Will Repatriation Of The Offshore Cash Hoard Lead To A Dollar Surge: Goldman's Take On A Second Homeland Investment Act

With Goldman's economic team having been subsumed by the Koolaid borg, lately we have been largely ignoring their once must read critical pieces, as the all out onslaught to prevent the ponzi collapse was started in November (we expect Hatzius to pull another 180 in April, just ahead of the May market crash which will lead right into QE 2+, but that is another story). This is a shame, because the team of Hatzius et al used to have insightful things to say. Alas, now all they do is cheerlead every single data point no matter how superficial or ugly the behind the headlines story is. Which is why we were pleasantly surprised to read the following research report by Goldman's Robin Brooks which discussed the consequence of the now seemingly inevitable tax holiday allowing multinationals to repatriate their cash without paying taxes. Following Obama's latest Wall Street corporatocratic hiring spree, we are now convinced that it is merely a matter of months if not weeks before this is announced. As such it will be a replay of the Homeland Investment Act of 2005. Oddly, this event has not be actively priced by the market. Goldman is correct that in all likelihood this will have a very dollar positive result, which likely explains precisely why the dollar has been allowed to drop so much against the euro, as the next leg will likely push the greenback well into the 1.20 range, if not lower. That this will happen just as the second round of European stress tests will only feed the flames of the EUR's collapse. The below piece examines Goldman's thinking of how this event will influence the EURUSD. Goldman, which is very client bullish on the EURUSD (and is therefore selling selling EURs in droves) states that it believes the likelihood of a HIA part 2 is very small, even as it frames the major strength the dollar would experience as a result. We agree with the latter and disagree with the former: one way or another, the Obama administration will need to get the $1+ trillion currently offshore. When that happens, watch as the EURUSD plunges to multi-year lows. (more)