Kane McGukin has 13 years of wealth management experience spanning brokerage and institutional equity sales. He is an independent registered investment advisor.
As the calendar neared September 2021, the money printer had slowed and individuals were beginning to tire from the toils of trading a basket of work-from-home stocks. At this point, COVID-19 was over, the crash was old news and lockdowns were nearing two years old. Most were looking to shift their focus to something new. Something like getting back to what used to be their real day jobs.
inflation, 11.8% now with a peak of 12.74%, the dollar’s return is actually negative as of time of this writing).
Note: actual real estate has been up and quite bubbly in many places in the U.S., though the public market ETF shows negative returns. Likely because public markets are all down and it’s a publicly traded instrument.
Most assets have been punished since late 2021, as markets began to cool and rates started to reverse their 40-year downtrend.
relatively unknown (about $14T in 2016), and it was responsible for roughly 90% of international loans in 1997. So, one can assume that eurodollars are the center of most global financial activity when it comes to lending. This is abundantly clear when viewing the eurodollar futures chart below.
received higher interest on the dollars they lent out and also paid a higher level of interest to the rightful, but not actual, owner/holder of the dollars. Given the additional linkages, which lead to more layers of risk, it makes sense that higher interest rates are expected by investors.
These dollars, more or less, became a second derivative of the U.S. dollar.
Definitionally, “Eurodollar futures are interest-rate-based financial futures contracts specific to the Eurodollar, which is simply a U.S. dollar on deposit in commercial banks outside of the United States.”
“Several factors led eurodollars to overtake certificates of deposit (CDs) issued by U.S. banks as the primary private short-term money market instruments by the 1980s, including:
- The successive balance of payments deficits of the United States, causing a net outflow of dollars;
- Regulation Q, the U.S. Federal Reserve’s ceiling on interest payable on domestic deposits during the high inflation of the 1970s
- Eurodollar deposits were a cheaper source of funds because they were free of reserve requirements and deposit insurance assessments”