Despite headlines about a "Sell America" trade, PIMCO CEO Manny Roman views recent volatility as minor noise. He points to stable currencies and modest bond yield moves as evidence that the market is rational and not signaling a major shift away from U.S. assets, which remain the world's primary reserve currency destination.
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COFA data reveals a significant multi-year trend where a bloc of unspecified "other currencies" is steadily gaining share in global reserves. This group has displaced more of the US dollar's declining share than the Euro, Yen, or Sterling, indicating a broad, under-the-radar diversification movement by reserve managers.
The dollar's decline, particularly in April, was not driven by investors divesting from US assets. Instead, it was caused by investors with large, unhedged dollar exposures belatedly adding hedges. This involves selling dollars in the spot or forward markets, creating downward pressure without actual asset sales.
Investors have been holding unhedged US dollar assets to capture both high yields and currency appreciation, a speculative strategy traditionally used for emerging market local currency bonds. This parallel indicates a shift in risk perception, where US assets are no longer seen as a pure safe haven.
When asked why investors stick with US assets despite clear risks, Jeff Gundlach's answer is "Habit." He explains the psychological difficulty of abandoning a winning strategy, even when the underlying paradigm has shifted, keeps investors over-allocated to past winners.
The U.S. administration's attempt to acquire Greenland and subsequent tariff threats against European allies triggered a direct, named market reaction called the 'Sell America' trade. This saw countries like Denmark actively selling off U.S. treasuries, showing a direct link between diplomatic actions and investor behavior.
The US is no longer the undisputed best option but simply the least bad one. This decline is evidenced by the shrinking role of the dollar in global trade and savvy investors like Warren Buffett diversifying away from the US, signaling a need for individuals to rethink their own financial strategies.
The US dollar reached its peak global dominance in the early 2000s. The world is now gradually shifting to a system where multiple currencies (like the euro and yuan) and neutral assets (like gold) share the role of reserve currency, marking a return to a more historically normal state.
Manny Roman openly admits he doesn't understand the drivers behind gold or crypto and therefore avoids them. He emphasizes that a crucial discipline in asset management is knowing your circle of competence. Instead of chasing momentum, managers should "stick to their knitting" and focus on where they have a true edge.
International buyers want exposure to high-performing US companies like NVIDIA but are simultaneously hedging against a declining US dollar. They are separating the appeal of American corporate exceptionalism from growing concerns about US sovereign risk and currency depreciation.
As foreign nations sell off US debt, promoting stablecoins backed by US Treasuries creates a new, decentralized global market of buyers. This shrewdly helps the US manage its debt and extend the life of its reserve currency status for decades.
