What we like to do is find massive divergences between what investors think should be happening and what’s actually happening.
We came into the year looking for a U.S. Dollar rollover, as investors all over the world just assumed the U.S. Dollar would continue higher.
In fact, The Economist published this beauty during the fourth quarter of 2024, suggesting the U.S. was “The Envy of the World,” with a wad of Benjamins rocketing into outer space.
If this wasn’t a signal to start looking to get out of the Dollar, I don’t know what is.
Fast-forward to the second quarter of 2025 and The Economist is telling you “How a Dollar Crisis Would Unfold.”
You can’t make this up.
This is real life folks…
What They’re Actually Doing
What a difference a few months makes.
It’s not just what they’re saying. It’s what they’re doing.
Take a look at the latest Global Fund Manager Survey from Bank of America (BAC):
Global fund managers are the most underweight the U.S. Dollar in more than 20 years!
The last time fund managers were this bearish on the greenback – in 2005 – the U.S. Dollar had one of the greatest years in its history,
Meanwhile, the reliably hyperbolic Drudge Report literally photoshopped a frowny George Washington face onto a $1 Bill.
“Dollar on Track For Worst Year In Modern History,” Drudge says.
Are we close?
Yeah, I think we’re close.
The Smart Money
So, what does the positioning look like?
It’s currently the exact opposite of what it was coming into 2025.
The biggest reason we were looking for a Dollar rollover was not because of The Economist.
Their art didn’t hurt, and it did get our attention.
It was the positioning.
Speculators (the dumb money) came into the year betting aggressively on a rising Dollar.
We had the opposite view, of course, because you know how we feel about everybody being wrong…
Now – after one of the quickest drops in U.S. Dollar history – the positioning has flipped.
The Commercial Hedgers (the smart money) are actually net long the U.S. Dollar.
That’s something you rarely see.
Typically, the Hedgers are short. The question is usually more about how short they are.
Today, they’re net long:
Rather than looking to trade it – I’m not a currency trader – I’m thinking about the implications of a stronger Dollar.
How would it impact stocks, commodities, and other assets?
How does a rising Dollar change things?
Or, at the very least, how does a Dollar that is not falling change things?
It’s a completely different mindset compared to what we had coming into the year.
During the first quarter, with the Dollar falling apart, you had the widest dispersion in returns between the U.S. stocks International stocks of all time!
In other words, foreign stocks outperformed the U.S. stock market during the first three months of 2025 by the widest margin ever.
The weakening U.S. Dollar certainly helped fuel that.
So, what would a stronger Dollar do? Or what would a not-falling Dollar do?
Smells like U.S. outperformance to me.
You already saw it a little in the second quarter, but not by much.
Is the market sniffing that out? Are we about to see the U.S. take over again, like it did earlier in this multi-year bull market?
Everybody could be wrong here.
The Dollar could have a nice bounce in the back half of the summer and heading into the fall.
But we need to see it. Just because everyone hates something doesn’t mean we like it.
Being contrarian just for the sake of being contrarian is no good.
We need to see the turn.
But, if it’s going to come, you’re likely to see it soon.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs