(Bloomberg) -- Political brinksmanship within the US debt ceiling debate may hurt markets and the ongoing tension undermines the dollar, according to Peter Tchir, head of macro strategy at Academy Securities.
“I think this time could be really different,” Tchir said Tuesday on Bloomberg Television’s The Open. “We’re seeing real friction at the political level and beyond and I think I want to play this by starting to avoid the dollar.”
Tchir says that the current economic backdrop is unlike the one seen in 2011, when a debt ceiling debacle triggered a downgrade by Standard & Poor’s of its US credit rating. Any congressional impasse now will collide with a Federal Reserve that’s aggressively tightening monetary policy to reduce inflation and intensify concerns for economic growth and financial assets.
“People aren’t going to trust the dollar if this happens,” Tchir said. “This time it’s much worse, much more dangerous and it feels like it’s more than just political posturing.”
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Tchir recommends “lightening up” on Treasuries as foreign buyers demand less dollar denominated assets.
“You’ve already seen now in Japan — you can actually get yields in Japan,” said Tchir. “So I think Japanese buyers who’ve been loving buying dollar denominated paper and asset-swapping it out to hedge out the FX risk, will stop doing that.”
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