Why The World Started Hedging Its US Dollar Exposure

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, there are so many huge stories that you could pull out of this year. But I mean, like some actually really, really big ones. So we had Liberation Day and the market crash. We had the continued weakness in the US dollar, which has been this sort of slow burn crash across the year. And we're recording this, let's see, October 17th. And, you know, dollar down yet again.

Joe Weisenthal (0:48)

Although it is down, but however, there's been a little, you know, it hit its low in mid September.

Tracy Alloway (0:53)

Don't make apologies for the dollar, Joe.

Joe Weisenthal (0:56)

You know, just like keep going and then I'm.

Tracy Alloway (0:58)

All right.

Joe Weisenthal (1:00)

Keep going. Then I might add something.

Tracy Alloway (1:02)

Fall in the dollar.

Joe Weisenthal (1:03)

The fall in the dollar is very big so far this year.

Tracy Alloway (1:06)

But this huge ramp up in the price of gold, which seems to hit a new record all the time. And then we've had the continued strength slash resilience, whatever you want to call it, enthusiasm about AI in the stock market. And it really seems like there's this division at the moment between how people feel about corporate America and how people feel about sovereign America in the form of its currency.

Joe Weisenthal (1:29)

You know what I really regret doing, Tracy? I really regret.

Tracy Alloway (1:34)

Did you have like a hoard of gold that you got rid of or something?

Joe Weisenthal (1:36)

I took out a gold denominated mortgage. You know, I feel so stupid. I feel so stupid. Why did I do that?

I get paid in dollars and I took out a gold denominated mortgage. What was I thinking? No, I didn't. But had I done, that would have been a very bad trade.

Tracy Alloway (1:50)

Yes.

Joe Weisenthal (1:51)

Remember those stories from like, a little bit of a tangent. Remember all those stories from like the Hungarians? They took out the Swiss denominated mortgages back in the 2000s.

Tracy Alloway (2:01)

That was very much a Europe thing for a while.

Joe Weisenthal (2:03)

Yeah, that was a really funny little, we don't have to talk about that. But one thing, I was just, the only reason I caveated the dollar fall, which I do think it has, it is quite a bit down from the beginning of the year. All that being said, it is striking in the last several weeks, the degree to which a few of the very popular consensus ideas for this year are turning a little bit. And I say that 10-year treasury is the time we're recording this, October 17th has fallen below 4%.

How many times did you hear about the steepener trade this year? How many times did you hear about fiscal dominance, losing control at the long end? The dollar, it stabilized a little bit. So it is a very interesting moment for markets in many respects right now.

Tracy Alloway (2:49)

There's definitely a lot to talk about. Congrats on managing your personal FX liabilities.

Joe Weisenthal (2:54)

I'm doing a good job.

Tracy Alloway (2:57)

Getting paid in dollars and paying your mortgage in dollars. Well done, Joe. All right. Well, this is the kind of thing that a lot of big investors are thinking about at the moment. And we should definitely think about it too. And who is the one person that we really like to talk to?

Joe Weisenthal (3:11)

There could only be one.

Tracy Alloway (3:12)

When we talk about these big trends.

Joe Weisenthal (3:14)

And who is the one person that is always in town? Because we're in Washington, DC right now. When we go to a new town, who is the other guy who always is probably going to be there at the same time?

Tracy Alloway (3:24)

The person that we run into on the street in various outfits. Although this time you're wearing a suit. So there we go. The last time we ran into you randomly, you were wearing hiking gear and so were we. Anyway, we are here in DC. We have the perfect guest as always. We are speaking once again with Hyun Song-Shin. He is the Economic Advisor and Head of the Monetary and Economic Department at the Bank for International Settlements, the BIS. We love talking to him and it's so great to have him here to talk about something that's really been on the minds of a lot of market participants, a lot of policymakers right now. So Hyun, thank you so much for coming back on Odd Lots.