Original title: What Happens When The Bet Against America Fails?
Original author: @themarketradar
Original translation by Peggy, BlockBeats
Editor's Note: At a time when "de-Americanization" and "de-dollarization" have become almost a market consensus, this article attempts to remind readers that the real risk often lies not in whether the judgment is correct, but in whether everyone is on the same side. From the concentrated crowding in emerging markets and the speculative rise in precious metals to the high degree of consensus on the narrative of a weakening dollar, the market is replaying a familiar script.
The article does not deny the possibility of long-term structural changes in the world, but it shifts its focus back to a more realistic cyclical level: once the dollar stops weakening, when monetary discipline re-enters pricing, and the US economy does not stall as significantly as expected, those trades built entirely on a "single tailwind" could collapse much faster than anticipated. As we learned in 2017-2018, when consensus is too uniform, reversals often come quickly and drastically.
Within this framework, this article proposes a contrarian but serious assertion: what may be being overlooked is precisely the US asset class itself. This is not because the narrative is overly optimistic, but because when crowded transactions recede, capital often returns to the most liquid and structurally stable areas.
The following is the original text:
Currently, an almost irresistible narrative is circulating in the market: the dollar is being diluted; emerging markets are finally enjoying their moment in the spotlight; central banks are selling off US Treasury bonds and increasing their gold reserves; and capital is shifting from US assets to "the rest of the world." You could call it "de-Americanization," "de-dollarization," or "the end of American exceptionalism." Regardless of the label used, this assessment has reached a high degree of consensus.
That is precisely why it is so dangerous.
Last Friday's market performance perfectly illustrated what happens when highly crowded trades encounter unexpected catalysts. Gold plummeted more than 12% in a single day; silver suffered its worst day since 1980, falling by more than 30%. The entire precious metals sector saw a market capitalization fluctuation of up to $10 trillion in a single trading day. At the same time, the US dollar strengthened sharply, and emerging markets experienced a significant pullback.
On the surface, all of this was triggered by Kevin Warsh's nomination as Chairman of the Federal Reserve; but the real key is not a single personnel appointment, but a position structure that has gone to extremes and is waiting for any excuse to "close out and pull back".
We do not believe the world is abandoning the United States. Our assessment is that the "de-Americanization" trade has become one of the most crowded macro bets in 2026, and it is on the verge of reversal.
In this analysis, we will systematically dissect the deep macroeconomic mechanisms that support this view, explaining not only what we expect to happen, but more importantly, why.
Consensus Positions
Let's take a look at how "one-sided" this deal has become now.
In 2025, emerging market assets are projected to return 34%, marking the best annual performance since 2017. More notably, during the first sustained "emerging market outperformance" in over a decade, the EEM outperformed the S&P 500 by more than 20%.
Fund managers and strategists are almost unanimously in agreement. JPMorgan Chase says emerging markets have "never been more attractive in 15 years"; Goldman Sachs predicts that emerging markets still have 16% upside potential by 2026; and Bank of America even declares that "those who are bearish on emerging markets are extinct."
In 2025, emerging market securities will see the largest influx of capital since 2009.
Meanwhile, the dollar recorded its most dramatic annual decline in eight years. Gold doubled in price within 12 months, and silver nearly quadrupled. A bet known as the "devaluation trade" quickly gained traction, its core logic being that the US is marginalizing itself by constantly printing money. This narrative became widespread among hedge funds, family offices, and even retail investors.
US Treasury bonds are also under pressure. China's holdings of US Treasury bonds fell to $689 billion in October, the lowest level since 2008, down 47% from the peak of $1.32 trillion in 2013. Central banks around the world have been increasing their gold reserves for three consecutive years at a rate of more than 1,000 tons per year, clearly expressing their need for diversification of dollar reserves. The narrative of "selling America" has now fully taken shape.
But all of this is about to change. The only remaining question is what will trigger this reversal.
Reasons for the stability of the US dollar
The core premise of "de-Americanization" is the continued weakening of the US dollar. However, the decline of the US dollar in 2025 is not due to a structural collapse, but rather driven by a series of specific policy shocks, the effects of which have been largely absorbed by the market.
The primary catalyst was the so-called "Liberation Day." When the Trump administration announced massive retaliatory tariffs in April, the market quickly panicked, and the "sell America" trade did seem reasonable at the time: if the world couldn't trade smoothly with the United States, why would it need so many dollars and US Treasury bonds?
However, the impact of tariffs has been gradually absorbed. A series of trade agreements have provided a stable anchor for the market; the Xi-Trump meeting in October released clear signs of easing; and the agreement reached with India reduced Trump's previous 25% tariff to 18%. The lower the tariffs, the stronger the fundamental support for the US dollar. The market is recalibrating expectations, and the focus is returning to fundamentals—and at the fundamental level, the US dollar still has a key advantage.
Interest rate differentials still favor the US dollar.
Despite the Federal Reserve's cumulative interest rate cuts of 175 basis points since September 2024, US interest rates remain structurally higher than those of all other developed economies. The current federal funds rate range is 3.50%–3.75%; the European Central Bank's rate is 2% and has signaled the end of its rate-cutting cycle; the Bank of Japan recently raised its rate to 0.75%, and even by the end of 2026, it may only rise to 1.25%; while the Swiss National Bank remains at 0%.
This means that U.S. Treasuries still offer a significant yield premium relative to German, Japanese, and British bonds, as well as virtually all other sovereign bond markets. This yield spread continues to generate demand for the dollar through carry trades and international asset allocation.
It is projected that the Federal Reserve will complete all interest rate cuts in this easing cycle by March 2026; and most other G10 central banks will also be nearing the end of their respective rate-cutting cycles. When interest rate differentials cease to narrow, the core force driving the dollar's weakness will also disappear.
For the dollar to continue to fall, capital must have somewhere to go. The problem is that all alternatives have inherent structural flaws that are difficult to avoid.
Europe is mired in a structural crisis: Germany is trying to prop up growth through fiscal stimulus, while France is sinking deeper into unsustainable fiscal deficits; the European Central Bank has very limited policy space to spare should the economic environment deteriorate again.
Japan's policy mix is also struggling to support a stronger yen. The Bank of Japan is proceeding with policy normalization at an extremely slow pace, while the government is simultaneously pursuing reflation-oriented policies. The yield on 10-year Japanese government bonds has just risen to 2.27%, a new high since 1999. According to Capital Economics, about 2 percentage points of this come from inflation compensation, reflecting price pressures in the Japanese economy during reflation. Japan's inflation rate has been above the Bank of Japan's 2% target for 44 consecutive months. This is not a signal of a stronger yen, but rather a market demand for higher yields to compensate for persistent inflationary risks.
Let's look at gold again. In this macroeconomic environment, it is undoubtedly one of the best-performing assets. However, last Friday's performance exposed its vulnerability. When gold plummeted by more than 15% and silver fell by 30% in a single day after a personnel nomination announcement, this was no longer the normal behavior of safe-haven assets, but rather highly crowded trading, packaged as a safe-haven commodity.
The US dollar may not be perfect, but as the old saying goes, "In a blind man's land, the one-eyed man reigns supreme." Capital fleeing the dollar has no truly attractive destination on a large scale. Gold and other metals once acted as a "pressure relief valve," but we believe this phase is coming to an end.
Kevin Warsh's nomination as Federal Reserve Chairman signals a potential shift in monetary policy stance. Widely regarded as the most hawkish candidate, he has publicly criticized quantitative easing, advocated balance sheet discipline, and prioritized inflation control. Whether Warsh ultimately implements a hawkish policy is not the key point. What truly matters is that the market's one-sided bet on a "long-term weakening dollar" has been directly challenged for the first time. Warsh's emergence makes "monetary discipline" a real threat again, something the market had already priced in "permanent easing." This is precisely the change that the highly crowded "devaluation trade" least wants to see.
But here's a crucial detail. No Federal Reserve chairman, not even Warsh, would sacrifice trillions of dollars in stock market value to push inflation down from 2.3% or 2.5% to 1.8%. If inflation is only slightly above target, no policymaker wants to be the one to "push the S&P 500 down 30%." They're more likely to wait for inflation to fall back naturally than to intervene. The mere threat of hawks is enough to disrupt the devaluation trade; real policy doesn't need to be ruthless.
The US dollar doesn't need to surge; it just needs to stop falling. Once the core tailwinds supporting emerging markets' outperformance and the surge in metal assets disappear, these trades will reverse.
Why the US economy remains resilient
Another premise of the "de-Americanization" narrative is the weakening of the US economy. However, the structural foundation of the US economy is far more solid than this narrative portrays.
Our growth index illustrates this point well. Admittedly, growth momentum slowed somewhat in the fourth quarter of 2025. The index fell below the momentum line in mid-October, briefly turning bearish, which fueled the "de-Americanization" narrative. However, growth did not accelerate its decline or collapse, but rather stabilized. By early January, the index had climbed back above the momentum line, briefly turning bullish, before falling back to its current neutral range.
The US economy absorbed the impact of "Liberation Day" tariffs and endured higher interest rates, yet it continued to move forward. Fourth-quarter growth did slow, and it certainly had the potential to "collapse"—but it didn't. The failure to accelerate into a bear market is a signal in itself. We believe that after months of sideways trading, a "reverse correction" is approaching.
Real GDP continues to grow significantly above the target level; unemployment claims have not risen significantly; real non-farm output continues to rise, and productivity has resumed expansion after contracting throughout 2024; household consumption alone contributed 2.3 percentage points to growth. This is not an economy on the verge of losing its competitive advantage.
The fiscal dimension, overlooked by most analyses, is firmly on the side of the United States. The US fiscal deficit exceeds 6% of GDP, and the One Big Beautiful Bill Act is projected to release an additional $350 billion in fiscal stimulus by the second half of 2026. In contrast, European fiscal rules limit stimulus even during a downturn, and Japan's fiscal margin has long been exhausted. Only the United States has both the willingness and the ability to continue increasing spending even as its economy weakens.
Why were positions forced to close out in such a drastic manner?
The intense crowding in the "de-Americanization" trade creates a vulnerability that transcends fundamentals. When everyone is on the same side of the ship, even the slightest shift in direction can trigger a chain reaction of liquidation. Last Friday's performance of gold and silver was a textbook example of this mechanism.
When news of Warsh's nomination broke, it directly impacted the market consensus—that the Federal Reserve would maintain its accommodative stance for an extended period and the dollar would continue to weaken. However, the subsequent price action was not a calm reassessment of fundamentals by investors, but rather a brutal mechanical reaction as position structures began to collapse.
This situation has been playing out across the entire metals sector. Looking back over the past few months, a key divergence emerges: copper prices have fallen, while gold and silver have risen steadily. This is crucial. Copper has significantly more industrial applications. If this round of metal price increases were truly driven by fundamentals—such as demand from AI data centers and renewable energy construction—copper should have been leading the gains. However, the reality is quite the opposite: copper has lagged behind, while "monetary metals" have surged. This indicates that the market is not driven by fundamentals, but by speculative capital. And speculative trading, once reversed, often results in the most severe declines.
The "de-Americanization" trade is inherently reflexive. It's self-reinforcing: a weaker dollar makes dollar-denominated emerging market assets more attractive; capital inflows into emerging markets push up their currencies; stronger emerging market currencies further depress the dollar. This virtuous cycle appears to be fundamentals "validating" the narrative, but in reality, it's just one position constantly generating more positions. But reflexivity is always bidirectional. Once the dollar stabilizes for any reason, the cycle reverses: the attractiveness of emerging market assets declines, triggering capital outflows, suppressing emerging market currencies, which in turn strengthens the dollar. At this point, the so-called "virtuous cycle" quickly evolves into a vicious spiral.
The script of "Trump 1.0"
We've already seen this movie once, and we know how it ends.
Let's rewind to 2017. The US dollar plummeted, recording its worst annual performance in 14 years, with a drop of approximately 10%. Emerging markets became the biggest beneficiaries of this dollar weakness, rising 38% for the year, their best performance since 2013. Emerging market currencies generally appreciated against the dollar. Analysts were talking about a "Goldilocks" environment—everything was perfectly positioned for overseas assets. Jeffrey Gundlach publicly called for emerging markets to continue outperforming. By January 2018, market consensus had reached a high degree, even to a point that should have been alarming: emerging markets represented a once-in-a-decade trading opportunity.
Subsequently, the dollar bottomed out.
What followed was a dramatic reversal. The Federal Reserve tightened its policy, and the shock quickly spread to fragile emerging market economies. The Turkish lira collapsed, and the Argentine peso suffered its biggest single-day drop in three years. By August 2018, the EEM had fallen to $41.13, almost erasing all of its 2017 gains in just a few months. The so-called "generational opportunity" ultimately became a generational trap for those who followed.
Now let's look at the present. In 2025, when did the US dollar experience its biggest annual drop since 2017? By what amount? Also around 10%. Emerging markets rose 34%, almost identical to their 2017 performance. Analysts declared "emerging market shorts are extinct"; Bank of America proclaimed "the next bull market has begun." This highly consistent consensus should now seem familiar.
The power structure is the same, the position structure is the same, and the narrative is the same.
Even the ruling government is the one that watched helplessly as all of this crumbled back then.
This is a recurring pattern within the same political context: the same volatility triggered by tariffs, the same consensus-driven euphoria—and this is exactly what we are witnessing today. The end of the 2017–2018 cycle was not due to the collapse of emerging market fundamentals, nor was it due to an economic recession; it ended for only one reason: the dollar stopped falling, and that was enough. When the core tailwind disappeared, the positions built upon it crumbled at an alarming rate.
We don't predict a mechanical replication. Markets never perfectly repeat themselves. But when conditions are so highly consistent, history provides a valuable a priori explanation: the same trades, the same consensus, the same governments. The burden of proof has shifted. Those who continue to bet on the long-term superiority of emerging markets need to explain why this time will be different. Because last time, under almost identical circumstances, the reversal was swift, and the losses were real.
The undervalued deal
One point that the "de-Americanization" camp continues to ignore is that the S&P 500 is essentially a representative of global growth.
The global economy largely operates on the foundation of US-listed companies. For overseas pension fund managers or hedge fund managers, making a clear decision—to systematically exclude US stocks—is almost tantamount to declaring they don't want to hold a significant portion of the global economy. To consistently win on such a bet would require a dramatic and profound transformation of the global economic structure, which, at present, is unrealistic.
There is no large-scale "foreign version of Google," no "foreign version of Meta," and no overseas competitor that can rival Apple. The sheer dominance of American technology is a fact that advocates of "de-Americanization" are more willing to avoid.
Looking at the current market structure: Oracle has fallen about 50% from its high; Microsoft is performing poorly; and Amazon has barely moved. These giants have been almost entirely absent from this rebound, yet the Nasdaq continues to raise its lows. What does this mean? It means that the index has remained at a high level for quite some time without the participation of these mega-cap companies. Now imagine this: if Oracle finds its bottom, and if Microsoft starts to attract buying, even if these companies rebound by 20%–50%, they may still be in a bear market trend; but once they start moving, where do you think the index will go?
The real contrarian move is actually in US stocks. Everyone is watching the dollar's decline, fearing the era of US assets is coming to an end; but the Nasdaq is quietly preparing for a "catch-up" rally. The AI theme that pushed the index to record highs last year briefly cooled down: concerns about capital expenditure emerged, expectations were overvalued, and AI growth seemed difficult to realize. The market didn't crash, but instead corrected itself through months of sideways trading.
Expectations have now fallen back to a more realistic level. As long as growth can break upwards and AI expectations truly translate into cash flow, the market is likely to rise again. The metals theme may be fading; once that wave subsides, a new theme will emerge—US stocks, which are currently undervalued.
What form will the reversal take?
If the "de-Americanization" deals begin to unwind, their impact will be transmitted across various asset classes in a predictable manner:
Emerging market equities underperformed: A stronger dollar structurally suppressed dollar-denominated returns; the reflexivity cycle reversed, and capital flows reversed; the narrative of "generational opportunity" faded, and investors recalled why they had long underweighted emerging markets.
Metals are experiencing further pullback: Last Friday was not an isolated day, but rather the beginning of a larger repricing. The previous rally was driven not by fundamentals, but by speculation; and when speculative trading reverses, the fall is often the most severe. Gold and silver are the purest expressions of the "devaluation theory"; if this argument is losing momentum, metals still have considerable downside potential.
The US stock market has re-established its leadership: regardless of discussions about "rotation," the US market still boasts the highest quality companies, the deepest liquidity, and the most transparent governance. If the dollar stabilizes and growth continues, capital will return to where it has always been most comfortable.
Timing and Catalysis
We are not calling for an immediate collapse of emerging markets or a sharp rise in the US dollar. Our assessment is more nuanced: "de-Americanization" has become a crowded trade with asymmetrical downside risks; and last Friday, the narrative began to show clear cracks for the first time.
The timing depends on several key factors:
The most important factor is the price action of the US dollar: the DXY needs to first rise above the 97.50 mid-VAMP level and then break through the 99 momentum level to confirm a reversal. Until then, regardless of the fundamentals, the US dollar remains in a technical downtrend.
Fed communication shapes expectations: If Warsh's confirmation process reinforces hawkish expectations, dollar buying will increase.
Growth data can alter sentiment: Any unexpected upward movement in U.S. GDP, productivity, or employment will directly challenge the narrative of "American decline."
Our system currently shows a risk-on dynamic in an inflationary environment, but with neutral growth strength. We are on the borderline between "slowdown" and "risk-on": inflationary momentum is strong, while growth has not yet firmly shifted to a bullish position. The structure is fragile enough that a return to "slowdown" or even "risk-off" is not far off. We will let institutional signals guide our positions; however, the macroeconomic backdrop is increasingly favorable for US assets, rather than those already highly crowded alternatives.
Why this is important
The danger of consensus trading lies not in the fact that it is necessarily wrong, but in its overcrowding. When the narrative breaks down, crowded trades are often unloaded in the most drastic way.
From a decades-long perspective, "de-Americanization" may ultimately prove to be the right thing to do; the long arc of history may indeed deviate from US dominance. But in the next 6–12 months, we believe the risk-reward ratio has reversed.
Everyone was positioning themselves for a weaker dollar, outperforming emerging markets, and a dumping of US Treasuries. Last Friday showed what happens when this positioning is hit by an unexpected shock. We don't think it was a fluke; we think it was a warning.
The world hasn't left America. It's preparing to remember why it was there in the first place.
