US Dollar Milkshake: The Bent Straw Version
Latest capital flow data through end-May 2024, reported in the chart below, highlight the continued strong inflows of foreign money into US assets. It supports the Dollar Milkshake Theory, a well-respected currency view popularised by Brent Johnson (@SantiagoAuFund). This framework has parallels with the Imperial Circle thesis put up by George Soros in the mid-1980s. Both views see the US unit rising until it doesn’t, with the watershed moment coming when foreign borrowers (or, in the Soros case, US lenders) can no longer stand the pain and suffer default. The Fed then dives back in to bail the system out with large-scale liquidity injections that force the dollar lower. Looking ahead, this is a plausible outlook for investors to consider.
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