chart, at a glance. The clear data is there, have you read it? How many people say that gold's surge this year is due to risk aversion? Just because of the epidemic? Is gold the only safe-haven product?
Fundamental analysis is not based on feeling, nor is it jumping directly from cause to result, ignoring the intermediate process. It is based on reasonable analysis and reasoning under a large amount of data. Especially the reasoning passed to the process.
Add
