Great Innovation, Poor Investment
Gold as the ultimate store of value and therefore, to us, it doesn’t change in price. It’s like the sun at the center of a system of revolving currencies, stocks and commodities.
Wednesday, July 2
By Tom Dyson, Investment Director
Late last year, everyone was talking about “American Exceptionalism.”
The Economist magazine even put a picture of the SpaceX rocket made of dollar bills on the cover of its October 17, 2024 edition. I saw things differently… that if Trump won the election, his ideas would burst sentiment and cause foreign capital to flee the US. We began to anticipate a big decline in the dollar. I repeated this in these weekly updates...
“I’m now anticipating a new period of weak dollar, in terms of other currencies.” (The Bond/Gold Ratio, September 4, 2024)
“Now that the Fed is going to begin cutting interest rates, and the M2 Money Supply has started rising again, it’s time to assume we’re entering a weak period for the dollar.” (Five New Picks for the Official List, September 11, 2024)
“The US government in general, and new President Donald Trump in particular, need a weaker dollar and lower rates.” (The Next Big Boom, January 8, 2025)
“We’re at, or near, a once-every-generation turning point in the markets, where capital flows OUT of US assets… and maybe ALL assets.” (Storm Clouds, January 15, 2025)
This chart shows the annual performance of the Dollar Index, a basket of five European currencies plus the Japanese yen, for every year going back to 1972. Our instinct was right.
This year, the dollar has made an historic move lower against these other major currencies. It’s the second biggest first-half decline in the 53-year sample. Only 1973 saw a bigger decline in the first half. We’ll see how the rest of the year goes.
I don’t have a strong view about where the dollar goes over the remainder of the year. It’s already made a huge move lower. But longer term, the weak dollar trend has a long way to run as capital continues flowing away from the US.
On July 9 – next Wednesday – the 90-day tariff deadline expires. So unless something changes in the next seven days, Trump’s huge tariffs are coming back. Let’s watch the dollar and other US assets closely to see how they react.