Kolanovic: There Is A “Profound” Danger To The Dollar’s Reserve Status
by Tyler Durden
ZeroHedge.com
Wed, 09/26/2018
In his latest note released this morning, JPM’s head quant, Marko Kolanovic, reiterates his recent tactical call that the “unprecedented outperformance” of US equities vs. the rest of the world is over, and again recommends “gradually tilting towards Emerging Markets”, a trade which in recent weeks has generated profits as beaten down EM have found a floor and have indeed outperformed the developed world (whether or not this trend continues will depend on the Fed, the trade war with China, and various other intangibles).
For now, Marko is sticking to his conviction, and writes that “markets are likely sensing that the tide may be turning in the trade war” and “the tables are turning as a stronger USD, higher yields, and trade tariffs start impacting US profit growth, and YoY earnings comparisons soften.” Echoing his latest note from late August, Kolanovic says that “while we think that US equities will drift higher, the days of rampant outperformance vs. the RoW are likely over.”
Whether Kolanovic’s attempt to bottom tick the EM/DM trade will be successful will be revealed in due course.
What we found far more intriguing, however, was the second part of Kolanovic’s report, in which the JPM strategist shares his thoughts on a topic that has fascinated many in recent days – including politicians in both the EU, Iran and the US – namely Europe’s ongoing desire to circumvent SWIFT and Trump’s ability to “weaponize” the dollar, in order to maintain commerce with Iran in a narrow sense, but more broadly, to bypass Washington’s “veto” on global commerce and transactions that involve the world’s reserve currency: the US Dollar.
As a reminder, yesterday we reported that Europe has unveiled a “Special Purpose Vehicle” to do just that, which not only would bypass SWIFT, but potentially jeopardize the dollar’s reserve status. As we explained, “given U.S. law enforcement’s wide reach, there would still be a risk involved, and European governments may not be able to protect the companies from it. Some firms will be tempted to try the new infrastructure, however, and the public isn’t likely to find out if they do. In any case, in response to Trump’s aggressive foreign policies and “weaponization” of the dollar, it is worthwhile for Europe, Russia and China to experiment with dollar-free business.”
The Rest…HERE
