Yesterday, we left you with some thoughts on the dollar.
We also shared some background and analysis from colleague Imre Gams.
It was all to do with a “dollar collapse.”
Or perhaps, you could argue, the fabled dollar collapse.
Because so far, it seems more imaginary than fact.
Of course, just because something hasn’t happened yet doesn’t mean it never will.
Today, we’ll take another look at the story to see what we can make of it all and how it will impact you.
The dollar’s next potential move may surprise you. But if you’re prepared and know how to position yourself… you could come out ahead.
First, let’s check in on today’s market action…
Market Data
The S&P 500 closed up 0.1% to end the day at 4,554.89… the Nasdaq gained 0.3% to close at 14,281.76.
For individual stocks, Microsoft closed up 1.1% to $382.70… Apple ended higher by 0.3% at $190.40… and Tesla ended the day at $246.72, a 4.5% gain.
In commodities, today’s prices and the gain or fall over yesterday, West Texas Intermediate crude oil trades at $76.41, up $1.41… gold is $2,042.10 per troy ounce, a $15.30 gain… and bitcoin is $38,131, up $1,136 from yesterday.
And now, back to our story…
Trading the Entire Market
One of the reasons we’re addressing this today is due to a conversation your editor had with Imre Gams last week.
If you’re unfamiliar with Imre’s work, just know that he has traded the market for the past 15 years. And when we say, “traded the market,” we mean the entire market.
He trades stocks, commodities, currencies, bitcoin, and other cryptos, the whole darn lot.
He does so profitably too. (That’s important to know!)
For instance, back in July, he thought Tesla (TSLA) looked “cheap” and was worth a speculative buy. Folks who made that trade had the chance to bank a 75% gain in two months.
On July 31, he warned the stock rally was likely coming to an end. He advised investors hold off from buying and perhaps even sell some stocks.
Specifically, he wrote:
Short-term traders, for example, could look to play the downside by buying puts. Long-term investors, however, could look to take profits or move up stops to protect any profitable positions.
He didn’t know it at that time, but that turned out to be the top of the market.
So, when Imre tells us something, we would be wise to pay attention to it.
That’s why, when he told us last week that we could be about to experience “a transfer of wealth unlike anything we’ve ever seen before,” well… we took notice.
But what is he talking about? And does this mean any collapse is imminent? That’s the thing. There are factors in play that could delay it.
Which makes the “dollar collapse” trade one of the most difficult ideas to profit from today.
That’s what makes understanding market timing so important.
We’ll come back to that in a moment…
Abolish the Central Bank
(What About the Government?)
From mid-2021 until late 2022, the dollar beat all expectations.
Against the euro, it went from around $1.20 to around 97 cents.
That means as an American, you could buy more euros with each dollar. That’s great if you traveled overseas, or if you imported goods from Europe.
Since late 2022, that trend has somewhat reversed.
That’s mostly in line with the market’s view around that time, that the Federal Reserve would stop raising interest rates.
The market proved to be a bit early. It’s something the Fed finally did in July this year.
Today, for each dollar, you can get around 1.09 euros. That’s about midway between the mid-2021 and late-2022 levels.
But so what? That hardly seems like a strong case for the collapse of the dollar.
If anything, you could argue it seems just fine… ordinary, in fact.
Plus, in the short term, some events may even cause the dollar to strengthen against other currencies.
For instance, the recent presidential election result in Argentina.
The newly elected president, Javier Gerardo Milei has vowed to abolish his country’s central bank. Considering what the bank has done to the value of the Argentine peso, that seems like a good idea.
(Although, Argentine governments have been equally to blame… an argument for abolishing the government too?)
In addition, Milei says that one way to deal with the worthless peso is for the country to abandon it and switch to using U.S. dollars instead.
You would think that would be bullish for the dollar. It would take the currency completely out of the hands of the Argentines. Again, given the history, perhaps not such a bad thing.
It would also, however, put the country at the mercy of the Fed.
Argentina would lose control of interest rate policy as the local banks would have to follow the lead of the Fed. That could lead to a different set of problems for Argentina, even if it meant significantly reducing their inflation problem.
That idea brings us to our next point.
Imre pointed out that in January this year, the World Economic Forum (Klaus Schwab’s pet project), released a report explaining there is $65 trillion in “unrecorded” U.S. dollar debt outside of the U.S.
This is debt denominated in U.S. dollars, that doesn’t circulate through U.S. banks. Which means the U.S. banking system doesn’t control or oversee it.
On its own, that’s not such a bad thing… until you consider that the debt is still affected by the actions of the Federal Reserve. If the Fed raises rates – like it did in 2022–2023, the interest payments on this debt increase.
And as we’ve seen, the Fed’s interest rate increases caused the dollar to rise, which naturally makes debt more expensive for foreign borrowers to repay.
That alone isn’t necessarily bullish for the dollar. But it does force foreign central banks to react… so that they also increase interest rates… to prevent their own currency from falling.
So what does all this mean?
Trading the Trend-Within-a-Trend
This is all part of what Imre describes as the “weaponization of the U.S. dollar by the Fed.”
It has forced other countries to start thinking about alternatives to the dollar as a global trading currency.
We’ve mentioned this before…
The Organization of Petroleum Exporting Countries (OPEC) has struck deals with China for non-dollar settlement of oil exports.
Russia and China have struck a similar deal.
And recently, the Association of Southeast Asian Nations (ASEAN) has revealed plans for settling international trade without using the dollar.
So, short term, the case for the dollar hasn’t looked so bad. As we mentioned at the top, the dollar has been strong for much of the past two years.
But the actual or perceived “weaponization” of the dollar by the Fed means the outlook may not be so strong. Especially, as Imre says:
In 2001, the dollar’s market share of major world currencies was 73%. This year, that same share sits at 47%. That’s the lowest level on record.
That means the dollar is losing its single biggest advantage: guaranteed – and virtually unlimited – demand.
And what happens when there’s less demand for a currency? There’s only one option. It loses value.
And with the recent reversal of the trend, it could be the bearish trend for the dollar has already begun. To the extent that Imre sees a 12% or more decrease in the dollar’s value relative to other currencies in the coming months.
That’s a big deal. It would put the dollar back to where it was in 2021 and could precipitate an even bigger fall… further calling into question the role of the dollar in the world.
Below is a chart of the U.S. Dollar Index (DXY).
It tracks the exchange value of the U.S dollar against a basket of six major trading partners’ currencies.
And as you can see, the past year has seen the dollar dip…
The problem as ever is how do you time this stuff?
It’s not easy to make short-term trades on long-term macro trends. Unless you’re very patient… or you’re able to find ways to play the smaller trends within the larger trend.
Fortunately, that second is Imre’s specialty. And right now, Imre says the market is setting up for one of these trend-within-a-trend moments.
Take that forecast 12% decline in the dollar’s value. On its own, that’s fine. But what if there was a way to clear 10, 20, or 50 times that return with a targeted trade?
And not over the course of a long-term macro trend… but during one of these trend-within-a-trend moments.
There’s little argument that the dollar is at a pivotal moment right now.
The good news is, there are relatively easy ways to play whatever happens next.
You can get more info on Imre’s best way to play this trend right here.
Unconnected Dots
Our main task at the Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, what their consequences are, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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A weaker dollar could mean stronger stocks. We’ve seen that play out in the past. And maybe it’s about to play out again.
According to Bloomberg:
Wall Street strategists abandoned their usual bullishness heading into 2023, only to get blindsided by a ferocious rally. Now, they’re going back to business as usual for the coming year: predicting another annual gain.
Strategists at Bank of America Corp., BMO Capital Markets, and Deutsche Bank AG are among those expecting that the S&P 500 Index will advance again next year, pushing it back over early 2022’s record high.
Also from Bloomberg:
Reeling from a bear market last year, beaten-up investors decided to send more than $60 billion to exchange-traded funds focusing on dividends.
Eleven months later, the trade is misfiring.
Rather than give shelter in a stormy season, the largest dividend ETFs have been left behind by a tech-obsessed market whose biggest proxies have surged 15% or more. At the bottom of the leaderboard is the $18 billion iShares Select Dividend ETF (ticker DVY), down 5.4% on a total return basis after all-in bets on utilities and financial stocks fizzled.
The bull market. Maybe it’s back. And maybe it’s back, better than ever.
We’ll keep you posted on what our Legacy Research experts have to say about that.
More Markets
Today’s top gaining ETFs…
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VanEck Gold Miners ETF +4.8%
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Amplify Transformational Data Sharing ETF +3.5%
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U.S. Global GO GOLD and Precious Metal Miners ETF +3.2%
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iShares MSCI Thailand ETF +1.8%
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Global X MSCI China Consumer Discretionary ETF +1.6%
Today’s top gaining ETFs…
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Invesco Dorsey Wright Healthcare Momentum ETF -2.2%
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Invesco Dorsey Wright Industrials Momentum ETF -1.9%
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Invesco S&P MidCap Momentum ETF -1.7%
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Invesco KBW Property & Casualty Insurance ETF -1.6%
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First Trust RBA American Industrial Renaissance ETF -1.6%
Mailbag
A big “thank you” to the readers who have been writing into the Daily Cut mailbag. Today, we’ll spotlight one reader’s success courtesy of recommendations from Legacy’s resident crypto expert, Teeka Tiwari.
We’ll also welcome back a repeat subscriber with a nod to the last time they wrote us…
First up, subscriber RM writes:
I am living proof that the gains Teeka claims are absolutely doable! I started with $50,000 investment in crypto, and my account reached over $3,000,000 – three million dollars!
We haven’t verified RM’s claim. But we have no reason to doubt it. It would mean a 5,900% gain on his initial capital.
That’s well within the boundaries of Teeka’s results.
We’re pleased to hear RM has done so well.
On to the next one…
The definition of insanity is doing the same thing over and over again and expecting a different outcome.
The same could apply to repeating the same mistake and perhaps hoping no one will notice.
Reader Greg H. writes:
Thanks for publishing my comment from yesterday. However, you made the same mistake again today when you said, ‘We’ve gotten nauseous from knowing whether to cheer or jeer the EV (electric vehicle) industry.’
At least, I hope that’s a mistake and that you really aren’t nauseous.😉
Happy Thanksgiving!
For background, check out the mailbag from the November 22 issue of the Daily Cut. Linked here.
We vow to never make the same mistake again.
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.
Cheers,
Kris Sayce
Editor, The Daily Cut