Bloomberg/Jared Dillian/7-19-2022
“Naturally, betting on gains in the greenback has acquired a huge following, even among retail investors, gaining a cult-like status almost equal to the self-described ‘apes’ that cheerlead for meme stock AMC Entertainment Holdings Inc.”
USAGOLD note: Cults, known for propagating outrageous rationales packaged as perfectly reasonable, are closely tied to manias, and manias are closely tied to cults. So is the dollar in a mania? “[T]he theory [behind the cult] may be correct,” says Dillian, “but like all trades it can easily fall out of favor for a period of weeks, months or even years. That is what inevitably happens when sentiment gets extremely hot — and it may be happening now.” Too, in judging any potential downside, one must take into account the extraordinary leverage at work in the currency markets. The Office of Comptroller of the Currency reports notional derivative exposure in FX trading at $43.6 trillion – second only to interest rate derivatives.
