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There was considerable hand-wringing last year about the weakness in the US Dollar. The history in nominal US$, advanced and emerging markets reveal the US$ has strengthened since Putin and Xi gained control in their respective domains.
Volatility in the nominal US$ vs. advanced economies and emerging economies comes from investment and trade capital. Often enough, we see the 10yr treasury rate decline during periods of market stress, a sign of foreign capital seeking safety in 10y Treasuries.
We also see declines in the US$ as headlines stress emerging or advanced economies as investment favorites.
Most advisors see declines in the US$ as a threat to the US economy and domestic equity prices, and are quick to change strategies to catch the next rise in securities elsewhere.
But, in the longer term, this has not occurred. My interpretation, stated previously, is that currency levels are dependent on the degree of free speech and individual property protections a government provides its citizens.
The fewer the protections, the less valuable the currency as investors judge the risk of confiscatory government action. Capital goes where it is treated best. This has been the US historically and certainly remains so today.
There are huge quantities of capital sloshing about globally. Advisors are constantly praising their own expertise to gain capital for European, emerging and other markets to generate higher fees.
Market volatility in every security today is greatly exaggerated from markets past. The combination of placing favorable stories for one’s strategy and the ability to trade in and out daily in all relevant securities and derivatives makes thinking fundamentally and long term seem impossible.
But, in my opinion, this is not the reality. The long-term fundamentals lead one only to invest in the US as the safest environment for free speech and individual intellectual property.
We may seem off course periodically, but free speech and property rights are deeply embedded culturally. I see a strong emergence of this occurring currently, which will prove beneficial for investors over time.
The US is the only market investors should ever consider in my opinion. The US$ remains “King” because of its people.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
