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Wall Street latest top consensus trade for 2021 has quickly emerged as a dollar short. After Deutsche Bank flip-flopped on its view for the dollar, first closing out its long-running dollar short then reversing itself just days later and renewing its USD short , other banks have joined the bandwagon expecting a major drop in the world’s reserve currency in the coming year.

In a Friday note from Goldman’s chief FX strategist Zach Pandal, he predicts that “depreciation in the broad Dollar can continue in 2021” and writes that his USD cross forecasts translate into a 6% decline in the broad trade-weighted Dollar index over the next 12 months, and a “sustained but orderly” 15% real depreciation from its 2020 peak to the end of 2024.

In fact, Goldman’s 12-month outlook on the dollar means that the bank sees the US currency being the worst performer in the coming year, while the Russian Ruble is expected to be the best currency in 2021, rising nearly 18%.

Some more from Goldman’s short dollar thesis:

• After a lengthy period of US economic and asset market outperformance, the Dollar appears meaningfully overvalued—about 10% on standard metrics — and many investors are overweight US assets.
• The Fed has also cut rates to zero,and its new policy framework should result in a long period of deeply-negative short-term real rates.
• The combination of high valuations and negative real rates skews the Dollar outlook to the downside. A rapid recovery in the global economy should weigh on the “safe haven” Dollar, even if the US economy performs well.

Needless to say, Goldman’s FX views incorporate the bank’s economists’ above-consensus US GDP forecasts which also serve as the basis for Goldman’s aggressive 4,600 S&P500 in 2022 forecast;

Ironically, Goldman would expect a weaker Dollar if US growth were moderately slower, “as robust global growth tends to boost the currencies of commodity exporters, emerging markets, and the economies most geared to global trade, and tends to weaken the Dollar.”

But if Goldman’s forecast for a 6% drop in 2021 is aggressive, then Citi’s prediction is outright bizarre: according to Citigroup FX strategist Calvin Tse, the dollar is likely to begin a drop of as much as 20% in 2021 should Covid-19 vaccines become widely distributed and help to revive global trade and economic growth.

Quoted by Bloomberg, Tse said that “vaccine distribution we believe will check off all of our bear market signposts, allowing the dollar to follow a similar path to that it experienced from the early to mid-2000s” when the currency started a multi-year downturn. Echoing Goldman, Citi said that the election was not ultimately the catalyst for a significant plunge, but Citigroup says the broad macroeconomic backdrop will be a bigger driver of the dollar going forward.

Citigroup expects that in addition to the impact from vaccine breakthroughs, the dollar will suffer as the Fed will remain dovish when the global economy normalizes, the rest of the world is likely to grow at a faster pace, and investors will rotate out of U.S. assets and into international assets, Bloomberg reported.

Most Wall Street strategists have been predicting for months that the U.S. election, vaccine breakthroughs and Federal Reserve policy could deal a serious blow to the currency.

As a reminder, after soaring in early March on the covid shutdown scare, the Bloomberg dollar index has fallen more than 11% from its March peak.

It came under additional pressure last Monday and again today, following news that first Pfizer and then Moderna’s Covid-19 vaccine were effective in a clinical trial, weighing on demand for havens like gold, the dollar, Treasuries and growth stocks.

Via SchiffGold.com,

Michael Osterholm is one of the doctors advising Joe Biden on the coronavirus. He has said the US needs to impose a complete lockdown for four to six weeks. Osterholm claims this won’t be a problem because the US government can just pay everybody. In other words, Uncle Sam would give every American a paid vacation.

In his podcast, Peter Schiff explained why this proposal is ridiculous.

Osterholm has actually suggested that the lockdown would be good for the economy in the long run.

Shutting down the economy for four to six weeks, according to this guy, would really let us jumpstart the economy because we’d really eradicate the disease — even though there’s really no proof that a lockdown is really going to do anything. But what this genius is proposing is that, well, it’s not really going to hurt the economy, because according to this guy – I guess he’s not just a COVID advisor, I guess he’s an economic advisor too – but what he’s saying is, ‘We’ll just have a federal government pay everybody.’”

In effect, everybody takes a paid vacation and the government writes everybody a check.

This is the type of nonsense that actually gets discussed now. Because everybody thinks, well, it doesn’t matter, because the federal government is going to pay for it. Now, of course, the federal government doesn’t have any money. The federal government is broke.”

Peter noted that the federal government just ran a $284 billion deficit in October – the highest October budget gap in American history. Spending was up 4.8% over September.

If the economy is getting better, why does the government have to spend even more money? You would think that if we were really recovering the government would have to supply less support to the economy. That fact that the government is even spending more is indicative of a weak economy that is in need of more government support, as if the government support actually works.”

More telling is the fact that revenue is dropping. If the economy was really improving, the government would be taking in more tax revenue – not less.

If anything, it shows you there is no recovery – that the economy is relapsing.”

Meanwhile, more than 700,000 people filed unemployment claims according to the latest weekly report issued Thursday, Nov. 12.

If the economy is recovering, why are so many people still losing their jobs?”

So, where is the money for this paid vacation going to come from?

Well, we’ll just borrow it. Who is going to be dumb enough to lend it to us? Nobody. That’s why the Federal Reserve is going to have to print all of this money. As if all of this money printing isn’t going to do any damage to the economy.”

Peter said all of that money printing would do far more damage to the economy than any damage caused by COVID-19.

Even if the lockdown ended up somewhat bending the curve and saving some lives, is it really going to be worth the cost? In fact, who knows how many more people may die as a result of not only the lockdown but of the economic damage done by all the money the Fed has to print to support the lockdown.”

Then there is the practical reality that not everybody in the entire country can just stop working. Somebody has to continue producing food to eat. Somebody has to provide medical care. Somebody has to pick up the garbage.

To think that we can all just stop producing — nobody has to help produce goods. Nobody has to provide services. Yeah, we can all get paid as if we were still working. Well, where is all the stuff going to come from?”

From a political standpoint, Peter said this is perfect for the Democrats.

They love to create a situation where more and more people are dependent on government. In a way, this might be an end-run into the universal basic income, because we’re really starting the framework where everybody is going to get paid.”

And once that happens, how do you get rid of it?

Once you start getting this check, you’re going to vote for any politician who promises to keep the checks coming. And that’s exactly what the Democrats want. They want to buy their votes, and this is the way they do it. But now that everybody thinks that everything is free, that as long as the Federal Reserve is printing money we’re getting all of this government for free, so why bother to work? Of course, nobody even considers where does all this stuff come from that we consume? It doesn’t just magically appear. People have to produce it. That means you have to go to work.”

In this podcast, Peter also referenced an article we published about the growing debt burden on American retirees. He said this is just a sign that we have a huge bubble economy completely supported by debt.

It shows you how weak the economy is. Because if we actually had a strong economy, do you think 70 and 80-year-olds would have to go into debt? No! Why are so many older Americans being forced to take on debt? Because they’re broke. Because they can’t afford to survive without the debt.”

Most people are focused on the economic issues created by the government response to COVID-19, but the growing debt burden on older Americans has evolved over the last two decades. It’s not something new caused by the pandemic.

Of course, a lot of this debt will never be repaid. A lot of debt held by older people will get discharged upon their death.

This is a huge ticking time bomb for the lenders who are not going to get repaid.”

But it goes beyond an issue of retiree dent.

It also shows you that all this talk about this vibrant, booming economy is a bunch of nonsense.”

Axios’ Jonathan Swan reports that in Trump’s final weeks in office the president plans to unveil a series of “hardline policies” on China with the ultimate aim of making it “politically untenable for the Biden administration to change course.” 

Very much akin to ‘maximum pressure’ on Iran, where the administration has also slapped any and all sanctions possible in order to try and make a Biden presidency’s attempt to restore US participation in the 2015 nuclear deal (JCPOA) near impossible, Trump wants to hem in the coming Biden administration and the ability for a Sino-US relations detente on a range of things like the Taiwan issue to China’s intervention in Hong Kong to human rights to Chinese tech as a backdoor for spying. 

Swan writes, “He’ll try to make it politically untenable for the Biden administration to change course as China acts aggressively from India to Hong Kong to Taiwan, and the pandemic triggers a second global wave of shutdowns.”

While according to Axios’ sources it won’t necessarily entail dramatic moves like further closures of Chinese consulates in the US, it will likely take the form of a continued pressure campaign detailing in public “China’s nefarious actions” in the US:

“Watch for National Intelligence Director John Ratcliffe to publicly describe in granular detail intelligence about China’s nefarious actions inside the U.S.,” writes Swan.

Further the administration plans to spotlight Chinese labor practices and pervasive human rights abuses, and move more hawkish policy officials into key US government positions. 

The White House is also said to be already mulling the expansion of last week’s published list that was subject of an executive order banning Americans from investing in 31 Chinese companies which support in some way China’s People’s Liberation Army (PLA).

National Security Council spokesperson John Ullyot summarized the political end goal of Trump’s China actions to Axios: “Unless Beijing reverses course and becomes a responsible player on the global stage, future U.S. presidents will find it politically suicidal to reverse President Trump’s historic actions,” he said.

Raymond James’s Ed Mills listed fresh options likely being mulled by the Trump administration, according to Bloomberg First Word:

• Withdrawing from the Phase One trade agreement with potential tariff escalation
• Entity listings for more Chinese firms, potentially including Ant financial
• Capital markets delisting orders targeting Chinese companies out of compliance with PCAOB auditing standards
• Orders seeking Covid-19-related damages from China
• Added restrictions on commercial transactions in information and communications technology and services
• Sanctions on Chinese oil companies for violation of U.S. sanctions on Iran
• Escalating human rights and geopolitical pressure on China, like harder language on Xinjiang, upgraded relations with Taiwan, penalties on Chinese officials related to Hong Kong

Meanwhile, on Sunday China was among 15 Asia-Pacific nations to sign the biggest free trade deal the region has ever seen – namely the Regional Comprehensive Economic Partnership, or RCEP – which has been eight years in the making.

A coda for Trump’s foreign policy: shun the ASEAN summit three years in a row and see our allies join China to form the world’s largest trading bloc. Protecting American interests takes actual work—and showing up. https://t.co/9zbhP507bK

— Brett McGurk (@brett_mcgurk) November 15, 2020

China’s Premier Li Keqiang was cited in state media as hailing a “victory against protectionism” and in international media reports it is being called “a coup for China” which will bolster Chinese claims that it remains a “champion of globalization and multilateral cooperation”.

Thus Trump’s pressure campaign and trade war has in the end done little to isolate the PRC, which a Biden presidency is expected to seek to soften. But time will tell if these looming last ditch moves of escalation by Trump will indeed force a hard line out of the next administration as intended. 

Authored by Shaurya Malwa via Decrypt.co,

In brief

• A senior Citi executive predicts Bitcoin may reach the six-figure price mark in 2021.

• Bitcoin’s rise has been similar to gold in the 1970s, the executive said.

• The rise of state-backed digital currencies also shows a changing regime, one that supports the growth of Bitcoin, he added.

Tom Fitzpatrick, a managing director at Citi, has predicted Bitcoin’s price may reach over $318,000 in 2021 as per a note to institutional clients last week. He called the move amidst an uncertain macro environment and its similarities to the gold market of the 1970s.

While long called “digital gold” by crypto fanatics, Bitcoin has so far been a poor store of value (due to its infamous price swings) or medium of transfer and has emerged as a trading vehicle instead. However, as per Fitzpatrick, such a backdrop is exactly what primes the asset as one that would sustain an eventual “long-term trend.”

Using technical analysis—forecasting of future asset prices using past examples, similarities, and data—Fitzpatrick put out the six-figure Bitcoin prediction if it followed a similar trajectory of the past seven years.

“You look at price action being much more symmetrical or so over the past seven years forming what looks like a very well defined channel giving us an up move of similar timeframe to the last rally (in 2017),” he said, as shown in the image below.

A Citibank exec has a $318,000 price target for Bitcoin. Image: Citi

But the $318,000 price target is not just based on drawing lines on a chart.

Fitzpatrick called Bitcoin the “new gold” and said the shaky macroeconomic climate of today is creating space for a new financial structure—similar to the backdrop of Bitcoin’s creation back in 2008, one of the biggest recessions in history.

A changing monetary environment

The Citibank executive said that monetary policy in the US has historically been shaped by two factors: the Federal Reserve’s affinity to print money (to protect its economy) and the eventual lower valuation of its fiat currency (called debasing). This was last since in the 1970s—when the Great Depression took place—before this year.

That, in Fitzpatrick’s opinion, creates both a renewed demand for gold and its digital counterpart, Bitcoin.

“It is an asset with limited supply. It moves across borders and its ownership is opaque,” he said.

Fitzpatrick added that while Bitcoin may be subject to more regulatory constraints going forward, it was a “natural store of money” to avoid exactly that issue. Meanwhile, the rise of state-backed digital currencies—such as China’s digital Yuan—was yet another indication of a changing financial regime that could, in turn, support the rise of Bitcoin, he noted.

Meanwhile, crypto circles on Twitter expressed excitement over the price target, one that would value the Bitcoin network at a massive $5.8 trillion figure (up from its current $300 billion) at its current circulating supply.

Citibank bitcoin technical analysis.

Target: Moon. pic.twitter.com/prB1YjVNhX

— Alex (@classicmacro) November 13, 2020

The Bitcoin bulls are known to be optimistic. And for once, the banks are too.