James Carville in 1992 said “The Economy, stupid”. Substitute the word “policy” for “Economy” and you might sum up the present situation in the United States. Inconsistent policy has many people concerned about the US dollar and the US fiscal position.
Oak Tree co-Chairman Howard Marks, a great credit investor, summed it up best, “If people don’t like the dollar, don’t like investing in the US, don’t want to hold an unlimited number of Treasuries; if we just make people mad,” Marks said, “the fiscal situation will be very complicated.”
Let’s take this statement apart piece by piece. It’s a good one.
First, due to policy inconsistency people don’t like investing in the United States at present. Without trust and consistency in policy, investors are hesitant to take the risk of owning the barometer of US policy, the dollar. Tariffs one day, a 90 day reprieve the next hardly builds trust and confidence.
Further to that, hedge fund titan Ray Dalio in a Bloomberg interview said, “It dramatically affected psychology and attitude about the United States reliability”. This kind of “says” it all.
Second, people are cautious about holding US Treasuries. The US Treasury has long offered more yield than the Euro and the Japanese Yen, the other major global currencies. Add to this the demand that comes from the US dollar being the reserve currency of choice, and you have demand for US bonds and the dollar.
But now, versus the Euro the US dollar only offers 1.2% more yield on a ten-year bond. Is 1.2% more worth the risk of holding the US dollar, with all the factors driving US risk up? The US dollar could easily go down in value over 1% versus the Euro, wiping out the interest rate pick up.
In short, given the Euro potential to go up,getting paid 1.2% for US dollar risk may not make sense.
Third, the US government is making people mad. This is self-explanatory.
Fourth, the fiscal situation, government spending and budget policies, are complicated. The US national debt is projected to be over 100% of GDP. The US administration claims that a slew of tax cuts will stimulate business, and more business will lead to more tax revenue. Theoretically, this could happen, but it is a risky bet.
So, given the headwinds to demand for US dollars and US Treasuries from foreign investors, where is a good place to invest?
Two currencies that may answer this question are the Euro and the Mexican peso. Both currencies can go up in value versus the US dollar, especially with watered down tariffs.
CETES stable bonds offered on Etherfuse yield approximately 7.5%, which is a 3.3% yield pick up versus the US Etherfuse stable bond. The yield on Etherfuse Euro stable bonds is 2.14%, 2.03% less than the USTRY Etherfuse bond. On a 60% allocation to the peso and a 40% allocation to Euro, the yield pick-up versus the US is 1.2%.
To highlight the potential of European bonds, we can look at German Bunds, German treasury bonds, versus US Treasuries in the week ending April 11, 2025. In that week, US treasuries experienced their worst weekly performance versus German bonds since 1989. If this can happen in Germany, it can happen in Europe.
Money could leave the dollar unless things become clear regarding US policies on fiscal and trade matters. For, after all, it really is “policy, stupid”.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
