18/06/2020
The strong Dollar era may be coming to an end...sooner than expected!
I've been perturbed by the rapidly changing global landscape coupled with a massive U.S. budget deficit, which will soon spark a dollar crash.
The U.S. economy has been afflicted with some significant macro imbalances for quite a few years, Firstly a very low domestic savings rate and a chronic current account deficit. Due to this the dollar is likely to fall sharply.
I feel there will be an approximately 30% drop in the Dollar against other major currencies.
Most of these problems are going from bad to worse as they blow out the fiscal deficit in the coming years. The U.S. Dollar Index is up by more than 1% over the past few weeks and is relatively flat so far this year. The U.S. national savings rate is most likely going to go deeper into negative territory than it has ever done for the U. S. or any leading economy in economic history. There are other forces are at play, too.
Deadly combination: At the same time, the U.S. is walking away from globalisation and is focussing on decoupling itself from the rest of the world. That’s a deadly combination.
The important question is whether will it happen quickly or gradually? Approximatelyover the next 1 year or 2, maybe more. However, a crash is almost inevitable, and it’s a grave risk which investors shouldn’t ignore.
There's a negative implication for U.S. financial assets. It points to the probability of higher inflation as they import more higher cost foreign goods from abroad, and that’s a negative for interest rates.
The crash could spark a stagflation crisis, when prices will rise sharply while economic growth will be muted.
Not even a leadership change in Washington would be able to change much, especially as lawmakers try to battle the economic impact from the Covid crisis with unprecedented stimulus measures. The Americans have never had to deal with anything remotely close to this disruption.
Nipun $anghavi
Benchmark Investment Managers
▶️Chartered Wealth Managers
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