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Episode 42

The US dollar bear market?

Published on: August 20, 2020 • Duration: 34 minutes

This week Roger Hirst and Julian Brigden of MI2 Partners and Macro Insiders are in a discussion about the probability that a major structural peak is now in place for the US dollar. Julian argues that the convergence of yields and the ongoing fiscal and monetary programs that the US will undertake in 2021 will keep the dollar on a downward trajectory for an extended period of time, though it may take a while for Emerging Market currencies to join the party.

  • [00:00:05] The dollar index, the main one being the DXY, has continued to weaken. Getting the direction of the dollar correct will be one of the most important investment decisions for all investors over the next few years. In this week's Big Conversation, I'm talking to Julian Brigden of MI2 Partners and Macro Insiders about why he thinks that the structural peak for the dollar is now in place. In recent weeks, U.S. dollar bulls like myself have been sent, scuttling back into the shadows and returning from vacation, I found some of the structurally bearish narrative was starting to reach an extreme level. And when I looked at this weakness in the U.S. dollar, most people were really talking about the DXY, which has had a dramatic move lower in recent weeks. The DXY is 58 percent euro, the British pound Swedish kroner and Swiss franc make up about another 20 percent. So this is basically an index of European currencies plus Japanese yen and Canadian dollar. So is what we're seeing really U.S. dollar weakness or is it euro strength? Challenging our own market framework is a key element of investing. Julian Brigden has been trading at analyzing currencies for over two decades, has a bearish case for the U.S. dollar. And I wanted to find out from him whether this was structural or cyclical and what he thinks are the key drivers. 

    Roger [00:01:25] Julian, welcome to The Big Conversation. 

    Julian [00:01:27] Hello, Roger. How are you? 

    Roger [00:01:28] Very well indeed. Thank you very well. Very good to have you on, because I want to get some of your views on the dollar, because obviously the dollar, you know, if you if you get the dollar right, you probably get a good portion of your portfolio right, and obviously vice versa. And I think, you know, with over the last two or three weeks, you know, really everyone has been talking about gold, silver and the dollar. Obviously, they're connected, but dollar is such an absolutely important element for all of this. So I really just go back a little bit because I think you started to change your view on the dollar from kind of a sort of bullish, maybe more neutral view towards being a little more bearish at the end of last year. Could you just go through that process, end of last year, beginning of this year, and then kind of go through? Because I think the key thing here is that your view is much more structural now than it is necessarily cyclical. 

    Julian [00:02:17] Right. So the Macro Insider clients will know that Raoul and I, there was a long period of time when we were very, very bullish, particularly in sort of 18 into early 19, when a lot of our peers around the world were starting to be dollar bears and we were both decidedly bullish. And then I kind of got bored, frankly, if only because I thought certainly versus the majors, which is the thing that most people can trade liquidly. I mean, you can do EM, obviously, but it's not easy for the Macro Insider crowd. We turned, less interested. Let's put it like that, Roger. And then as we moved into the end of the year, we started to see the stars align. And we were looking for this, frankly, because Dollar cycles are tremendously predictive, predictable in terms of both length of time and amplitude. We were looking for kind of that term. So the first piece we wrote to MI2 clients was in October. We raised the question, could we be coming to the end of the dollar cycle? And just kind of get your head around the idea, the concept, you know, could this be changing? The big thing that we were missing was the final sort of et tu Brute move in a dollar rally. And a dollar rally is very destructive, that's why I call it the et tu Brute kind of move. And that is the risk off dollar rally. Now, euphemistically, and it's a term that quite a few people in the market have picked up on, we call the napalm run. And it's typically happens when the Fed pushes policy too far or we get excessive dollar tightness and you get a dollar rally in a risk off environment. So stocks are falling and the dollar is shooting higher. And that is ultimately doubly toxic because it's the denominator of most risk assets. So you get this really accelerated move. The good news is, is that typically marks the zenith of the move. At that point, not only does the Fed do a mea culpa and say, sorry, guys, you know, we've pushed this too far, which is the first one they did in early 16 where, you know, China had devalued and so on and so forth. But then it truly initiates a utter reversal of policy. Roger. And I think that's when you look at Covid, you look at the monetary response to Covid, you look at the Fed's response to potential fiscal spending, this is a 180 degree reversal in policy. Gone are any conceptual ideas about tightening. Now we're talking essentially full on MMT, and to my mind, that marks a high. And then when you look at things technically, we've broken two of the big trend lines that we like in broad dollar terms. So, yeah, we we think the dollar is breaking. I mean, look, we've come to some big levels. These are big levels, we had a nice run. Could you get a tactical, you know. retracement, potentially. But when I look at it next year, I just see a US that's going to push its exorbitant privilege to the point of breaking point as it tries to sort of push more and more spending into the domestic economy, an economy which I think will be weaker than its peers. And in a way, in that sense, what the US is doing, it's the gap between Europe and the US is converging, but the wrong way. It's not Europe getting its act together, it's the US ending up down that kind of Europeanized route. 

    Roger [00:05:35] And do you think you're within all of this? I mean, you know, there's the dollar bulls are obviously kind of a little bit sort of licking their wounds of the moments. And obviously, the dollar bears are in the ascendancy. But almost I mean, coming back from two weeks on holiday, there's almost a sort of bearish hysteria going on. And so I looked at it and and it felt a little bit more like this last move. Particular lost two or three weeks was less dollar weakness, more euro strength, and it was the euro strength, also Swedish krona, Norwegian kroner, the Swiss franc, sterling. So is Europe and other European currencies moving higher, because when I did the comparison of the J.P.Morgan Emerging Market Currency Index versus the DXY, which is about 85 per cent Europe and a little bit of the yen. It really is Europe that's been moving because these emerging market currencies are only about four percent off their lows versus the dollar. Right. When you look at things like Canada, the Canadian dollar, Mexican peso, the biggest trade partners, again, they've obviously moved from the dollar high of March, but they haven't regained the levels they were at prior to March and certainly not at the beginning of the year. Isn't this really a euro story that's developed since that 750 billion package was confirmed in the middle of July when we've had this lag from 112 to 118 on the euro. So isn't this a euro story? Not a dollar story?

    Julian [00:06:53] Roger, you raise a very interesting point.  I call this more a sort of DM versus EM story. And I think there is some solid fundamental rationale for that. So what we what we've seen is we've seen a normalization and shall we say reversal of the funding squeeze that we got in March, in most of these DM currencies, and they've come back to levels from whence they started back in January. They haven't really broken. So even if you look at the euro, you look at a chart of a closing chart on a monthly basis of the euro from the highs, you know, eight, were kind of pushing that level, but it's halfway through the month and maybe we're picking up a little head above it, but let's see where the month closes. But I generally think that EM has performed less well. I think there are some structural problems. I'm hoping that as this dollar weakness starts to manifest itself next year, early next year, and we get up, say, a macro story in terms of the virus, and I'm not so negative on the virus, I'm actually reasonably upbeat on the virus, I think it's being blown a little bit out of proportion here, with this what I call sort of project fear from the media and the politicians. That as we start to see that kind of growth value rotation, essentially some of the EM will catch up. But I think there's also a structural reason why we potentially have a problem or a divergence. One of them is, is the EM borrows in dollars. Right. And we do know that there's a lot of outstanding dollar borrowing going on there. You know, Raoul's pushed that story very strongly, you know, sort of 12 trillion. Whereas DM doesn't really borrow in US dollars. What DM. does is typically invest in the US. Because they're the countries that are funding, along with China, the US current account deficit. So they hold U.S. assets. And one of the reasons why I'm increasingly bearish, and it goes back to this European US convergence is that we've lost a lot of the sexiness that comes with investing in the United States, particularly in the rates market. Right. If you look at the interest rate differential between euros and dollars that has collapsed. It's collapse the wrong way, though, right? You know, Europe, US yields have collapsed towards European yields. There's still a big momentum trade going on in US equities and in particular U.S. growth stocks, but I think even that could get challenged next year. If we do see this economic recovery and a peaking of Covid. And, you know, I've heard from numerous, very large real money investors that when you look at the U.S. and you look at 60 basis points of carry in a 10 year treasury unhedged, in a country that is going to push its luck in terms of deficits and issuance, it's just not a very sexy, attractive place to be. And so I think it's more the question that you could get DM investors either taking some profit on those and the money involved in that is double the borrowing of EM, Roger, I mean, if you look at liquid US securities held by foreigners, it's like 22 trillion. If some of that money just decides, "hey i've had a good run in Amazon or, hey, I don't want to buy U.S. Treasuries at 60 basis points", then that metric, which has created a lot of what we would refer to as sort of US exceptionalism; so strong dollar, I go and buy U.S. assets because the dollar's going up as a foreign earning, becomes a self reinforcing true Soros-esque reflexive cycle reverses. 

    Roger [00:10:32] Yeah. And do you think I mean, one of the elements within all of this, I guess, is the because we've talked about the fiscal and, you know, you mentioned the fiscal in the US, but every country is doing this. I mean, Japan's doing it, europe's doing it and it's this sort of strange world because a lot of people say, well, more fiscal should weaken your currency, which sort of theoretically it should, but it seems that Europe was rewarded with a premium into the euro because they managed to get their act together, so their fiscal injection was a positive. The US is seen as a negative. But there comes a point, doesn't it, where Europe will start to squeal, because already we can see in this last leg of euro strength, we've seen significant underperformance of European versus U.S. equities. Once again, it's an exporting block. I think 70 percent of of the equity market in Europe is based on exporters. And they're not just exporters within the eurozone they're often exporters out. So doesn't it get to the point where, you know, I think Draghi was always around about the 120, 125 level where he started stepping on the gas again? And we can also see back from 2014, if Europe or Japan want to step on the gas, they can impact their currency much more quickly than the US.  So isn't it actually a self regulating mechanism that we're getting to the point now where Europe will need to do something in order to prevent the euro strengthening, which means they'll never get the inflation that they need? 

    Julian [00:11:52] Yes, look, this is always a it's always a merry dance, right? It's two steps one way, one step back the other. And I would agree with you. I think if you get into the low, low 120s, that you would should expect some pushback. I mean, my sort of target on the dollar index is around, you know, 88 kind of the lows from 2018. And at that point, I would expect some some kind of response. But when I when I look at this kind of bigger picture, there's a couple of things that I would say. 

    [00:12:28] The first thing is that the United States, I think, is gonna have a very different policy mix on the margins. So firstly, I would agree with you. I think Europe is spending a little bit more money that's being positively rewarded, but it isn't going to spend, I don't think, anywhere close to what the United States is going to spend. And I think in part that's to do with coming into a new election cycle. I think that we've seen socially here every single reason to really push the boat out in terms of spending to address social inequalities. Black lives matter, all of these sort of things. And if certainly you get a Democratic administration although I don't think of a Trump administration will be that much more fiscally sound. You're going to get an awful lot of excuses to spend Roger. And I think Europe isn't going to spend as much right. We know the Germans are never ultimately going to allow that to happen. The second thing is, is that the ECB is never going to quite go down the route that I think the Fed is going down in terms of the inflation mandate. They cannot. This is a Fed that is pretty determined to say we're going to let this thing run hot. The ECB can dance around that nuance, but unless they want the, you know, German constitutional court jumping up and down on their throat saying, you know, you're abandoning your inflation mandate, that's kind of harder to do. And so what I think you end up in the United States is actually the worst combo on a relative basis for a currency that is extremely loose fiscal policy. And loose monetary policy, because I don't think even the bond market is going to be allowed to price in the premium necessary to fund those ongoing deficits. And so I think because I think we're gonna have some sort of yield curve control, defacto or not. And so I can see a situation where the Fed ends up being essentially the buyer of last resort for the Treasury market and ends up with its situation on a relative basis, not to GDP, nobody talked about that, but just absolutely on a on size basis. The Fed's balance sheet blows out more than its peers. 

    [00:14:41] And the other thing I would say is, look. At this point of the cycle, yes, a strong euro a week. Let's put it, a weak dollar is perceived to be bad news for Europe. But let's get ahead, you know, a year down the line. Let's say that a weak dollar has started to encourage some commodity market strength. Right. One of Europe's major exporting markets is EM.  They're hugely exposed to EM. And if their markets are starting to do better, I think they can take a marginally higher dollar in terms of selling BMWs here in the U.S.. 

    Roger [00:15:18] But do you think on that i guess the inflation reflation story. Are we talking here inflation or reflation? I know we're going to see fiscal expenditure and, you know, every government on earth is going to be doing this. And so when I look at that i guess as a balancing act, which is the US will do the most on a relative basis, but combine all the others together, they're still gonna be they're all doing it. Well, then but then isn't this what we're talking about here is suppression of yield. So, you know, the yield curve control, I think is absolutely guaranteed. So we're not going to see long dated yields. Maybe the 30 year can go over the 10 year. Let's say they won't allow it to get to the point, which becomes painful. But inflation probably can tick up. Do we just get inflation and not growth? What we want is wage growth because it's wage growth, it impacts debts. But what if we just get commodity inflation? Just pure old bad inflation so we get stagflation and not reflation? 

    Julian [00:16:09] Well, look, I mean, yes, you're right. Ultimately, you want what you're really aiming for is high nominal GDP growth. So you want strong underlying real GDP growth plus a little bit inflation. Let's be honest. At the end of the day, they would rather have the higher growth element within that equation, but screw it. If they can't, they'll take the inflation bit, and they'll tell you, don't worry, we've got your back, this is just a short term overshoot. We're just letting it run a little hot. And I think the mix will change. And I do think fiscal policy, and this is the big change that I've had in terms the inflation story. I think the fiscal policy is tremendously powerful in creating inflation, particularly, shall we say, nationalistically orientated fiscal policy at an all the time when we're seeing de-globalization, where we're seeing potentially more on shoring, all those sorts of factors which are on the margin just to remove some of the efficiency from the global economy, which is added to that disinflationary forces. I think we are going to see our models tell us basically that certainly when it comes to headline CPI, which is what we kind of trade in the market, that's what was priced into break evens and tips. That is going a lot higher by next summer. It'll dip into Q4 quite sharply, if you do get any sort of dip in break evens, tips, whatever, closure and gold or silver, close your eyes and just buy that dip. I think next year we're going to be at CPI at 275, 250, 275. Where we go after that is more a function of what the dollar does, because certainly in the United States and actually globally as well, because commodities tend to outperform in absolute terms. So they've been going up even in euro terms, Roger. You will, that will determine where that inflation picture goes next. But I think as the fiscal spending comes through, it's quite inflationary. We saw that under Trump. You know, this spending that we got 16, 17 and 18, that fiscal spending when that really kicked in, inflation CPI in the US should have been a hell of a lot lower than two and change. Given how strong the dollar was, given that historical correlation. But it wasn't. And I think a testamany to the power of fiscal spending. So I'm much more in that kind of there's a mechanical rise in inflation coming, but if we are truly breaking down this dollar 10 year decade long rally, you should be more orientated toward that inflation story. Look, it won't come through if you look at the 60s, which is a model I've kind of been using. It took you five years to go from, you know, one point six to six. Okay, that's a long time in market time terms. Right? We can end our career five times a year if you get the trade wrong. So I think you've got to get perspective. You've got a you know, like I said, the euro's coming up to some big levels. Maybe it goes from 118 and a half back down to 116 or something. And everybody knows who's never going to you know, the dollar is never gonna rally, but that's just a blink. 

    Roger [00:19:20] With the fiscal side, it's a vast amount of fiscal expenditure. But in many ways, what they're actually doing is filling a hole. So you talk about fiscal in 2016 that was additive, so that it could be inflationary. But is the fiscal that we're seeing at the moment, additive, or is it the equalizing or is it not actually filling the hole? And you know that the talk is that if you don't get sufficient rolling of furlough in the first place, we get the wave of bankruptcies potentially, we get the wave of insolvencies. So we actually, isn't there a risk that we've actually got the final napalm run to come because we still have that insolvency risk ahead of us? Or do you think that we are in QE infinity, therefore  we are in fiscal infinity, therefore they will just keep on going and going and going? 

    Julian [00:20:07] Yeah, it's it's it's the latter. I mean, I think they've apprec look, they were insanely quick to cap out that, that napalm run right. I mean, I have never, I would if you'd have asked me in October, look, Julian, we're going to have the risk off dollar rally, the napalm run, i'd have gone "yeah. that's kind of how it ends." How quickly do you think the Fed will respond? Well, they'll have done everything that it took them a year to do in the global financial crisis, they will have done it  in a week. And then they'll have gone way beyond that within two weeks. I would have said "no way." I think they are highly cognizant of the risks of a stronger dollar. I don't think they want to see that. I think. So I think if we were to get it again, they would be pretty quick to cap it out. I do think the fiscal spending I would agree with you Roger, I think thus far, the fiscal spending and even the monetary easing that we've seen so far, has not really been net additive. At the most you know, I look at our models for sort of effective Fed funds, and they really haven't eased at all. So in that sense, the Fed is actually right when they say all we have done in terms of expansion, the balance sheet thus far is offset the negative that was caused by the March selloff. We haven't taken things any further. So if you kind of look at a shadow fed funds model, right, you could say, well, bond yields are a hell of a lot lower, and they are. OK, that's but that's the one element. The S&P actually isn't higher than where it was in February. The dollar isn't actually lower than where it was in February. Fed funds haven't changed. So net net there, there's not that much easing that the monetary authorities have done. On the fiscal side, you know, I'm not overly optimistic that we're gonna get a fiscal deal here in the U.S., I'd put the odds at somewhat 50/50. I think it's a lot harder in election year to actually craft a deal than it is in a normal year because neither side wants to be seen to be giving ground. 

    [00:22:08] So I think next year is when we get. Look, I think the Fed will come in and will announce a program of QE starting in probably October, in September. So that's another wave to come through. They do need to do more, as I've just said. But I think the big story is next year, when you get a new administration, a new and a new narrative of kind of I mean, almost like a Johnsonesque Great Society kind of spending program, particularly under the Dems, I think they'll craft that in that sort of terms. And I think that's when you'll really see the story kind of develop. At this point look, I'm I'm I'm a bear on the dollar, we've had a good run. You know, do I do I sell any rally in the dollar? Yes, I do. Do I really think, you know. As I said, 88 on the dollar index is kind of my initial target. It's that low on 20s where the ECB comes and bitches. Maybe, that leaves us till next spring. Then I think we start to see things really develop. 

    Roger [00:23:09] And with the bonds and inflation it is going to be a bit of a conundrum, because normally one of the things that is, is impacts marks is if you get the inflation expectations changing, usually bond yields follow that. But if we assume yield curve control, we could obviously get rampant inflation,  but inflation going to the top end the range, that cent level, whilst yields may be held around one percent. Does, we saw this in the end of 2018, three point two five on the 10 year blew the equity market up. But we don't get that. Can inflation on its own blow the equity market up or is it yields and the actual market cost of capital rather than the cost of goods and services? Can the goods and services impact it, or is it that the fiscal, the monetary means that risk assets remain elevated even if inflation goes beyond expectation? 

    Julian [00:23:59] Look, I mean, if you look at the late 60s, what you find. And they didn't have yield curve control, but they in a way, they had de facto yield curve control, not to the Fed, but actually the market self-regulated, and the problem was, is whenever bond yields rose a lot, so they as inflation went from one point six to six, bond yields went from four to eight. Okay. But if you look at it in in real yield terms, they actually fell quite a lot. And, until the very end of that of that period where they spiked. And the reason is, is the bond market kind of self regulates, Roger, yields can't rise enough because if they rise enough, they clatter the equity market. And then you kind of get into that vicious circle that you're in. So I think it's unrealistic even given let's say there isn't yield curve control, which we think we both agree, there will be some some way, shape or form to assume that the bond market can truly price itself to where it should be. I just don't see that. So I do see an environment where risk assets do exceptionally well. I think the question is which risk assets? So if I see a if I see a risk to the U.S. equity market, it is that we have very high concentration, as we know, in half a dozen stocks. You know, Goldman have come out with a great stat, you know, a 10 percent correction in the big six to keep the S&P flat would require the bottom 100 of the S&P to rally 90 percent. Right. So it's I think the issue is if we do get more QE, fiscal spending, a peak on the virus, you know, early next year as we realize we've got through the winter, we haven't had the deaths and the hospitalizations. Maybe we're through the worst of it for whatever reason, you know, we have greater herd immunity than people think, which I think is one definite reason the virus has mutated to become less virulent. We have a vaccine. That's actually when I think the US equity market probably starts to underperform because we rotate. We try and take money out of Apple and Amazon, which are trading at ridiculous PEs and buy cheap value. And value is not the US, I mean there are certain stocks within the U.S. that have value, but value is EM, Europe, Asia. Like, that's value. 

    Roger [00:26:35] And then just sort of finishing it off now as we sort of get to the end of our time. But, you know, the biggest consensus trade is that that equity trade in terms of popularity. The second biggest is one, it feels in this environment will continue, which is it's a consensus trade, which is being long gold, long precious metals. But we're talking about higher inflation capped yields. So therefore real yields not only joined us to holding a low. Yeah. Yeah, going real yields going down. Dollar falling. I mean, that means that although it's consensus, it's a consensus that the institutions aren't in on really yet. Buffett was talking about this, but it seems that although we talked about it on the Big Conversation, gold and silver looked like they probably have a lot more to go because these ducks continue to line up. 

    Julian [00:27:20] Yeah, I mean, look, you listen to us on on on Macro Insiders, Raoul and I, I  mean, this has been very much a consensus trade. I mean, we started by precious metals back in Spring of 2019. We had a good run out. We kept the gold. We got stopped out of a silver trade for a big profit. We then reentered back in March, right at twelve dollars sixty two cents. We told people go by silver, and it's been, you know, better to be lucky than smart, as they say. But it was our kind of bet that this would be the better trade and than than equities, to be honest. I still think that's the case. I mean, I do stress to people that, you know, this is not a hedge. A silver with a realized one month volatility of over 80 per cent is not a hedge to your portfolio. It is adding an awful lot of nitroglycerin to your portfolio. But I think if you can stomach the vol and you have it as a sensible part of the overall portfolio, I think I'm very excited myself. I mean, I started off trading silver. It's the first instrument that I sold. I traded as a as a an entrance into financial markets at Salomon Brothers, and I sold Vol at 110 per percent in the run up to, you know, an extreme high. This is a this is a super high beta dollar, precious metal trade. I think when you look at it in in and this goes back to kind of the inverse side of this concentration in the US mega caps. We're going to find, I think, as we try to get money out of the mega caps and put it into other stocks, some of these other stocks are going to move disproportionately because just the liquidity mismatch, what we're finding now is how far these precious metals can move in a market where, you know, you try and take two, three or four per cent out of the global sovereign bond markets and stick it in precious metals. Good luck, frankly, right? I mean, these things are just there isn't a liquidity there. So one of the things that I've been stressing to clients is to if you believe in our roadmaps, start thinking about the allocations now because the most amount of money is made off the low. So that's why I'm looking at beyond the precious metals complex to start looking at some of these more broader commodity metrics, which are not just a debasement of the fiat money thing, but would and should start to perform if I'm right and we get that broadly positive risk asset environment next year. Fiscal supported by an awful lot of monetary spend and a recovery from the Covid type situation. I think there are better things to run than precious metals or not better things, but you should be managing that risk and rolling. I just like, you know, when it gets up to a certain percentage of the portfolio, I just take some of that money out and start buying what I think could creep assets. 

    Roger [00:30:19] Brilliant. Well, thank you. That was great, a great rundown. Obviously, it's, you know you think it's just what you think is pretty about a ten year move now. You've hit the structural peak in the dollar, this could be a 10 year move in the dollar, and therefore, think about aligning your portfolio. 

    Julian [00:30:34] Yeah. I mean, I just I just think, you know,  on the down legs, typically five to six. But the whole cycle is 10 as you, as you pointed out. And I just think we're in, yes. we seem to be losing precious metals. And those you know, I was listening to Peter Brandt and I totally agree with Peter, you know, to kind of say, well, you know, I'm got to put all my eggs in one basket at this point and go and buy precious metals. You're a big Johnny come lately into that trade. That's why you should definitely subscribe to Raoul and I and Macro Insiders, but I think the bigger picture dollar move really hasn't we haven't really seen, you know, things. So you can just look, look, look at something like the CRB and look at what it did between 2002 and 2008 as the dollar dropped 30 percent. It rose threefold. Right. And it's hardly moved in in big picture terms. So I think we're still in the infancy. You've got to kind of get your head around what worked in the last decade doesn't necessarily work in the I think, quite the opposite in the coming decade. 

    Roger [00:31:38] Well, thank you very much for your time, Julian. Good conversation. Thank you. Good to hear your insights. Yeah, well, hopefully. Well, hopefully we will speak again in this series at a later date, see how it's panning out maybe later year. 

    Julian [00:31:49] Perfect mate that sounds like a good plan. Have a good one. Stay safe, everyone. 

    Roger [00:31:58] I think the key element of Julian's thinking is that initially this move is primarily about US dollar weakness versus developed market currencies. The narrowing of interest rate spreads has seen the U.S. catch down to the rest of the world, making U.S. assets appear relatively less exciting. This could potentially see flows that left Europe after 2014 when they were chasing better yields overseas start to return back to the eurozone. And it's certainly the case that foreign buying of U.S. government bonds has fallen dramatically this year. Perhaps the biggest unknown will be the reaction of other central banks with the latest move in the euro, European equities have again started to underperform the US. A strong euro will hurt Europe's exporters and make it harder for the ECB to reach its inflation targets. The BMJ will also have one eye on the one oh five level on US dollar yen. It's unlikely that they will tolerate yen strength for long. Given the importance of exports to their economy to the one hundred level, maybe the final line in the sand and one of the most difficult decisions will be between taking a structural view versus the cyclical gyrations. It's still a company most longer term trends in price. For instance, speculative shorts on the US dollar are at their highest level since 2011. Net speculative longs on the euro are their highest level we've ever seen, and we can see that in this final chart. Positioning and performance are usually coincident. But we can see that when positioning has reversed from these sorts of levels in the past, the euro has reversed by as much as 20 percent over the longer term. It will be down to who has the biggest bazooka on the fiscal and monetary front -  Japan, Europe, China or the US? You can now get The Big Conversations from Refinitiv as a flash update on your Alexa device or Google assistant. If you want to know more about how to download it to your small speaker, please go to Refinitiv dot com forward slash Flash briefing.