Payment Due: A Trifecta of Trouble for the Dollar

Andy Snyder|November 30, 2022

How low will it go?

The market’s calculus is changing by the day. The Fed is like a kid playing whack-a-mole at a seaside boardwalk, trying to slam down on yet another new variable as it pops up.

But the gamesters in charge of our money have been standing a bit too close to the punch bowl – and taking a nip or two when nobody’s looking.

Their reaction time is slow, and their aim is off.

It’s creating quite the show… with folks gathering around to see just how sloppy things will get.

The latest variable is the turnaround in the almighty dollar.

What a ride it’s been on. The race to the bottom is a thriller.

For much of the year, the greenback has gained strength, disappointing the logically minded, who were quick to point out the $5 trillion in new cash circling the drain.

With so much free cash in the economy, the dollar should not have soared. But it did. After all, it was safe… and it paid more than other currencies.

As we’ve seen, the dollar’s strength caused all sorts of complications in the market.

It sent stocks lower… stopped the bond market’s generational descent… rippled the crude market… and frustrated gold bugs.

But things have changed. Inflation in the U.S. has flatlined (at least for now), while it’s soaring overseas. A fresh competitor has entered the race to the bottom. Since October, the dollar has lost more than 6% when compared with its global peers.

That’s a lot.

It complicates the Fed’s choices greatly. A weaker dollar, of course, is worth less. When the dollar was strong, it took away some of the sting of surging prices. Our imports were cheaper.

Now the dollar buys less – meaning our global suppliers either get paid less or charge us more.

Either way, nobody wins.

The question now is how far will this trend take us.

It’s a huge question.

A Trifecta of Trouble

Is this the start of the dollar’s destruction, which so many logically minded folks have called for? Is Uncle Sam finally going to pay the monstrous bills he’s racked up?

With the artificial demand caused by a safe haven currency waning quickly, the dollar’s plunge could be mighty and sustained.

With inflation-burdened countries across the pond raising rates furiously, foreign assets will soon yield more – perhaps much more.

And with our enemies – military and economic – desperate for an alternative, it certainly looks like the mighty greenback has a trifecta of problems.

For the Fed, the drop in the dollar takes away an ally in the fight against inflation. It’s one more variable in an ever-expanding equation.

For investors, things get even more complicated.

Gold, of course, will shine. The weaker the dollar, the better the metal’s fortunes.

The stock market is also changing direction. Stocks are up, almost perfectly mirroring the fall in the dollar. But the reaction we’d expect to see in response to a falling dollar hasn’t arrived yet. Companies with big sales overseas should be getting discounted… but they haven’t been yet.

It’s a warning for the folks who played the giants as the greenback surged in value.

A turnaround is underway.

History shows this trend is likely to be much more sustained than the blip of strength we just saw.

It complicates things. But play it right, and there’s money to be made.

Get ready for an era of a weakening dollar.

America’s bills are coming due.