Expect Continued Pressure on the Dollar

If you are a U.S. investor, the S&P 500 is up over 20% this year. Not bad all things considered. However, investors in other countries have often not fared as well because the gain from U.S. stocks was offset by the decline in the dollar. This table gives a sense of how that has worked out:

Source: Bespoke

All in all, U.S. stocks have still been good for foreign investors this year, with the exception of a few very strong currencies. On the other hand, those who have most of their wealth in those strong currencies are probably looking at our stocks, real estate and other assets as bargains.

What’s next for the dollar?

The big difficulty we face now is that the economy is weak and the Fed likes to have low interest rates to help the economy begin to grow again. Low interest rates are helpful to overall economic activity, but lower rates generally hurt the dollar. If we wanted to help out the weak dollar, the response would ideally be to raise interest rates. However, due to serious weakness in the economy, the Fed is hampered in its ability to respond to this situation and I believe it will opt to keep interest rates low for a year or so in order to promote economic growth.

You may hear various members of the Federal Reserve or politicians or pundits decrying the weak dollar. However, for decades, our government’s philosophy during recessions has been to publicly espouse a strong dollar while, at the same time, cutting interest rates to strengthen the economy and give unemployment a boost. This has traditionally been done despite the fact that lower interest rates generally lead to a weaker dollar. I don’t see anything in the cards that appears to have changed that policy. Therefore, I expect continued pressure on the dollar as the Fed seeks to get economic activity going again.

Comments

[Dave Wrixon:]

All will be well until somebody shouts FIRE and everyone starts trying to climb over each other to get to the exit.

Nov 10 05:57 AM

[User 353732:]

The Canadian, Australian, Brazilian and South African currencies are genuine stores of value despite bad governments because all 4 nations are net commodity exporters with vast endowments of real assets, esp., energy and mineral assets. Brazil will be an important oil exporter in 5 years and Canada and Australia have among the highest per capita endowments of real assets, including hydrocarbon assets, in the world(more than any Gulf oil producing nation).

The US dollar however, is a fake currency. It is no longer a credible store of value or an honest medium of exchange.
It is both a farce and a tragedy that the US Dollar keeps debased and dishonorable company with the Argentine Peso. Once the US Dollar becomes the US Peso , then even the Argentine false currency will look attractive to Americans......

The US Regime keeps spinning webs of money illusion ,successfully deceiving a majority of Americans that the rising stock market, in dollars, is a sign of rising wealth, even as investors lose purchasing power. The S&P 500 looks less sick than it did a year when measured against fool's gold. When measured against real gold, it continues to look anemic and enervated.

Nov 10 07:54 AM

[arkady:]

Damn straight, could not have said it better myself.


On Nov 10 07:54 AM User 353732 wrote:

> The Canadian, Australian, Brazilian and South African currencies
> are genuine stores of value despite bad governments because all 4
> nations are net commodity exporters with vast endowments of real
> assets, esp., energy and mineral assets. Brazil will be an important
> oil exporter in 5 years and Canada and Australia have among the highest
> per capita endowments of real assets, including hydrocarbon assets,
> in the world(more than any Gulf oil producing nation).
>
> The US dollar however, is a fake currency. It is no longer a credible
> store of value or an honest medium of exchange.
> It is both a farce and a tragedy that the US Dollar keeps debased
> and dishonorable company with the Argentine Peso. Once the US Dollar
> becomes the US Peso , then even the Argentine false currency will
> look attractive to Americans......
>
> The US Regime keeps spinning webs of money illusion ,successfully
> deceiving a majority of Americans that the rising stock market, in
> dollars, is a sign of rising wealth, even as investors lose purchasing
> power. The S&P 500 looks less sick than it did a year when measured
> against fool's gold. When measured against real gold, it continues
> to look anemic and enervated.

Nov 11 04:02 PM