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Dollar stays soft till year end

Tony Nash joins BFM 89.9 The Business Station for another discussion on the global markets — particularly the growing US market amidst the weakening dollar. Why is that? Is it about the vaccine optimisim, the 2020 US election, or the pending unemployment benefits? What about gold’s fast value upgrade — will this continue or is it too vulnerable to handle right now? And Euro is performing impressively against the dollar — should investors dive right in or still be cautious?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/dollar-stays-soft-till-year-end on August 6, 2020.

 

BFM Description

Tony Nash, CEO Of Complete Intelligence tells us why markets in US are still hitting new highs while giving us his views on the direction of the US dollar and whether it makes a difference who sits in the White House this November.

 

Produced by: Mike Gong

 

Presented by: Khoo Hsu Chuang, Wong Shou Ning

 

Show Notes

 

BFM: For more insights into global markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. U.S. markets continue to break records. Now, how much of that is driven by vaccine optimism and a potential deal for unemployment benefits?

 

TN: I think there is a deal for unemployment benefits and it will continue to drive consumption. The disposable income that people had — that 600 extra dollars a week — really helped the consumer side of the economy stay afloat for the things that were open.

 

There is an expectation that if something similar passes, that it will help consumption in Q3. However, we see things like manufacturing employment are coming back quite strongly despite the ADP number that was out today. Services is lagging a bit largely because of restaurants and shops and etc., not being open so much. But it is on the expectation of a weakening dollar as well with both equity markets and commodities.

 

BFM: The same euphoria is happening to gold and it’s now something like 2,040 USD an ounce, one of the highest, if not the highest it’s ever been. Is it not vulnerable to a price correction, though?

 

TN: We don’t think it would be by much for some time because a weakening dollar is more reliant on central banks’ monetary policy. It’s likely that commodities will continue to rally. And the dollar has a lot of dedicated bulls. There may be a couple of hiccups before the end of the year, but we don’t see a whole lot slowing it down. Having said that, we don’t see a lot more headway to the upside. There’s some, but we don’t see like another 20 percent gain or something like that. It’s possible, but that’s not within our baseline expectation.

 

BFM: There’s even talk of three thousand dollars an ounce. You don’t think that’s going to happen, obviously?

 

TN: I think that’s possible. But not likely.

 

BFM: Meanwhile, the Euro has strengthened against the US dollar now. So is this, again, the weakening dollar rather than Euro strength? And what does this mean now for investors? Should they be more bullish on the Eurozone?

 

TN: A number of investors are bullish on the Eurozone because many of the countries in Europe are fully back to normal and and they’re doing quite well. So there is optimism about European companies, but it is also related to the weakening dollar. I think one of the other considerations around dollar weakness, whether it’s gold or euro or other things, is the uncertainty around the U.S. election.

 

I think priced into the dollar weakness is the possibility of a Biden win. And there is not a lot of excitement around a Biden economy. If there is clarity of a Trump win, Trump has done some interesting things in the economy and pulling back regulations and other things, it’s possible there will be more dollar strength.

 

BFM: Oil has been trading in a very tight range. API and US crude data showing a fall in inventories. Why isn’t prices rising more then?

 

TN: It’s demand. Yes, the supplies are falling, but the demand, it came back, but it is not continuing to rise as quickly as they had when they first started to open up. And until we start seeing things like flights happening again, business travel, personal travel, happening again in a big way, we’re not really going to see things like jet fuel consumption come back. That’s really where a lot of the growth is.

 

A lot of Americans are driving more in cars because things like mass transit… So I’m in suburban Houston, Texas. Right next to my office is a very large car park for commuters into the city. That car park has been closed since February. So the people who want to drive into the city will have to drive their own cars. There really isn’t a mass transit option. So individual consumption has risen because people who want to go to work have to drive themselves. But we don’t have things like jet fuel consumption that have come back anywhere close to where they were in January.

 

BFM: I want to come back to the US dollar. What’s your view on it? You expect it to continue to weaken? And if so, how has that changed your strategic asset allocation?

 

TN: Well, we really just turned. Through July, we expected the dollar to start to rally in October, November. But just in our forecast on Monday and we’re expecting a weakening dollar to the end of the year. So that market has evolved a bit where it’s tough for that asset to come back in value. And part of that is the veracity of the euro strength. We are a bit worried about the dollar value. Again, if we see a Trump win, which is it likely now? I don’t think we really know that. But if we do, we do expect that we’ll see some dollar strength to come back a bit earlier. If it’s a Biden win, we expect the dollar to remain weak, as you know, monetary policy and central bank and QE infinity, those sorts of things, will potentially be part of the economic plan.

 

So we don’t expect a strong dollar rally this year. It would be Q1 before we start to see some real strength in the dollar. We’re not expecting the dollar DXY, for example, to go into the mid 80s or anything like that. But we do expect it to remain weak over the next several months.

 

BFM: Friday sees US non-farm payrolls come out. Are you expecting the numbers to reflect this softening job market?

 

TN: You don’t necessarily see the job market softening. There are a couple of dynamics. As unemployment benefits dry up, people are going to have to start going back to work. So they probably won’t be as rich as they have been for the last few months. So people are going to have to get out and they’re going to have to work a bit more.

 

And we have also seen manufacturing come back pretty strongly. So, for example, one of our clients is an auto parts manufacturer in Michigan in the US. As auto makers pivoted to make ventilators, the auto parts business dried up. So these guys went from 400 workers to like 15 workers, like a dramatic cutback. Over the last three months, as of August, they’ll be back to 100 percent of their workforce working. So they’ve seen literally of the in their workforce utilization.

 

And we’ve spoken to a number of people who that’s what they’re seeing, and this is particularly on the manufacturing side, where they cut back dramatically in March, April, May. And since then, they’ve really started to build up pretty rapidly, given the extent of the cuts that they had to make in Q2.

 

BFM: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, highlighting about the U.S. dollar rate. He expects it to remain soft until maybe when you’re recovering in the first quarter. And of course, that is also dependent on who might actually win or might be in the White House come November.

 

So let me bring this to the walking. And according to the Financial Times, Joe Biden is, you know, head and shoulders above Donald Trump in terms of the polls, which means in three months time Mr. Orangeman will be out of the White House. No more orange in the White House.

 

Yeah, but did you see those tweets that Donald Trump is trying to do to delay the elections?

 

Well, he has been questioning whether they are going to be reliable in the first place, right?

 

Yes. Well, we’ll be watching the space. I mean, it’s less than 100 days to the US presidential elections is going to be interesting times. I just wonder, you know, in the meantime, who’s really managing the United States? Because unfortunately, the COVID-19 cases just seem to get increasingly worse. But let’s hope they actually saw unemployment benefits deal quickly because otherwise the economy will really pay the price for it.

Categories
Podcasts

Gold & Silver, Nature’s Bitcoin

Tony Nash joins BFM Malaysia for another look at the global markets, particularly discussing the “nature’s bitcoin,” which are gold and silver, the US Dollar outlook, if Tesla is a good buy right now, Microsoft, and others.

 

Listen to this podcast at https://www.bfm.my/podcast/morning-run/market-watch/gold-silver-natures-bitcoin

 

BFM Description

 

Tesla and Microsoft results were released last night but which company actually met expectations upon a closer look?

 

Tony Nash, CEO of Complete Intelligence helps us dissect the numbers while weighing in on the sharp rise on gold and silver’s which is defying the historical correlation between asset classes.

 

Produced by: Mike Gong
Presented by: Khoo Hsu Chuang, Wong Shou Ning

 

Show Notes

 

BFM: For more thoughts on what’s going on with markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, markets had a choppy day last night, but still closing in the green on optimism of this spending bill and, of course, the vaccine. Now, are investors choosing to ignore the realities of what is clearly a weak, broader economy at their peril?

 

TN: Well, no. I think generally they’re trying to figure out how fast things will come back and when we look at some of the earnings, like Microsoft, they’re really, really good. And when we look at some things, like the rate at which people are coming back, say on the roads and other things, it’s looking positive. So have things got a little bit ahead of themselves? It’s possible, but I don’t necessarily think people are kind of ignoring the issues around COVID and other items.

 

BFM: Just to stay on that point a little bit, Tony. How much money do you think really will be put into the system as a result of this new spending bill? More importantly, Trump talked up, and I think allocated about two billion dollars to Pfizer for the COVID vaccine. Those two elements there, what kind of numbers in quantums can you throw into the mix here, Tony?

 

TN: I think you’re you’re looking at least at trillions. I don’t think it’ll be as large as the initial spending. I think it’ll be a bit of a tapering of the initial spending. But with the magnitude of spending to join with Pfizer and other vaccine manufacturers, they just want to be able to put a cap on this and say, “okay, as of a certain date, right now, it’s expected to be December. We’ll have a vaccine that‘ll put a limit on the risk and we can kind of set all of this stuff aside.”

 

BFM: And Tony, talking about the two bit results that came out last night. So there was Microsoft, which kind of mistreat, but Tesla, which beat. Are you a believer on Buford? Or do you actually have a preference?

 

TN: Tesla announced they’re building a factory in Texas, which is where I sit. So I’m very excited about it. But on a serious note, Tesla’s positive EPS report happened largely because they sold 428 million dollars of regulatory credits. So they’re not positive because of car sales. They’re positive because of selling regulatory credits. Investors have to look at that reality. Now, the other consideration for Tesla is it’s their fourth consecutive gap profit. So they’re now eligible for S&P 500 including. That may be a factor to pull some demand along for the stock if they are, in fact, put into the S&P 500.

 

BFM: For the benefit of the Tesla day traders. I think that’s nearly half a million of them on Robinhood. Tesla is now worth nearly 300 billion dollars, more than the entire European and American car sectors. Did you think this is a collapse waiting to happen, or do you think this going to be more upside?

 

TN: Do you know what? It’s yes. The problem with that kind of statement is it’s like there’s not even close to trading on fundamentals at Tesla. So the real question is, how excited will people get and when will that taper off? The real problem is wondering how long that excitement will be there because it’s fully sentiment. I mean, anybody who thinks Tesla trades on fundamentals. It’s really what are the expectations for next quarter’s earnings? That’s what Tesla’s trading on now.

 

Plus, a lot of excitement and a lot of Robin hood fiz. It really is sentiment based. When we see that sentiment subside, I think that’s when, I don’t think we can continue north of a three, four, 500 billion dollar valuation for a company like Tesla. As cool as it is, I think it’s very hard to continue with it.

 

BFM: And Tony, talking about things that have gone up, it’s gold and silver. Both precious metals have seen sharp rises in price levels. So what’s the reason behind the focus on these commodities? And the question, again, is this sustainable?

 

TN: Is it sustainable? Gold and silver are kind of nature’s cryptocurrency, right? They really are where sentiment goes if people are skeptical about the dollar or skeptical about risk. We saw the VIX down like two percent today. So we saw gold and silver kind of about even by end of the day. When risk is going down, gold and silver typically aren’t doing great. The dollar will stay weak for the next couple of months. But we do see bit of a dollar strength coming back later in the year. Those aren’t perfectly inverse relationships. But there really is question around what will the Fed do? If the Fed continues to expand the money supply, there is an expectation that more people will flock to gold and silver. I’m just not quite seeing that much left. But it’s possible that there is.

 

BFM: I’m not sure whether your software looks at this necessarily, but it shows for silver that the technical resistance is at 21 dollars an ounce and now it’s gone past that 22 and 3 quarters. They’re talking about twenty five dollars an ounce though. Would you agree with that prognosis?

 

TN: Yeah, we see serious resistance. I mean it’s possible. So we’ll hit 25, but we don’t necessarily see the incentive there for silver to continue to rise. We do see strong resistance at these levels. And it’s, you know, from our perspective, it’s fairly risky looking at those at the moment.

 

BFM: And Tony going back to the U.S. dollar, right? I mean, we are seeing weakness now. But you say you have expectations of it recovering towards the end of the year. What is that premise on, though?

 

TN: When the Fed and the Treasury slow down, when we start to see stability around COVID. Things like ICU beds in East Texas, there’s so much more availability. That’s like 20 percent more availability this week than there were last week. When we start to see more stability around what’s actually causing the risk in markets and there’s less of a need for the Fed and the Treasury to intervene, then we see stability in money supply.

 

And as the market recovers, we start to see or we would expect to see more velocity of the U.S. dollars. That’s kind of how quickly do people spend it, right? If we see stability in the money supply and more velocity in American spending, then that could be dollar strength. If there’s instability in, say, emerging markets or Europe or something like that, if the finance ministers could ever get it together in Europe, we’d see more strength in the Euro.

 

But there’s disharmony there and there are questions in some emerging markets. So if we see stability and velocity rise in the U.S., then we could see more investment come from overseas into the U.S., which would accelerate Dollars. We don’t necessarily expect strong dollar strength for a turn before the end of the year, but we do expect moderate dollar strength to come in before the end of the year.

 

BFM: All right. Thank you for your time, Tony. That was Tony Nash, CEO of Complete Intelligence, saying that Tesla looks like something very scary at this moment, right? It looks like the stock, at six hundred times P is extremely, I would say quite expensive. I mean, you would never think that a company that isn’t it only makes less than thousand cars could be valued at six hundred times.