The “Biblical” Rotation Out Of U.S. Stocks | Julian Brigden on Flight from Dollar Assets, Tariffs, and Rumored “Mar-a-Lago Accord”
Mar 9, 2025
auto_awesome
Julian Brigden, co-founder of Macro Intelligence 2 Partners, dives into the future of the U.S. dollar and its impact on global markets. He predicts a decline in the dollar as U.S. fiscal policies shift, pushing investors towards international stocks, especially in Europe and Australia. Brigden also discusses the troubling U.S. trade deficits and the country's growing reliance on foreign investments. Amidst fears of economic turbulence, he shares strategies for navigating the shifting landscape, emphasizing the importance of long-term investment approaches.
The anticipated decline of the U.S. dollar may destabilize asset markets as foreign investors withdraw their capital to mitigate losses.
A potential reversal of the current hyper-financialization trend could result in job cuts and decreased consumer spending as stock prices fall.
Emerging investment sentiments might signal a significant rotation towards European and Asian markets, reflecting a shift in global strategies.
Deep dives
Impact of Dollar Weakness on Global Investment
The dollar's decline has significant implications for global investment dynamics, influencing both market behaviors and capital flows. As the dollar depreciates, foreign investors holding U.S. assets may consider taking their investments back home to mitigate losses in their local currencies. This creates a precarious situation for the U.S., as a reduction in foreign capital can destabilize asset markets and trigger a more substantial economic downturn. The risk is heightened by the fact that overreliance on U.S. equity markets has created a bubble-like environment that could burst if a significant portion of that capital starts flowing out.
Hyper-Financialization and Economic Stability
The concept of hyper-financialization explains the relationship between rising stock prices and corporate hiring trends, leading to economic growth and job creation. As U.S. equity markets have outperformed globally, companies were incentivized to hire more, reinforcing a positive economic feedback loop. However, should market conditions change and stocks start to fall, this cycle could reverse, leading to job cuts and diminished consumer spending. The risk of this reflexive downturn is compounded by a potential recession that could quickly undermine economic performance and consumer confidence.
The Role of Tariffs and Trade Policies
Current trade policies, particularly tariffs, are designed to rebalance the economy and address long-standing trade deficits. Tariffs may serve both as a punitive measure and a bargaining tool to pressure other countries into cooperation, but there are concerns about their inflationary effects on domestic prices. The administration's approach to trade could inadvertently dampen consumer confidence and contracting economic growth, creating a complex balancing act for policymakers. Ultimately, persistent trade surpluses in countries like China may necessitate more aggressive policy measures from the U.S. to safeguard its economic interests.
Potential for Market Rotation and Global Investment Opportunities
A notable shift in investment sentiment may be emerging, suggesting a rotation away from U.S. assets toward European and Asian markets, characterized by a different growth narrative. Historical data indicates that following significant dollar declines, foreign markets tend to outperform U.S. markets significantly, raising the potential for substantial investment gains. Current discussions emphasize realigning asset allocations to include underappreciated markets such as Europe and Japan, while reassessing the overvaluation of American equities. This rotation could represent a fundamental shift in global investment strategies, rewarding those who adapt swiftly to changing economic conditions.
Implications of Current Account Deficits on U.S. Economic Health
The U.S. is facing an alarming current account deficit that is projected to exacerbate economic vulnerabilities as it approaches $1.3 trillion annually. This increasing deficit indicates a dependency on foreign investments to fund both governmental and private sector spending, raising concerns over long-term sustainability. If this trend continues or worsens, the U.S. may find itself unable to secure adequate funding without significant capital rotation to other asset markets. The implication is a precarious situation where decreasing confidence in the U.S. economy can lead to a rapid withdrawal of capital, leading to profound economic repercussions.
During most stock market sell-offs, the dollar tends to rise. Julian Brigden, co-founder of Macro Intelligence 2 Partners, explains why he thinks the U.S. dollar will weaken as the stock market declines as a bubble in dollar assets is popped by new U.S. fiscal policy. Recorded on March 6, 2025.
