March 24, 2025
Time to Decouple from the Dollar
Dear Subscriber,
 |
| By Nilus Mattive |
President Trump promised to shake up Washington and put the United States first in terms of his foreign policy.
So far, that’s exactly what he’s been doing.
You can see it in his political appointments …
The various DOGE initiatives …
The array of tariffs and other executive orders …
And in the widely publicized Oval Office meeting with Ukrainian President Zelensky.
It doesn’t matter if you agree with the goals or the methods.
From an investment perspective, we should only look at the possible effects over several different time horizons.
In the short term, even President Trump himself has said his collective actions could cause some dislocations and pain.
It’s still difficult to determine what will happen over longer time horizons.
However, I can say with near certainty that the global landscape will look different than it does today — economically and geopolitically.
That makes this an opportune time to start hedging our bets on those things by getting some exposure to both international stocks and bonds.
This is especially true when you consider just how strong the U.S. dollar is at the moment.
Here’s a chart of the U.S. Dollar Index, which compares the greenback to a basket of important global currencies …
It’s pretty easy to see that the dollar has been enjoying substantial strength over the last several years.
Indeed, going back as far as the late 1980s, it’s only been stronger one other time — for a short period two decades ago.
Could it continue higher still?
Absolutely. Forty years ago, it was roughly 50% above current levels.
At the same time, even President Trump has been relatively ambiguous about where he wants the greenback to go next.
Sure, strength provides good support for the dollar’s status as the world’s reserve currency.
But as President Trump has pointed out repeatedly, a weaker dollar would also make U.S. exports more attractive and help correct current trade imbalances.
It’s worth noting that the last time the dollar was extremely elevated — back in the 1980s, right where my chart above begins — the U.S. ultimately reached an agreement with trading partners in Europe and Japan to make a coordinated effort to weaken the dollar.
That so-called “Plaza Accord,” which took place in September 1985, ended up being effective.
In fact, by 1987 it had weakened the dollar so much that a new “Louvre Accord” was put in place to reverse the effects.
Could President Trump be angling for something similar today — what a few people are already calling a “Mar-a-Lago Accord” — through either willing cooperation, forced cooperation or a combination of the two?
Definitely. It wouldn’t be easy, but it has a much bigger chance of happening than most pundits currently believe possible.
At the very least, it makes sense to consider the simple fact that nearly everything we own in the Safe Money Portfolio — outside of precious metals and crypto — are dollar-denominated assets.
Therefore, a little bit more currency diversification makes sense anyway.
The fact that we can also get additional geographic diversification at the same time is a bonus.
Get Exposure to Foreign Currencies
As I mentioned earlier, precious metals and cryptocurrencies both offer some dollar diversification.
But if you want to get direct exposure to foreign currencies, here’s what I recommend …
Trade some greenbacks for pesos, yen, rupees or whatever other foreign currencies you like.
If you’ve ever traveled abroad, you know exactly what that process looks like and how exchange rates fluctuate from day to day.
What you might not know is that there are various funds that can essentially do the same thing inside your regular brokerage account.
Invesco is the clear leader in the space. It offers various CurrencyShares ETFs that invest in a range of individual currencies, including the British pound, the Swiss franc and the Australian dollar.
The company also offers a lesser-known ETF called the Invesco DB U.S. Dollar Bearish Fund (UDN). As the name suggests, the fund is designed to go up when the greenback goes down.
In simple terms, it accomplishes that by shorting a U.S. dollar index.
Functionally, that’s the same as going long a basket of six major foreign currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
If you’re looking for a way to directly profit from a weakening dollar, this ETF is probably the best way to do that.
Its performance won’t blow you away. But it can help position you for this shift in currencies.
And given its sophisticated strategy, the fund’s annual expense ratio of 0.78 is quite reasonable.
Plus, it produces extra income by investing its collateral funds in U.S. government bonds.
Best wishes,
Nilus Mattive
P.S. Speaking of income, check your inbox tomorrow to see how my “60-Second Income” strategy helped my subscribers close 100% winners since August 2022. Stay tuned!
Tidak ada komentar:
Posting Komentar