US dollar down across the board
The Fed has bailed out Wall Street and the banking system in a truly unprecedented move.
The kneejerk has been to get everything out of dollars and a 'risk on' trade has kicked off. This is truly an awe-inspiring move and more is to come with the small-and-medium 'main street' program.
Here is why I think that buying US dollars might be the better trade here. The Fed has basically taken the risk out of owning quality US debt. Before this you were forced to buy low-yielding Treasuries (or cash) if you wanted the safety of US dollars. Now you can move down the ladder into MBS, agencies, and investment grade corporates with a Fed put. Moreover, that trickles down to corporates themselves and equities.
Basically, there is a Fed put on every US dollar asset. What's not to like about buying US dollars?
Of course, the timing is the tricky part here. This could very well spark a reversal in risk sentiment for a few days. These are emotional times and stocks could easily rally +10% and that would have knock-on effects for overall sentiment and unwind some of the extreme USD overbought conditions.
But note that no other country is going this far -- not even close -- so if you're worried about the banking system or economy in Italy, Australia, Japan or Canada; then this is all-the-more reason to buy US dollars.
