Energy intensive economies face significant currency pressure
“Korea is a very petroleum intensive economy, A lot of petrochem's energy intensive industries in addition to the memory chips and so, and it energy poor, fossil fuel poor. So it is on the one hand benefiting from this giant positive shock memory chip surgeon price surgeon demand, AI is helping Samsung print money hand over fist, and then the economy is on the receiving end of a pretty big negative shock because of the loss of oil flow.”
“They have the most oil and they also have some of the lowest break even prices, So any oil above sixty means a big current account sort plus, those countries are not going in a position to capture this windfall, so you've kind of taken Kuwait a rock Ua out of the picture.”
“In seventy three and then in seventy nine oil doubled or tripled, and by the end of the decade oil had gone up like well six seven times and dollar prices less. In real terms, we've only gone up whatever fifty percent max from spot oil, I mean sort of for Brent and for WTI and the next month future. It's a little higher for delivery in Asia.”
US equities drive dollar demand over central reserves
“A typical global reserve portfolio is now at fifty seven percent dollar, so the notion that reserves are the source of inflows in two dollars is a bit dated. A reserve portfolio will typically have a lower dollar share than a standard return seeking equities fund, which, just because of the outperformance of the US large caps, will be more overweight dollars.”
Saudi Arabia shifted from saver to global borrower
“The balance of payments break even of Saudi went from sixty to ninety to one hundred. So in order to have a current account surplus that needs to be invested abroad, the Saudis now need an oil price of roughly ninety five. They did not get that last year, so they were running budget deficits. They are running a current account deficit which was financed by borrowing from the world.”
“Until China, which doesn't didn't love the US before, decides that it is willing to change how it manages its currency and how it manages its economy, it is compelled to go into the market and buy if it's exporters want to convert dollars for you on. And when it's exporters are not converting dollars for you on, they're still holding dollars.”
