US Dollar, FX Look Like Emerging Market: TD Securities' McCormick

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Transcript

00:00Let's get to the SFX story. We asked this question last week. I'm going to repeat the

00:03question to you to get your response. Fiscal stimulus leads to a stronger currency. Fiscal

00:08recklessness leads to a weaker one. What is this? This is the latter. This is we've already seen

00:14this playbook. It's it looks like an emerging market. What happens is yields go up. Currency

00:18goes down. Equities fall. This is not what we're used to. This is not what you see in the US. But

00:23essentially, I think one of the things is, is the balance of payments in net international

00:27investment position shows that the kindness of strangers have been basically funding US

00:31twin deficits. That is now a challenge. There's a trust problem. There's an uncertainty problem.

00:35There's a growth problem. And there's also a valuation problem. So what's happening very

00:39clearly in FX and people have talked about this for a decade. The dollar's been overvalued. The

00:44dollar's been basically overvalued except for a little period of time for 40 years. But this is

00:48the catalyst. The catalyst is the rest of the world now has other places to invest. They're

00:53stimulating their economies. Their equity markets are essentially undervalued. And I think a critical

00:58thing here is what we're doing is we're unwinding globalization. And what we're doing is the US was

01:03a spender. Europe and Asia were the savers. The savers are bringing their money home. That leads to

01:08local higher rates, more consumption, stronger currencies and higher equity markets. That's where

01:11this is going.