The Dollar is doomed.
In fact, while there might be some debate as to how it will happen, a “dollar crash is almost inevitable” according to Stephen Roach. Mr. Roach, the former Chairman of Morgan Stanley’s Asian operations and now a Yale University senior fellow, recently went public with his view in a Bloomberg News Op-Ed.
In it, he makes the following points:
- The U.S. Government deficit is likely to exceed $4 Trillion this year.
- The Dollar’s share of foreign currency reserves has been sliding for 20 years, down to a recent historic low of 60%.
- America’s savings rates and trade deficit are both at nightmare proportions, both from a historical and economical perspective.
To Roach, all this points to one conclusion…A 35% decline in value against rival currencies as a result of dwindling savings and deficits in response to the coronavirus.
The stressed U.S. economy already in recession (never good for a currency), and the government’s trillion-dollar response and being in the midst of the health crisis will only make things worse.
Your Bottom Line: There are few things more complicated than the value of global currencies: Especially the Dollar. Investors have traditionally looked up to the US and invested in the dollar and other “safe havens,” during global unrest which is bullish at least in the near term.
Looking ahead, the U.S. Dollar could turn out to be “The best house in a very bad neighborhood.” i.e. The Euro has never been a bastion of currency stability and few international investors trust China nor its currency fully. That said, investing abroad via stocks denominated in other currencies to take part in global growth in emerging markets might not be a bad move for investors nervous about the Dollar’s future.
Until Next Time,
The BLI Team