Trends Watch: Currencies

August 13, 2020

By Elana Margulies-Snyderman 

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

 This week, Elana talks with Oscar Salem, Founder, BCM Partners.

What is your outlook for alternatives?

I will speak from my perspective as someone who specializes in trading currencies and FX. More generally, I think what I see in markets right now is that correlations are so strong and a lot of investors are seeking diversification without realizing that they are concentrating their risks and pointing in the same direction. If you look at correlation between metals and FX, for example, they are reacting similarly to macro data; this tells me it is liquidity-induced and that the risk rally has taken the markets hostage. If you look at the correlation between the U.S. dollar and equities, crude and the dollar, etc., they are very strong. There is a concentration of risk I haven’t seen in a long time and that is due to liquidity.

What are the biggest opportunities you see and why?

First and foremost, the biggest opportunity I see and one I’m extremely bullish on is cryptocurrency since it’s an untapped market and it offers investors an uncorrupted way to participate in markets.

Other than that, the common theme is don’t trade against central banks. The biggest participation of central bank activity is in fixed-income and buying bonds, which will continue to do well. I see opportunities in FX as well but I feel we have to be careful. I see this rally in risk continue for a bit longer and then reality will set in and will see a pretty big correction. Finally, there are opportunities in hard assets outside of big cities in the suburbs, with people migrating out of the cities.

What are the greatest challenges you face and why?

The biggest challenge I see is making sure the bridge loan that central banks offer markets is both long enough and robust enough. They always claim they can do more. This has been going on since the global financial crisis in 2008-2009, where there was lots of support from central banks and the biggest challenge is how they manage the risk -- which no one knows the answer to.  The law of diminishing returns will come into effect and Fed activity will be less effective. Will central bank potency be an effective antidote to insolvency is a question no one knows the answer to.

What keeps you up at night?

More than anything, I think the dynamic between central bank activity and markets keeps me up at night -- if that breaks down, how that will affect everything else. If that dynamic is going to remain strong and support markets and when risk catches up to the fact that there is a high dependency, does that fix insolvency issues? Bank balance sheets also keep me up at night since there will be non-performing loans coming up and the question is how central banks will deal with that.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper LLP.

About Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.