This Insurance Pays You for Owning It

Profit Like an Expert From the Falling Value of the Dollar

All in all, we’ve lost another brick in the wall.

I feel certain that’s how Pink Floyd would rephrase the lyrics from 1979’s Another Brick in the Wall…if the song were recast as a protest anthem against the decline of the U.S. dollar, instead of a protest against corporal punishment in British boarding schools.

The lost brick is the latest downturn in the dollar.

Since peaking last fall, the U.S. Dollar Index, which tracks the greenback against a basket of major world currencies, has fallen nearly 9%. That’s a huge drop in such a short time for the world’s reserve currency. And here’s the thing…

“More decline is on the way.”

I put that last sentence in quotes because it’s exactly what I wrote to you back in December, when I sent you a dispatch explaining why the dollar had risen in 2022… why that rise was going to prove to be a sugar high… and why you should own permanent, non-dollar exposure in your portfolio. (Since then, the dollar has fallen 2% and was down as much as 4% before a brief rebound, which has since collapsed into an ongoing downtrend.)

Today, I return with an update… and, well, more decline is on the way.

Now, I get it. Things like the Dollar Index can feel abstract or disassociated from the joys and struggles of our everyday lives.

But here’s the thing: The falling dollar has huge consequences for your wealth. It will increase the prices you pay for a whole raft of products… and it will also create opportunities to profit, if you know where to look for them.

First, the costs…

In the near term, the falling value of the dollar will make the prices of everything America imports more expensive.

A weaker dollar means importers need to trade more dollars to get the same amount of goods. This takes a little while to work its way through the supply chain, but make no mistake, ultimately the increases will be passed on to the consumer (i.e. us)… which means higher prices… which means more inflation.

Now, the opportunities…

The opportunities for profit are more immediate, as in “right now.”

The only reason the dollar rose in 2022 was because the Federal Reserve was raising interest rates at a historically fast pace. That lured in lots of global investors who were selling out of other currencies to buy dollars and dollar-based assets.

It makes sense… if interest rates on the dollar are 4% and rates on the euro are 2%, then global investors will sell euros to buy dollars… which drives up the price of the dollar.

However, absent the Fed’s rate increase, the dollar had no real reason to rise. Indeed, for much of this century, the dollar has been in decline because global investors are increasingly worried about Uncle Sam’s vast and ever-growing mountain of debt.

Now, we’re headed back into a world where the dollar will increasingly weaken because the Fed has announced that, while inflation remains an issue, it will temper its rate-hike agenda.

We saw that in action this week.

The Fed raised rates by 0.25% (and even that small hike caused widespread concern over fears it would worsen the banking crisis). Meanwhile, over in the EU, the European Central Bank raised rates by 0.5%. And Norway just signaled an increase to 3.5% by this summer.

That changes the way investors see the dollar and dollar-denominated assets.

With fewer and less-aggressive rate hikes by the Fed, and with other countries raising rates by higher amounts to catch up to America, the dollar’s 2022 strength vanishes in 2023, which is why the buck is already down 9%.

That’s where our opportunity lies: In owning foreign-denominated assets as the dollar weakens this year and beyond.

When the dollar goes down, other currencies go up… like a see-saw. And that means the value of assets like foreign stocks—and the dividends they pay—go up in dollar terms. A win-win for those of us who own foreign stocks.

It’s one of the reasons I have recommended a few, select non-U.S. stocks to readers of my monthly Global Intelligence Letter . I want to help buffer your portfolio against a decline in the dollar, and to profit as that inevitable decline occurs.

By owning certain foreign stocks, your portfolio is no longer solely tied to a single banking and monetary system. It’s like a form of insurance, since you’ve diversified your country risk and your monetary risk, except that it pays you for owning it.

Plus, by collecting dividends in other currencies, you increase your returns because as the dollar declines, the value of the dividends you receive in euro, pound, yen, whatever will buy more dollars.

It’s a double-edged benefit for those of us who own foreign stocks.

Which helps explain why various foreign stocks in the Global Intel portfolio have been performing so nicely… like a Greek shipping company (up 15%), a French drugmaker (up 8%), or a Canadian supermarket chain (which has already returned 13% of our entry price solely in dividend gains since late summer 2021).

Either their share price is up in dollar terms because the dollar has weakened against that company’s home currency… or those foreign dividends they pay have been bringing us more and more dollars… or a combo of both.

The dollar is destined to decline over the rest of this year. The Federal Reserve’s actions—and the limitations it faces because of America’s mountain of debt—say that the dollar’s short-term strength has run its course.

Now, we’re back to the downtrend.

Best to prepare by building a wall of protection against a dollar decline.

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