Fear the Strength of the US Dollar

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Emerging-Market debt crisis, epic USD short squeeze, big losers.

By Christine HughesCanada. Chief Investment Strategist, OtterWood Capital:

The Brazilian economy has been hit hard by the drop in oil and China’s slowdown. But the next shoe to drop is one I’ve been warning about for a while. Brazil has $160 billion in US dollar denominated bonds. If bank loans are included, the total is $300 billion in US denominated debt.

Brazil US debt

China’s weakness has caused the Brazilian Real to fall against the US dollar, making this debt more expensive to service with a Real-denominated income stream.

This has led to stress in credit markets where the credit default swaps on Brazilian debt have jumped to 330 basis points (the price of to insure against default). Brazil is my primary concern right now, and I will be following it closely.

 brazil cds

For a refresher of the dangers of borrowing in a currency you don’t operate in, click here. Here’s my video on the $9 trillion in US dollar dominated debt borrowed by foreigners, and how this will spiral into an epic short squeeze on the US dollar, where winners will be few, and will be dwarfed by losers:

By Christine Hughes, OtterWood Capital

Even HSBC, which knows a thing or two about the world, is bailing out of Brazil. Read… The Seventh-Largest Economy in the World Spirals Down

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  3 comments for “Fear the Strength of the US Dollar

  1. razz traffic
    Aug 22, 2015 at 1:08 pm

    Christine …. WHERE have you been hiding yourself? Loved the video! Well presented – to the point – a MUST watch by anyone interested in knowing more. Hopefully Wolf will have your articles more often. Stay safe, Razz

  2. posa
    Aug 23, 2015 at 7:49 am

    Not understanding entirely. If the lender and borrower institutions are based outside the US, the squeeze will be very bad for them, but how does this affect US institutions. Presumably overseas lenders have a capital base from accumulated dollar holdings.

    Of course, if the overseas lenders borrowed from US institutions, well, of course the effect will be seismic.

  3. OutLookingIn
    Aug 23, 2015 at 2:09 pm

    The Shiller CAPE (cyclically adjusted price earnings ratio) for the S&P500 is a proven bell-weather of major trend change.
    The historical (134 years) mean average is CAPE 16.6 points.
    Past major trend changes:
    1929 CAPE at 28.94
    1999 CAPE at 44.19
    2007 CAPE at 27.55
    The Shiller CAPE index recently posted a +27.0 reading. The above three dates are the only times it has been higher than presently. LOOK OUT BELOW!

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