Weak Dollar To Continue As Central Banks Reallocate: Borthwick

Chapola Dane and a company and he joins us now. Doug, thanks very much for being with us. Just a question about the dollar is why is the dollar not looking stronger? I mean maybe it's a sort of fastle argument, but uh, let's see macro backdrop. US growth is good, tax cut has already been one, and perhaps even another one in the offing. A dollar, though, has fallen if you go back all the way in November sixteen the end of it's fallen more than ten percent against the basket of currencies.

Why are there no dollar bulls out there? Well, there were a lot of dollar bulls about back in November of two dozen sixteen. As you as you discussed, but they've sully been squeezed out of the woodwork. I think that there's an expectation. Are folks certainly expected that as a fed race rates that be positive for the dollar, but they forgot at the same time as that, as the fed rais rates, other countries that also start raising rates as well, or start moving out of the quantity

of easing that they were getting into. And against Europe specifically, you've seen Europe turner and and now start to discuss getting rid of their quantity of using. You've got the Chinese talking about getting rid of theirs, and that creates some headway against which the dollar has a tough time and strengthening. But at the same time, you have to remember the global central banks have been incredibly overweight the dollar dollar, especially given what was happening in Greece about

ten years ago. Neither the grease issue is something that no one talks about. These CenTra bank reserve manders are reallocating back again and they're taking some of that overweight dollar exposure and they're putting it into other currencies. The

euro is a good example of where money's going. Money is also going into the end but a lot more money is going into the Chinese currency because the Chinese currency is not seen as a reserve asset as well, and so instead of allocating money towards the dollar, you're seeing center banks now allocated to different currencies, and that's also seeing dollar weakness, you know, and Doug your rays

really interesting question. How much is this a normalization of the dollar relative to the rest of the world, and how much is this an overcrowded trade the dollar will keep on weakening. Well, it would be I think that the dollar would be an overcrowded trade if if if center banks were extremely underweight the dollar. Unfortunately, they're still extremely overweight the dollar, where as much as portfolios are

still in the US dollar. However, maybe their trade flows go to the US and so I would expect that you continue see this reweighting going on for quite some time now. Before the euro dropped down to one fifty, remember we were training over one fifty and right now that you'res trading at one twenty three the figure. So in my mind, you know, maybe we're halfway through in the move. But essentially, but before the European crisis, the

dollars in a weakening trend. It was just interrupted by Greece, and now we're slowly getting back into that weakening trend. But I think the center bank managers, especially when it comes down to the Chinese currency, are more interested now in putting less weight into buying US treasuries and more weight into buying treasuries in Japan, let's say, and certainly in China. So do you have a particular level for

the dollar euro right now? Dollar, you're as you said, one twenty three, let's call it, Well, it's one three right now. I think we're going to see up to that one thirty and one level for sure, And I think it's just really a matter of time. It's it's not about the direction. I think it's more about the pace. And I think that the US is very concerned about making sure that the case is not too fast of

dollar weakness. But this administration, as we all know, once a week or dollar they just can't talk about it anymore. Now I'm wondering the flip side of a week dollar has been, at least in the in the past few months, a strong emerging markets currency basket of currencies, and do you expect that to continue? Yeah, they're really one and the same. So if you're short dollars, let's say the

dollars the strengthened considerably, maybe ten. A lot of these emerging market countries have significant dollar debt exposure, so if the US dollars was the strength and significantly, that would cause their debt exposure to go up and their interest payments may be unpayable. You could have a new emerging markets debt crisis. So as long as the US dollar continues to weaken, that's very positive for the emerging market

countries that have that dollar exposure. Well so, so just I'm wondering what would you have to see to make you change your mind about the thesis that the dollar really is in a study weakening kind of pattern here? Um, well, but I have to see. Well, I think that if there was a domestic implosion in the US, so sort of a mortgage crisis like we've had before, then something like that would see changes in the US and a new quantitative easing in the United States that would then

turn this around, this dollar weakness. And I think the quantity of easing again would be the way to have that happen. But I don't see quantity of using on the horizon right now, especially given the FED and where it's standing. Cottney thoughts quickly on let's say dollar versus the looney versus the Canadian dollar. I think the dollar Canada will continue to move lower, just as dollar Mexico continues to move lower, really on the back of the fact that I think that folks fears about NAPTA are

going to end up being overblown. I think that NAPTA will end up being done and that'll see then a flow back into Canada because the Canadian dollars obviously had a lot of weakness on the back of fears over NAPTA. Now Mexico has not had weakness. In fact, the Mexican pacer has continued to shrenden. So I think that dollar Canada is gonna play catch up and you probably dollar Canada through by the end of the year. Doug Borthwick,

thank you so much for joining us. Doug Barthwick, Managing director and head of f X for Exchange, Chapter Len and Company, talking about why the dollar just isn't getting the bid you would expect given the uncertainties out there. President Donald Trump has said that Amazon does not pay

its fair share of taxes. The President also has said that Amazon does not pay fair rates to the US Postal Service, and indeed, the President on a tweet recently said that it's reported that the U. S Post Office will lose one and a half dollars on average for each package it delivers for Amazon. Here to help us understand more about the relationship between Amazon and the US Postal Service is Satish Jendle. He is the president of s J Consulting and he joins us from Swiftly, Pennsylvania. Said,

he's always a pleasure. Now just give people a little bit of your background so they understand your expertise in the world of logistics and transport, and then help us unpack sort of the back and forth between President Donald Trump and his comments about Amazon and the US Postal Service.

Thank you, PIM. I have been dealing with the Post Office for the parcel services since nine when I actually utilized the Post Office from my days at FedEx Ground for deliveries too many of the residential area because they have the best network for it. And since then I have worked with them also as a consultant to help them implement the Parcel Select service, which is the service that Amazon uses for the last mild delivery, what residential

packages that it has. And for us to Trump, with all due respect to him, to suggest that the Post Office lose his money on Amazon is almost him creating fake news that he tells every well else about not putting out fake news. And there is a Postal Regulatory Commission, which is another congressional body appointed by the Congress and

the President. They have an oversight on the Post Office and for any special pricing that they give out for parts of services to any customer, whether it's Amazon or ups fed X, which are very big customers of the post Office, Postal Regulatory Commission has to prove it and post Office has to demonstrate to them that they are covering their cost not just a variable cost, but also the fixed cost that is part of the post offices network which is supported by the first classmal So let's

get sort of the facts of what the arrangement is between the Postal Service and Amazon. And is there any sort of if not, you know, factor based truth to what President Trump is saying, uh, sort of anything to sort of edify the sentiment that he's expressing. But there is uh comments. There are comments by ups fed X on occasions that they think the post Office parts of services are not covering the full cost of what it

takes for them to deliver. And they say that partly because they are a competitor of the post Office, even though they used the post Office for that delivery of their residential packages, just like Amazon does, so it can provide some noise in that system. In addition to that, you have some self side analysts who put out reports where they suggest that Amazon only pays two dollar per

package and that it costs a lot more. They do not have understanding of how the last mile works and it is the best service that post Office has and they actually make money on parcel select from all the customers,

including from Amazon, UPS and FedEx. All right, now, let's step back for just a second and get your thoughts about how the logistics supply chain will be affected by the various tariffs that have been spoken about and that you know about, and what that would mean to the cost of actually getting the goods and services to the people that want them. You know, any time you and it's not just the amount of tariffs that they impose.

When you add tariffs, it slows down the processing of the goods that are being moved across the borders, and through our ship matrix technology that you're aware of, we have visibility to how many international packages get delayed when they have to be processed for customs. So when you add another tariff on top of regulatory regular or approaches that are used to know what is coming and going out, you are going to slow down and that is going

to discourage cross border e commerce. That's a really interesting point because Bloomberg Intelligence put out some research today looking at the container shipping industry and how it wouldn't be that affected by the tariffs as proposed so far. But you're suggesting that simply the delays involved in imposing these tariffs could throw a sort of wrench in the system more than people are expecting. That is absolutely correct. That's fascinating. So can you give a sense of what the economic

impact would be. I think companies like ups, FedEx DHL may notice slowing down of cross bordered e commerce, UH, including the retailers who are selling things. They may not sell the products as to the same numbers and growth rate that they're expecting. So anything like at that interfered with the speed and efficiency of moving cords between bios and sealers is a negative for the retailers and for

those involved in moving it. Satish Jandel, thank you so much for joining us and for that really interesting and important perspective. Satisha Jandel is president of s J Consulting Group based in Pennsylvania, with a long standing relationship with the US Postal Service and the logistics industry. Saudia Arabia has been in the news quite a bit in recent months.

Not only is there the foot see e M inclusion of Saudi Arabian stocks, but also we are all wondering when is Saudi Aramco going to file or what may be the biggest initial public offering in history? Joining us now. Dr Ellen a Ward Energy markets and policy analyst and a nonresident scholar at the Arabia Foundation. She is also the author of a book that just came out, Saudi Inc. That really tracks the history of this nation through the

eyes of the Saudi Aramco behemoth. So you know, as we sort of prepare for this I p O that that may or may not happen this year and possibly may not happen next year. One is the most underappreciated fact about the family behind Saudi Aramco that might, you know, factor into people's understanding of this. Well, the most underappreciated fact about the family that owns Saudi Aramco is that they've always historically allowed a Ramco to be independently run.

The company makes all of its own decisions, it collects all of the money. It's financially independent, just like any other corporation, and it pays taxes to the Saudi government. And the Saudi government has never tried to control Aramco's finances. They've always let it be, let it run itself and be the most profitable company it can be. What do you want people to take away from the book in terms of learning about how Saudi Arabia operates, but also its role in the Middle East and its role as

probably the largest oil exporting nation in the world. I believe it's about total crude oil exports come from Saudi Arabia, and we're talking about over a hundred and forty billion

dollars of crude exports. I'd like people to take away the fact that this has been a very long term plan for the saudis that ever since the beginning, they've seen the potential that their oil industry could be and They've always operated with UH stability in mind, and they partnered with the Americans and they maintain stability for many many years with the idea that that would be the most profitable long term. They never nationalized in a violent

way like Iraq or Iran. They bought out the company and then once it became a Saudi company, they expanded it globally. One thing that I'm struck by, as you said, you know, that's perhaps it's under appreciated how independent Saudi Aramco is. Uh. You know, perhaps this is stemming from the fact that the government has thought of as a pretty controlling, family run kind of entity, and that the government has sort of been more of, I don't want

to say a dictatorship, but certainly an oligarchy. So I'm wondering, you know, do you think that the optimism that we've seen with respect to the shares being included in the foot see em index and then the sort of the rise there as well as just sort of the anticipation of broader visions from the new from the new ruler with respect of the plan, do you think that the optimism is warranted, is not fully executed yet in the market, or is overblown. I definitely think the optimism is warranted,

but proceed with caution as always in this case. One of the interesting things that I read about in my book. An example of this is when Saudi Aramco was becoming Saudi Aramco and transferring from an American company to a Saudi company. The government originally wanted to take control of it. The Finance ministry wanted to run it, and the CEO at the time Ali and the EMI. He told me

this story. He said to the king, he said, you cannot expect a Ramco to be as profitable to run as a good company should if they're not in control of their own finances. And a Ramco has always been this kind of rock of stability there and so I certainly expect that to continue. What role do you think that the the current ruler of Saudi Arabia and the power there of Crown Prince Mohammed been Salmon known as MBS, what do you think they foresee about the future of

Saudi Arabia. Inasmuch as what of the government's revenues come from oil? This is a very interesting point, and the government revenues have come from a Ramco. Ramco has historically paid very high taxes between eight and taxes to the government. This has been changed in preparation for the I p O two I think about, and so the government is

going to need to make up those revenues somewhere. They may get it in dividends from the company, as they'll still be the vast majority shareholder, but they're going to be They're going to have to look for those that revenue somewhere else, and they're starting to raise taxes and encourage other industry to come into the Kingdom. It's a very ambitious plan, it's very risky, but they are moving

forward with it. Can you handicap the likelihood that Saudi Aramco would decide against an i p O. After all, when it comes to a Ramco, I wouldn't be surprised if the company is a bit resistant to the idea of the I p O and would like to at the very least take more time with it. I think that they want to make their own decisions and they're certainly looking to consider all of the options. CEO Aminoster

has been very positive about it. However, he said, a Ramco is a great company, and it's a very efficient company, and I think that if they do decide to go forward with this, people will see that. On the other hand, the decision is ultimately going to be made by what people at a RAMCO called the shareholder, which means the government and in this case most likely the Crown Prince, and he may have some different ideas in mind when it comes to the purpose of the I p O

than a RAMCO might prefer. Like what well, it said that he would like to use some of the money that they make from the sale of the shares to fund his p if the public Investment Fund, and a RAMCO is probably a little less excited about that. They certainly have enough money, and I believe Aminasa has said they will be using some of that to fund greater downstream expansion, which is really where their vision is going

right now. China imports quite a bit of its energy from Saudi Arabia, as Saudi Arabia an ally of the United States. Does the US trade tariff confrontation with China, does that play into the relationship between China and Saudi Arabia. I don't think it does at this point. Saudi Arabia and China have a very strong relationship. Saudi Arabia and particularly a Ramco has been had been angling to get into China for many years, and their relationship is deeper

than just a basic oil export situation. They own refineries there along with Chinese interests. They have long term contracts to deliver crew there. They have a students, they say, A Ramco sends students young Saudis to China to study, to learn the language, to be able to work their long term so that relationship is much deeper than any tariff or trade war can damage. Thank you very much

for being with us. Dr ellen Wald is the scholar at the Arabia Foundation and the author of the new book Saudi Ink, a History of a Saudi Aramco and the family that controls the multi trillion dollar enterprise. Well, when it comes to investing, are you a raccoon? Are you a coyote? Are you someone who's interested in risk parody? Well? Rob Coach could be all these things. He's the managing director of quantitative Strategies at Salient and they are based

into Houston, Texas. He joins us here in our eleven three oh studios and you can follow Rob on Twitter at Roberto M. Crow Chase c R O ce Rob, thanks very much for being here. I mentioned raccoons and I mentioned coyotes because Salience is also the home to uh what I considered to be two very interesting continuums of information, the Epsilon Theory newsletter and the Salient blog. And uh, let's speak of my asking you about what actually is risk parity? What is that? What is that

when it comes to investors? And then tell us what kind of animals we might be sure? Risk party is a portfolio allocation that tries to use information about the riskiness and the relative riskiness of different types of assets like stocks and bonds and commodities two size positions, so that you're not really making a bet on any one of them. You really want to have balance across the different types of economic regimes that we could face the future.

The idea is that you really don't know what the future holds, so you should really be uh ready for anything. I'm so glad you're here today because the market is that certainly the equity markets are seeing a real risk

off feelthough backing away from some of their earlier lows. UM, you're not seeing the same reaction in bond markets, And I'm wondering when you are sort of betting on traditional correlations, how challenging is that to truly kind of hedge or be you know, sort of diversified and and sort of distributing your risk. Sure, So the thing is there is no traditional correlation. Recently, the correlations between stocks and bonds have been negative, but if you go back further, they

were very positive in other environments. So the key is to adapt and so understand what the correlation environment is like today, Understand what the volatility environment and the conditioning of each of these asset classes is today, and that tells you a little bit about how likely they are to respond to different economic shocks, if you will. So, when when the market does sell off on a day

like today, are you in there buying? So we're not buying the dip Explicitly, what we're doing is we're figuring out where risk is and we're updating our information about the riskiness of each of these markets based on what we're seeing today. But you're trading. Yeah, sure, we're trading. We're rebalancing every day. But Rob, let me go back to your idea about what is risk parity, because isn't the risk always there? The risk is always there, but

it changes. So how does it change. The likelihood that the market will drop two or three percent in a given day changes dramatically from one environment to another. So if you look last year, you know three percent inter

day moves didn't really happen, whereas they are commonplace. This year, we've seen the market up one and a half, then down one and a half, closing flat several times this year, and and so that means that the risk environment has changed, and the likelihood that you lose big on any given day is different today than it was last year. But that implies that every investment is being made at the

market right now. If you're risk is built into the price of what you paid for a specific asset, your risk might be wildly different than the risk of someone who's making that specific bet today. I totally agree, But we try to view the world and mark to market terms, because at the end of the day, if your portfolio loses fift today or over the coming week, even if you paid a lot less, you're going to feel something

and your behavior is likely to change. So it's very very hard behaviorally to separate yourself from where where the market is. If you really can do that and step away and not pay attention to what the market does. Maybe buy and hole makes a lot of sense. All right.

So when the market has been volatile, frankly, risk parity and managed future funds have come is sort of under attack by a lot of people that have become a whipping post saying that these are the funds that sell when things are down and buy when things are going up, and they've underperformed as a result. What do you say

to them? First of all, they really have an performed a result, are in risk parity position sizes today are much much smaller than they were coming into the year, and so we're much more protected against you know, the downside that we're seeing today. All right, But what about

the managed future? Is a concept that sort of the momentum trade that people pile in as things sort of heat up, and that's the reason why we've seen sort of the bigger move up or down in the stock market heading into clothes and sort of these uh, these bigger swings. Do you think that that's true? I don't think that the managed features is big enough to exacerbate the swings as much as you know, equity managers just

throwing in the towel. The thing about managed futures is that the they have a plan, The strategy has a plan, and that means that you you trade in a very controlled way because that controls more impact costs. Whereas you know, people who are throwing in the towel, that's much more likely to be what hammers the market on any given day. Now,

that's a behavioral characteristic exactly right. Okay, So let's use some animal analogy because I know that on the Epsilon Theory letter on the blog, uh, you talk about how you have a choice as an investor. You can be a raccoon, you can be a coyote. You can also be a victim or try to insulate yourself where you can actually engage in what is going on. Can you maybe describe quickly for people what that means and how

they can apply to their investment thesis. Absolutely, So, you know the idea of being a hunter or being willing to go out there and take risks that maybe other investors don't want to take and get compensated in return for that. That that's what I would think of when I think of an investor who's willing to take on a risk Perry portfolio that's sort of uh different from the norm. Or someone who's willing to sell volatility perhaps uh a little as a small part of their portfolio.

It makes sense to do that over time, But that's sort of outside the mainstream. Uh. There are other investors that shy away from taking those kinds of risks, and you know, the preponderance of of you know, the makeup of of investors is likely to be that most people would rather buy protection than sell it. That kind of thing, and the demarcation how you feel about buying protection versus selling it really is the litmus test for whether you're

a fox or a raccoon. I'm just interested that you're saying that you think that the market action has sort of stemmed from capitulation among equities, certain in equity investors that are throwing in the towel. Have you really seen a lot of that. What we've seen for sure this year is a totally different conditioning in the market relative to how responds to news. Uh. We see that we would call that higher risk and sort of a bias

towards the downside. When we build our portfolios, we take what we see in terms of where the more how the market is condition today into account and that helps us size our positions and helps us size relative positions across different asset classes. So when you're talking about conditioning, you mean people are conditioned to be pessimistic headline crosses. There will be more conditioned to sell that they will to buy, exactly right, And that's the opposite of last year.

If you look at what was happening last year, by the dip was the word of the day, and if if markets went down by one percent, you frequently saw the clothes coming in flat. Uh, significant buying action anytime there was a significant dip, So that that leads me to believe that was a totally different conditioning because buying the dip was really the only thing it added quote unquote alpha last year. Rob Coachy, thank you so much

for being here. Really interesting to hear your perspective. Rob Croachy, Managing director of Quantitative Strategies at Salient, which is based in Houston, Texas, talking about the shift, the dramatic shift in conditioning people getting a little more pessimistic despite frankly the optimistic economic data that's been coming out. A lot of questions are really interesting. Thanks for listening to the

Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple podcast As, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio