Hello Everyone,
Please keep in mind I wrote this before the Coronavirus outbreak. It was on my mind, and the Theory has worked so far. Also, it goes without saying how horrific this has been for all of us. COVID-19 is the worst thing that has ever happened in recent memory. I want to give all my love and support to those affected by the pandemic. Your health and well-being are paramount. If anyone needs any support, I don't care what time of day it is. Please reach out to me, and I will assist.
Please take a moment of silence and consider how we can all help those in need
Now to the email:
I want to talk about something BIG! The Dollar!
Over the last six years, the Greenback (USD) has been on the warpath, leaving other global currencies in the dust. From 2014 to the present, the dollar has climbed aggressively in value against other currencies. A significant reason for this trend is the fiscal policies of other major central banks intentionally. Devaluing their respective currencies to support the direct cost of social programs. The most notorious example of this monetary barbarism is Europe. There have been many cycles of a firm dollar /weak dollar policy in the last 40 years. More importantly, there have been times of distinct correlation between the dollar and the price of gold and commodities.
The statement below is critical to understanding my Theory,
A strong dollar is better for the consumer, technology, and importers. A weak dollar is suitable for manufacturing (exports), emerging markets, and commodities (gold) but not for the consumer because a weak dollar buys less goods abroad. Remember, we import more than export - especially when it comes to consumer goods.
From 2001-14, we had a weak dollar policy. At times, there were fantastic investment opportunities in emerging markets and commodities, and inflation in the USA was very high.
Then, in 2014, a seesaw effect occurred. Europe's fiscal policies went farther off the reservation than a "Monty Python" movie. The new policies drove the Euro lower while the dollar climbed. A strong dollar and investor sentiment helped US stocks rise, especially in the technology and consumer. This market left ideas that flourished with a weak dollar in derelict-like commodities/emerging markets.
How does this pertain to market decisions in the present?
Based on historical research and looking at the USD and international currency trends since 1980, another seesaw may be on the horizon. Below are a few facts to support my Theory for commodities focusing on gold. The Euro: Dollar conversion ratio is almost equivalent to when the Euro was created in 1999 at the original conversion price of $1.18 (Today 2/25/20 $/Euro is 102.92)* if the US Dollar weakens, -meaning a strong Euro- gold would rise because of the relationship of gold to the dollar. Additionally, the ratio of technology stocks (the Nasdaq composite) to gold is as wide as 19 years ago in 2001. That's an enormous divergence. Tech is pricey; gold is undervalued based on this metric.
This is very important. Just because something appears cheap in historical relevance doesn't make it worth investing in. It would help if you had a couple of triggers to make the dollar drop and gold and commodities rise. One would be the Nasdaq changing its 10-plus-year bull market, causing investors to find other investment alternatives like gold. Another potential trigger would be the dollar dropping against the Euro either by a slowdown in the US economy or the Federal Reserve starting to print money again: Quantitative Easing. (The sentence above is in full effect. We have printed Trillions in stimulus 6/1/2020)
In full disclosure, please recognize these are complex arguments for a hypothetical. In addition, it may take months, if not years, for my Theory to play out. Please accept my Theory accordingly based on your risk profile and investment outlook. They are both very volatile investments and shouldn't be taken lightly. After all, I only have a mouse and a keyboard, and central banks who control the dollar, Euro, pound, yen, and renminbi have trillions and trillions to do as they please.
That’s it.
All my best
Christopher Lakian
Written before covid, January 2020
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