What is the Eurodollar Market?
The most important and least understood driver of global financial markets.
Wealth vs GDP, Deglobalization Rising, Structural Shifts in Sector Returns, The Shifting Semiconductor Landscape, The Idiocy of Climate Policy, and Black Friday Madness
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Paraphrase a bit from a recent Dr. Ben Hunt interview about this chart… something he calls the ‘Hollowing Out of Markets’.
I suggest you listen to the interview to get the full context, but here are my notes below:
The period from the mid-1980s to the Great Financial Crisis, where we saw large productivity increases without inflation is a time called ‘The Great Moderation’. Central banks were able to keep rates low, causing asset prices to rise while the economy grew, albeit slower than asset growth, because of one ten-dollar word: globalization.
In this context, all globalization means is that money flowed to countries with cheap labor and where companies could build factories for cheap to make stuff that was... cheap (i.e. the key focus was to compete on price). That’s what kept inflation low for 30 years. (This is still paraphrasing so I’m sure if asked directly, Ben would also admit that the growth in technology and its deflationary effects had an influence as well).
But now, globalization has begun to reverse:
After WWII, we saw an exponential rise in goods and services traded around the world, culminating in China’s entrance to the WTO in 2001.
But, Ben argues, COVID has officially broken the trend. Our own Jacob has written, tweeted, and spoken about, across multiple platforms, the rise of the multipolar world. And this chart puts all of this into perspective.