One Chart to Rule Them All: Update

US Budget Deficit chart updated below.

From an outside-recessions increase of ~0.6%/GDP per year to +9% increase due to COVID19 programs. A chart with global deficits could be useful now too.

The ONE question is:
– Will there be a Fiscal Cliff in coming years or not?

My view is that the economic damage done has been large enough that if US Fiscal Deficits come anywhere close to what it was at end-2019 things change quickly in the US: social clashes emerge stronger, growth falters and equity valuations move lower. With global consequences.

Being long the USD vs other “legacy currencies” (where wealthy people live) is not simple at the moment:
– pandemic more widespread in the US than in most other developed, wealthy economies
– US real rates have moved closer to these other countries’ despite Fed being clear they won’t move into negative nominal territory.

But what are the currencies to be long in a world w/o signals that real growth will accelerate back to previous 2017-2019 recent levels – dismal – on a sustained basis?

Equities bounced in many countries, but not from foreign capital inflows as chart below shows. In currency markets there’s little optimism towards large EM, commodity countries. To me it signals a view that we’ll not go back to what it was.

Chart shows what I consider the ‘legacy currencies’ (EUR, JPY, CHF) versus a few currencies indexed one year ago:

Again the one question:

Will there be a Fiscal Cliff? If there is a hint of fiscal cliff brace for impact.


Feel free to get in touch. I will surely answer you when I find some time. A brief introduction would be welcomed.