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Stock photo of gold bullion and U.S. hundred dollar bills.
Stock photo of gold bullion and U.S. hundred dollar bills.


We were all short the U.S. dollar without knowing it

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Recent market volatility suggests that most global investors were carrying a short position in the U.S. dollar and U.S. bond market whether they knew it or not. In a great post at Minyanville, Vince Foster presents the most plausible theory I’ve seen, namely that the unwinding of these positions is the root cause of current market swings. The U.S. Federal Reserve’s quantitative easing (QE) program has broadly impacted markets in two ways: it pushed U.S. Treasury yields lower and weakened the U.S. currency. As long as the Fed was intervening in markets, investors could be reasonably confident that the dollar would remain weak, and that interest rates would remain well below the level of inflation.