LOCKED MI2 Chart Point: FX Canaries

A month ago, we sent you a piece called “US Assets: The Unwind”, which we followed up with a short video entitled “Reflexivity Strikes”. In them, we discussed the possibility that far from “exceptional”, the last decade of US outperformance was simply a reflexive bubble, one dependent on the self-reinforcing action of ongoing economic strength with the associated current account deficit, a strong dollar and rising asset prices. Whereby, if any of those three variables deteriorate sufficiently, the whole virtuous cycle could start to unravel.