King Dollar -- What It Means to Investors
By Mark Skousen
Editor, Forecasts & Strategies
Editor’s Note: Last January, we mentioned the two best performing currencies in 2014… the U.S. dollar and gold. Today, our good friend, Mark Skousen, takes a look at what’s behind king dollar’s strength. Mark is an economist, publisher, producer and author and his comments are worth reading.
Please note, at the very end of his article, Mark talks about his upcoming annual conference… Freedom Fest at Planet Hollywood, in Las Vegas, July 8th to 11th. Michael and I will both be there, along with Ryan Kirsch. Since the start, Michael and I have not missed this conference and we encourage you to attend so you can understand why we never intend to miss one in the future. By all means, it is worth the trip, if nothing else, than to hear my comments as part of the Alternative Investment panel.
This year, Michael and I also chose to sponsor several Students for Liberty so they can be exposed to the plethora of experienced speakers Mark has assembled. Whether you can attend or not, we encourage you to sponsor a handful of young adults from this excellent organization.
Steps to take:
Despite a record national debt, and never-ending methods of injecting liquidity (read inflation) and “quantitative easing” (more inflation), the U.S. dollar continues to reign supreme. Can it last?
The chart below demonstrates the strength of the dollar against a basket of currencies.
Why has the dollar rallied? Certainly, our national debt has only gotten bigger, and our economic growth rate has slowed.
One reason is that the Europeans, the Japanese and the Chinese are cutting interest rates, while the American central bankers are threatening to raise theirs. Moreover, while we will face serious economic problems in America, Europeans and some Asian countries are facing more serious challenges.
Thus the euro has fallen to $1.13, and the U.S. dollar has climbed to 124 yen.
On net balance, the U.S. economy has benefited from King Dollar. Granted, exports are now more expensive, which has hurt U.S. manufacturing, but the benefits overweigh the costs:
- Oil prices, quoted in dollars, have fallen sharply, offering cheap gasoline and energy prices in the U.S. Gold is also quoted in dollars.
- Imports are cheaper, a boon to consumers.
- A strong dollar is a sign of global confidence in the U.S. economy. It means foreign investors believe that the U.S. is a good place to invest in stocks and real estate for the foreseeable future.
- A strong dollar makes it a bargain for Americans to travel and buy products abroad.
Where are we headed next? Can the dollar rally last? It remains the world’s currency, but for how long? At the 50th anniversary of the Berkshire Hathaway shareholders meeting in Omaha last spring, Warren Buffett predicted that the dollar would remain the world’s currency for the next fifty years. While he may be right, it doesn’t mean that the buck will remain strong.
Eventually, the dollar will resume its slide, and that will be bullish for commodities like oil and gold. If the Fed keeps real interest rates negative (below the rate of inflation), gold should rise again.
Bull and Bear Debate at FreedomFest
Where are we headed next? Will the dollar and bonds continue to rally? Has the stock market topped out? Is the golden age of investing over? We will debate these topics at this year’s big show in Vegas. We have a full 3-day investment conference at FreedomFest. One of the highlights will be the Bull and Bear Debate: the two bears are Bert Dohmen (who predicted the 2008 crisis at FreedomFest and who anticipated the bottom in the market in March 2009 -- What is he predicting now?) and Peter Schiff (EuroPacific Capital), who predicted the 2009 crisis. The two bulls are Alex Green, editor of the Oxford Club, who has a great track record, and value investment manager Dennis Slothower (Alpine Capital). Only at FreedomFest!
FreedomFest Program Now Online!
Good news! The FreedomFest schedule is now online! Go to http://freedomfest.com/conference-schedule/. You will be amazed at the variety and number of speakers, panels and debates at this year’s big show — over 250 in total! If you haven’t been to FreedomFest, you are in for a treat. Sign up today at www.freedomfest.com, or call toll-free 1-855-850-FREE. Everyone who is anyone is coming! FreedomFest is not to be missed!
We have more than 1,500 people now coming… and our hotel room block at Planet Hollywood is almost full. I urge you to sign up now! Go to http://freedomfest.com/hotel/.